Transcript of Question & Answer Session The Year Ahead

Thanks so much for that, Dr Lowe. You talked about the Board's hope of getting inflation back up to 2-3 per cent on a sustainable basis, which for those of us with long memories seems like a pretty bizarre place to be, and you also focused on a number of occasions about the low rate of wages growth, which is at an all-time low, the wage price index is at an all-time low. Obviously, there's little the Reserve Bank can do directly about wages, but in recent years you've been willing, in public if need be, to advise the government of the need for further infrastructure and fiscal spending, as well as further microeconomic reform. Is it time you also advise the government to do more on wages growth and the balance of power in the labour market?

No, I'm not going to provide the government with advice on that vexed issue. I think our main contribution here is to keep the monetary support going as long as is reasonably possible, and my hope is by doing that, people will get jobs, the unemployment rate will come down, the labour market will tighten, and as it tightens wage increases will rise. I have some confidence that that process will work, but I am also realistic enough to know that's going to take a long time.

Before the pandemic, we were seeing tightness in some pockets of the labour market, and wages in those pockets were starting to move, so that gives me confidence that the laws of supply and demand in the labour market still work. Our strategy is to make sure that there's strong demand for labour, the economy is growing strongly, and eventually, firms start paying higher wages because they want the workers.

Obviously, the government's programs are helping in some of those areas, but for our part, we're going to keep the monetary support going until people have jobs and firms have to pay higher wages to get the workers they need. I'm confident that that will eventually work, but we have to be patient.

The next question is from Jennifer Duke.

Thank you very much for taking my question today. The government has decided to tie public wages to private wages. Given the low wage growth environment that we're in, won't that actually be a deterrent to wages growth across the economy?

It depends which way you think the causation runs here. I think there's a longer-term structural feature, as long as you think the relativities between public sector and private sector wages are okay, that they should over the long-term increase at the same rate, shouldn't they? As a principle, I can understand where they're coming from.

My aspiration is for both public and private sector wages to be growing faster than they currently are, and our strategy is really the one I just articulated in response to Laura's question, get strong demand for labour, and then both government and private businesses have to pay higher wages to get the good workers they want. The quicker that happens the better, but it's going to take some time, isn't it?

The next question is from Patrick Commins from The Australian.

Hi Governor, Patrick Commins from The Australian newspaper. Your upside scenario has unemployment rate going below 5 per cent, second half of next year, which means it could be in the low 5s, beginning of next year. Given that the Treasurer said that when the unemployment rate's comfortably below 6 per cent, they'll begin the task of budget repair.

Next May's budget – not the coming one, but the following one – could be one of tighter fiscal policy, in which case, are you concerned that tighter fiscal policy could complicate your task of getting the inflation rate back to 2-3 per cent? You'll have fiscal and monetary policy potentially working at cross purposes again?

Well, there are a lot of conditions in that question. You've got to kind of achieve the upside scenario. The government's got to respond to that with tight fiscal policy. It's not my business to be kind of commenting on hypotheticals. All I can say is that what we've seen in the past year is the fiscal response has been incredibly important in the recovery of the economy. It's helped across a whole range of dimensions and I've welcomed, publicly, what the federal government has done, and what the state, and territory governments have done. They've done the right thing by the country. We've had to borrow more to do this. It's been exactly the right thing to do, to borrow against our future income, and I'm hoping that they'll continue to respond in the same flexibility in the future. If we need extra fiscal support, I hope we get it, but I think it's too early to be speculating about what might happen in the middle of next year. You've got to get through this year's budget, haven't we?

Matthew Cranston?

Governor, Matt Cranston, Australian Financial Review. Are central banks around the world in a cold war on currency at the moment? It seems to me that regardless of how fast the domestic recovery happens in Australia, you're going to have to be doing QE for years. With all that cheap money around, do you really think we're not going to get dangerous asset price bubbles in things like houses or stocks like GameStop?

