Australia politics live: ‘we have forgotten’ how corrosive inflation can be on wages and savings, Lowe says in defence of rate rises

Key events

Filters BETA

Key events (16)Philip Lowe (46)RBA (32)Senate (22)Australia (19)Labor Party (18)

And that is it – the RBA governor’s time in front of today’s committee has come to an end.

He will be back on Friday to answer more questions, which I am sure he is just thrilled about.

Does the RBA have plans to increase communication with ordinary Australians?

Labor senator Deb O’Neill then gets the last few minutes – Labor senators have not asked questions for the most part because of the independence between the bank and government, which is why there are no ministers in the room (during senate estimates, there is usually a minister or a minister representing the minister at the table, who can direct traffic or pick up political questions).

O’Neill:

Senator McKim asked you about the sources of information that you have and there’s been implications about an imbalance in that. My request is how closely are you listening to people? You mentioned people, livelihoods, jobs and businesses and the economy as core concerns for you, you and the board – you making your decisions. You also mentioned letters that are arriving. What comfort can Australians take from your assurances here today that you really do listen and understand what’s happening to ordinary people whose job it is for tows represent whether in the government, in the opposition or on the crossbench?

Philip Lowe:

Ultimately, all our policies are to help people. That’s what the Reserve Bank is about. To help people. We want people to have jobs. We want their savings protected. We want them to face low rates of inflation. That can sometimes seem abstract but it’s all about people, having people with good jobs, rising real wages, keeping their savings safe. That’s what we talk about every single board meeting. We have to make complex decisions and we rely on a range of information, data, what we’re hearing from businesses, but also what we’re hearing from the community sector.

It’s all about people. I’m glad you asked the question because that’s what we do. We’re here to help people, keep their savings safe, low inflation, get them jobs.

O’Neill:

You’ve talked a little bit about the understand about inflation and its impact and we have a generational divide of people who might understand that and people who might not. You’ve also mentioned Acoss, the financial council, who talk to people all the time, who speak to people who need advice. You also mentioned your diary. How actively at this point of time, given the concern amongst the community and the raising awareness about the importance of managing inflation, how actively are you seeking to understand in addition to the letter-writers, what is going on for ordinary Australians? Have you changed your practice. Do you have any proposals to increase that communication with people out on the ground, so to speak?

Lowe:

Again, the Reserve Bank is not just me. The frustration I have is we have a fantastic team and they’re out there.

We’ve got a community and business liaison team and their job is to talk to business and community representatives and they share with me what they’re hearing and then sometimes they’ll have the opportunity to directly engage with the community sector as well. And I welcome opportunities to do that and I’ve been to the financial council service in Surry Hills.

You and I went there together. We heard harrowing stories. When I’ve been in Perth, I’ve visited a few community groups. I’ve got an appetite to do it. I’ve got a busy diary but, you know, where I can, I can do it. But the Reserve Bank is more than just me.

O’Neill:

I think that’s become very clear in the course of today.

Updated at 21.05 EST

‘I don’t think we’re at the peak yet’: RBA governor on interest rates

On the cash rate, and high it will go, Philip Lowe says:

We’ve got an open mind.

I don’t think we’re at the peak yet but how far we have to go up I don’t know.

It will depend upon inflation data, resilience, spending, and what’s happening with wages.

I don’t think we’re at the peak yet but how far they need to go, we’re still unsure.

Updated at 21.29 EST

What do the treasurer and RBA governor talk about if not interest rates?

Liberal senator Andrew Bragg then uses one of his last questions to ask what the treasurer and RBA governor talk about, if not interest rates.

Lowe:

We talk about the economy. There are other issues the Reserve Bank deals with. There are payment system issues, as you know. We’re the government’s banker. We print the banknotes. We didn’t talk about that today, the decision to change the $5 note. There are a lot of reasons for us to talk. We’re both going to India next week to the G20 meeting so I’ll spend a lot of time with the treasurer this week and that’s always been the case with treasurers.

Bragg: I want to check that point with you. So you don’t talk to the treasurer about interest rates but the treasury secretary sits on the board of the bank. Is that how that communication occurs?

Lowe:

I don’t know what takes place between the treasury secretary and the treasurer but the treasury secretary sits on the board in his own right and I don’t know what he says to the treasurer after the board meeting but I do not speak to the treasurer between the board meeting and the announcement. And that’s always been the way. There’s nothing unusual here. This is just the way the system is operated.

Updated at 20.57 EST

Philip Lowe on ‘safeguard mechanism’ that allows government to overrule RBA

Jane Hume then seemingly discovers that there is a clause in the RBA Act which allows the government to overrule the RBA’s decisions:

Did you realise that if the treasurer doesn’t agree with your policy position that, after a certain amount of to-ing and fro-ing with the board and swapping of papers, that he can submit a recommendation to the governor general and then the governor general, acting with the advice of the Federal Executive Council determine the policy adopted by the bank. The treasurer can override the Reserve Bank’s policy?

