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The new Governor of the Reserve Bank is not ruling out raising the cash rate again to further control inflation. She refers to these measures as part of a tightening phase.

The Reserve Bank is unwinding the massive expansionary monetary policy it took during the COVID response which created $500 billion out of thin air. Meanwhile the States and the Federal ALP are spending money like it is play money.

This spending acts against the Reserve Bank’s rate rises. This is why I say this Government is hitting the brake and the accelerator at the same time.

The high rate of immigration is expanding the economy and that also acts against the dampening effect of rate rises. The pain and stress of mortgage rate hikes can be attributed to the costly COVID response and to immigration. That is all on Prime Minister Albanese and Treasurer Chalmers.

One Nation will reduce immigration to reduce rents and take the heat of the property market, removing the need for further rate rises.

Transcript

Senator ROBERTS: Congratulations on your appointment.

Ms Bullock: Thank you, Senator.

Senator ROBERTS: How does it feel being in a highly complex job which is affecting so many people’s lives and livelihoods?

Ms Bullock: I do feel a great deal of responsibility, Senator.

Senator ROBERTS: Thank you. Inflation has gone from 7.8 per cent, peak, to 5.4 per cent. In your speech yesterday you went on record to say the Reserve Bank will not hesitate to raise rates again if it looks like inflation is not coming under control. Is inflation coming under control? I’m guessing from your comments so far that you’re wary and there are signs that it’s not.

Ms Bullock: I’d say what I said earlier, which is that we got an important piece of information yesterday. We need to take that away, analyse it and figure out what it means for our forecast going forward. That’s no different to the comment we’ve been making to date, which is that we are—’wary’ is a good word. We’re looking at some of the more persistent parts of inflation and asking ourselves: are there signs that those might be coming down in the future? So, yes, we are wary. We don’t know if the job is done yet, and we’ve made that very clear. Even though we haven’t raised interest rates since our last interest rate rise in June, we’ve made it very clear that we might need to go again. We had not ruled that out, and we’re in the same position now.

Senator ROBERTS: When debating the need for a rate rise, is the effect on mortgage affordability, especially mortgage stress, taken into account? If so, what measure do you use, and what is that measure telling you about how hard life is getting for mortgagees?

Ms Bullock: We do understand that there is a distribution—let me step back for one moment. Higher interest rates and monetary policy work through a number of channels. The one that gets the most attention is what we call the cash flow channel, which is the impact on people who have debt. That gets a lot of attention, particularly in Australia, because, as Chris already mentioned, most of the debt of households and businesses is variable rate debt or very short fixed-rate debt. That’s why that channel gets the most attention, but there are other channels. In fact, Chris gave a speech on that fairly recently. One is the intertemporal channel, which basically means: as interest rates go up, people are incentivised to save rather than to spend, and in fact we are observing that. We are still seeing people in aggregate save, and there’s an incentive even for mortgage holders to save. Their interest rates have gone up, so, for them, there’s an incentive now to try and put even more away into their offset and redraw accounts if they can. That’s the other way that it works. Another channel is the exchange rate channel. The way that works is: as interest rates rise, the exchange rate—if everyone else wasn’t raising their interest rates the exchange rate would rise, but at the moment it means that it hasn’t fallen very much. It has been reasonably stable over the last year. We’re not getting inflation through that particular channel. There are other channels as well.

Senator ROBERTS: Do you measure the stress?

Ms Bullock: No. We can’t very precisely say: particular channels contribute X to inflation. We can’t do it that way. But they’re all the channels that we’re watching and trying to understand how they might impact.

Senator ROBERTS: How do you assess whether or not people are under mortgage stress? Ms Bullock: We don’t do individual mortgage stress assessments. What we can observe is data we get from the banks on hardship calls that they’ve got, arrears rates and those sorts of things. We can observe those at aggregate level. The feedback we’re getting at the moment, from the banks and from the data we see, is that that has risen but it’s still at very low levels.

CHAIR: Last question.

Senator ROBERTS: Surely the inflation that’s still hitting Australians has something to do with the Reserve Bank creating $500 billion out of thin air—or, as Dr Debelle said, electronic journal entries—over COVID. Have you thought about that? Your predecessor admitted it was a cause of the inflation problem, creating that $500 billion out of thin air.

Ms Bullock: Basically, you’re referring to the massive expansionary monetary policy that we undertook during the pandemic?

Senator ROBERTS: Yes.

Ms Bullock: I think my response would be that, at the time, we were facing a very, very dire economic situation, and the appropriate response at the time was to run a very expansionary monetary policy. We have now unwound that and we’re in a tightening phase, so, yes, the purpose of the expansionary monetary policy was in fact to encourage demand and encourage growth. That was very much the intention. To the extent that we look back and now say, ‘Well, demand is too strong,’ we are now in a tightening phase to wind that back. But I wouldn’t say it was the sole reason for the increase in inflation. You might remember that there were very big supply chain issues as well, and when constrained supply meets high demand, you get inflation.

