The Prime Minister, Kevin Rudd, has made his first appearance at the National Press Club since last year’s election.
He spoke about the global financial crisis and the package of measures announced by the government yesterday.
- Listen to Rudd’s speech (60m)
Transcript of Prime Minister Kevin Rudd’s Address to the National Press Club.
Last year, in my formal reply to the last Budget of the Howard Government, I referred to a great remark from a great American President, John F. Kennedy.
Speaking at a time of unprecedented American prosperity, President Kennedy said:
“the time to fix the roof is when the sun is shining”.
And I said back then the sun was shining on Australia.
Back then, because of an unprecedented global economic boom, the sun had been shining on Australia for the better part of a decade.
But all that began to change, a little more than three months later, with the beginning of what we now have come to call the Global Financial Crisis.
What began as a patch of bad weather in America has now become a cyclone that has threatened to engulf the world.
It has smashed its way across the globe. It has swept aside financial institutions that had survived a combination of World Wars and world depressions across the centuries.
And it has even threatened the finances of nations themselves – with one nation-state declaring itself to be officially bankrupt.
These are testing times.
But my message to the nation today is that while these winds of ill-fortune have battered institutions and shattered confidence across the world, the Australian financial system remains strong.
Our economy remains strong.
And the Government has set a national course of action to see Australia through this international crisis.
Ladies and gentlemen.
We are being tested.
Of that there is no doubt.
But our country and our economy will prevail.
In part, because in the time the Government has been in office, we have been planning ahead – preparing for the worsening of the storm.
In the May Budget, we built a strong budget surplus as a buffer against future turbulence abroad.
When we planned for that surplus, we had thought we might be planning for events that might occur well down the track.
In fact, those shocks have arrived just a few months later.
We were nevertheless well prepared for the challenges we now face.
And we have acted decisively, we have acted responsibly and we have acted early.
I know that many Australians are deeply concerned about the future.
Make no mistake – this is the single greatest threat to our economic security in a generation.
And it’s the most significant upheaval in the global financial system in our lifetime.
That is why the Government has acted decisively with the $10.4 billion
Economic Security Strategy.
* To do everything possible to keep our economy growing.
* To do everything possible to create new Australians jobs.
* To do everything possible to build new Australian homes.
* To do everything possible to help those in greatest need.
* To do everything possible to prepare for the future.
In the last few weeks the global financial crisis has moved into a new and dangerous stage.
But this is a crisis that has been unfolding for over 15 months.
Its origins go back to the beginning of this decade, with the collapse of the dot com boom.
US authorities responded with aggressive cuts in interest rates.
That opened up an era of cheap debt that was accompanied by increasing financial complexity and a greater appetite for risk.
Financial products – from basic sub-prime home loans to complex financial derivatives – were built on the shallow foundations of a cheap debt economy.
Loans were advanced to millions of people, especially in the United States, with no realistic prospect of them ever being repaid.
And those loans were financed through complex financial products that were understood by neither investors nor regulators.
The balkanisation of risk, the attenuation of risk sought the impossible dream of the elimination of risk and responsibility – so that ultimately nobody believed they carried risk and responsibility.
And through it all, the ratings agencies blessed these products as safe investments – ratings agencies that have yet to face their own day of reckoning – and the products they sanctioned continued to proliferate.
Credit default swaps also played an important role in the excessive underwriting of high-risk mortgages.
The ability and willingness of providers of credit default swaps to offer cheap insurance against counter-party risk exaggerated the credit worthiness of the assets and the counter-parties that backed them to the final investors.
This mix of cheap credit and cheap insurance ultimately resulted in these sub-prime assets being sold all over the world to investors, from both large scale financial institutions to small scale investors like councils, corporations, charities, churches and even ordinary households.
They had no chance of understanding what they were investing in, until crunch-time came late last year, when the absurdity and the obscenity of the leverage contained in these investments finally began to erupt.
By then, it was clear things had gone badly wrong.
And it was then that the financial crisis erupted.
Because when analysts went looking to find which institutions had exposure to those sub-prime loans, those exposures weren’t transparent and couldn’t be easily found.
There was no clarity about who held which investments, nor what those investments really contained.
Clouds of suspicion began to gather over one financial institution after another.
As those clouds began to gather, lending began to dry up.
And what had begun as the sub-prime lending crisis slowly morphed into a global crisis of confidence.
The causes were complex.
* Failures in transparency.
* Failures in lending standards.
* Failures in prudential standards.
* Failures in risk-management.
* Failures in corporate governance – in fact, obscene failures in corporate governance which rewarded greed without any regard to the integrity of the financial system.
And these failures weren’t limited just to businesses on the margins of the financial system.
They happened in our major global financial institutions, the Wall Street investment banks that were pillars of the global financial system.
And that is where we’ve arrived in recent weeks, as markets have lost confidence even in leading global financial institutions and in the international financial system itself.
Financial markets reduced to panic.
