Andrew Leigh

I spoke in parliament this week on new appointments to the Reserve Bank of Australia, inflation, and public debt.

Reserve Bank of Australia, 24 May 2011

I would like to speak about three things today: the recent appointments to the Reserve Bank board and the members who are stepping off the Reserve Bank board; the broader outlook for inflation in the Australian economy; and the current low levels of government debt.

Appointments

Firstly looking at appointments to the Reserve Bank board, I want to use the opportunity to put on the record my thanks to Don McGauchie and Warwick McKibbin for their service to the Reserve Bank board. Warwick McKibbin is not only an extraordinary Australian economist but was also my immediate boss before I came into parliament. Warwick is the director of the Research School of Economics at the Australian National University and in my last position at ANU I was his deputy director. Warwick is an extraordinary economist, someone who was awarded his PhD from Harvard University studying under Jeffrey Sachs. He has been awarded the Centenary Medal for service to Australian society for economic policy in tertiary education, and was made a fellow of the Australian Academy of Social Sciences at the age of 40. I wish him well in the next public endeavours that will occupy his now freed-up weekends.

I also note that joining the Reserve Bank board are Ms Catherine Tanna, who is currently the executive vice-president of BG Group and managing director of its Australian unit QGC Pty Ltd, and also Dr John Edwards. Dr Edwards is somebody who has a long and distinguished career in economic policy-making. He has served the Australian public well as a senior economic adviser to then Prime Minister Paul Keating. He has been actively engaged in policy debates for a number of decades and has also produced a number of terrific books over this period. He is in every sense a public intellectual and the Australian public are fortunate to have his skills joining the Reserve Bank board.

Inflation

The second issue I want to speak about today is the issue of inflation. I want to draw the attention of the House to some of the statements made during our last Reserve Bank hearing regarding Australian inflation. On the headline number, I would like to quote from the Governor's opening statement when he said:

'It is worth recording that a combination, on the latest figures, of a 5 per cent unemployment rate and an inflation rate clearly 'in the 2s' is a pretty favourable one by the standards of recent decades.'

In questioning, the Governor was drawn out on the issue of inflation perceptions and made some comments that I think are particularly salient in the current policy debate. It is always important to focus on the cost of living but we need to do so by looking at the facts rather than some of the spin that is occasionally heard from those opposite. The Governor said:

'People do, though, tend to overlook prices that fall a little bit, and 30 per cent of the CPI items actually had a negative price change in the latest quarter. There are certain things that people do not buy quite as often as the weekly groceries and it is human nature that we tend to forget that those prices go down in many instances. So I think that is a factor and it is understandable. But, in the end, the consumer price index samples 100,000 prices every quarter. There is a far better sampling there than any of us could do by keeping a casual tab on our grocery bill ...'

The governor went on to say:

'The prices of many goods at the moment are declining. If you go through the CPI over the past year, you see that the price index for clothing is down six per cent, the price index for major household appliances is down four per cent, the price index for audiovisual equipment is down 18 per cent, the price index for furniture is down two per cent and the price index for linen, manchester, is down around two per cent. Almost all the goods in the CPI are down quite significantly. I think many people, because they do not buy these goods on a regular basis and have in their mind a clear concept of what the actual price is for a shirt or some Manchester, do not feel price declines but they are real and they are happening. What people are noticing is the higher price of utilities in particular.'

The governor went on to speak about some of those prices. But as we know, households make a set of consumption purchases and we need to look at those consumption purchases as a whole, not simply cherry pick parts of the consumer price index but look at the overall picture that Australian households are facing. For example, if we look at the year-on-year percentage change for the current March quarter, the latest figures available at the moment, we have a fall over the last year in clothing and footwear prices of one per cent, in household contents and services of around half a per cent, in communications of 0.2 per cent and in recreation of 1½ per cent.

So it is important to keep all of those factors in mind when we are looking at the overall picture for inflation. I think it is that overall picture which has naturally led the governor to point out that Australia's inflation rate is clearly in the twos, certainly not a picture that one would receive if one were to listen solely to pronouncements from those opposite. I think this is important and goes to the very heart of the economic challenge. If those opposite intend to be taken seriously as economic managers then it is important that they focus on the facts rather than the spin.

