This places the Governor and the Deputy Governor of the Reserve Bank on the same footing as the Commissioner of Taxation and the Australian Statistician, which is a good thing, consistent with the approach adopted by both sides of politics that the bank should be independent of government. As the law currently stands, the Treasurer has the power to appoint and terminate the appointments of the Governor and the Deputy Governor of the Reserve Bank. This arrangement has the potential to undermine the independence of the Reserve Bank’s operations, particularly its conduct of monetary policy. This bill removes the potential for such interference.
Reserve Bank independence is supported by both sides of the House and by the weight of informed economic opinion here and around the world. Some may question why the government has given this responsibility to a group of unelected officials. We have done this because their independent judgement is critical. The former Reserve Bank governor, Ian Macfarlane, made this point in his Boyer lectures in 2006, drawing a parallel between the Reserve Bank and judicial independence. The parliament makes laws and leaves it to an independent judiciary to administer the legal system, unaffected by political interest. The same approach is needed in the administration of monetary policy. Macfarlane explained why central bank independence is so important:
The system should be reasonably symmetrical.
Over time, interest rates should rise about as often as they fall. The problem is that the public reaction to changes in interest rates is far from symmetrical.
The Reserve Bank’s job must be to take a long-term view of economic conditions, unaffected by the daily temperature of the political environment. The Reserve Bank proved its capacity to do this by tightening monetary policy during last year’s election campaign. It was an action that could have only been undertaken by an independent central bank. No-one on this side of the House doubts the independence of the Reserve Bank, but this legislation is about embedding it.
Australia pioneered independent central banking. Labor created the forerunner to the Reserve Bank, the Commonwealth Bank, which commenced operations in 1912. The Commonwealth Banks Act mandated the Commonwealth Bank governor’s formal statutory independence from government. Over the next few decades, the major parties clashed over the role of the governor and the role of the board. In 1959 the Reserve Bank Act transferred responsibility for independent central banking to the Reserve Bank, but, while the statute said it was independent of government, in practice it was kept on a pretty short leash. Implementing monetary policy involved controls on private bank lending and setting interest rates on government securities, which required the approval of the Treasurer.
The catalyst for real independence was the floating of the Australian dollar in December 1983. This allowed the bank to conduct monetary policy in the way that we now consider orthodox-using open market operations to control the short-term cash rate. It was a courageous reform and, again, it was a Labor reform. Former Reserve Bank governor Bob Johnston said it was the decision of the decade. The previous, coalition government also played an important role in the progression of RBA independence with the 1996 Statement on the Conduct of Monetary Policy marking out the formal two to three per cent inflation target. This bill is the next logical step in cementing the independence of the Reserve Bank.
The Reserve Bank Act charges the bank with a tripartite responsibility for the conduct of monetary policy in a way that will best contribute to price stability, the maintenance of full employment and the general economic prosperity of the nation. The last of these, economic prosperity, is the underlying objective of monetary policy. The second, full employment, was added by the Chifley government in the Commonwealth Banks Act of 1945. But it is the first, price stability, that we generally associate with the role of the bank. That is because it leads to the other two: it leads to full employment and economic prosperity.
The December 2007 Statement on the Conduct of Monetary Policy makes this point, saying:
Price stability is a crucial precondition for sustained growth in economic activity and employment.
Macfarlane makes this point again in his Boyer lectures:
… the best contribution monetary policy can make to lowering unemployment, is to achieve a sustainable economic expansion and this can only be achieved if it is a low inflation expansion.
That is why the current macro environment is so worrying. Inflation is the great menace. We know it pushes up interest rates, it takes food off the table, it wrecks economies and it destroys families.
