Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Hansard source

I thank the member for Petrie for her question. The government’s challenge is to build a modern Australia that is capable of facing the challenges of the future and, within that framework, for us to have a modern, competitive economy which is capable of dealing with threats to our long-term prosperity. Right across the developed world at present we face challenges when it comes to projections for economic growth for the year ahead. We have seen already in the sobering report from the IMF, contained in its World Economic Outlook, the revision down of the growth projection for the global economy from 2007, when it was to render an outcome of about 4.9, down to 4.1 for the year ahead, 2008. What has this been triggered by? A range of factors: instability in global financial markets, occasioned by the downturn in the US housing market, occasioned in turn by what we have seen with the US subprime crisis. And these developments have yet to fully wash through the entirety of global markets and the real global economy.

Here in Australia we face a treble challenge. One is to keep a very clear weather eye on these developments in the international economy, particularly the capacity of these developments to wash over the economies of East Asia, where 50 per cent of this nation’s trade occurs. The second thing is this: we must remain absolutely vigilant in the fight against inflation. Third, we must also prosecute a bold program of microeconomic reform to ensure that we can build long-term productivity growth so that this economy can be competitive in the long-term future, given the challenges we face.

The inflation challenge that we face is substantial. Firstly, this is the highest level of inflation this country has seen in 16 years. When we took over office from the Howard government we inherited a level of inflation higher than that which the Howard government inherited from the Keating government. Those members sitting opposite need to be very mindful of that fact. Secondly, those inflationary pressures have been building for a couple of years. Thirdly, look at the Reserve Bank’s Statement on Monetary Policy and their projections out, based on where the economy was standing in the final quarter last year—inflation numbers beyond the three per cent band through 2008, through 2009 and into the middle of 2010. These are substantial economic challenges, substantial challenges on the inflation front, and therefore demand a course of action.

When it comes, therefore, to the impact of these high levels of inflation, it has of course washed through to what we have seen in interest rates moves. We have had 11 consecutive interest rates rises. This has placed enormous pressure on working families, to the point where when this government took office from its predecessor they were (1) running inflation at the highest levels this country has seen in 16 years and (2) giving to working families interest rates which are the second highest in the developed world. That is what we received by virtue of our predecessors by way of an economic inheritance. The question of course is what to do about it. The legacy problem I have referred to, but the beginning of wisdom in terms of how you deal with the problem is to recognise that a problem exists—

See this speech in context