Public Debt

Finally, I said that I would go to the issue of government debt. Here again, I think it is important to lay out the facts. Ross Gittins, in an opinion column on 15 November last year, wrote as follows:

'Even the press gallery is buying the Libs' propaganda about excessive, wasteful spending and the need for swingeing spending cuts to get the budget back on the rails. Nonsense. The real story is how amazingly responsible the government's been.'

He goes on to say:

'From the start, the government adopted a "deficit exit strategy" to bank all revenue growth and limit real spending growth to 2 per cent a year until the budget was back in surplus. No government has ever voluntarily donned such a chastity belt.'

Those opposite would have you believe that Australia's government debt is out of control, and they would do so because I sometimes believe they live in a little bubble, a little bubble in which climate change is not real, a little bubble in which you can ignore everything happening in the rest of the world, a little bubble in which the only thing that drives asylum seeker arrivals is Australian policy rather than wars going on overseas. Of course, if you take a global perspective, and any responsible economic manager does take a global perspective, you are immediately struck by how low Australian public debt is.

A special report on the world economy in The Economist quoted research by Carmen Reinhart of the University of Maryland and Ken Roghoff of Harvard University looking at the effects of a couple of centuries of sovereign debt. It reads:

'Their verdict is that public debt does little discernible harm until it reaches about 90% of a country’s GDP, but then the effect on growth can be sudden and big.'

This is relevant because there are OECD countries that are looking at debt loads at that level. Every member of the G7, according to The Economist report, will go over a threshold of 77 per cent of GDP. The article noted:

'The IMF says governments should aspire to cut their debt ratios back to 60% by 2030. To do so they will have to perform some fiscal heroics.'

Australia is simply not in that ballpark. Our debt level remains well below 10 per cent of GDP and will continue to do so. The government will bring the budget back into surplus in 2012-13. Australia is better off for having taken on that public debt. That is what mainstream economics tells you. When faced with the largest global downturn since the Great Depression, it was the right decision to put in place a timely, targeted and temporary fiscal stimulus—saving 200,000 jobs and tens of thousands of small businesses—and then to responsibly pay back that debt. At the end of that, not only do we have lives that were not blighted by periods of unemployment and small businesses that did not go to the wall but we also have public assets future generations will look back to: public assets such as some of the valuable school infrastructure in my own electorate of Fraser; infrastructure such as the Amaroo school's investments that allow their teachers to do team teaching; and infrastructure such as a school hall that allows all of the children in Black Mountain special school to attend the same assembly. It is infrastructure of which I am proud, and I wish those opposite were equally proud of it.

I'm not in the habit of linking to corporate press releases, but given how many people find themselves falling foul of unduly complex mobile phone plans, this is a welcome announcement:

Telstra consumer mobile customers soon will be able to use their phone’s data service without the risk of an unexpectedly high bill, commonly known as “bill shock”.

They will be among the first in the world to have their data speeds slowed when they exceed their mobile data allowance and not be charged for excess domestic data usage.  The changes are in development and will be launched by year’s end.l

Centenary of Canberra, 23 May 2011

When Canberra turns on its charm and offers that perfect day—the sun shines, the water glistens and the temperature is neither too cold nor too hot—it is easy to see how this city charmed the federal parliamentarians who visited in 1906 and 1907 on their tour of potential sites for the new nation's capital. Originally Canberra was not the preferred location of either the media or the politicians. But for the perfect Canberra day on 13 August 1906 and then again on 23 August 1907, the parochial interests of a Premier and the change of heart invoked by a Victorian senator, our nation's capital could have been somewhere entirely different.

On 23 May 1912, entry No. 29 by Walter Burley Griffin, a landscape architect from Chicago, Illinois, was declared the winner of the competition to design Australia's new federal capital. Walter Burley Griffin heard about the Australian government's competition to design the national capital while on honeymoon with his wife, Marion, in 1911. Although it was Walter's name that headed the entry, theirs was very much a collaborative effort. Without Marion's elegant drawings, it is unlikely that Walter's design would have grabbed the judges and lifted it above the 136 other entries in the competition. The winning design incorporated leading international ideas of the day in the science of town planning, such as the 'city beautiful' and 'garden city' movements. Yet, for the city to flourish, Griffin believed it also needed a community with 'great democratic civic ideals'. He wanted Australia's capital to be a place where citizens enjoyed a high quality of life based on 'egalitarian legislation, genuine public spirit and organic, scientific cities'. The 13th March 2013 marks the Centenary of Canberra. The Australian government recognises the national importance of the Centenary of Canberra as the national capital. We have been working closely with the ACT government to develop a program of events in the lead-up to and in the centenary year. The Australian and ACT governments have established an intergovernmental working group under an agreement signed in December 2008.

