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Barrie Cassidy speaks to Kevin Rudd -

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CASSIDY: Now to Canberra and the Prime Minister Kevin Rudd, who has had a couple of days to try and
absorb Professor Ross Garnauts 600 page draft report on climate change. He joins me now, Prime
Minister good morning and welcome.

PM: Good morning Barrie and thanks for having me on the program.

CASSIDY: A diabolical political problem, the toughest any Government has faced in a lifetime,
that's enough to overwhelm anybody, do you feel in any sense overwhelmed by this?

PM: No Barrie we took this decision when we were in opposition, we said first of all we were going
to ratify Kyoto, the Howard Government refused.

Secondly we said that we would introduce an Emissions Trading Scheme to bring down carbon
pollution. The Howard Government having originally opposed that, then supported it and now the
Liberal's oppose it. So goodness knows where their position is today.

So the decision we took was last year, we realised then as we realise now this will be a very tough
decision. But we need it for the long term, bringing down carbon pollution is necessary if we are
going to provide a sustainable long term economic growth path for Australia as well as protecting
our environment and the planet. It will be hard, it will be tough, but the Government's up for it.

CASSIDY: And you say it will be tough. What's the toughest decision you have taken so far as Prime
Minister?

PM: I think you can't just sort of pick and choose on those sorts of questions. I think the whole
raft of challenges we face in Government are complex and difficult, but this one, Barrie, is one
which I think challenges us all as a nation, because it goes beyond our generation into the next
and into the one after.

The easiest thing to do is stick your head in the sand and say "Not my problem", but I frankly
don't think most Australians can do that, if they looked in the faces of their children and
grandchildren, they think it is their problem and they expect Government to take responsible, calm,
measured approaches to deal with it, that's what we are seeking to do.

We need to do it for the economy, there's an economic cost to Australia and a jobs cost if we fail
to act because of the impact on tourism, the impact on agriculture and the impact on the total
economy therefore. But we need to do it for the environment, so that people who come after us have
some place where they can live, and live as we have lived.

CASSIDY: I think It's understood that you will need to take tough decisions and that's why I asked
you to nominate one tough decision you have taken so far?

PM: Well look can I just say the preparation of the Budget, the reason I answered the way I did
before is because we are confronted on a daily and weekly basis with a range of difficult choices.

CASSIDY: But in retrospect what was the tough decision in the Budget?

PM: Well can I say if you are elected as an incoming Government with a whole range of expectations
to turn around in six months what our predecessors left unaddressed in 12 years, it is very, very
difficult. Therefore, taking the knife to a whole series of Government programs in order to produce
a $22 billion surplus at a time when there was considerable pressure on inflation, having inherited
inflation at 16-year highs, that was tough.

Myself, Lindsay Tanner, Wayne Swan and other Ministers including Julia Gillard sat down, week in
week out for months, working our way through programs to cut so that we could honour pre-election
commitments, that hasn't been popular, we understand that. If you want to know what's tough, that's
tough. What's easy is what the Liberal Party say which is "Let's blow a hole in that surplus by
going on a spending spree." Well that's irresponsible in the fight against inflation.

CASSIDY: I think some would argue means testing certain benefits to people beyond $150,000 is not
particularly tough.

PM: There's a whole range of programs in the Budget arrangement Barrie, which all have consequences
in terms of the community. We understand that and we receive a lot of complaints from a lot of
things that have been done. But to actually bring down tax as a proportion of GDP, to bring down
expenditure as a proportion of GDP to the lowest level its been since 1989, all driven by one
imperative, which is how do you put downward pressure on inflation to put downward pressure on
interest rates. Because if you let interest rates get away, what happens is, it affects the real
economy and growth, and that affects jobs.

That's a complex message to sell, but its the right message to sell and cutting in order to bring
about a $22 billion surplus, while at the same time honouring your pre-election commitments for tax
cuts and the rest, that was a hard process, a difficult process. But we got through it and the
Ministers performed fantastically in that process.

CASSIDY: You only need to listen to talkback radio for 5 minutes and you sense the public is
desperate to have a better understanding of the climate change issue. So lets try and help, in
plain simple terms what is an emissions trading scheme.

