Review of the Reserve Bank of Australia annual report 1997-98

Media release: 23 August 1999

COMMITTEE CONCERNED ABOUT LEVEL OF HOUSEHOLD SAVINGS

Concerns about the level of household savings and bank fees and charges, as well as continuing praise for the Reserve Bank's contribution to the state of the economy, dominated a Committee report presented to Parliament today.

The House of Representatives Economics Committee today tabled in Parliament a report on the Reserve Bank of Australia annual report 1997-98 and the Bank's Semi-annual statement on monetary policy May 1999. The report is based on public hearings held with the Governor of the Reserve Bank in Melbourne on 17 June.

David Hawker MP, Chairman of the Committee, said the report underscored the successful performance of the Australian economy and the important role played in that by the Reserve Bank in managing monetary policy.

' We are all aware the Australian economy has performed impressively over the past year', Mr Hawker said. 'Despite a global economic slowdown, our economy continues to show growth rates exceeding 4 per cent and very low levels of inflation. For this, the Reserve Bank rightly continues to deserve our praise. Government financial management is also a major contributor to this performance'.

Mr Hawker said 'While the medium term economic outlook is good, despite the modest slowdown of economic growth rates forecast by the Bank, the Committee's report has recommended that the Government give appropriate attention to the issue of household saving'.

Mr Hawker added 'At the hearing, the Bank again expressed concern about the falling household saving ratio, which is now at historically low levels. We share this concern and have suggested the Government give appropriate attention to this issue.'

The report also discusses the findings of the Reserve Bank's study into bank fees and charges which was requested by the Committee in December 1998. Commenting on this, Mr Hawker said: 'The Committee is very appreciative of the Bank's contribution to this debate so far, but the story isn't over yet. We are expecting to receive more information from the Bank on fees charged to businesses, and will continue to monitor closely the banks' practices for all customers'.

'As well, we are prepared to look closely into the outcomes of the various inquiries into the 'cash-for-comments' deal between the Australian Bankers' Association and a radio commentator to see what else this Committee might do to raise the standard of banking ethics in this country', Mr Hawker added.

The Reserve Bank Governor will appear again before the Committee on 29 November in Sydney.

Ends 23 August 1999

Further information:
David Hawker, MP (Chairman) Parliament House (02) 6277 4100
Shelley McInnis (Inquiry Secretary) (02) 6277 2319
Email: EFPA.Reps@aph.gov.au

A copy of Mr Hawker's tabling speech is attached.

For a copy of the Committee's report see:

• internet:(http://www.aph.gov.au/house/committee/efpa/rba9798/finalrep.htm)
  
• or contact the Committee secretariat

Committee Membership 39th Parliament

Chairman: Mr David Hawker MP
Deputy Chairman: Mr Gregory Wilton MP
Members:
Mr Anthony Albanese MP
Ms Anna Burke MP
Ms Teresa Gambaro MP
Mrs Kay Hull MP
Mr Mark Latham MP
Mr Christopher Pyne MP
Hon Alex Somlyay MP
Dr Andrew Southcott MP

RBA Report Tabling Speech by David Hawker MP(Chair)

Mr Speaker I am pleased to table the latest report of the Economics, Finance, and Public Administration Committee into one of our most important financial institutions, the Reserve Bank of Australia. The report is based on our public hearing with the Bank in June, one of the Committee's bi-annual meetings with the Bank. These hearings are an integral part of the Committee's work and the Bank's public accountability strategy.

The performance of the Australian economy over the past year has been impressive. Two years after the Asian crisis first broke, and despite a global economic slowdown, the economy continues to show growth rates exceeding 4 per cent and exceptionally low inflation. Unemployment rates are coming down and seem likely to break the 7 per cent barrier this year. The Reserve Bank's steady, deliberate approach to monetary policy, coupled with the federal government's financial management, deserves much credit for this success.

Our report elaborates on this success and presents the Bank's views on a number of issues, especially with regard to the role of monetary policy in the maintenance of the conditions for sustainable growth. The report contains information about:

• The impacts of tax reform
• Australia's links with the US business cycle
• Business investment
• The household saving ratio
• Employment
• The current account deficit
• Y2K and financial system stability

Mr Speaker, while the economic news contained in this report is generally very good, the Committee has taken note of the Bank's warning that the low level of household saving in Australia could jeopardise future economic growth, and recommends that the Government give appropriate attention to this matter. The Bank's research has shown that Australia's household saving ratio has declined substantially over the past two decades; currently at 0.4 per cent it is well below the average of 12 per cent prevailing in the early 1980s. March ABS figures reveal that over the past four years the level of household debt in Australia has increased by nearly 50% to average $20,554 per person.

I would now like to turn to another subject which received a fair amount of attention at our June meeting: bank fees and profits. When the Committee met with the Bank in December last year, we asked the Bank to compile some trend data on bank fees and charges, as there was a perception in the community that these were being raised to offset income reductions banks are experiencing due to interest 'margin squeeze' resulting from increased competition in the lending market. Prior to the Committee's hearing with the Bank in June, reports of the results of a KPMG survey lent credence to this perception, and the intense publicity which ensued guaranteed that the Bank's study on the subject, released two days before the public hearing, would be noticed and appreciated for being a worthy and timely contribution to the debate on this subject.

Mr Speaker, I do not propose to go into the detail of the Bank's study and the discussions which took place on this matter; these are detailed in the report. I will say, though, that the Committee accepts the broad findings of the Reserve that the average 'borrowing' bank customer has benefited more from the decline in lending rates than suffered from increases in bank fees and charges.

Recent revelations about the 'cash for comments' publicity arrangements between a radio commentator and the Australian Bankers' Association have only strengthened the Committee's determination to pursue its investigations into bank fees and charges. Despite the recent attempt at a public apology by the Chairman of the ABA on behalf of the banking industry, the Committee needs more to convince it that the industry has committed itself to any meaningful reforms. While the Committee has deferred for the moment conducting a specific inquiry into this matter, it will be following with great interest the outcomes of the various inquiries into the Laws-ABA affair.

Finally, I would like to thank the Reserve Bank, especially the Governor Ian Macfarlane, all members of the Committee and our secretariat staff for their contributions to the hearing and to this report.

I commend the report to the House.

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