As it is charged, the Reserve Bank has been adjusting the cash rate to fight inflation, but until now it has been fighting with one hand behind its back because, while it increased interest rates, the former government kept spending. One doused demand; the other fuelled it-two oarsmen, if you like, rowing in different directions. This is the crux of the problem. It is why, despite 12 successive interest rate rises, inflation has now reached a 16-year high and is now the second highest in the developed world. Fiscal policy has to work with monetary policy. Other members who have participated in this debate made that very point. It appears common sense, but it has not been happening. The shadow Treasurer’s former company, Goldman Sachs, made this point only yesterday. The Goldman Sachs analysis of the budget said:
After 2 years of notable conflict, finally we have fiscal policy that is pushing in the same direction as monetary policy.
This means cutting spending, encouraging people to save instead of spend and increasing the size and the skills of the Australian workforce.
That is why the budget is so important. Labor is taking the budget to the gym, while the former government took it out to KFC. It is our job to make the Reserve Bank’s job easier, not harder-to reduce the pressure on the bank to raise interest rates, not hold a gun to its head. That is why the budget cuts spending and invests in areas that will help us tackle inflation. The $55 billion Working Families Support Package that funds our election commitments helps meet the increasing cost of living and helps increase workforce participation, along with 630,000 new training places that will help tackle the skills shortage and $20 billion in the Building Australia Fund that will help tackle infrastructure bottlenecks. The RBA told the former government to do all of these things on no fewer than 20 different occasions.
As the member for Corio told this House, the opposition had been saying at least until recently there is no need for such spending cuts. What they have really been saying is that fiscal policy has no role to play in tackling inflation and bringing inflation back within the target band-leave it to monetary policy; leave it to interest rates. The problem with that is who gets hurt as a consequence. Monetary policy is a pretty blunt instrument. The 30 per cent of Australian households that have a mortgage bear the brunt of interest rate rises. Many of these households contain young families who are usually first home buyers trying to get into the market. They are the ones who are shouldering the responsibility for fighting inflation for the rest of us. It is unfair and, without the support of fiscal policy, it is ineffective. Families with big mortgages are already stretched. They do not have buckets of money sitting around to mop up and sop up interest rate rises. Every interest rate rise puts them under more pressure and tips more over the edge.
Last month the Deputy Governor of the Reserve Bank appeared before the Senate Select Committee on Housing Affordability in Australia. He estimated that there are around 15,000 families that are 90 days or more in arrears on their mortgage. Another 30,000 are more than 30 days in arrears. That is 45,000 Australian families that are behind in their repayments and sinking in debt. As I have told the House before, there are more of these families in my electorate than there are anywhere else in Australia. Last year 300 families in my electorate lost their homes. In Bankstown, three families lose their homes every single day.
The story is not much better at the Fairfield Office of the Sheriff. I visited the Fairfield Sheriff’s office a couple of weeks ago and they told me that eviction rates have more than doubled in the last few years, up from 113 evictions in 2005 to 259 last year. The local sheriffs have a tough job. They have told me some terrible stories. There is the story of the 70-year-old grandparents who lost their home when they went guarantor for their grandchildren. There are the wives who open the door nursing a baby not aware the family is even behind in the repayments. There are tenants thrown out on the street who have no idea what is going on, and there are the suicides that happen as they walk up the driveway. The flow-on effect is a jump in rental prices and requests for emergency assistance. Priority housing requests at the Department of Housing in Bankstown have jumped by 30 per cent in the last six months, and we probably have not seen the worst of it yet. There is a lag period after each interest rate rise of about nine to 12 months before families go under. So we can expect it to get worse before it gets better. That is why I am trying to help local families that are being consumed by mortgage stress in my electorate.
Most new homebuyers are already caught in the vortex of housing stress. Research at Canberra university has shown that 61 per cent of new homebuyers are already in mortgage stress. They get into trouble from the very start. Fujitsu has done its own research and it showed that once someone is in severe mortgage stress there is a 20 per cent chance they will be forced to sell and there is only a 50 per cent chance of getting out of mortgage stress altogether. This is the reason why more Australians are giving up on the Australian dream than ever before. It is why homeownership is dropping along with the proportion of first home buyers. It is why the local sheriffs tell me most of the repossessions in my electorate are first home buyers.