The global financial system pushed to the brink.
We’ve seen some of the largest one-day movements in stock markets of any time in history.
And these developments are now taking us into recession across most of the industrialised world.
What we have seen is the comprehensive failure of extreme capitalism – extreme capitalism which now turns to government to prevent systemic failure.
The institutions of government that extreme capitalism spent decades deriding.
So what is to be done?
The collapse of this house of cards has had devastating consequences both for financial markets and for the real economy.
The IMF has estimated that losses and write-downs on loans and securitised assets will reach 1.4 trillion US dollars.
Over the year to the end of September, global equity markets have fallen by 17.5 trillion US dollars, including losses of 4.1 trillion in US equity markets.
Australian financial markets have not escaped unscathed.
Our equity markets experienced losses of around half a trillion dollars in the same period.
But Australia is in a stronger position than comparable nations.
We have four of the world’s 20 AA rated banks.
They are profitable.
They are well capitalised.
The lending standards of our financial institutions have not deteriorated.
The regulation and supervision of Australian financial institutions leads the world.
Our auditing and reporting standards have been ranked 3rd in the world.
Australia has also been ranked equal second out of 134 nations for the soundness of our banks in the World Economic Forum’s Global Competitiveness Report.
These are important national institutional strengths at a time of global systemic weakness.
But like other financial institutions around the world, Australian banks have found it harder and more expensive to source funds.
This of course has significant consequences for the real economy in Australia.
It is clear that the global economic impacts of this crisis will be profound.
The boom that saw the strongest period of global economic growth in thirty years is over.
The IMF is now forecasting the slowest growth in advanced economies for over a quarter of a century.
In the words of its World Economic Outlook last week:
The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s. … The major advanced economies [in North America, Europe and Japan] are already in or close to recession.
The IMF is now forecasting zero growth across advanced economies this year, and growth of less than half a per cent in six of the G-7 economies.
The impact of the crisis is not limited to the advanced economies.
Emerging markets like China and India will be affected.
Nevertheless, emerging economies remain strong.
China is still expected to grow next year by 9.3 per cent, India by 6.9 per cent, and the ASEAN economies by 5.7 per cent.
Further, Chinese leaders have indicated a willingness to lower interest rates to stimulate their domestic economy – an important signal for the global economy.
Remember this is what China did in the Asian Financial Crisis a decade ago.
The stakes are now much higher.
The opportunities for China are also greater.
Right now the world needs China’s economic strength at a time when growth is under threat.
Asia is the fastest growing part of the global economy – by a long shot.
And this will help Australia to weather the storm that lies ahead.
Our economy will however be affected by the global fallout.
That is why the Government has taken decisive, early action to support our economy and our financial system.
The Government has systematically taken a range of measures over the past 10 months to maintain the stability of the Australian financial system.
They are measures which have been implemented in the closest possible coordination with our financial and economic regulators.
First, we have acted to maintain liquidity in financial markets.
The RBA has acted quickly and appropriately to expand liquidity in financial markets – often in coordination with its international counterparts – in a series of actions in March, June, August, September and October to inject liquidity in to markets.
In May this year, the Government announced that we would provide legislative authority for an increase in future Commonwealth Government Securities issuance of up to $25 billion to strengthen the robustness of Australia’s financial system and reduce its vulnerability to adverse shocks.
And in June we introduced legislation that would enable us to boost the range of assets in which the Australian Office of Financial Management could invest.
All these measures were put in place ahead of time.
Invariably without fanfare.
But with a single purpose of having all the necessary instruments in play – prior to any deepening of the crisis.
Second, we have guaranteed bank funding.
Last weekend I announced that the Government would guarantee, by application and in return for a fee, term wholesale funding by banks and other authorised deposit-taking institutions in Australia so that they can continue lending.
Again we took this decisive action in close consultation with the regulators.
And we did so in anticipation of foreign government guarantees in less robust national banking systems – foreign guarantees that would have placed our banks at a disadvantage in global credit markets had we not acted.
Third, we have guaranteed bank deposits.
On Sunday we announced a financial package that guarantees all depositors and all deposits in all Australian banks, building societies and credit unions for the next three years.
This is a broad guarantee that covers the deposits of both households and businesses, as well as wholesale deposits.
This guarantee is being implemented as part of the Financial Claims Scheme announced by the Government earlier this year.
Recommendations for a Financial Claims Scheme were first made five years ago after the HIH Royal Commission.
But after five years, no action was taken.
That is why the government in June this year proposed a framework for a Financial Claims Scheme – the result of which is properly prepared legislation that will be introduced into parliament today.
Fourth, we have acted to protect financial institutions from speculators and short selling.
On September 19, the Australian Securities and Investments Commission (ASIC) announced a ban on short selling.
And on 23 September, the Government released draft legislation on disclosure arrangements for covered short sales, which is open for public comment until 21 October.
These measures have been absolutely necessary to act on predatory behaviour by international speculators on Australian markets.