Senator ROBERTS: Building on that, you have a very blunt tool to attack inflation, don’t you? Because the cash rate for the entire country is a very blunt tool to try to bring down inflation.

Ms Bullock: Yes, it’s a blunt tool.

Senator ROBERTS: Thank you.

Since 2019 the RBA created $508 billion out of thin air through electric journal entries. I have been warning the RBA directly that this money printing will contribute to the inflation we are experiencing.

What did Governor Phillip Lowe say? He acknowledged I warned about creating money, he acknowledged it was a mistake and he also said nation building projects like Iron Boomerang would help fix inflation.

Transcript

Senator ROBERTS : Thank you both for being here. Dr Lowe, in 2016, I had my first Senate estimates session. I asked the Treasury secretary, who at the time was John Fraser, a question about the huge increase in money supply. He pretty much dismissed me and said, ‘No, don’t worry about it.’ At the next Senate estimates session, he said yes; he acknowledged it. In the third one, he said, ‘Yes. The theory is that it will lead to inflation, you’re correct, but we haven’t seen it yet and we don’t know why.’ So I understand that it’s a vexing problem. You said that one of the solutions is to make the pie bigger. You are saying that the answer to the government’s funding dilemma is to grow the economy and, as a result, the tax base. Have you heard of the project Iron Boomerang? We’ve got the world’s best metallurgical coal for making steel in the east coast and the best iron ore in the west coast. It would build a railway line fully funded. The investors are ready to go. There is a Senate inquiry taking off on it pretty soon. It would take coal to the west and iron ore to the east. There would be massive steelmaking complexes both in the east coast and the west coast. It would remove shipping and road transport. It would be a huge investment. It would add $100 billion to our GDP, which is five per cent. It would open up the north and all of central Australia for the Indigenous living there and rural communities and agriculture. Is that something that we should be thinking about?

Mr Lowe : If the rate of return on that investment is as you describe it and both the financial and social returns are as you describe them, it is something to think about. There may be other projects that have better returns. I don’t want to endorse it, because I don’t know anything about it. But, in principle, we should be looking at the financial and social returns we get from these projects. If they are greater than the cost of funding and the economy has enough resources to do it, then certainly we should be thinking about it.

Senator ROBERTS: We’ve got investors, we’re told, from overseas lining up and also from within. I will come back to the formal questions I had. The Reserve Bank spent the COVID years increasing the money supply, as Deputy Governor Debelle said at the time, by electronic journal entry; they are his words. It is commonly called printing money. At an earlier estimates, I was given a figure of $508 billion as the total for electronic journal entries since 2019. Can you update that figure, please?

Mr Lowe : That’s still roughly the same. I think our balance sheet is a bit over $600 billion at the moment.

Ms Bullock: It is about $600 billion. Exchange settlement account balances are probably around $450 billion or something like that.

Mr Lowe : Our balance sheet has roughly $100 billion of banknotes on it. That is still $100 billion of banknotes. That is $4,000 for every person in the country, which I find extraordinary. That is one of the elements on our balance sheet. We have these exchange settlement balances, which is the electronic money that you talked about.

Senator ROBERTS: Thank you. So inflation has gone from not a problem to a 30-year high, 7.8 per cent in the December quarter. On 2 February 2022, Dr Lowe, you said that inflation had surprised on the upside. In March 2022, you predicted inflation would peak at 4.2 per cent. 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 at Senate estimates, that the sheer volume of this money expansion would inevitably cause significant inflation?

Mr Lowe : You were one of these people who were making the argument that the money supply expansion was ultimately going to be inflationary. That has played a role. As we were talking about before, at least half, 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, the low interest rates and, I would say, the government support during the pandemic have driven inflation. But it’s not the full story.

Senator ROBERTS: Is 7.8 per cent 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 and mismanagement that the government caused, which is what necessitated the money creation? Did you even consider saying to the government, ‘No, I’m not going to print the massive amount of money, so perhaps reconsider your COVID strategy’?

Mr Lowe : No. We did not do—I want to be very clear about this—the money creation at the request of the government. The nine people who sit on the board of the Reserve Bank decided to do this. We had meetings with the government and we understood—

Senator ROBERTS: Was it because the government had put in place so many onerous restrictions?

Mr Lowe : No. It is easy to forget this now. In early 2020, we were being told by the health people that tens of thousands of Australians would be dead within months. Remember that there were preparations for, including in the Reserve Bank, temporary morgues in our cities. Our borders were closed. We were told the vaccine was maybe three years or longer away. This was going to be something that would take the society a long time to get over. That is what we were being told. That was the information—

Ms Bullock: And we were observing what was happening overseas.

Mr Lowe : And we were seeing what was going on in New York and Italy. It was really terrible and scary. People were locked in their homes. That was the base upon which we made the decision to go on this route. It turns out that the scientists developed a vaccine much 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 it was the right thing to do given the information we had at the time.