PM: Well let me answer it in three ways, one you say what's the public aware of. I think I agree
with you the public understands that there is a need to act. And for Australia there is a need to
act for a range of economic and environmental reasons, the cost of inaction now is far greater than
the cost of action.

On the specifics of a carbon trading reduction scheme or a carbon emissions reductions scheme or an
emissions trading scheme it's this: first of all, we as Australia, need to put a cap on the total
amount of carbon pollution we put out into the atmosphere. Otherwise, frankly, if everyone around
the world keeps does that, just letting it rip, then the planet gets hotter and hotter, and hotter.
If we fail to act on that, then we have a real problem.

The second question then is once you have imposed that cap, which we would do through this trading
scheme, is how do you then manage the economy within it? What you do then is that you provide each
individual business unit with a permit and the green paper will go to the question of how that
might occur, but you allocate permits across the economy which together add up to the total carbon
cap for the economy. Then rather than the Government coming in and saying, "You can do this, you
can do that", you allow a market too operate, a carbon market whereby people who are emitting
carbon can trade with each other, but still the overall carbon market or carbon cap is kept in
place.

That's the responsible way to ensure you don't go beyond an environmentally unsustainable point in
terms of carbon pollution, but secondly providing flexibility for businesses within the economy to
trade within that overall cap.

CASSIDY: (inaudible) That essentially applies to industry. What is it that you are asking of
ordinary Australians?

PM: Well obviously once you bring in a carbon pollution trading system like this, that it affects
through the entire economy most particularly through the cost of carbon-based energy, and, of
course, including petrol. That flows through to the entire economy, and therefore flows through to
households, so therefore there is a consequence.

One of the matters which will be canvassing in the green paper is how do we provide adjustment
support for households during that process, and similarly, how do we provide adjustment support for
businesses during the process. These are complex and difficult questions, but these will be
outlined at least in the broad once we get to the green paper point.

CASSIDY: Sure, but in simple terms, what are you asking of people out in the suburbs - your asking
them to pay for more Power and more for petrol?

PM: As I said if your going effectively a cap on carbon, and therefore have a new price for carbon,
that flows through to the price of energy for households, that's true. Mr Howard said that, I say
that, I think even Dr Nelson has said that.

The key question then is how to support households, particularly lower income households, in their
adjustment to that new system and that's where the devil lies in the detail. That's where there'll
be a whole lot of debate and that's why we're going to go through this is in a calm measured
responsible way once we put out our green paper on this later in July, and work our way through to
the public debate through on it through to the end of the year.

CASSIDY: And if its $2 a week or something on the power bill and maybe 4 cents on petrol, given the
mood of the country on this issue, they'll accept that wont they?

PM: Well we don't know at this stage what the carbon price would be. Therefore, I think any
adjustment at a time when households across Australia are under real financial pressure with rising
mortgages, rising rents, the impact on petrol and the impact on food, I think any adjustment cost
will be difficult.

That's why we have to be mindful of how we provide adjustment and support for households during
that process, particularly those at the lower end of the income spectrum.

CASSIDY: Now, there is another diabolical aspect I suppose to all of this - inflation. Inflation is
public enemy No.1, and your responses to climate change surely must, by definition be inflationary?

PM: Well our response to that Barrie from day one of the Government coming into office, has been to
outline a hard line fight against inflation. In January my first speech on the economy barely a
month after becoming Prime Minister I outlined our five-point strategy against inflation, led by
our approach to how we would bring about a responsible Budget and boost public savings. Therefore
that's the framework within which we approach economic policy. When it comes to the carbon
pollution management system that we are talking about in this debate we are very mindful of that as
well.

The Governor of the Reserve Bank was asked about this only a few months ago and he indicated then
that he did not see long-term inflationary impact resulting from this scheme. The other thing to
say Barrie, is that we need to ensure, we need to ensure that we have proper powers for the
competition watchdog, the ACCC so that whenever any system of this nature comes in, that there's no
opportunistic price gouging at that time as well.

CASSIDY: And what about jobs, obviously jobs can be created in some areas, but they'll be lost in
others?

