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Wednesday, 17 September 2008
Page: 7708

Mr HALE (2:08 PM) —My question is to the Prime Minister. Can the Prime Minister update the House on developments in international financial markets overnight and on the government’s response?

Mr RUDD (Prime Minister) —The Treasurer has just referred to developments in the last 24 hours in relation to AIG. The government and the financial regulatory authorities in Australia continue to monitor developments closely. Of course, these developments in relation to AIG follow on from recent actions in other respects in the United States by the Federal Reserve. They injected another $70 billion in liquidity into the financial markets overnight, following $70 billion the previous day. They also announced last weekend that they would accept a wider range of collateral for cash loans as a means to calm financial markets. Of course, this follows action in recent weeks to take control over the mortgage institutions Fannie Mae and Freddie Mac, pledging up to $200 billion to support them. However, it is important to note also that the Federal Reserve said in their statement of 16 September that ‘strains in financial markets have increased significantly’ and that they ‘will monitor economic and financial developments carefully’.

What these developments point to is the fact that we are living in exceptionally difficult global economic times, and we in Australia are not immune from these developments. That is why it is important for all members to be focused on the fact that we the government have a plan to see Australia through these difficult economic times. Firstly, this is anchored in our approach to strong economic management, grounded in a $22 billion budget surplus as a buffer for the future. Secondly, there is our $76 billion nation-building plan for infrastructure in ports, roads, rail and broadband. Thirdly, there is our long-term economic reform agenda to lift long-term productivity growth through an education revolution and through our program of business deregulation as well as our policy of long-term tax reform.

On the question relating to immediate developments in the financial sector, the government has also been acting in concert with its own monetary authorities and through international cooperation with the global economy and financial markets to ensure that sufficient liquidity is available. In the last few days there has been action by the European Central Bank to inject some €30 billion of liquidity, as well as parallel actions by other central banks around the world. Some months ago in Australia we injected further activity into the government bond market through an action taken with the support of the opposition to the tune of some $25 billion. As just referred to by the Treasurer, we have been in the business of implementing a financial claims scheme to ensure that eligible deposit and insurance policy holders have appropriate protection.

These are important national measures which the government has taken in relation to our own financial markets, and we have been acting in concert with others in international financial markets through the Financial Stability Forum and also through the IMF and the G20. It is important to note what the Governor of the Reserve Bank said on this matter just a week or so ago. The governor, Glenn Stevens, said on 8 September:

… what we see in the Australian financial scene is an order of magnitude less troubling than what we see abroad … Australian financial institutions continue to present a contrasting picture to their peers in the US, Europe and the UK … Some have had to make provisions for unwise exposures that had been accumulated earlier. But even in these cases, capital, asset quality and profitability remain very sound.

Therefore, it is important that we keep the current challenges being presented to us from the global economy and global financial markets in appropriate perspective.

As the Treasurer also indicated before, we in this country are better prepared than most to deal with the buffeting which is being presented to other national economies by recent developments in global financial markets. If you look at the continued positive growth generated in the Australian economy in the most recent quarter, you see that it is 0.3 per cent against what is a decisively negative set of numbers across most of the other major global economies. If you were also to go to our inflation rate: while still unacceptably high, it is nonetheless lower than that of the United States. For the first time in seven years we have interest rates that have been reduced by 25 basis points. On the question of employment and unemployment—and this has been the subject of some questioning in this House in recent weeks—the current rate of 4.1 per cent stands at almost the lowest of the other major economies, the US being 5.7 per cent; the UK, 5.3 per cent; Canada, 6.1 per cent; France, 7.3 per cent; Germany, 7.3 per cent; and Italy, 6.5 per cent. We have also had recent positive data in terms of the capital expenditure intentions of Australian private firms.

But where I conclude is on the question of what underpins our confidence in the government’s policy directions for the future, and that is the strength of the government’s budget surplus. On the question of the surplus, we have worked hard through the budget process to ensure that we could deliver a 1.8 per cent of GDP surplus outcome for the year ahead. What I would draw the attention of honourable members to, however, is the fact that that budget surplus position again stands in stark contrast to what we see on the part of many other economies—the United States running at minus 2.4 per cent; the United Kingdom, minus 3.8 per cent; Japan, minus 2.8 per cent; France, minus 2.9 per cent; Germany, plus one per cent; and Italy, minus 2.8 per cent. Therefore our budget circumstances, relative to those which pertain in other major economies, are sound and strong indeed.

In order to preserve this buffer for the future, against what is a set of quite challenging international and global economic circumstances, it is important that we do everything we can to preserve that budget surplus. My direct appeal to the new Leader of the Opposition is to unblock the budget in the Senate. My direct appeal to the Leader of the Opposition, as he says he is now in the business of providing economic leadership, is to demonstrate that leadership in the Senate and unblock the $6 billion worth of measures that are currently blocked in the Senate, in order to preserve the budget surplus—a budget surplus which is a necessary buffer in these uncertain economic times for Australia.