Now, there's quite a lot of elements to that question. Are the central banks in a cold war? The answer to that's no. Every month I'm meeting with the governors of the other major central banks, and we discuss this issue. We understand that part of the transmission mechanism is through the exchange rate, no one wants to see, in the current environment, their exchange rates really go up by that much. If some central banks are doing quantitative easing, most of the rest of us feel like we need to do that as well. Otherwise, our currency will go up. We don't think of that as a war, it's just how monetary policy is transmitted to the real economy.

Are we going to be doing this for years? I hope not. I don't expect we will need to do it for years. As I said, the central outlook we have is further progress towards our goals, and if we make that progress at some point, that will be appropriate to do something different.

Am I worried about asset prices rising too quickly? At the moment, not especially so. There's a lot of focus at the moment on the fact that housing prices are rising again, and the stock market's being strong as well, but the national house price index today is where it was 4 years ago, so we've had no net increase in national housing prices over the past 4 years and the capital city price index is lower than it was 4 years ago. In regional Australia, it's a bit higher, and in the equity market, we're not even back to where we were at the beginning of last year. So I find it hard at the moment to express concerns about at least the developments in asset prices to date. It's possible that housing prices could rise further, but there are also factors working in the opposite direction, aren't there?

Population growth has hit the lowest since 1916, the rate of new house building at the moment, is the highest in decades. We've still got falling rents for apartments in Sydney and Melbourne. So there are a lot of dynamics going on here. At the moment, I don't see anything that's unsustainable.

The issue for us would be if on the back of rising housing prices in particular, people were borrowing a lot of money, and they weren't doing that sensibly. APRA, and with the assistance of the Council of Financial Regulators, showed a few years ago, if that were to happen, they're prepared to step in. There were a lot of elements to that question. I hope I addressed most of them.

Andrew Probyn?

Dr Lowe, Andrew Probyn from the ABC. As your speech was indicating, a lot of the economic recovery depends on the vaccine rollout. What work have you and your colleagues been doing on vaccine hesitancy? What concerns would you have if well-known Australians, including elected officials, were to act in a way that would cast doubt on the efficacy of vaccines?

We haven't done any particular work on whether the population is going to take a vaccine in large enough quantities, but that's not my area of expertise. We take the advice from the government, and I noticed the Prime Minister, when he was asked a similar question earlier in the week, said he takes his medical advice from his doctor. That's one of the things …

Would you thoroughly encourage the same?

I would certainly. Well, that's where I take my medical advice from, from a doctor. I'm not a big YouTuber or social media person, so I generally would go to the doctor, and to the extent that advice is transferable to other people, you need to be sensible, but it's not my area of expertise. We just take the government's plans for rollout, and we factor those into our forecasts.

The bigger issue is, I think a global one. The advanced economies will get a fairly high share of their population vaccinated fairly soon, but there'll be many other countries where that won't be the case. If that's the situation, will the international borders open up? Will we find a way of doing that safely? The closure of the borders, while that affects individuals, they can't see their families and they can't travel. It's also affecting businesses. I know quite a few businesses when I ask why they're not investing? They say, ‘Well we can't get the technical specialist from Germany or the US to come in and put in place the plant or do the software’.

A lot of stuff can be done by Zoom now, but not everything can. Commissioning a new plant and some type of technology work can't be, so If we can get the vaccines globally, then we'll be able to open up the borders and I think that'll give firms another reason to invest, but we don't do any particular work on this issue.

Chloe Bouras from Network 10.

Chloe Bouras from Network 10. Could you please explain in the simplest terms, perhaps keeping in mind your audience outside of this room, when the RBA decides to purchase government bonds, as it's doing, where does the RBA get that money from? Is it simply a matter of printing new money? How does it work?

