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Monday, 14 September 2009
Page: 9403


Mr TURNBULL (3:12 PM) —My question is to the Prime Minister. I refer the Prime Minister to recent comments by the respected economist and Reserve Bank board member Warwick McKibbin. Professor McKibbin said that he stands by his testimony to the Senate earlier in the year that the government’s stimulus package was, and I quote, ‘too big and wrongly focused’ and he says that now is the time to step back and reassess the situation. Will the Prime Minister explain to the House why he will not heed these warnings, reduce his reckless spending and ease the upward pressure on interest rates?


Mr RUDD (Prime Minister) —I thank the Leader of the Opposition for his question and note in passing that Professor McKibbin has not been a consistent fan of government policy for some time—either on the question of the economy, climate change or a range of other matters. That is simply a matter of public record. The Leader of the Opposition asked me about the government’s stimulus strategy. In my response to an earlier question today I referred to it being 12 months since the Lehman Brothers crisis and to what the global economy has done through the G20—and what we are still seeking to do through the G20—because the global economy was at the abyss. One of the things that the global economy resolved to do through the G20 was coordinate global economic stimulus through fiscal measures. That is what was agreed upon at the London summit in March-April this year.

Furthermore, the representatives of those G20 economies, meeting most recently in London last weekend—and I seem to recall the Treasurer informing the House about this last week—including all those socialists from France, Germany, Italy and from Saudi Arabia, all said that in fact they were committed and must remain committed to the full implementation of the stimulus measures that they had agreed upon in London. And the reason for that was that the global economic recovery was far from certain and far from concluded. Therefore Australia, together with the other 19 significant economies at that gathering, as they were in London in April, has embarked upon this collective course of action.

Also, within Australia we have acted on the basis of advice from the Treasury. We have acted on the basis also of the concerted—


Mr Hockey interjecting


Mr RUDD —I see the shadow Treasurer is again attacking Mr Henry; is that right?

Opposition members interjecting—


Mr RUDD —I notice that those opposite often have a go at the Secretary to the Treasury. I seem to recall that those opposite have done so from time to time in the past.


Mr Hockey —Mr Speaker, I rise on a point of order. It goes to what the Prime Minister just said. I ask him to tell the truth.


The SPEAKER —Order! The member for North Sydney will resume his seat and he is warned. He was offered the call on a point of order. He cannot approach the dispatch box and just willy-nilly start debating.


Mr Randall interjecting


The SPEAKER —The member for Canning is warned. The Prime Minister has the call.


Mr RUDD —If the shadow Treasurer was not having a go at the Secretary to the Treasury, as the opposition has done on many occasions in the past, then of course I stand corrected.

The government in our response to the global economic crisis, the global economic recession and the financial crisis in embarking upon our three-stage stimulus strategy have done so consistent with the advice provided to us by our economic advisers in the Treasury. Furthermore, our strategy has been complementary to the expansionary policy adopted by the central bank, the Reserve Bank of Australia, and the 425 basis point changes that it has made to official interest rates. The reason we have done that is that we have been acting in concert with other global economies, seeking to respond to the worst global economic crisis in three-quarters of a century.

The Leader of the Opposition asks also about where this fiscal stimulus strategy will go in the future. I would draw his attention to the fact that the stimulus strategy is structured in a number of stages—three, in particular—and furthermore that the way in which the strategy has been conceived, developed and implemented is such that it will peak as the private economy is at its weakest and then contract as the private economy responds. That is what you should do with a stimulus strategy to make sure it is targeted, that it is temporary and that it therefore has an effect. It is entirely consistent with conservative economic management. When the public economy expands to occupy the space left by a private sector in retreat and when the private sector expands itself then the public economy through public investment should contract at that point. That is the way in which the stimulus strategy is constructed. In fact, I seem to recall that in 2008-09 we have had about 2.1 per cent of GDP which has gone out. In 2009-10 it will be something like 2.2 per cent or 2.3 per cent of GDP. Then it will fall to 1.4 per cent of GDP and then down to less than 0.4 per cent of GDP. In other words, it is constructed in a manner such that it was at its maximum intensity when the global economy was at its weakest and therefore is contracting, as it has been designed to, as the global economy slowly recovers.

The other point that has been made by the Leader of the Opposition today concerns interest rates. I find it passing strange that anyone from the opposition could stand here credibly and ask a question about interest rates. They went to the election before last saying they would keep interest rates at record lows and then proceeded to bring about how many interest rate rises in a row? Ten. But they stand at the dispatch box and ask us questions about interest rates. Furthermore, apart from having zero credibility on interest rates, I would also say to those opposite the following: when you look at the impact of global public borrowings on interest rates, as has been said repeatedly by many public economists, the impact of Australia’s total borrowing on total global public debt is something in the order of 0.003—


Mr Hockey interjecting


Mr RUDD —The shadow Treasurer interjects again. I would draw his attention to commentaries such as those by Ross Gittins in the financial pages of the paper where he was described roundly as an economic illiterate for assuming that the impact of Australia’s public borrowing would in turn have a direct effect on interest rates. That is simply illogical because of the fundamental underpinning fact that our overall borrowings represent such a small slice of total global public debt. Therefore, the proposition being advanced by the opposition is one of absolute fiction and fear which has no underpinnings in fact. Those opposite would understand that if they were being honest about their reflections on this.

I welcome the question from the Leader of the Opposition. It goes to why we have embarked upon this economic stimulus strategy and how we have structured it in three stages and over time in order for it to have its maximum effect when the economy is at its weakest and then to contract as the global economy recovers. The stimulus strategy is consistent with both the global advice of the IMF and the World Bank and advice nationally within Australia from the Treasury of the Commonwealth of Australia. It is a stimulus strategy which I would suggest that those opposite, if they were honest about it, would agree is having a positive effect. Firstly, at this stage of September 2009, across the 33 members of the OECD Australia uniquely over the last 12 months is the economy which has grown. Secondly, we are the only major economy not to have gone into recession. Thirdly, we have the second lowest unemployment, the lowest debt and the lowest deficit of the major advanced economies. And, on top of that, we are the only economy not to have gone into recession. Those opposite regard that as a scorecard of economic failure.