PM: Well the economy is always in a process of adjustment, reform and readjustment and all these
changes in the economy produce new jobs in different areas. The CSIRO produced a report on this
quite recently and it indicated that with the of these climate change management systems, that over
time, in the next two decades, they projected we would see the addition of between two and three
and a half million jobs to the Australian economy. But they won't be the same jobs necessarily but
they never have been.

This economy has been in a process of structural reform now, going back to the great reforms of the
Hawke and Keating period. Now that process will continue, but will be in the direction of a cleaner
lower carbon economy. But let me tell you, when you look at the future of employment and economic
opportunities in the renewable energy sector, they are huge.

Therefore, there will be difficultly, and there will be adjustment and there will be pain, when it
comes to certain parts of business. We accept that, that's why we embrace the principle of helping
business with adjustment support.

But in the longer term, there is also the prospects of new opportunities for employment as well.

CASSIDY: Now the 2010 deadline, are you determined to meet that?

PM: Our ambition remains 2010 and you'll see all that canvassed in the green paper itself. We don't
believe there's a case for delay, we will be very mindful of what business says to us in terms of
implementation arrangements which flow from the scheme. But our ambition remains that and part of
the reason our ambition remains for it Kerry is as Professor Garnaut outlined in his report. I mean
time for Australia is running out, we can't just keep putting these things off and off and off and
off and remember the previous Government were presented with an Emissions Trading Scheme proposal
by Treasury in 2003, and put it into the too hard basket. That's five years wasted.

We believe we believe we have the right timeline outlined, 2010 remains our ambition and of course
we'll consult with industry on implementation arrangements.

CASSIDY: Do you accept the logic of what the Opposition is saying on petrol, that skyrocketing
prices of late is a big enough price signal for anybody and that you don't need to move again?

PM: I think what I'd say to that one Barrie is that what we're talking about here is how we deal
with a realistic price for carbon for the next half century, and when do we bring in a system which
accurately prices carbon over that period of time. Because if we don't act by the quarter century
point and mid century point, both as a nation and as a globe, then frankly we start to run the risk
of getting to the point of environmental no return, at least that's what some of the scientists are
warning us.

Therefore pricing carbon for the long term is a challenge. In the shorter of course you going to
have massive fluctuations in the price of petrol for example because of the supply and demand
factors in the Middle East. We'll always be mindful of that in terms of what can and should be done
to assist motorists in terms of their broader income arrangements. But what we are on about with
this reform is a long term reform for the environment, and for the economy.

On the environment, one other thing as well - today the Agriculture Minister will be releasing a
new report on the impact of climate change on drought. We asked some time ago for the CSIRO and
Bureau of Meteorology to advise us how do we deal with exceptional circumstances drought
arrangements into the future. They've now presented us with a report and the findings are again
very disturbing. What they say in two short points is this, and this will come out later today -
firstly that when it comes to exceptional or extreme drought, exceptionally high temperatures, the
historical assumption that this occurred once every 20 years has now been revised down to between
every one and two years, that's the first point.

Secondly, with exceptional circumstances drought conditions, under scenarios within it, that that
will occur twice as often, and with twice the area of droughted parts of Australia included. Now
this is a serious revision of the impact of climate change on drought and the Agricultural Minister
will make that clear in the report that he releases later today, again on climate change.

CASSIDY: If that's so then why did you let John Brumby get away with what he got away with at COAG
where he refused to allow you to raise the cap on the Murray River from 4% to 6%

PM: Well the actual agreement says that the Council of Australian Governments has the ambition to
raise this to 6% by the end of next year.

CASSIDY: But no guarantee's?

PM: But the first thing is we first of all have a Murray Darling Basin Authority for the first
time, six months ago there was not one. Secondly it will come on stream as of 1 January next year
in terms of its staffing and its powers. Thirdly, for the first time a basin-wide management plan
covering one seventh of the area of Australia and on top of that for the first time a basin-wide
cap for the entire system.

Now, in the meantime I was talking to Penny Wong about this yesterday when we visited Lake
Alexandrina and the lower lakes, which are highly stressed because climate change...

CASIDY: Well stressed because water has been taken out of the Murray, surely not because of climate
change?