Well, it's not printing money. People think of it as printing money, because once upon a time if the central bank bought an asset, it might pay for that asset by giving you notes, you know, bank notes. I'd have to run my printing presses to do it. We don't operate that way anymore, obviously because we live in an electronic world. When we buy a bond from a bank, the way we pay for that is credit. The banks, we'll use Westpac, who's the sponsor of today's event as an example. If we bought a bond from Westpac, we would credit Westpac's account at the Reserve Bank, and that creates the money electronically. That's how a modern system works. And then Westpac could use that money hopefully to make some loans to some of its customers. But we can create money electronically, and that's what we do these days.

Thank you.

The Central Bank is the only one who can do that. That's the unique feature of a central bank, and that's why you want … This is my final point here. That's why you want a lot of governance over the process of doing that. You wouldn't want everyone to be able to do this, would you? Just so you've got a governance, you've got kind of strong board with a mandate, legal responsibilities and we take it incredibly seriously and we're laughing now, but it's not something we take lightly. We take it incredibly seriously. We know we're doing this in the national interest, but it's a heavy responsibility to be able to just create money like that.

Dr Lowe, Ross Greenwood, Sky News. Just on that subject as well, given the debt that's being accumulated through government, given of course the very low inflation – that is one of your scenarios, low growth, low investment – is it one of those things where Australians need to prepare their children and grandchildren for the fact that they might be less well off than what their parents' generation were simply because there are not the opportunities? Because government is curtailed into the future? Is this something that you try and explain, so for example, to your children, when you go home and explain to them what you've done at the office that day?

No, I certainly don't prepare them to have lower living standards than I have. I talk to them about the importance of education, about the tremendous opportunities the country has across a whole range of areas. I see fantastic things happening on the digital economy, tremendous opportunities in energy. So I talk to them about opportunity and technology, because I think in the end, that's going to drive stronger living standards in Australia.

The 2 things that are really important for our future prosperity are developing new technologies, because that drives living standards and developing our human capital. I sometimes say to my kids, when I'm in lecture mode, Australia became really wealthy and prosperous, largely from what was in the soil and what we can grow in the soil, over the last 200 years. Over the next 200 years, it's going to be what comes out of here, not what comes out of the land. So I make sure I tell my kids to study, which they do, and to understand technology and that will drive better living standards for them.

Peter Martin.

G'day, Peter Martin, The Conversation. A more technical question. You're targeting the 3-year bond rate. That's the anchor you say, yet the 10-year bond rate is creeping up. At the end of last year, it was just below 1 per cent. I think today, today's auction, it was 1.14. Latest survey of economists has it increasing over the next 2 years to 1.5. Is this a good thing? A sign that maybe there's some optimism about the economy in the future and the government's need for cash, or is this a bad thing and something that in order to keep a lid on interest rates, on the cost of money, you're going to have to maybe consider extending out your target, maybe targeting 10-year bonds?

We're not considering moving in that direction. I don't think it's a good or a bad thing. It's just a thing. Bond yields are rising around the world and our yields have risen because the US yields have risen. And why is that happening over the past month? It's largely because of the rapid development of the vaccines. People are more optimistic about the future, about the next couple of years in terms of global growth than they were last year, and when they're more optimistic, the bond yields tend to rise. So it's a reflection of a bit more optimistic tone, and I hope that ends up being validated.

But you're prepared to sit on that reflection for the 3-year bonds, not for the ten year? You're prepared to suppress that?

If you think of the 3-year rate as being the expected cash rate over the next 3 years, and I think, well, I hope one of the messages you took away from what I said is the cash rate's going to be where it is probably for the next 3 years. And if that cash rate's there for the next 3 years, then the 3-year bond yield should be the same at 10 basis points. So that's perfectly consistent. I really hope the cash rate isn't where it is for the next 10 years. And I don't expect it will be because I expect technology and human capital and the resilience of Australians to drive a recovery in which we'll be able to gradually and slowly, carefully return interest rates to normal, but probably not in the next 3 years. But in the next 10 years some time.

Colin Brinsden.