Fifth, we have acted to support competition and liquidity in the mortgage market.
On 3 October the Government announced the initial purchase of $4 billion of residential mortgage backed securities to support wholesale funding of financial institutions and improve competition in the market for housing finance.
The Government has been monitoring the market closely and has determined that an additional $4 billion in funding is required for the purchase of residential mortgage backed securities from Australian lenders who are not banks, building societies or credit unions by the AOFM.
This will benefit Australia’s mortgage market and ensure that this sector of the lending market has access to funding for its operations.
It will also provide a level playing field for those lenders who will not have the benefit of the bank funding guarantee.
Sixth, we have acted to reform the regulation of credit in Australia.
On 3 July, the Council of Australian Governments agreed that the
Commonwealth would take over responsibility for regulating mortgage broking, margin lending and non-deposit lending institutions.
And on 2 October, COAG endorsed an implementation plan for the regulation of remaining areas of consumer credit.
This reform will be implemented in a phased approach, beginning with the transfer of responsibility for trustee companies and existing key credit regulation, including the Uniform Consumer Credit Code as phase one in the first half of 2009.
COAG has also agreed to an implementation plan for the regulation of remaining areas of consumer credit, including pay-day lending, credit cards, store credit, investment and small business lending, and personal loans.
The reform package is to be completed in the first half of 2010.
And seven, the Government has been active all year in the Financial Stability Forum, the IMF and the G20 in forging consensus for consistent regulatory responses to the global financial crisis across all major economies.
These measures have been implemented over time to maintain the stability of our financial system at a time when more than 25 banks around the world have either failed or been bailed out.
But it became clear in recent weeks that the global financial crisis has taken a turn for the worse – and entered a new and dangerous stage, one affecting the real economy, growth and jobs.
Decisive action was necessary to help maintain positive economic growth for the future.
This is the Government’s objective.
And this is going to be tough in the midst of an unfolding global recession.
The Economic Security Strategy the Government announced yesterday was decisive action, responsible action and early action – in extraordinary and dangerous economic times.
This package puts Australia first.
It puts the Australian economy first.
It puts Australian families and seniors first.
The Economic Security Strategy was made possible by the $22 billion surplus we built in the May Budget as a buffer for the future.
That surplus was a prudent and appropriate measure to build up as a precaution for tough times ahead.
Those times have now arrived.
As Prime Minister I will not sit idly by and watch Australian households suffer the worst effects of a global crisis they did not create.
We are delivering this package at the right time to the right people at the right amount of strength.
And the Government remains prepared to take further action as necessary for the future.
The Strategy contains five key measures:
* $4.8 billion for an immediate down payment on long term pension reform.
* $3.9 billion in support payments for low and middle income families.
* A $1.5 billion investment to help first home buyers purchase a home.
* $187 million to create 56,000 new training places in 2008-09.
* An acceleration in the implementation of the Government’s three nation building funds to bring forward the commencement of investment in nation building projects to 2009.
Last year we instigated an inquiry into the cost of living pressures faced by senior Australians.
In the budget this year we provided $7.5 billion to deliver increased financial security to seniors, carers and disability support pensioners.
And we embarked on a focused examination of the pension system through the Harmer review to make sure that it delivers for these people over the long term.
Yesterday we made an important down payment on long term reform and we did this in a way that is aimed at boosting household consumption.
In total, around 4 million Australians – carers, seniors card holders, aged and disability pensioners – will receive a payment.
In December we will pay single pensioners and seniors $1,400 – two thirds of the $2,100 we will pay couples.
This is in recognition of the strong view expressed to Dr Harmer’s review that the current single pension rate which has remained at just 60% of the combined couple rate over the last twelve years is not enough.
In the nine months between now and when we intend long term pension reform to take effect, these payments provide the equivalent of an additional $35 for single pensioners and $26 for each member of a couple pensioner household.
We will also provide a one-off payment of $1,000 to the more than 400,000 Australians who receive carer allowance in recognition of the tireless support they provide for children and adults who are ill or who have a disability.
In just twelve months, we have invested an additional $12.3 billion in assistance for pensioners, seniors and carers.
In just twelve months we have delivered an additional $2,300 to single pensioners and $3,500 extra for pensioner couples.
In just twelve months we have established a process to achieve long term pension reform – to deliver economic security for older Australians, for carers and for those with a disability.
These are the kind of commitments that should have been made a decade ago.
After pensioners, families with young children, particularly those on lower and middle incomes, are experiencing tough times.
That is why we will pay around three quarters of all Australian families with dependent children a lump sum payment of $1,000 per child in December.
This measure will benefit the 3.9 million Australian kids living in low and middle income families.
This $3.9 billion measure builds on the substantial initiatives contained in the $55 billion Working Families Support Package in this year’s Budget.
The third area targeted by this economic growth package is the Housing and construction sector.
This sector has recorded little growth in Australia in recent years, despite strong population growth.
