Jon Sullivan (Longman, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Prime Minister. Will the Prime Minister outline the importance of maintaining a strong budget surplus to place downward pressure on inflation and interest rates? What are the threats to that strong budget surplus?

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

The latest release of the OECD’s Economic Outlook notes that the current economic situation across the OECD remains particularly unsettled. The OECD’s projection for the global economy also says:

... despite the fact that there is a view that the worst may be behind us in relation to global financial markets, there is still much uncertainty which lies ahead.

There is ‘much uncertainty which lies ahead.’ Of course, the consequences for Australia in the midst of this global uncertainty are acute. That is why the response of the government has been to bring about a budget anchored in this principle: responsible economic management. Therefore, the core of responsible economic management is defending the integrity of a $22-billion budget surplus. The logic is simple: if you allow public spending to escape, if you allow public spending to run riot, if you therefore contribute to public demand, you put upward pressure on inflation and you put upward pressure on interest rates. When that happens, as those opposite know, having been responsible in terms of their fiscal policy settings for these trends to have emerged—and we have seen 12 interest rate rises in a row—the cumulative effect is that it affects long-term economic growth and it affects long-term employment. The logic is clear: indisciplined public spending leads in turn to higher inflation, leads in turn to upward pressure on interest rates, leads in turn to an effect on economic growth in Australia and leads in turn to an effect on employment. That is the core economic discipline we are confronted with here. The core element of our budget orthodoxy is a $22 billion surplus. Those opposite stand, by contrast, for a $22 billion raid on the surplus and, as each day goes by, they add further elements to the raid on the surplus. Day by day new things are added without one savings measure being announced by those opposite to offset their raid on the surplus.

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

Mr Tanner interjecting

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

As the finance minister correctly interjects, where is the list of proposed savings by those opposite? Not one. Do I hear any objection about where the savings are to occur? Not one. So we stand difficult decisions: a $22-billion surplus, for which there will be, automatically, controversy in the Australian community. It was a tough decision but a tough decision anchored in responsible economic management for the future—in contrast to a $22-billion raid on the surplus, one which grows further.

Returning to what the OECD Economic Outlook had to say, it says on page 142 of the report:

To avoid rising inflation expectations causing strong wage growth, monetary conditions need to be kept tight until domestic demand and price pressures have moderated sufficiently. In this context,—

the OECD goes on—

the stabilising role that fiscal policy should play is welcome.

That is, ‘the stabilising role that fiscal policy should play is welcome’. Fiscal policy is what you do with your budget. Fiscal policy is whether you are going to have a robust surplus or not. Fiscal policy discipline is about whether you are going to defend that surplus. Fiscal indiscipline and economic irresponsibility equals a $22 billion raid on the surplus. So my appeal to those opposite, as each one of these items of legislation to do with the budget goes through the chamber, this House, and through that other place, the Senate, is to consider first and foremost your responsibility to the long-term economic interests of this nation. If you unleash a $22 billion raid on the surplus, which is your current stated plan, what it will do inevitably is drive up inflation and drive up interest rates and the impact on all Australians for that would be, in a word, disastrous.