Colin Brinsden, AAP. You expect employment growth to slow when JobKeeper comes off in March. Given your aim for employment or unemployment, are you a bit disappointed that the government is ending that scheme so soon, particularly as you're going to great efforts to make money as cheap as possible for them?

Well, I think when JobKeeper ends, there will be some job shedding. That surely will happen, but that's going to take place in the context of an economy that's otherwise recovering and there's quite a lot of job creation going on at the moment. Job ads, job vacancies and business hiring intentions coming out of the surveys and in our own business surveys and so firms want to hire workers. So there's that kind of dynamic occurring. And the recovery in aggregate jobs will slow temporarily when the JobKeeper program comes to an end. And if you look carefully enough at my graphs, you'll see the unemployment rate stops falling for a while and it's possible could rise a bit for a month or 2, but given the ongoing recovery in the economy, we expect the unemployment rate to keep coming down.

Am I disappointed the government's stopping the JobKeeper program? No, and the government made it very clear this was a temporary program. It's been an incredibly important program. It's saved many people their jobs and helped people in their lives. So it's been incredibly important. It was only ever meant to be temporary. And given the recovery of the economy, I can understand why the government wants to stop that program, as they said. We'll then perhaps have a discussion about whether there's an opportunity for more focused support in those industries which are still feeling very difficult conditions and it's largely people associated with international travel and major events.

So people want to keep these support measures going, but it was designed to be only temporary, wasn't it? At some point we've got to stop it and the economy is actually on a reasonable track at the moment.

Just to sort of consolidate that point. You're seeing JobKeeper coming off as part of, perhaps, a blip in the economy rather than a cliff in the economy?

Yeah, at the moment, we're seeing it very much in terms of something that will slow the decline in the unemployment rate temporarily, and it's quite possible we have a month or 2 where the unemployment rate blips up, but we've got to remember that this has been withdrawn in the context of an economy that is recovering. You saw from my graphs the unemployment rate has come down a lot quicker than we thought. And in all the high frequency indicators of what's going on in the labour market, and when we talk to businesses, our sense is that job creation is going to continue. And I'm hoping that that will be enough to offset the job losses from the ending of the JobKeeper program.

But it's something that there's a degree of uncertainty around. Of course, we haven't been in this area before, so we don't have any experience to draw on. It's possible it could go the other way. But the central scenario is that we continue to recover.

Mark Kenny.

Dr Lowe, Mark Kenny from the National Press Club Board and the ANU. You've just really effectively answered the question I was about to ask you about JobKeeper. So I might refer you back to my friend, Andrew Probyn's question. One of the lessons of this, which I'm sure you would agree with, of this whole management of this period, has been that if you get the health side of it right, the economy is protected through that process. That's been really Australia's achievement here.

And therefore, any questions about the vaccine, which is the next stage of this, and upon which a great deal of confidence rests, including all of those business investment decisions you were talking about, the vaccine is fundamentally important. It does rather rankle, I think, for some people to be paying for both the PR exercise in building confidence, and the salary of MPs who are running down that confidence and creating questions. Do you see the question of the vaccine itself, how effective it is, and what the take-up is, as a risk factor in the economy? Is that something that you are considering as one of the variables for the recovery?

Not particularly. I'm staying on proposition that most Australians are very sensible, they'll do the right thing. We've seen that over the past year. I remember when the pandemic first hit and I was in Saudi Arabia at the G20 meeting with the Treasurer and we saw that China was locking down its cities and we were speculating whether that was even possible in a democracy. Well, we now know it is. We know Australians, while they weren't very happy about it, they did it and we didn't complain. We've actually done the right thing. So this resilience, this desire to do the right thing by the community is very strong in our ethos. And I'm confident that will continue and that most people will get vaccinated as I think we should and as I certainly will. I think that's how the vast bulk of Australians will respond to this and that's going to be enough. Certainly, some people won't want to get vaccinated and they'll have concerns, but I think enough of us will get vaccinated. I have enough confidence in Australians.

