In Estimates I asked Treasury why they are allowing building companies to go broke.
Instead of driving hard working Australians into poverty, Treasury need to lower immigration and build more infrastructure.
Economics Legislation Committee – 25/10/2023
Estimates – TREASURY PORTFOLIO
Department of the Treasury
Senator RENNICK: Good morning. In a prior Senate hearing with the RBA, the RBA said they weren’t responsible for the supply side of the economy, yet their interest rate increases have sent over 2,000 building companies broke, reducing supply of housing at a time of record immigration due to Treasury’s ‘big Australia’ policy. Higher interest rates are also forcing small business into bankruptcy as well as further reducing supply. In short: rapid increases in interest rates are actually making inflation worse because they’re reducing supply as well as imposing austerity. Given that the RBA doesn’t want to deal with the supply side of the economy, what is Treasury doing to fix the supply side of the economy? I note this morning in your speech you didn’t mention ‘building infrastructure’ once, so could you answer that question, please. How are you going to add more infrastructure and stuff to supply essential services to match the increasing population that we’ve got?
Dr Kennedy : One of the difficulties of increasing the supply side is that, unlike demand measures, it is difficult to do it quickly, for precisely the reasons you’re raising—that is, you might require additional infrastructure. Let’s sit on that issue for a moment. There is a very big infrastructure pipeline sitting with the states at the moment. I mentioned in my opening remarks the difficulty of us getting through the housing pipeline, when clearly we would like to see more dwellings being built. The RBA doesn’t have policies around skilling more people and around the regulatory settings enabling firms to get on and do their business. They have an instrument that works primarily through demand, and slowing demand to match supply, and that’s what they’re trying to do in managing inflation. On the supply side, our advice to government is around skilled work forces, appropriate regulatory settings—for example, for businesses to be able to get on with things—and a range of other policies more broadly, from that perspective.
Senator RENNICK: My last question is in regard to the fact that the states are largely responsible for building infrastructure. As you know there are two ways to issue capital: you can either go out and source debt or bonds, or you can issue new shares, which is what a lot of corporations do. What I want to know is why the Treasury allows states to go and borrow foreign dollars—US dollars that are printed off the Federal Reserve’s printing press out of thin air—rather than issuing new shares in an infrastructure bank for sovereign assets whereby the federal government has an infrastructure bank—and this has been done in the past—that lends to state governments. Right now, for the first time in Australia’s history, the state governments’ combined debt will be more than the federal government’s combined debt. Shouldn’t the federal government be looking at using capital, in the same way corporations issue shares, instead of relying on foreign debt, which is only sending us further into poverty?
Dr Kennedy : We’ve had some good chats about this issue in the past, some time ago.
Senator RENNICK: Yes.
Dr Kennedy : To be honest, it’s a deep and wide issue. I’ll give you one short answer on the approach from the state side, and that is that they’re sovereign. They have the capacity to issue debt in their own right, and they do, through bonds. That’s been the—
Senator RENNICK: But they’re sourcing a foreign government’s currency, not our currency.
CHAIR: Senator Rennick—have you concluded your answer, Dr Kennedy?
Dr Kennedy : I think I have concluded, yes.