In part, this reflects the impact of the interest rate rises and increasing costs for housing construction.
To strengthen this important sector of the economy, the Government will introduce a First Home Owners Boost.
From 14 October 2008 to the end of June 2009, the Government will increase the First Home Owners Grant for established homes by $7,000 (to a new total of $14,000) and by an additional $14,000 for newly constructed houses (to a new total of $21,000).
This measure will cost around $1.5 billion.
This initiative is designed to stimulate housing activity and give first home buyers a better chance in the housing market.
More than 150,000 first home buyers are estimated to benefit from the time-limited scheme.
And it is balanced by the various supply side measures already underway in the Government’s $2.2 billion housing affordability program.
The Government also recognises the human cost of an economic slow-down.
The fourth measure I announced yesterday will provide enhanced training support for the workforce.
This $187 million funding injection will effectively double the Productivity Places Program from 57,000 to 113,000.
Finally the Government will also accelerate our historic commitment to 21st century nation-building.
Nation-building is essential for our long term productivity to build a 21st century economy.
Nation-building is also in the spirit of the Australian people.
Our nation’s existing infrastructure did not spontaneously combust.
Our forebears built it.
Previous governments built it.
And now the baton of responsibility passes to this generation.
For too long, our nation’s infrastructure has been left to be run down.
It remains a substantial long term constraint on our nation’s productivity growth.
This has been the subject of countless reports during the squandered decade of the Howard government.
That is why the Government will accelerate the implementation of the Government’s nation-building investment funds for the future.
The time has come to roll our sleeves up to build the nation.
I have asked Ministers to bring forward an interim list of proposals for infrastructure spending by early December so that work can start in 2009.
* On roads.
* On rail.
* On ports.
* On water infrastructure.
* On hospitals.
* On educational institutions.
* On research.
And work will begin next year on building the National Broadband Network.
To fast-track these projects, the Government will legislate in the next month – subject to any politically-driven obstruction in the Senate.
As we contemplate the impact of this financial crisis on real economies, real people and real lives, it must also galvanise us to act in the future that we never allow greed and lax regulation to put us in this position again.
I addressed this matter in my recent speech to the UN General Assembly, which among other things, called for reforms to the Basel capital adequacy requirements.
One of the points in that speech related to executive remuneration.
At that time, I said that financial institutions needed to have clear incentives to promote responsible behaviour rather than unrestrained greed.
I spoke of the need for the Basel II rules on capital adequacy to pick this concept up, specifically that regulators should set higher capital requirements for financial firms with executive remuneration packages that reward short term returns or excessive risk taking.
At the G20 meeting next month, Australia will be arguing that the G20 engage with the Financial Stability Forum to agree a clear timetable for implementing this and other actions needed to protect financial stability in the future.
We will be urging the G20 to commission an action agenda in collaboration with the International Monetary Fund, the Financial Stability Forum and the Basel Committee on Banking Supervision on the best means of implementing this initiative, preferably by the end of this calendar year.
Consistent with this, the Australian Government will be working with the relevant Australian regulators to design a template that could be adopted by the international authorities – a template that links capital adequacy requirements to executive remuneration in a way that acts against excessive risk-taking in our financial institutions.
The Australian Government will also now be examining with APRA what domestic policy actions would be appropriate in pursuit of this objective – ie to deal with the problem of executive remuneration to financial institutions.
Ladies and gentlemen, there are times in our personal lives which are of such moment that we are forced to re-think all the plans we had for our future happiness and prosperity.
The same can be said of the lives of nations.
The events of recent days have seen the wealth of families, companies and even sovereign states stripped back to a degree and at a rate unprecedented in our lifetime.
Stock exchanges around the globe have responded emotionally rather than rationally to the economic crisis brought on by the collapse of the sub-prime market.
The champions of extreme capitalism have been found to have feet of clay.
For the first time ever, our people are reading about – and my government is participating in – decisions to inject trillions of dollars back into an international financial community which is frozen by fear.
Fear of the unknown.
To put it simply – when markets fail, governments must act.
We know that from history.
As a government and as a nation we must respond to the twin evils which are at the root of this malaise – greed and fear.
Fear is the first of these demons which we must see off.
Dealing with the greed which has caused the fear will come after that.
Seventy-five years ago the world was in the grip of a much deeper and more immobilising crisis than the one we are confronting today. President Roosevelt personally directed his government’s response to that most calamitous of all collapses.
One of his rules in dealing with the challenges of his time was to refrain from what he called “issuing proclamations of overenthusiastic assurance”. He correctly saw that “we cannot ballyhoo ourselves back to prosperity”.
I believe that we too must level with the Australian public about the size and seriousness of the threat to our national prosperity brought on by the evaporation of capital.
Realistic about the threats.
But equally realistic about the strengths. Realistic about the uncertainties we face. Anyone who grew up on the land knows that you can’t control the weather. Sunshine every day – and rainy nights – that’s what you dream of.
