Watching the floods race through the main streets of southeast Queensland was sobering – a wake up call that made me realise that natural disasters can happen to any of us.
It also started me thinking about how we’re going to help these people whose lives are torn apart. Food, shelter and support are a good start. But what about the longer term? Where does the government fit in, and do their policies support a ‘relief’ philosophy?
What got me thinking about this was the commentators who suggested that the Reserve Bank will have to lift interest rates soon to combat the inflationary pressures of the Queensland floods. The argument goes that with widespread crop failures and inundated coal mines, the rising price of food and electricity is going to drive inflation up which will mean the RBA raising interest rates.
My first response was that the CPI figures for the March quarter only come out in April, so a flood-initiated rate rise is not imminent.
We’ve also had more than a year of interest rate rises already, dousing inflation from an existing resources boom and the Rudd fiscal stimulus package.
But the reason I resisted the commentators’ reading of the economy is that I find it hard to believe that any government agency would raise interest rates just as millions of people are struggling to put their lives back together.
When you look at the houses destroyed, the businesses wrecked, the mangled power grid, busted water systems and washed-out roads, would a government agency turn around and put interest rate pressure on these people?
I don’t think it’s the place of the Reserve Bank to do that, even though I admit that they have a very blunt tool to work with. If your only response to inflation is to lift, reduce or hold interest rates, then you are limited in how you operate.
Whether closed coal mines and flattened crops trigger fresh inflation in the next few months, there are further issues to consider. Namely, that the Queensland government’s massive investment to rebuild the state will itself produce inflationary pressure as the construction trades boom.
And the inflation will have to be tamed by the RBA.
The current system works that way: we have both a fiscal policy and a monetary one. Fiscal policy pumps government money into the economy via the GFC stimulus and the doubled First Home Owner’s Grant. And then monetary policy raises interest rates to head off the inevitable inflation.
What concerns me is that our leaders in Canberra understand that policies should support the people, not kick them when they’re down.
We may have a Reserve Bank to control inflation, but we need a government to help out those unable to help themselves.
Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.