CHAIR: We’re out of time for this line; sorry, Senator Roberts.

The cost of everything is going up, but the Albanese Labor government is pouring more fuel on the fire by tipping billions into policies that will make electricity prices even higher. With more wind and solar in the grid than ever before power bills have never been higher. Time to give up on this pipe dream.

Transcript

President the Albanese Government’s behaviour goes well beyond a broken election promise to give cost-of-living relief. The Government is actively making inflation worse.

The inflation rate is 8% and will remain at 8% into the future, on the back of increases to energy prices. Electricity, gas, diesel and petrol are all inputs into every corner of our economy.

Forcing energy prices up to appease the sky god of warming will force up input costs right across our economy and lead to more inflation.

Weather-dependent solar and wind power will never provide baseload power. Doubling down on more solar and wind, before the added cost of changing out every wind turbine and solar panel with new ones before we even get to 2050 will lead to more inflation.

Taxpayers pay for these things twice: once in taxpayer subsidies to wind and solar and through higher inflation. Energy inflation.

Not only do we have a lack of wage rises, we have a lack of wages. Businesses are closing all over Australia as inflation wreaks havoc in the productive economy and energy costs drive manufacturing overseas.

This Government has no answers. We have just seen a child care bill that gives handouts to millionaires but fails to create a single job.

Failing to use government policy to create jobs while allowing 220,000 new migrants into Australia every year will create a pool of unemployed, resulting in reduced market power for labour. That can only mean lower wages, even before losing 8% a year off their pay packet through inflation.

One Nation believe the way to break the inflation cycle is a comprehensive root and branch review of the taxation system, to return bracket creep to wage earners while forcing big business, especially foreign corporations to pay their fair share.

Queensland Labor’s Health Department still mandates COVID injections for health professionals. Injection mandates must be abolished now. Let anyone who wants to work, work.

We are one community, one nation and Labor are a threat to breadwinner jobs.

Who would have thought that affluence would be measured by who could afford lettuces at $20/kg, rather than Lamborghinis?  The humble zucchini is now $2 each, and meat and fuel prices are continuing to rise. Inflation will remain with us for the next 18 months.

A small percentage of these rises are caused by supply issues relating to the war in the Ukraine however to blame Putin is to misdirect the blame to a convenient fall guy.  Australian governments cannot use the war in Ukraine and Putin to explain away the prices rises and supply issues.  Like COVID, Ukraine’s war has highlighted the deep flaws already existing in Australia’s approach to strategic industries. 

Years of flawed climate ideology has destroyed our ability to grow food in Australia.

The government’s forced uptake of expensive, unreliable wind and solar power at the expense of cheap sources has increased electricity bills, one of the largest costs of doing business at every stage from farm to table.

Australia imports 1.7 million tonnes of the most common form of fertilizer – urea and only produces 200,000 tonnes locally, most of that here in Queensland. Urea is made from natural gas. Australia has one of the world’s largest reserves of natural gas so why are we paying 400% more for imported products when Australia could be self-sufficient?

Australian Governments have been asleep at the wheel when it comes to protecting strategic industries such as fertilizer. Production shortages will continue and prices will continue to rise and that is on successive short-sighted, LNP and Labor State and Federal Governments.

There is also “green tape”, thousands of pages of heavy handed, draconian laws which do very little to protect the environment and are not based on solid data or science. Instead, they just make it too hard or too expensive for many farmers to use their land. In Queensland some farmers are being prevented from working their land at all.

Our most essential need for surviving and thriving is water. Supposed environmentalists have stopped major dam building initiatives for nearly 30 years. Responsible use and environmental management is of course necessary. Australia has enough water to feed and clothe the world. A lack of vision and forward planning from politicians means that we are at the whim of every weather cycle.

If there’s one thing we should have learnt from the COVID response and now from regional conflicts it is this. Australia can’t rely on the rest of the world. We need to be able to grow every bit of our own food here with minimal government interference.

More than that, Australia has an obligation to use the gifts this country has been blessed with to take our place in the worthwhile endeavour to feed and clothe those who would otherwise be in need.

Our farmers have been extraordinary in their commitment to growing food and fibre because this is a noble endeavour. Successive LNP and Labor Governments have made this endeavour harder and harder in the name of ideology and failed climate “science”.

Now the result of years of mismanagement is being felt in petrol stations and supermarkets across Australia.

Australians can no longer afford to go backwards at the hands of climate zealots whose inner-urban, well-off lifestyles are the least affected by climate madness.

Build dams, install the cheapest available power sources and get government out of the tractor-driver’s seat. If Australia is to survive coming food crises, we must do all of this now.

An old quote says a country is only three missed meals away from a revolution. We have enough arable land to feed Australia and millions overseas, government just needs to get out of the way and let farmers do what they do best.