Thank you.

Paul Karp.

Paul Karp from Guardian Australia. Thanks very much. You've given your thoughts on JobKeeper, but could I please ask similarly if the JobSeeker coronavirus supplement is not extended, how large will the macroeconomic impact of that be and do you see a case for making a permanent increase to unemployment benefits?

Well, we haven't modelled the consequences of going back to the previous Newstart levels, but I think there's a wide consensus in the community that the previous level should be increased permanently. And I've said on previous occasions that I would join that consensus. Whether the government decides to do that, it's entirely up to them. It's a government fiscal policy issue, but I can see the arguments for a permanent increase. And the government obviously will have to make a decision before, I think it's the end of March, isn't it, when the current supplement runs out.

And sorry, just on the macroeconomic impact if it isn't extended?

I'm not aware of any particular modelling we've done. It would obviously have some effect because these people are getting their supplement; the vast bulk of them spend the bulk of the income they get so there'd be some effect on spending. But for me, it's not really a macroeconomic management issue, it's a fairness issue. What's the appropriate level of support we should provide to people who are unemployed? That's my prism. It's not a macroeconomic prism. It would obviously have some macroeconomic effect, but that's not the first order issue, is it? As a society, what level of support do we want to provide people who don't have a job? And different people will legitimately have different views about the level of support. My own view is that some increase is justifiable.

Lanai Scarr.

Lanai Scarr from the West Australian. Thank you for your speech. How much do you think the current China trade tensions are impacting our economy, and do you have a forecast for how long you think it will take until that's repaired? Can it be repaired between Australia and China?

You're out of my area of expertise here.

You must have a view though, surely.

I listened to the Prime Minister talk about it, I think in this room, was it on Monday? And I don't have anything to add to what he said. My area of relative competence is what's going on in the Chinese economy now and it's recovered pretty well. It got on top of the virus quickly, it had big subsidies and support for producers. And unlike the advanced Western economies, it didn't focus on income support to households, it focused more on support to businesses, and that generated a big increase in production and now that's starting to flow through to increase consumer spending. The Chinese equity market has been strong, interest rates have gone up and the exchange rates gone up. So the current Chinese economy is doing better. That's my area of expertise. Obviously, the tensions with China affect our own economy, but how they're going to resolve it, I think you'd be better listening to the Prime Minister than me.

Shane Wright.

Governor, Shane Wright from The Age and The SMH. In middle of 2019, a trio of RBA economists released research on the so-called ‘debt overhang’ effect that people who, as they increased the amount of the size of their mortgages, even if the value of the house went up, it affected their household consumption. These researchers from your own organisation found that as you lifted debt, consumption came down. You've got a huge amount of debt being held on by mortgagees at the moment. Is that an issue that you might see play out, given that you've got interest rates so low and you've committed to such a long period of time that will feed into higher debt levels and that will then flow back into lower consumption once all the support disappears?

It's possible, but over the past year, debt levels for many people have actually declined. We've seen record balances being held in these offset accounts that people have against their mortgages and the re-draw facilities. Every month, we're surprised at how much has gone into those. Many people have used the extra government support and the fact they haven't been spending as much because they couldn't, or they were cautious, to pay down their debts. So I think that's a positive development. It's added to the resilience of the household sector. Their balance sheets are in better shape than they have been for some years. So that's where we are now.

It's possible, certainly that we could go through a period of rapid credit growth again, and people start borrowing because interest rates are low and they want to buy houses. The issue, as I said, in my prepared remarks is, are people doing it responsibly and carefully and are the banks applying decent lending standards? In the last housing boom lending standards deteriorated too much and APRA and the Council of Financial Regulators stepped in. If we saw anything like the same developments occur again, we would do the same. So it's a risk there, but there is a policy response if that risk starts to manifest itself and it's something that we're watching very carefully. At the moment I'm not worried, but that could change.

