Brendan Nelson (Bradfield, Liberal Party, Leader of the Opposition) Share this | Link to this | Hansard source

My question is to the Prime Minister. Why are Australians worse off since the election of the Rudd government?

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

The challenges we face as an economy are in part globally driven and are in part a product of some of the economic conditions we inherited. That is just the truth of it. Let’s go to the global conditions. The global economic conditions, which have come off the back of the global financial crisis starting in August of last year, 12 months ago, continue to wash through. We have revisions down for growth forecasts in the United States, across the European Union, in Japan and also in the wider East Asian area as well. The roll-on consequences of that therefore are that we have a lesser pace of economic activity than was projected 12 months ago. That is just the facts as they present themselves. The other factor alive in the global economy is of course global oil prices. We have this significant spike in global oil prices in recent months, the third great oil shock since the two great oil shocks of the 1970s. That in turn has fuelled a further factor in overall global economic conditions which is, of course, the hike in global food prices. These factors combined have brought about significant pressures across the global economy.

That is what has happened globally. Then we go to the factors that we have inherited locally, here in Australia, as of the end of last year. There are three very uncomfortable facts that I would present to those opposite. One is this: when this government assumed office eight months ago after those opposite had spent 12 years in office, we inherited inflation running at a 16-year high. Secondly, we inherited a record from those opposite of 10 interest rate rises in a row. That is what happens when you allow inflation to get out of control; that is what happens when you put all the pressure on monetary policy through a slack fiscal policy—you get 10 interest rate rises in a row. I would say to the Leader of the Opposition, as he begins to lecture the House on economic policy: look carefully into the eyes of Australian mums and dads and those who are seeking to make ends meet out there and ask them about the cumulative impact of 10 interest rate rises in a row. It is significant. Thirdly, at the point at which this government took over, those interest rates were the second highest in the developed world.

There are three facts: firstly, we had inflation running at a 16-year high; secondly, we had 10 interest rate rises in a row; and, thirdly, we had the second highest interest rates in the developed world. Those are the economic conditions that this government inherited, which is why, as we approached the budget this year, having been in office for less than six months, the overall call on us from the country at large was a policy of responsible economic management grounded in a strong budget surplus. We delivered that with a $22 billion surplus. That surplus has subsequently been the subject of, shall we say, an attempted raid by those opposite, and it is going to be very interesting indeed to see where the credibility stakes now hang in this place in terms of those opposite and their behaviour in the Senate as they begin to launch their assault on this nation’s best fiscal preparedness for what will be uncertain global economic times ahead.

Chris Trevor (Flynn, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Prime Minister. Will the Prime Minister outline why, in these times of global economic uncertainty, responsible economic management is required?

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

The challenges that have been reflected around the country have also been reflected abroad. The most recent revisions to growth projections in the United States, according to the IMF bulletin of July 2008, are for growth to be just 1.3 per cent. European countries are forecast to grow at just 1.7 per cent and Japan is forecast to grow at 1.5 per cent. Of course, in recent times we have seen negative quarters of growth from a number of developed economies as well. These are very difficult global economic circumstances due to the factors that I referred to. Therefore, the challenge that we face is what sort of policy response we adopt nationally and internationally in response to these difficult economic circumstances.

Firstly, on the question of the global financial crisis, objectively there is a problem in terms of credit availability. That is true. That is why the Treasurer and other representatives of the government have been actively engaged in the international financial forums, including the Financial Stability Forum and the G-20 as well as the IMF, to embrace a series of prospective reforms for the global financial system aimed at acting on regulatory transparency across global financial markets. We face a real challenge on this score because if global political leaders do not lend their political support to the reform proposals coming out of the international financial institutions then the problems which have become alive through the US subprime crisis will continue for longer than they need to. That is the objective we have for credit availability and the cost of credit.

Because of its impact on the real economy, you therefore have a roll-on consequence for confidence in the global economy as well. Whether you are looking at business and consumer confidence indicators in the United States, in the United Kingdom, in continental Europe or elsewhere, what we have is a roll-on assault on confidence across the global economy. Here in Australia our response is anchored, of course, in the strong budget outcome which we delivered as a result of the Treasurer’s statement to the parliament in May—that $22 billion budget surplus which I referred to before. Secondly, in order to assist working families, pensioners and carers across this country we have also, through the budget, delivered a $55 billion working family support package, in addition to further payments for pensioners, for carers and for those on the disability support pension.

There are many people across this country who counselled us prior to the delivery of the May budget that it would be irresponsible to deliver on tax cuts. We believe that those tax cuts were the right policy setting and we certainly believe that it is the right policy setting now because families, individuals, pensioners and carers in the Australian community are doing it tough. Therefore, by producing on the one hand a fiscally responsible document based on a $22 billion surplus—through a disciplined approach to spending control as reflected in the actions of the finance minister and the Treasurer in the preparation of the budget outcome—we were able to deliver on those significant tax cuts, as well as other payments to working families, pensioners and carers.

The third reason why we have confidence in our economic course ahead for Australia is that in the East Asian hemisphere we continue to be the beneficiaries of significantly high terms of trade because of the prices that continue to be generated for our commodity exports in this part of the world. Finally, we have in this country—and we should be proud of this fact—first-class economic and financial regulators. If we look at some of the regulatory performances elsewhere on the planet in recent times, I think that the performance on the part of our regulators has been first class, and that provides us with confidence going forward. We therefore have crafted an economic policy direction about which we have confidence for the future. We believe, therefore, that we can see Australia through these times of global economic uncertainty and that the Australian economy will emerge through these difficulties in a strong condition.

In terms of the threats which we face to that course of action, I return to the matter I touched on before, and that is the impending assault on this government’s budget surplus. If there is a single lesson which comes out of the global economic conditions which we have had to confront in recent times, it is that a strong fiscal position providing the government with a strong fiscal buffer to deal with contingencies as they arise is of fundamental importance. We have brought about a $22 billion budget surplus. We were still able to deliver a $55 million package for working families and additional payments for pensioners and carers. On top of that, we set aside funds for three major investment funds for the future: for infrastructure, for education and for health and hospitals. But if you start to eke away and undermine and cause to be threatened the fiscal surplus which the government delivers through the budget then these certainties begin to be removed. The Liberals at present are threatening at least a $3.7 billion hole in the budget and it depends, of course, on their internal political deliberations as to how much higher that will go. But we have now reached the point of truth and honesty: what will the Liberals now do in the Senate? Will they take the side of economic responsibility and side with the government in ensuring that we have a strong fiscal buffer for the future or will they take the path of economic irresponsibility, take the path of short-term populist politics instead and conduct a populist driven assault on the budget bottom line? That is the course of action, they are the choices, which those opposite face, and their statements to date give us no confidence at all.

I conclude with this: in these difficult economic times the worst thing you can do is blow a hole in the budget. If you are facing uncertain global economic times ahead, the worst thing you can do is send a message of uncertainty to the international economic and financial community about whether this government’s budget is going to pass the parliament and whether its surplus is going to remain intact. In times of global economic uncertainty, governments and economies around the world look for signs and clear demonstrations of strength and resolve. We have produced that through the budget, but that certainty and resolve is now under threat by those opposite as they seek to assault the budget surplus which we so carefully crafted in the budget of May.