Along with the support of the Centenary of Canberra creative director, Robyn Archer, the working group have identified centenary national program activities, activities that have national reach and engage communities right around Australia, not just residents of the ACT. For example, the draft program includes the construction of the Canberra Centenary Walking and Cycling Trail. The trail will guide walkers and cyclists through urban and nearby rural areas, incorporating a variety of iconic and lesser known locations that tell the story of Canberra. The ideal for the trail was raised from community submissions received as part of the Canberra 100 call for centenary projects. Taking in existing fire and walking trails, it will merge with new ones. It will start here at Parliament House and loop around the ACT through locations including Anzac Parade, the Australian War Memorial, Lake Burley Griffin, Mount Ainslie, Mount Taylor, Red Hill, the National Arboretum, Stromlo Forest Park and Mulligans Flat Sanctuary. A result of the partnership between the Australian government and the ACT community, the Centenary Trail will be a gift to Canberra and visitors to our city for years to come.

The Australian government's commitment to the Centenary of Canberra is evidenced by the recent announcement in its 2011-12 budget of $6 million over three years as a contribution to the centenary national program. The Australian and ACT governments are keen to collaborate with all stakeholders to ensure the success of this activity and the entire national program. The final size and shape of the program is currently being negotiated with the ACT.

Our national capital is a source of pride for all Australians. The Centenary of Canberra is a unique opportunity to celebrate this historic moment and for the Australian government to continue its conversation with the Australian people about the kind of nation we want over the next 100 years. As the federal member for Fraser and father of two young boys who proudly call Canberra home, I welcome the positive attention being paid to this city by the member for Menzies. I would also encourage the opposition to support the initiatives being put in place by the Australian government to celebrate the Centenary of Canberra, such as the Centenary Trail and new investments in the National Arboretum. I know they will join other national institutions in enriching the lives of the city and the nation.

Transcript (courtesy of JB)

GILBERT: Welcome back to AM Agenda, with me now is Jamie Briggs and Labor MP Andrew Leigh. Guys, thanks for being here. Jamie, first to you. The Climate Change Commission report has said that the science is done, the debate has been had. Yet you still have some Liberals this morning, Dennis Jensen on the doors this morning said that temperatures are actually levelling out. You do have a number of climate sceptics, is that damaging for the Coalition?

BRIGGS: Our policy is that we accept the science and we have got a bipartisan target with the Labor party. Both parties agree that their needs to be action on climate change. Both parties have agreed to a five per cent reduction by 2020. And all we disagree on is the method on which we get there. We have a policy which is about direct action carbon, green carbon so speak, and the soil, about cleaning up the dirtiest of power stations to reduce our emissions by 5 percent.

GILBERT: So you obviously believe that the science, although a number of your colleagues don’t?

BRIGGS: Oh look well it’s a free country still Kieran, last time I checked, people are entitled to a view. But ultimately it is the policy that matters. Now we have had the same policy for about 18 months now. When we first announced the policy we took it to an election and we stuck with it after the election. I know that is an unusual concept and I know that the Labor Party aren’t that finding that something that they do, because of course at the election the Labor Party announced one hundred and fifty people from a phone book to tell them what your climate change policy is. They said they would not have a carbon tax. Just after the election they announced a carbon tax and today we hear that that is going to put up electricity prices by double, from the electricity industries. So the story here is that we both have a target, it is five percent reductions by 2020. We just have a different method of getting there.

GILBERT: Andrew, I spoke to Professor Steffen earlier who worked for the ANU, he is the lead author of the Climate Commission. He was not at all scathing of the direct action approach, he said it needs to be part of the solution, but he was not critical at all of this idea of taking direct action.