The evidence from the Deputy Governor of the Reserve Bank before the Senate inquiry into housing affordability explains why my electorate is the mortgage stress capital of Australia. The surge in prices during the housing boom was comparatively higher in Western Sydney than in the rest of Sydney. More households bought towards the peak of the market than anywhere else and incomes grew more slowly in Western Sydney than in other parts of Sydney. A disproportionately large share of mortgage loans in my electorate were sourced from non bank lenders, and these loans are responsible for a disproportionate share of defaults. It is a perfect storm. The arrears rate from non bank lenders in Western Sydney is three times that of the major banks. The Consumer Credit Legal Centre tells me that non bank lenders make up about 12 per cent of the market but they are responsible for 48 per cent of the calls they receive from people seeking help.
My electorate of Blaxland is the canary in the coalmine. But we are not alone. Other parts of Australia are also under increasing pressure. More than a million Australians are suffering housing stress. That is why fiscal policy has to work with monetary policy. That is why fiscal policy needs to work hand in hand with monetary policy. It is why the former government was removed, and it is why we need to act. That means pulling mortgage lending under Commonwealth control, and I am glad to see that COAG has agreed to give the Commonwealth government these powers. One of the first things we need to do is regulate the behaviour of mortgage brokers who are disproportionately represented in the mortgage stress maelstrom. ASIC, for example, could be given responsibility for a national system of licensing mortgage brokers and non bank lenders. Credit card lending also needs to be reviewed. I hear story after story from financial counsellors in my electorate of circumstances where people have half a dozen or more credit cards and have debts of more than $100,000. Many of them are pensioners or people that are unemployed. We need to make sure that banks operate in the interests of their customers, not against them.
This is only part of the answer. I have spoken to a lot of financial counsellors over the last few weeks-people like the Smith Family, the Consumer Credit Legal Centre and a local NGO called Creating Links. They all tell me the same thing: people wait until it is too late to seek help-when a bank is about to foreclose or when the sheriff is at the door. It is just too late to seek help then. Some are too proud to seek financial counselling. Others are in denial-they just pretend it is not happening. The sheriffs tell me they often turn up to a house and the house is still furnished-nothing has been removed.
One of the good ideas that came out of the local 2020 summits was a proposal for a national financial literacy program in our schools to ensure that every young adult is financially literate by 2020. One of the measures in the budget announced on Tuesday night that I am particularly glad to see is the doubling of funding for financial counselling services to $20 million over four years. All of that will go a long way to helping the people of my electorate. That is why I have developed a debt relief information kit for my electorate: to give local residents the information they need before it is too late to ensure that they do not lose their house. In the next few months I will be holding housing stress information nights in my electorate with organisations like the Smith Family, the Consumer Credit Legal Centre, and Legal Aid, to make sure that people have the information they need before it is too late. The aim of all of this is relatively modest-to save a few homes and a few families.
In my first speech in this place I told the House that I want to make sure the great Australian dream still means something to future generations-where a mortgage is an investment, not a trap. It is not an easy task; it is very hard. It will not be fixed quickly. It requires an enduring commitment. But I am proud to be part of a government that has made expanding the number of homes and expanding the number of homeowners a real priority, with a real plan to fix it up. Last month the Prime Minister told the Housing Industry Association:
Home ownership is not just about ensuring that people have a place to live. Homes are also financial assets … A base to raise a family. It provides a sense of security.
That is why homeownership is so important, and that is why this bill and this budget are so important. The Reserve Bank needs to be independent of government, but it cannot act on its own. It needs our help, with both of us rowing in the same direction-and that is what this budget does. I hope that the measures in it and the efforts that we make here and on the ground will help save the homes and families in my electorate. I commend the bill to the House.’