But life’s not like that. There are good years, and there are hard years. And you don’t choose the order in which they come. But the hard years teach you to never give up. You learn resilience.
You learn courage. You learn to plough on. That’s what we as Australians must do, in the hard times that lie ahead. This is as much about our spirit as it is about the concrete decisions of policy we take.
We’re not a people who panic. As Australians, we take the good and the bad in our stride. And we go forward.
And we intend to join with other nations to re-build the architecture of the global economy, so this global financial crisis is not repeated in the future. This will be tough.
But I have absolute confidence that the nation will make it through – together.
Question and Answer Session
TINGLE: Laura Tingle from the Financial Review, Prime Minister.
You talked at length in your address today about the relationship between lack of transparency in the financial crisis and confidence. I was wondering if you could outline for us your plan for the government to detail its liabilities to the banking sector as part of the banking guarantees, both the general one and the wholesale funding one. Will you be giving details in MYEFO and in the Budget of contingent liabilities by nature of security? And how much detail will you be able to give?
RUDD: The Government believes on these questions in absolute maximum transparency. Part of what I just said before was that it’s important for the government to level with the people about the nature of the challenge that we face, the actions that we’re taking, and the cost of those actions as well.
The Government will therefore be making transparent at an appropriate time in the future any liabilities the government accumulates as a consequence of the actions in recent days.
The form of the publication and release of that we have yet to determine, but it will be made public, and we are completely confident about that. We think it’s the right course of action.
DUNLEVY: Prime Minister, the family tax benefit system used to cover 90 per cent of families. Now it covers just 75 per cent of families. Has this problem been a frustration for you in the last few days as you try to get cash help out to families? Would you have liked to have been able to give more families help? And is it fair that millionaires will be able to get the $21,000 first home buyers grant but families where two parents work hard and both earn just average earnings don’t get $1,000 for their children?
RUDD: You know, Sue, there’s always a problem in the way in which FTB-A is calculated. And those familiar with the system know the debates as they have raged over the years.
And as we approach the need to provide extra support to the economy and to households in recent weeks and recent days, you’re right, once again we had to confront the problem of how FTB-A is constructed.
But the bottom line is this. It’s a system that is there, it has been there for a long time, and therefore provided the best and most efficient and effective way of providing assistance now rather than engaging in an attempt at, shall we say, short term institutional redesign.
Our objective is to get assistance out there now to families. Not just to help families with the extra costs that they are incurring, but also importantly, to support growth in the economy. That’s why we decided to use the existing mechanisms for FTB-A.
UHLMANN: Prime Minister why is Macquarie Bank included in your bank borrowing guarantee? And what’s your advice on what would have happened to the Australian economy if Macquarie Bank had of gone the way of Lehmann Brothers?
RUDD: Well, I’ll answer the first question, and I don’t enter into hypotheticals in relation to the second.
The first is this: that Macquarie also takes deposits, and its deposit taking institution is APRA regulated. And therefore, we are non-discriminatory in our application of the guarantee we’ve provided.
PORTEOUS: Mr Rudd, Clinton Porteous from Courier-Mail newspaper. You talk about levelling with the Australian people –
RUDD: I get worried when people start like that.
PORTEOUS: We have the Budget estimates about there about employment and growth so that next month we’ll see some more financial updates.
Just in simple terms, how should people look forward or what impact could it have on job security, on business, as we go forward?
PM: Well, let’s look at all the objective facts out there. One, you’ve got the global economic forecasts covering the major economies in the world all heading south at a pace of knots and the statement I referred to before by the IMF, which says that those major economies are either in recession or on the cusp or recession – that’s fact one baring down on us.
Fact two is what’s happening in China with a two percentage point downwards revision in its growth, but I do note that they’re injected stimulatory monetary policy in recent days and may do so in terms of further acts on fiscal policy.
The third factor out there is what you see staring us in the face with very, very negative consumer and business sentiment indexes.
So they are out there as objective facts, looking at us.
Therefore, as I may have said yesterday, you can either look at all that and say, ‘well gee, that’s a lot of trouble baring down on the Australian economy’ and do nothing about it or you can act and that is why we have acted.
Plainly, as both the Deputy Prime Minister, the Treasurer, and the myself have said in recent days, we expect slower growth, we expect more unemployment than has been projected, and that is a direct consequence of the global financial crisis.
And that underpins precisely the nature of the package that we have put forward yesterday, this economic security strategy for the future, and it is simply the first instalment. The second part of it will be what we do in December when we advance the nation building agenda of which I spoke in my remarks before.
O’MALLEY: Sandra O’Malley from AAP. You spoke of the need to reign in greed, Prime Minister. Can you explain how the Government intends to reign in rampant executive salaries?
RUDD: Well, what I spoke about today was next steps for the Government – namely, how do you deal with this challenge of executive remuneration packages in financial institutions? And how do you parallel that to new corporate governance structures for financial institutions and how do you incorporate that in the new overall rules for the financial system here and internationally?