LEIGH: Well Kieran you have got to recognise where this report is coming from. It is very clearly stating that there is overwhelming scientific consensus that the world is warming and humans are causing it and yet we have this frightening situation where every other seat in the Coalition Party Room is taken by a climate change denier, somebody who doesn’t believe that global warming is happening. That is incredibly dangerous because it means that Tony Abbott has now put in place a policy that is designed to be easily repealed as Malcolm Turnbull pointed out last week. The thing is, if you look across economists the consensus is as strong as it is across scientists. Economists almost universally back the idea that you should use a market based mechanism pricing carbon. I will be curious if the Jamie can name one, even two economists who would back a direct action plan. I have not been able to find any and frankly Tony Abbott has had the same problem.

GILBERT: Well if it is such a compelling case, why has the Government struggled to prosecute it, so badly to this point?

LEIGH: Well look Tony Abbott is very good at doing one thing and that is saying no, he is running a small target strategy at the moment. He is running a strategy as saying no, no, no to absolute everything and he has been prosecuting that very strongly. You see him at weetbix factories talking about climate change; I mean this is frankly ludicrous. Where by contrast, we have Tony Abbott’s colleagues in the UK, the British conservatives, to Margaret Thatcher, who are entirely comfortable with the idea that you would have an emissions trading scheme.

GILBERT: There are a lot of people who seem like they have stopped listening though;

LEIGH: Use the market to price carbon.

GILBERT: A lot of people have seemed to stop listening to you and your government. What, how do you turn them around? I mean that’s a compelling and a very easily argument to prosecute and one which Mr Abbott has been very successful at thus far.

LEIGH: Well Kieran, somebody said to me last week ‘good policy is good politics’. And I think frankly that is exactly the right way to go. We have to be absolutely clear that this is going to be a tax on the thousand biggest polluters. At the moment they can put as much pollution into the atmosphere as they want to. We are saying that if they are putting carbon pollution into the atmosphere, they should pay for it. We should provide assistance.

BRIGGS: That’s interesting.

GILBERT: Jamie, you can respond to that as well, but Will Steffen said that on its own, direct action is not enough to deal with this. Now what do you say to your kids and the next generations, that’s two generations apparently this report says, unless there is action now in the next ten years…

BRIGGS: Well let’s get to basis here, five percent target, bipartisan. Five percent reduction by 2020 that is the bipartisan target. We can get there with direct action by cleaning up the dirtiest of power stations, by investing in soil carbon, the Labor Party want to have it with a tax. Now I would say to Andrew, who is compelling in his argument, he seems convinced by his own arguments that if they are so convinced, take it to an election, do the right thing. I mean the problem here is good policy is good politics. And I think it is being told in the story at the moment about how people are receiving this. About how good of policy this is. If they are so convinced about this policy and about how people are receiving this about how good of policy this is, if they are so convinced, if they are so convinced that this is the way to go, do the right thing and take it to the election.

LEIGH: Well Jamie it is very clear why you would make that argument because when the carbon price comes in next year, then this scare campaign that Tony Abbott has been running around the country will be exposed as hollow.

BRIGGS: That’s complete rubbish.

LEIGH: It will be very clear that the sky has not fallen.

BRIGGS: Do the right thing.

LEIGH: Carbon pricing has modest price impacts. We can see that, I mean the Labor Party has been consistent…

BRIGGS: Why was the Prime Minister not honest at the last election? Why did she not tell the Australian people that this is what she wanted to do?

LEIGH: We have been consistently pointing out that Tony Abbott scare campaign is entirely overblown. The impact of the CPRS on a weetbix, is a tiny fraction of one cent. This negativity that we see relentlessly from the Opposition is now starting to have blow back. I mean we can see first Malcolm Turnbull, now Joe Hockey, deeply concerned that the Coalition is nothing but negativity. Just driving a small target.

BRIGGS: I think this sums up the desperation of the Labor Party. The really personal vicious attacks on Tony Abbott, I think it sums up exactly where the Labor Party is at.

GILBERT: Asylum seekers. Scott Morrison is calling for another enquiry. Why not have another inquiry into the broad system because it is obviously enormous pressure if not dysfunctional right now?

