Reverend the Hon. Fred Nile: I wish to ask the Treasurer, the Hon. Michael Costa, a question without notice.

• Is it a fact that major banks are increasing their interest rates over and above the official Reserve Bank interest increases?
• Is there any precedent for this action that makes a mockery of the loan contracts between the borrowers and the banks?
• Does the Treasurer agree this action by the banks is at least unethical and not justified in view of the economic conditions and the large number of borrowers who are being forced to sell their homes because they cannot meet their higher mortgage payments?
• What action will the Government take to stop banks adding these extra interest rates?

The Hon. Michael Costa: I thank the honourable member for the question. It is a very good question, but also a very complex one.

The Hon. Catherine Cusack: Take it on notice, then.

The Hon. Michael Costa: I am not going to take it on notice because it is certainly a question that requires a general response. The fact of the matter is I have been a critic, even under the previous Government, of the way monetary policy is being used as the only instrument to slow the national economy.

The Hon. Duncan Gay: Labor in government is enough to do it alone.

The Hon. Michael Costa: It started to happen under a conservative government, so clearly you have got your facts wrong once again.

The Hon. Catherine Cusack: We are trying to slow inflation; we are not trying to slow the economy.

The Hon. Michael Costa: I just heard some words of wisdom from somebody up the back—"We are not trying to slow the economy". How do we slow inflation? We slow the economy. That is precisely what the Reserve Bank is trying to do. If you chose to read some of the financial pages as opposed to the front page from which you steal other journalists' work and use it as questions in question time you would understand that that is precisely what the Reserve Bank is trying to do. It is trying to squeeze inflation by taking out supply side constraints. How is it doing that? By slowing the economy. That clearly shows what an ignorant bunch we have on the other side. There are two tools that traditionally—

The Hon. Michael Gallacher: Two certainties actually.

The Hon. Michael Costa: There are no certainties. There are two tools: one is fiscal policy, which the previous conservative government got absolutely wrong. They pork-barrelled all the way through three terms in government. Every time they got into trouble they would spend, spend, spend. It put pressure on the economy, supply side constraints were enhanced and they did not provide skills formation—I thought the Hon. Don Harwin was about to take a point of order. He is doing a deal with the Greens! That is interesting.

The reality is that the instruments currently used to slow the economy are very blunt and very ineffective and one has to doubt whether they will work in a globalised economy. It seems to me a major contradiction that we see the United States, the largest economy, cutting interest rates because it is concerned about liquidity problems and a slowdown in the economy—potentially a recession—yet our Reserve Bank is acting almost counter-cyclically to the Federal Reserve by lifting interest rates. Clearly the policy does not make sense. There will be significant collateral damage to families, as the honourable member has pointed out. This is why it is important that the Rudd Government get its budget positions—its fiscal strategy—right. I am very confident, having known Lindsay Tanner for a number of years, that he certainly will take his responsibilities—