You’ve got to act at home and you’ve got to act abroad on this. And what I’m signalling today is that the government will now be working with APRA on how that is best done as a template for the rest of the world as an addition to what’s called the Basel II regulations.
And secondly, what domestic actions on top of that are necessary in Australia.
You see, this is not just a question of fairness and perceived fairness in the system. It goes actually to the kernel of the incentive structures around risk taking. And that forms the logic which underpins the proposals which I first advanced when I outlined our approach to a regulatory response to the global financial crisis to the UN General Assembly a few weeks ago. The Treasurer has been acting on parallel tracks to this.
And I’m signalling is that APRA will now be developing a template not just for here in Australia, but for adaptation or adoption through the Basel II arrangements around the world as well. Necessary, I believe, to get a better set of rules in place to reign in any executive greed, and at the same time, point in the best direction possible for greater stability in the financial system in the future.
RILEY: Mark Riley from the Seven Network, Mr Rudd. I want to ask about your first homebuyers extension. The concern of certainly Commonwealth Treasury and State Treasuries is that first homebuyers grants are just capitalised into the system and people get very little benefit from them over time. What gives you confidence that this will work other than how it has in the past? And, what are the benchmarks? How will you know if it’s working?
RUDD: Well, on the first part of the question, if you simply had a demand side measure absent any supply side measures, then we’d face a problem. But can I say, the Government already has out there a couple of billion dollars worth of programme activity on housing, two large slabs of which deal with the supply side challenge – that’s the rental affordability scheme and the housing affordability scheme.
Prior to that, (inaudible) during the previous Government, they didn’t exist – there were no supply side measures. So going to the second part of your question about how we will know whether it’s worked or not, well, we’ll have benchmark data in terms of where first housing starts were as of when this package was introduced. We’ll have benchmark data in terms of what happens at the end. There is no guarantees in this business. We believe it’s the right course of action, which is properly balanced by supply side measures as well.
But the overall intention, in these critical periods which lie ahead, is to do what is necessary to underpin activity in the economy, and through that, to provide also a further basis for optimism and confidence in a critical sector in the overall building of Australia’s growth data. A big driver of the national accounts, a big driver of growth, and it’s got a big multiplier effect across other sectors as well.
That’s why we’re prepared to get behind this measure in a balanced way.
COOREY: Good afternoon Mr Rudd, Phil Coorey, Sydney Morning Herald. When you announced on Sunday that you would guarantee the borrowings of the banks, the money the banks were borrowing, you said the guarantee would stay in place until the global crisis ended. I imagine there’ll be sort of varying views on when it’s ended, especially from the banks. Do you have a more definitive exit strategy on when you –
RUDD: The week after next, the week after that?
COOREY: Whose version of the crisis ended will be – do you have an exit strategy basically, other than the ‘crisis ends’?
RUDD: Well there are objective measures which you can begin to apply to this and they go to of course the cost of borrowing in normal commercial markets by banks. And what you want to see is evidence over time that the current spread which banks in their interbank lending are having to endure begin to contract to historical norms.
That is a ways off, that is a long ways off. And you know something, we will be taking a very cautious and conservative approach to this and we will be doing so in very close consultation with our regulators, bearing in mind that it is our regulators who advise us that this course of action was necessary in the first place.
Can I say also that it was very necessary to do this when we did it. If you look at the subsequent actions in Europe, providing a similar guarantee to term wholesale funds arrangements on the part of major banks in France and Germany and Austria and elsewhere, there was a real risk that we would have been seriously outflanked by all of that with real risk to our own banks’ ability to raise international finance going forward.
We acted at the right time and we acted decisively.
FRANKLIN: Hi Prime Minister, Matthew Franklin from the Australian.
RUDD: Hi Matthew.
FRANKLIN: I would just like to change the subject if I may.
RUDD: What to Matthew?
FRANKLIN: The indigenous intervention.
RUDD: (inaudible) on the right hand side of the front page of your paper today.
FRANKLIN: You said in opposition that you support the intervention and that you would heed the findings of an inquiry into its progress. The inquiry is back as I understand and says that the, you are called upon to reinstate the racial discrimination act and to wind back compulsory income management. Will you do that? And secondly on the same issue really, did Cabinet or did Jenny Macklin order a rewrite of the draft version of the report which contained language that was quite damning, far more so than the final report that was released?
PM: On the second point Cabinet provided no such instruction at all. And by the way I draw your attention to a statement by the chairman of the review board, Peter Yu today which says the report that has been published is the report of the independent review board. And he goes on to make other statements as well.
On the first point though which goes to the policy. You know, I stood up in the House of Representatives at the end of, I can’t remember the exact month now, when the previous Prime Minister introduced the Northern Territory Intervention.
And we didn’t have much time to review it. In fact we had limited time to review it, but we believed it was necessary to provide bipartisan support for that measure because we had formed the conclusion well before that, the previous methods of dealing with the challenges in the NT and I have got to say, elsewhere, were not working.