LEIGH: Well Kieran, we have had particular enquiries into the Christmas Island affair and into the Villawood affair, but if we are going to look at the broad inquiry, I suppose you would want it to encompass the entire range of issues that have been faced in the detention centre. The Cornelia Rau affair, the children over board affair, the break outs from Baxter and Woomera, all of which occurred under the Coalition. The fact is that at the moment you have isolated incidents, the rate of those incidents is not tangibly higher than it has been in previous years, the Government is pursuing a very clear policy which is to send a tough message to people smugglers to make sure that they don’t put little kids on boats to come to Australia and also an humane way to slightly expand our refugee intake by about a thousand a year.

GILBERT: Jamie, as Andrew said a number of inquires already under way, is this not a stunt? As Chris Bowen says it is.

BRIGGS: No, not at all.

GILBERT: As Chris Bowen says it is.

BRIGGS: No, this is a very serious issue and I respect Andrew doesn’t have a detention facility in his electorate like I do, and the stories coming out in the media last week in Adelaide about allegations that SERCO officers have been rough with young people, allegations that SERCO officers have been having violence against them. It is a detention facility remember in which the Labor Party claims is their family friendly facility. Now if this is true and reports are true that are coming out, we really do need an inquiry into this. I think it reflects on the consequences of the mismanagement of Australia’s borders what is happening within these centres and from what we hear I think it is very disturbing, I think it is very concerning and I think Scott Morrison yet again is on the money with this call.

GILBERT: Okay, well one last, one last issue before we wrap up, you have got a big day ahead with Parliament back. Joe Hockey and Tony Abbot apparently had a clash over the phone. Jamie, Joe Hockey was angry at being hung out to dry over the tax treatment of trust. Is this just healthy robust discussion among the leadership or is there something more here?

BRIGGS: Well look I don’t have the benefit of being patched into conversations between our senior colleagues. As a very junior, you know insignificant back bencher, I don’t get to play part of the broader debates. Look at you know I think there is a big difference between the Labor Party and the Liberal Party at the moment, we are getting along and getting on with the job very well. We have of course from time to time, debates about policy issues, that is normal for anyone. We don’t have the Foreign Minister running around the world, making prime ministerial visits day after day, meeting with world leaders week after week, not turning up to community cabinets, acting like he is some sort of lone wolf leader of the Labor Party while building his rankings. I noticed the Galaxy Poll on the weekend had him about five lengths clear, sort of a black caviar of the political industry of the Labor Party at the moment. That far clear, so I think there is only one party at the moment that has got some leadership.

GILBERT: In terms of the PM’s position at the moment, obviously there has got to be a few nerves on the back bench with the polls as Jamie said looking so bad as they are.

LEIGH: Look Kieran, I think the Prime Minister is getting on with the job that focusing on long term reforms that is long term reform in the area of education, long term reform in the area of climate change. It is an extraordinary comment that the successor to Alexander Downer has just made, that the Australian Foreign Minister shouldn’t be meeting with foreign leaders.

BRIGGS: Foreign leaders?

LEIGH: I mean this is deeply concerning. That our foreign minister should some how just be confined to staying in Australia, I don’t understand that one.

BRIGGS: Alexander loved the Adelaide Hills.

LEIGH: We certainly talk about that. But certainly the Opposition is really having a debate at the moment as to whether it is going to small target negativity or whether it will actually come up with ideas.

BRIGGS: I think the obsession that the Labor Party has with us is quite profound.

GILBERT: I am sure it is. I am sure it will continue throughout the day and throughout the week.

LEIGH: There's a difference between Opposition and opportunism.

ENDS

A podcast of my presentation at the Lowy Institute on Wednesday can be found at http://www.lowyinstitute.org/Publication.asp?pid=1589

18 May 2011  - Topic: foreign aid

Michael Rowland: The debate for foreign aid has increased significantly over the past year due to a big rise in national disasters and global political unrest.

Beverley O’Connor: By 2015 Australia’s foreign aid budget is expected to double to $8 billion. Some experts believe Australia needs to take a very targeted when it comes to aid spending. Dr Andrew Leigh will be talking about this topic a little later on. He’s the Federal Member for Fraser in the ACT, and he joins us now from Canberra. Many thanks for your time this morning. First of all, let’s start with the size of the budget doubling by 2015 – do you think that is too much for a country like Australia?