John Kehoe.

Thanks Dr Lowe, John Kehoe from the Australian Financial Review. You've made the rather extraordinary pledge that you don't believe interest rates will rise for the next 3 to 4 years from the rock bottom 0.1 per cent, which means potentially you may never raise interest rates in your 7 years as governor. My question to you is, I understand the forward guidance value you get out of making that pledge, but how much confidence do you have in that and how much credibility does it have? Your own presentation today showed that we're easily outperforming the RBA central forecast and also it's more optimistic upside forecasts. New Zealand today reported unemployment of just 4.9 per cent, perhaps a good lead indicator for Australia, and we're getting asset price appreciation. And also there's going to be limited labour supply from immigration not being allowed over the next year or so. So maybe unemployment could fall even faster than we think. Is a 3 to 4 year pledge too good to be true?

Can I just take an issue with the word pledge? I haven't pledged anything. All I've said is that we're going to keep interest rates where they are until inflation is sustainably within 2-3 per cent and I don't think that's going to be until '24. So that's what I've said. You might have a different view and you might think that inflation is going to get back there next year. Maybe. But that's not my view so I'm just … I'm big on openness and transparency so I wanted to share my view with you, but I'm certainly not pledging that. But I think there's a high degree of confidence that that will be the outcome. It's certainly possible and I hope the unemployment rate comes down more quickly than we have forecast, but even if it does, we discuss both at the Board and internally at the Bank, the experience before the pandemic, when we had unemployment rates at 40 and 50 year lows in the US and the UK, and actually even in New South Wales, we've got an unemployment rate as low as it was in 1973.

And even then wage growth was 2 and a bit increasing, only very slowly. So there is some really powerful structural factors at work, not just in Australia, but globally, like the globalisation of supply chains which may be in reverse, they relate to technology, changes in the power between workers and firms. So they're really powerful structural factors that mean that you have to have a very tight labour market, low unemployment rates to get wages increasing materially.

You might have a different view to me about how quickly those structural factors will reverse, or maybe how quickly the unemployment rate will come down, but my judgement is the unemployment rate will come down, but not sufficiently quickly. And those structural factors are going to be with us for some years. There's another one working perhaps in the opposite direction, that's the ageing of the population, but that's very slow moving. So I'm not pledging, but I'm giving you my best guess.

Andrew Tillett.

Andrew Tillett from the Australian Financial Review and board director here at the Press Club. We currently have a situation where 2

million people in Perth are locked down for 5 days because of one case of the virus. We had Sydney effectively cauterised from the rest of the country over the Christmas period. I was wondering if you'd give me a bit of an assessment of what sort of damage border closures actually have done to the economy, given that there is this sort of mixed feeling about it, as Mark Kenny was alluding to, if you get the health response right, the economy will look after itself, so the damage that's been done by that. And given that a definition of what should be a hotspot has proved elusive through the National Cabinet process, how important do you think it is to the economic recovery that we do sort of arrange or land at a nationally consistent approach to border closures?

Perhaps I can make 2 general points. The first would be that the lockdowns and the restrictions have not been as depressing on spending and activity as we thought they would be. What we discovered, and we probably should've known this, that people find other ways of spending money and to do their business, don't they? If you're from Perth, and you can't travel to Sydney, you might spend your money on something else. So, there's tremendous resilience, adaptability, and innovation in the way we go about doing things. So that has helped the economy as I spoke about in my prepared remarks.

I think the other general point and this is something that I kind of feel in my job, in these public roles, you're having to make trade-offs all the time. We've got trade-offs between inflation and unemployment, housing prices, financial stability. And so as a public official, you're having to make trade-offs all the time. The premiers are having to make very, very difficult trade-offs, aren't they? If they shut down now, they improve the health situation. Hopefully, in the end that improves the economic situation, but in the short-term it poses economic costs. And we know, I know this from my own experience, that the shutdowns impose personal costs on people. You can't see your family and friends. So there are all these types of trade-offs that politicians are having to make, and we can all sit there and criticise how they've calibrated those trade-offs. But by and large, the Australian political class I think has done a remarkably good job at managing those trade-offs. They're not perfect and everyone here in this room will have a different view, but broad sweep, I think given the difficulty of making trade-offs, they've done a pretty good job.

