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Tuesday, 26 August 2008
Page: 6190


Mr TREVOR (2:32 PM) —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?


Mr RUDD (Prime Minister) —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.