Andrew Leigh: Well Beverley, it is important to remember where we start off. Australia, compared to other developed countries is in the bottom third of donors and by the time we get to 2015-2016 we’ll be giving 50c out of every $100 that Australia earns and that will put us at the rich country average. So no, I think that is an appropriate scaling up that recognises the good Australia can do in the region and the benefits that being generous brings back to us, in terms of a more secure region and in terms of more trade in the future, which is good for our businesses.

Beverley O’Connor: So when you’re talking about that, you’re talking about aid with the idea of getting something back in return. If that is the approach, where critically do you think the aid should be targeted?

Andrew Leigh: Beverley, I’m giving a speech at the Lowy Institute today, and I’ll be arguing that Australia’s foreign aid has been extraordinarily effective and that one of the things we should do in the future as we scale up is to think about what Australia’s comparative advantage is, what we do better than other countries. I’ll be arguing that there are three of those areas where we should focus on. One is on natural resources – we’re a developed country with a lot of natural resources, so that’s a natural area to think about how we can help developing countries. The second is dry land farming and the third is dealing with fragile states. We’ve had a bit of experience with East Timor and the Solomon Islands and fragile states, so I think that’s something Australia does pretty well as well.

Beverley O’Connor: Can we take up that last point first though, we’ve seen Kevin Rudd just last week – the Foreign Minister – cutting back funding programs to some parts of the Pacific, because even though you may argue that they are fragile states, there is often abuse of the aid.

Andrew Leigh: Look we’ve got to absolutely make sure that our aid dollars are always being well spent. Fraud in the AusAID program is extraordinarily low, a small fraction of 1%, so I don’t think we need to be concerned that Australian aid dollars are being misspent, but we should always be vigilant about it. But in general, we have had some pretty good successes there. Our East Timor intervention and Solomon Islands stabilisation mission haven’t produced perfect states but we’ve done a lot of good in that area and that’s a real challenge, particularly in Africa now. If you look at places like Sudan and Congo, the world really needs expertise on how to stabilise countries. It’s that social policy being delivered with a rifle in one hand, which requires a mix of military, policing and aid assistance. We’re doing some of that work in Uruzgan Province in Afghanistan and the more we do, the better we get at that balancing act of maintaining security while providing basic services to the local population.

Beverley O’Connor: In terms of the other points you make, in terms of the expertise we have, are you thinking that more of our actual expertise and funding people to go over and assist, for example in countries that are developing resources, or in terms of as you were talking about that dry farming. Are you looking more at expertise being funded by Australia so that we can keep track of that money or just simply providing the funds for them to then do it themselves?

Andrew Leigh: That’s a good question, Beverley, and it’s a balancing act in foreign aid, the extent to which you want to send your people over training people in developing countries. Australia actually does a lot of training through our scholarships program, bringing people from developing countries to Australia to learn skills, and some of that is indeed in natural resource management and dry land farming. So I think it’s important to build that capacity and important to recognise that management, particularly of natural resources, is a really difficult balancing act. It turns out there’s this thing called the ‘resource curse’ in developing countries, that a country’s more likely to experience slow growth and violence if it finds natural resources. We need to turn that around – turn a ‘resource curse’ into a ‘resource blessing’, because the developing world has huge amounts of natural assets. There’s $3.5 trillion of sub-soil assets in Africa, most likely. We need to encourage developing countries to make the most of their natural resources as Australia has done.

Beverley O’Connor: How open are these other countries to us coming in, sort of the ‘Big Brother’, to show the way?

Andrew Leigh: I think there’s a lot of openness to think about how to work effectively with natural resources. One of the things I think is being increasingly discussed is how to best sell off the mining licenses. It’s really important to sell of the mining licenses in a transparent way so taxpayers can follow the funds that flow from mining companies through the governments. It’s also important to sell them through auctions, to make sure taxpayers get the best deal from mining leases. It’s really important for voters and governments to know what’s under the soil, to do some basic geological surveys first. These may sound a bit technical but they’re absolutely critical to making sure that people in developing countries get that flow of resources that benefits everyone. Mining employees relatively few people, so people in developing countries will really only benefit from sub-soil assets if governments manage them well.

Beverley O’Connor: Andrew Leigh, thank you very much for joining us this morning.

Andrew Leigh: Pleasure, Beverley.

ENDS