We were also seized by contents of the Little Children are Sacred report. And it makes graphic and horrible reading. Therefore, we were prepared to support it. I have done so consistently since the election as well.
On the, you indicated that the Government has received this report. It may well have. I am unaware of it because I have been preoccupied with other things in recent days but I am sure once it is in and deliberated on, we will provide our response for the future.
Can I say more generally on the question of indigenous policy: this Government is not in to rolling the clock back to some sort of ancient business as usual approach in dealing with the challenges of Indigenous Australia.
Most of them failed. We are on with the business of what works. And it will be a completely new approach. And I have got to say, embracing all those things that have worked in the intervention and being mindful of where there may have been shortcomings and how we improve them, that’s our approach.
This Government has no ideology on this whatsoever. This Government is driven by one thing: how do you close the gap between Indigenous and non-Indigenous Australians and what in practical terms makes that work.
That is the soul basis of our judgement for the future and will be in our evaluation of the review boards report once cabinet deliberates on it.
BONGIORNO: Paul Bongiorno, Ten News Prime Minister. The US Federal Reserve has just announced that the United States is now officially in recession and we know that the IMF figures for Australia, with the 2 in front for growth pre-dated developments of the last two weeks and indeed as I understand it, the fate of Lehman Brothers.
Were these figures in your mind when you formulated a $10 billion package, one per cent of GDP, to keep Australia falling into negative territory in this quarter, given that everything you have done is to take effect almost immediately?
RUDD: Well the important thing when you are dealing with a difficult and in some cases parlous global economic circumstances, is to act early, act decisively, act hard. And that is what we have done.
No point sort of twiddling your thumbs and thinking about it, get on to the business and do it and that is what we have done.
Certainly the figure that you referred to for growth in the Australian economy is based on our most recent advice. But it doesn’t give you a huge buffer for any error into the future. That is why we believe it is important to provide further support for positive economic growth into the future, including into the near and medium term future as well.
We think it is the right course of action. I noticed some people sort of arguing around the edges, who I thought yesterday were providing this package with bipartisan support. That seems to have lasts 12 hours. Can I say, the measures that we have embraced as a Government are designed to provide that support for the economy, for households, for pensioners ASAP, ok? It is the judgement we have made, we stand by it, we think it is the right thing, given the circumstances which bear down on us internationally.
PROBYN: PM Andrew Probyn from the West Australian. Your speech seemed to contain an appeal for China to come to the aid of the region and the world, given the global financial crisis. What is the Government being told about the softening of commodity prices, especially given you took it upon yourself to ring Wen Jiabao last Monday to seek some assurances from China.
And on a housekeeping issue, when you come to releasing MYEFO, will you promise not to do it after 4 pm on a Friday?
RUDD: Ken if we could make that 3.50? On the question of China, the speech speaks for itself in terms of my analysis of the critical importance of the Chinese economy to the global economy right now. And the Chinese are facing their own domestic constraints because part of their economy is of course export derived and of course they too are responding to the circumstances that confront them in the global economy.
But I am heartened by the change in monetary policy that we saw recently and I would hope also that we will see some action from the Chinese on the fiscal policy front as well. You know if you look at the pure numbers about where capital export is occurring around the world at present and in recent times, if you look at 1.8 trillion in US dollars in foreign reserves in China. If you look at sovereign wealth funds in China, which based on the last report that I saw – and these may be subject to some revision both depending on recent exposures and certain foreign markets – that those sovereign wealth funds were in the vicinity of half a trillion.
It follows from that that China has a significant role to play. It is very important also to look at where China acted historically after the Asian financial crisis in 1997. The Chinese do not sit to one side and say, ‘well that’s a big problem’. The Chinese went out there and frankly supported the recovery growth path of much of the region.
So the Chinese will make their own decisions on that but from our point of view we encourage and support the positive growth messages coming out of China so far and we would be positively receiving of further such decisions by the Chinese in the future.
Important for Australia, important for the region, important for the World.
KENNY: Mark Kenny from the Adelaide Advertiser Prime Minister. You talked about how the world had changed fundamentally since you had come to office, I am wondering whether you could in the privacy of this room, take us into the corridors of power and just give us a bit of the flavour of some of the conversations that you and Wayne Swan and Lindsay Tanner have had and the sort of things you have been saying to each other as this has unfolded?
RUDD: We are on family television at the moment.
Things like ‘oh damn’, ‘oh bother Wayne’, ‘dash it Lindsay’. It’s been an interesting time. I’ll say this with some of the officials are in the room – Australia’s institutions have worked well through this. And I say this publicly about senior staff from Treasury and from Finance and from my own department, Prime Minister’s. They have worked as a very effective team in partnership with the regulators.