Philip Lowe:

That’s been the case since 1959. That position has never been used and in my view it would be a retrograde step to use it.

It’s a set up so Hume can land the punch line “let’s hope we don’t see Stephen Jones marching up to Admiralty House anytime soon!”

Lowe makes sure to bring it back to seriousland though:

Ultimately the government can overrule the central bank. It would be unwise to do it unless we went crazy. I view it as a safeguard mechanism. It’s never been used and let’s hope it never will be.

Updated at 20.51 EST

How do people view and use their savings?

Jane Hume gets another five minutes:

Q: You’ve spoken in the past about the buffers in people’s household budgets or their mortgages more importantly. Can you talk me through how that has played out or how it’s playing out in what you’re seeing? In your decision-making, what it is that households have in their savings or mortgages?

Philip Lowe:

It’s a critical issue because the pool of excess savings in Australia is as large as anywhere in the world, the pool that was built up during the pandemic. It’s more than 20% of one year’s household disposable income.

There’s a huge pool of excess savings. It’s not evenly distributed across the population. Lower-income people, obviously, haven’t got the same savings as higher-income people.

And one of the analytical issues we’re grappling with here is how do people view these savings? Do they see them as just an increment to their wealth that they can spend over coming years?

Do they view it as a piggy bank that they can go and use over the next little while? So we don’t know the answer to that and it’s one reason we’re watching the spending data very, very carefully.

We’ve spoken to the banks about the people with fixed-rate loans. Some of these people have a split loan with a fixed-rate and variable-rate component and have an offset account against the variable-rate component and they’ve built up substantial buffers in those and other people who just have a fix rate loan have a deposit account where they’ve built up substantial buffers. Banks tell us that people with fixed-rate loans, most of them, have been pretty cautious. They knew interest rates weren’t going to stay low forever.

They’ve taken a low interest rates for two, three or four years as a bonus and saved some. That’s good.

Not everyone is in that case, though. Some people have taken the lower interest and it’s to allow them to spend more and those people are going to face a lot more difficulty when interest rates go up by 3%.

Repayments have to go up by three percentage points. So it’s a huge diversity across the population that the banks tell us they’re work being their customers. They’re contacting them in advance and a large number of people in fixed-rate loans have built up substantial buffers.

Q: Do you get data about mortgage stress?

Lowe:

We do. We get frequent data on the share of the population that’s behind on its mortgage. It’s almost a record low. We also get data on the share that’s behind 30 days. That’s ticked up a bit but it’s still low and the banks say people are still paying their mortgages. This increase in interest rates, while it’s come quickly, people can see it coming and they’re adjusting their behaviour. I want to acknowledge it’s really, really hard for some people. Some people are going to find a very big increase in their mortgage payments. Other people are better prepared.

Updated at 21.16 EST

Questioning of RBA governor continues

Here is how Malcolm Roberts’ questions are going:

So inflation has gone from not a problem to a 30-year high, 7.8% in the December quarter. On 2 February 2022, Dr Lowe, you said inflation had surprised on the upside and in March ‘22, you predicted inflation would peak at 4.2%. That was at the ABA Australian banking association conference that we both attended. Why were you surprised, Dr Lowe, when many, including myself, had spent 2020 and 2021 warning the Reserve Bank and the government, including its own investments, that sheer volume of the money would eventually cause significant inflation.

(Must be hard being the Cassandra of the parliament, fated to never to be listened to.)

Philip Lowe is unfailing polite:

Certainly people – and you were one of those people who were making the argument that money supply expansion was going to be inflationary – and that has played a role, but as we were talking about before, at least half and maybe three-quarters of the increase in inflation is due to what went on in Europe and the supply side disruptions.

The expansion of money supply, low interest rates and government support during the pandemic has driven inflation, but it’s not the full story.

Roberts: Is 7.8% inflation the price the public is paying for the Reserve Bank supporting the Government’s wasteful, mismanagement of Covid using lockdowns and other restrictions, leading to jobseeker, jobkeeper, mismanagement that the government caused wishes is what necessitated the money creation? Did you even consider saying to the government, no, I’m not going to print this massive amount of money? So perhaps reconsider your Covid strategy?

Lowe seems to get a bit exasperated here:

No, we did not do this – and I want to be clear about this – we did not do money creation on the request of the government. The nine people who sit on the board of the Reserve Bank decided to do this and we had meetings with the government…

Roberts:

Understood, but was it because the government had put in place so many onerous restrictions.

Lowe:

No. It was because – and it’s easy to forget this now – in early 30 we were being told by the health people that tens of thousands of Australians would be dead within months. Remember? There were preparations for temporary morgues in our cities. Our borders were closed. We were told the vaccine was maybe three years, maybe longer away. So this was going to be something that would take the society a long time to get over. That’s what we were being told.