PM: Well there's an aggregation of factors, stress because of climate change, stress because
there's been frankly shocking use practices of the Murray Darling system going back frankly decades
and in six months I think we've achieved more than the predecessors did in 12 years on this. But on
the specific question of how do you deal with flows into the system, you need a combination of
short, medium and long term arrangements.

Long term is what we're discussing, acting sensibly on climate change. Medium term, through getting
this authority established, having a cap for the entire system. But reinforced by the Water
Minister Penny Wong, having now for the first time, begun a large scale program of purchasing back
water entitlements across the system. We've already begun that, our predecessors never did that.

CASSIDY: Its just that it has been presented in Victoria that John Brumby has given to commitment
about supporting an increase from 4-6% and he picked up an extra $100 million to boot.

PM: Can I say Barrie, prior to the change in Government Victoria ruled out any Murray Darling Basin
authority, we now have one. Prior to the change in Government the Victorian Government refused to
engage in any of these intergovernmental arrangements through what we now have, an
intergovernmental agreement.

We have made significant progress. But I'm the first to say there's a long way to go. Can I say, in
terms of pulling pressure out of the system, you do two things. One is you empower, as you have
done, the Water Minister, Penny Wong to buy back water entitlements and we've already bought back
some $50 million worth and that program will continue and expand.

The second is this massive investment that we have put in, some $3.7 billion across Australia,
across the Murray Darling Basin to improve the irrigation efficiency of the system so there is less
pull on the system that way.

Shorter term measures by the way, is what I was in South Australia with Mike Rann talking about in
the lower lakes. Which is how do you actually pump water from elsewhere in the Murray to assist
with farming and local communities right there at the Murray mouth. What we need is short, medium
and long term strategies for dealing with this. In six months we have got the framework right. I'm
the first to say however we have a long way to go.

CASSIDY: Ok just a couple of quick ones, we're running out of time. Will Labour contest the Mayo
by-election.

PM: Oh look, we'll sort our way through that, I haven't really had a discussion with any of the
colleagues about that. Mayo has never been held by the Labor Party as you know and we'll sort our
way through that in the weeks ahead.

CASSIDY: But its out at 7%, some polls have you sitting at 57% two-party preferred, if you didn't
run it would look like you've been spooked by Gippsland wouldn't it?

PM: Well I've got to say, you always got to be mindful of one or two things here Barrie, which is
one which is making sure that local voters have got a choice, and the second is I don't know about
the opponents, but the Australian Labor Party is not made of money. Each time you run an election
or participate in it, that's another several hundred thousand dollars which gets spent in a
campaign, in a seat which you have never held in the history of the federation. So you have got to
work these things out, and we'll sort is out in due course.

CASSIDY: Have you got any messages for your colleagues in NSW, should they give Morris Iemma a fair
go?

PM: Morris Iemma has taken really tough decisions on the future of the electricity industry there,
really tough decisions. That is why I support him. I think he has done a good job on this very,
very difficult debate, and I think Premiers such as him are fully deserving of support, and he
certainly has mine.

CASSIDY: Just finally on top of the Bill Henson controversy, a taxpayer supported magazine has put
a naked 6 year old girl this time on its cover, Art Monthly Australia. The editor said that he did
it to restore some dignity to the debate, is that what it does?

PM: If you asking my personal view Barrie, no it doesn't and it does the reverse. My view hasn't
changed on this. We are talking about the innocence of little children here. A little child cannot
answer for themselves about whether they wish to be depicted in this way. I have very deep, strong
personal views on this which is that we should be on about maximising the protection of children. I
don't think this is a step in the right direction at all.

CASSIDY: And it does seem to be a deliberately provocative act aimed directly at you?

PM: Who knows what the motivation is, but I've got to say my interest and the interest of many
Australians. I think most Australians, is to protect little children and restore innocence to kids
childhood. But I go back to the fundamental question: how can anyone assume that a little child of
6 years old, 8, 10, 12, somehow is able to make that decision for themselves? I mean, I don't think
they can. That's just my view, and that's why frankly, I can't stand this stuff.

CASSIDY: Thanks for your time this morning.

PM: Good to be with you.