So far, we’ve been ahead of the pace and that is, I think, a tribute to the excellent professional work that they have done. And we’ve worked as a team with them. There have been a few white knuckle moments on the way through but that’s just life and we think that the team has worked well, that reflects the institutions of government working well and it reflects positively also on the role of APRA and the bank and ASIC and having acted in the way in which they’ve done in a pretty difficult and unprecedented set of challenges over the last year. But we’ve maintained a good degree of corporate good humour on the way through.
GRATTAN: Michelle Grattan from The Age. I’d also like to change the topic, Mr Rudd, to Afghanistan, which the experts tend to agree at the moment is going to hell in a hand-basket.
RUDD: Which experts are they?
GRATTAN: Well, a range of military experts. Do you believe still your earlier position that this war is winnable? Should there be a change in the overall coalition strategy and if the new American President asks for more Australian troops can you pledge that you would never ever say yes to that request?
PM: Firstly, on the question of the war itself, there’s no point being engaged in a military action unless you have a view within government that that action is winnable.
Secondly, in the definition of the mission in Afghanistan, the stabilisation of the country, remains for us foremost, as does the other objective, one of strategic denial of an operating base for international terrorist organisations like Al-Qaeda to roam the world and do their worst as they did 6 years ago in Bali when they murdered so many innocent Australians.
I take the mission of strategic denial very seriously. The worst thing that happened in the period prior to 2001 was to have that mob run rampant across Taliban controlled Afghanistan as a free range training camp to do their worst world-wide.
That cannot be offered to organisations like Al-Qaeda ever again. So we must remain resolved in the execution of that mission of strategic denial. In answer to your last part of your question, we have no plans whatsoever, to provide any additional troops to Afghanistan.
Our mission in Oruzgan Province is clear cut.
We believe we are doing a good job there through the ADF. I know that their work on the ground is positive and constructive and we’re also now working very closely in Oruzgan Province with the Afghan national army in order to consolidate that province further. And doing so in great cooperation with our Dutch partners.
MIDDLETON: Prime Minister, Karen Middleton from SBS Television. If I could take you back to yesterday’s measures, especially the money for first home buyers, those measures are, well that measure, is a behavioural one, it depends on what people do in response. Now you’ve said, I think, that you estimate 150,000 people might take up that measure.
If it’s successful, or more successful than you anticipate, isn’t it true that it could cost a lot more than 1.5 billion. So can you tell us, firstly, whether you anticipate it could cost more, how you reached that 150,000 figure and don’t you risk creating a spike between now and the end of next June and then a slump after that?
RUDD: You know, life’s not a perfect institution and when you’re dealing with an unprecedented, or virtually unprecedented global financial crisis with real roll-ons to the global economy and a real recession out there in the industrialised economies in the world, you’ve got to act. And you know something – when you act, you’ve got to act decisively and clearly and early. In terms of whether we yield the final outcome on the numbers that you referred to, time will tell.
But, you know, I’m not in the business of dying wondering. I’m in the business of getting out there, making it possible for people and to see what behavioural change occurs. Activity in this economy is critical.
Can I just say a lot of people will nitpick around bits and pieces around the edge of the Economic Security Strategy we unveiled yesterday, and that’s their right, that’s fine. But the core element of this strategy is a macro-economic instrument designed to inject further growth into this economy which would not otherwise exist when the major economies around the world are heading south rather than north. That’s why we’ve done it and I think it’s the right measure to do.
ALEXANDER: Mr Rudd, yesterday’s $10.4 billion package had over $10 billion of that spent in non-productivity related measures. My question is, what would have been the disadvantages of including in the massive spend measures that would have enhanced productivity so that after the cash splash in December, there’d be something to show in the long term?
RUDD: Firstly, these two missions are not irreconcilable. They are just part of the same operation. We are acting now to provide immediate support for positive growth in the economy and on the way through providing positive support for families, pensioners and carers and for those wrestling with the difficult decision about buying their first home right now.
I’ve already indicated that one of the big drivers of long-term productivity growth is dealing with the infrastructure challenges in the country. We, and I’ve indicated this again today, will be bringing forward the Infrastructure Australia priority list and other priority lists in health and in education come December and we’ll be acting on that as well.
Further, I’d say our – the other big driver of course of long-term productivity growth, apart from infrastructure, is what you do in the skills generation, the skills revolution. The education revolution program continues to be rolled out. You’ve seen already the injections we’ve made into universities in the last budget – half a billion dollars.
You’ve seen the other injections that we’ve provided through the rolling investment in computers in schools, the rolling investment in trades training centres and schools as well as the doubling in the number of training places which were part of the package yesterday as well.
So therefore, the productivity agenda, be it through education, skills and training, be it through the infrastructure bring-forward that will come to a head in December, all through the continuing agenda of business deregulation, that all continues apace. But you know something – you can do both of these things at once. We’re doing it, we believe it’s the right thing now for the immediate challenges of growth in this economy and families and others doing it tough and continuing to prosecute the growth and productivity agenda for the future.
Thank you very much.