…We saw what was going on in New York and Italy. It was really, really terrible and scary. People were locked in their homes. And, you know, t it turns out that scientists developed a vaccine more quickly and the economy was more resilient and we did too much. But we didn’t do too much because the government told us to or we wanted to. We thought this was the right thing to do given the information we had at the time.

Roberts has more ‘truth’ but he is out of time.

Updated at 21.17 EST

Defence asked about rotations of American B-52 bombers through Australia

The head of the Department of Defence, Greg Moriarty, has given a very carefully worded response to a question from the Greens senator Jordon Steele-John about rotations of American B-52 bombers through Australia. The potential for these to be nuclear-armed was the key point of the question.

The context is that there is expected to be space for up to six American B-52s once an upgrade to a parking apron at RAAF Base Tindal, 320km south-east of Darwin, is completed.

Moriarty said:

Stationing of nuclear weapons in Australia is prohibited by the South Pacific Nuclear-Free Zone Treaty to which Australia is fully committed.

There is no impediment under this treaty or the Nuclear Non-Proliferation Treaty to the visit of foreign aircraft to Australia [or] the transit of Australia’s airspace, including in the context of our training and exercise programmes, and the Australian force posture cooperation with the United States. Australia’s long-standing arrangements to support visits by US strategic assets are consistent with our obligations under the South Pacific Nuclear-Free Zone Treaty.

US bomber aircraft have been visiting Australia since the early 1980s and have conducted training in Australia since 2005. Successive Australian governments have understood and respected the longstanding US policy of neither confirming nor denying the presence of nuclear weapons on particular platforms. Australia will continue to fully comply with our international obligations. And the United States understands and respects Australia’s international obligations with respect to nuclear weapons.

The Greens senator David Shoebridge followed up by trying to get confirmation that Defence did not believe there is a was restraint to Australia permitting nuclear-armed B-52 bombers to be present in Australia provided it was not a permanent presence.

A B-52 aircraft from the US air force at Nellis base in Nevada. Photograph: Carlos Barría/Reuters

There was no direct answer provided. The foreign affairs minister, Penny Wong, said the government was “not in a position to go further than what Mr Moriarty has just gone”. She accused Shoebridge of “trying to drum up concern” and she did not believe that was responsible. Shoebridge replied that it was not fear mongering; he was just seeking clarity.

Updated at 21.48 EST

LNP senator Gerard Rennick and One Nation senator Malcolm Roberts are now asking questions, so we will just catch up on some of the other committees for a moment.

Updated at 20.35 EST

Banking company that ran cashless debit card handed $12m ‘limited tender’ contract

The banking company that ran the cashless debit card, Indue, has been handed a $12m “limited tender” contract for the new income management card to be used in the Northern Territory and other areas.

A tender published on 13 February indicated Services Australia had awarded an $11.89m “confidential” contract to Indue under a “limited tender” due “extreme urgency or events unforeseen”.

Under questioning from the Greens senator Janet Rice, Services Australia acting deputy chief executive Jonathon Thorpe confirmed the contract was for the new income management card that will replace the cashless debit card.

He confirmed no other companies were approached or able to vie for the contract due to the “short time frame for the transition of customers off the cashless debit card to other arrangements”.

Thorpe said the agency also wanted to make sure customers weren’t affected and had a “seamless transition from the cashless debit card to enhanced income management”.

He said:

Part of doing that was to understand how the account currently works on the CDC, the bank account, the card itself and the service arrangements, and [participants] are able to make a smooth transition across.

Thorpe said Indue would provide the banking services, such as the bank account, the physical card, and the “connection in the financial system”. “In other words the ability for customers to use that card in various scenarios being online, retail environments or face-to-face retail.”

Thorpe said the tender was consistent with the procurement rules and the agency sought advice, including an assessment on “value for money”.

Indue has previously been awarded contracts for the basics card, as well as the cashless debit card.

The Albanese government vowed to scrap the Coalition’s “privatised” controversial cashless debit card – which operated as a trial in several sites – if it won the 2022 election, a promise it followed through on in October.

However, it also said that while it conducted further consultation it would maintain the income management policies that existed in the Northern Territory, which date back to the Intervention and are carried out with the basics card.

The replacement to the cashless debit card, known as the “smart card”, will be rolled out on 6 March for those in the Northern Territory and Cape York, and others who wished to opt-in in Ceduna, East Kimberley, Goldfields, Bundaberg and Hervey Bay regions.

The government said it would have additional restrictions on card spending, including blocking tobacco purchases, but no changes to the quarantined amount of welfare payments, which remain at 50% of an individual’s payments.

It also noted Services Australia would support customers directly through a dedicated phone line for day-to-day queries. In the past, cashless debit cardholders were required to contact Indue with some queries.

Updated at 22.02 EST