I'm getting close to time, but the next question is from Tom Connell.

Tom Connell from Sky News. Governor, I thought I better throw in about the old Modern Monetary Theory debate, because it rages on. We've got this huge amount at the moment, obviously, of bonds being bought last time around during the GFC, perhaps the inflation a lot of people predicted didn't come, but if it does at some point, obviously a massive or a spike in inflation is a pretty bad thing for an economy. Are you looking at any other warning signs aside from just inflation itself as to whether that's a threat in the future, given all the government bond buying at the moment?

Well, just for clarity, we're not involved in Modern Monetary Theory, which is the central bank directly financing the government. We don't do that. We will not do that, it's not on my radar screen. So you may have heard me before say Modern Monetary Theory – there's not much monetary, not much modern, not much theory in it. But the more substantive part of your question was is there inflation risk? That's more serious than the one I've been articulating. It's possible. I think it's very unlikely again, because to have sustained increases in inflation, we've got to have sustained increases in wages. And for the reasons I was talking about before, I just don't see that on the horizon.

It's possible that we do get some pockets where there are price increases because demand is strong. As I was saying to my colleagues this morning, the laws of demand and supply still work. We know that. When people have bought a lot of homewares in the last little while the price of homewares are rising at the fastest rate in a decade and some other consumer goods or price of electrical goods kind of where they're falling at the slowest rate in a decade, because there's been strong demand.

So we could see adjustments or interruptions to the balance between supply and demand because some prices do rise quite quickly. But do I worry about a generalised outbreak of inflation? No, because I think the wage dynamics are such that it's hard to see wages return to 4 per cent growth. Now, I'm hopeful in the medium term to deliver the society, well it won't be me, but the central bank delivers inflation rates of 2.5 per cent on average, there's at least 1 per cent labour productivity growth. That would mean wages growing at 3.5 and hopefully a bit more.

It seems a long way away, doesn't it? To have wages growing at 4, when they're growing 1.25.

Absolutely.

It could change. We know a lot of things change quickly in this world, but this is not one that I'm expecting to change quickly.

Final question today is from Tim Shaw.

Thanks Laura, Tim Shaw, Dr Lowe, director of the National Press Club. You've spoken about responsible lending practices and the importance of being able to keep that in check. We don't want a repeat of some of the practices of the past. Can we talk about the responsible borrowing practices of state and territory governments? In the context of their debt levels, the Commonwealth's been investing nationally, as we know, during the COVID pandemic. Can you run a ruler over the states and territories, their capacity to borrow, because it was only a little while ago that we're going to be back in the black federally? What's your view about the investment practices and the borrowing practices of states and territories here in the Commonwealth?

Well, I have been both publicly and privately encouraging the states to spend more, particularly on public investment. So I can hardly criticise the borrowing they're doing to fund that. And I wouldn't be inclined to criticise them either because they've played a very important role in the national fiscal response and particularly over the next year or so, the infrastructure programs they're rolling out, it's going to support jobs, help the economy, and it's entirely appropriate they borrow to do that.

Most of them, and this is the same for federal government, have not baked in permanently high levels of spending. That's quite important that governments don't do that. You can only have permanently high-level spending if you have a permanently high level of taxes and there's obviously disinclination to do that. So you shouldn't have permanently a high level of spending. But, during a once in a century pandemic, it's exactly the right thing to do, to borrow against our future income, build the infrastructure we need, and then to pay that debt down gradually over time, that's exactly what they should be doing and I might be encouraged by what the state governments have done in response to the pandemic. It's proportionate, sensible, and affordable.