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Early Agenda -

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AM Agenda

2 February 2009

Ashleigh Gillon: Welcome to AM Agenda. Well we now know that we are headed for a deficit, but in a
bid to avoid a recession, Cabinet today is expected to sign off on the government's second economic
stimulus package. Joining me here in Canberra the senators Mark Arbib and Mitch Fifield. Thank you
both for your time. Good morning.

Mitch Fifield: Good morning, Ashleigh.

Mark Arbib: Good morning.

Ashleigh Gillon: We'll get to your predictions what the next stimulus package will include shortly
but first the Treasurer confirmed yesterday that after just one year in office the Rudd government
is facing a Budget deficit. Here's how Wayne Swan broke the news yesterday.

Wayne Swan: Well certainly the global recession will give Australia a temporary deficit, but of
course that is happening right around the world and of course we are much better positioned than
many other countries.

Ashleigh Gillon: Senator Arbib. When Wayne Swan took the reigns of the economy just over a year
ago, I guess he would have never have dreamed in a million years that in a such short space of time
he'd be telling Australians that the Budget is heading for a deficit.

Mark Arbib: Well we would never have thought that we would've had such extraordinary times. When
you look at what's happening in the United States, serious recession. When you look at what's
happening in Japan, serious recession. Throughout Europe, serious recessions, and this is a global
recession now. It's not just a global banking crisis. It is a global recession and that is having
huge effects not just on the developed world but the developing world. Look at China, our biggest
trading partner is now having a massive slow down. Job cuts everywhere, factories closing, and this
is going to have a huge effect on Australia's bottom-line. It's going to have a huge effect on our
economy, and it's not just China. Japan, our other, second biggest trading partner as well,
recession, slow down, and obviously as the Treasurer pointed out yesterday, that's going to cut $50
billion off our company revenue, our company tax revenue, which means a deficit and there's nothing
we can do about that. We've been driven into deficit by what is happening overseas, globally, and
certainly by the global-the recession.

Ashleigh Gillon: Senator Fifield, it is difficult isn't it for the Opposition to argue against a
deficit when you've got the International Monetary Fund, the country's top economists saying that
that's actually the responsible course of action to take at this time.

Mark Arbib: What a surprise, a deficit. Wayne Swan has been softening the public up for the best
part of six months for a deficit, and yesterday he said that the deficit is the medicine we need
echoes the recession we had to have. But I think it's very important that we appreciate that this
deficit isn't because of the global financial crisis. This deficit is because of decisions taken by
this government.

Now, certainly, falling revenues, rising welfare payments could well take the Budget into deficit,
an exacerbated deficit. But this government has had the Budget on track for a deficit for quite
some time. Now the government talks a lot about the automatic stabilisers, a lot about having the
Budget in balance on average over the course of the economic cycle but what that means is when the
economy is growing the Budget is in surplus, when the economy is in recession the Budget is in
deficit. Now this government has had us on track for a deficit while the economy is still growing
and I think that's very important fact to bear in mind. Now obviously you know, not contending for
a second that we mightn't find ourselves in a recession and that falling revenues and rising
welfare payments see you in deficit and exacerbate that, but the important point is, we've been on
track for a deficit apart from those factors, apart from those factors this government has had the
Budget on track for deficit.

Ashleigh Gillon: Senator Fifield, can you serious and say that the global financial crisis has
nothing to do with this deficit, because we are looking at the reasons for it.

a. - major loss in tax revenues because of the global financial crisis.

b. - the government's spending packages because of the global financial crisis.

Mitch Fifield: Well putting aside the global financial crisis ...

Ashleigh Gillon: But you can't put aside the global financial crisis.

Mitch Fifield: No, no, no. What I am saying-you can, apart from that, this government still would
have had this Budget in deficit.

Mark Arbib: Hang, hang on a second.

Mitch Fifield: This government ...

Ashleigh Gillon: Let's see what Mark Arbib has to say.

Mark Arbib: You just said previously that we have put the country in deficit and that is completely
untrue.

Mitch Fifield: Your, your spending decisions alone ...

Mark Arbib: Hang on, Mitch. I know that your New Year resolution is to interrupt me so let me get
this one out please.

Mitch Fifield: Not at all.

Mark Arbib: What you are saying is that somehow we've driven it in. There is no doubt whatsoever
that the global recession is hitting this country hard, it's hitting all countries hard. You just
glossed over it. You never mentioned the global effects once. Look at our trading partners. Five of
our ten top trading partners are now in recession, and the remainder are on the brink of recession.
I mean these are extraordinary times. IMF figures predicting global growth at 0.2 per cent. Of
course it's going to have a huge effect on our bottom line and that is why the Treasurer came out
and explained it. $50 billion being taken away from our company tax revenue. He talked about $40
billion the last time during MYEFO, the MYEFO period. He talked about another $40 billion of our
revenue going then, too from global factors. There is no doubt about it. The global recession, what
is happening with our trading partners is driving us into deficit. For Mitch here to be saying here
that somehow we've done it, is just misleading and totally partisan, and it just goes to show this
is exactly how they've been playing their politics. They started off ...

Mitch Fifield: Two points.

Mark Arbib: Hang one, just one second. You started off by supporting the guarantee, the banking
guarantee. Now you've flipped on that one and saying that you don't support it. You started off
supporting the stimulus. You sat in this chair, Mitch, supporting the stimulus. Now you don't
support the stimulus. This is the way you're playing politics. Malcolm Turnbull is just a total
opportunist.

Ashleigh Gillon: Mitch Fifield, I just want to show you what the Shadow Treasurer Julie Bishop had
to say on the Sky News Business channel this morning. She was making the point that it's one thing
to go into deficit but the big question now is what's the government's plan to get out of it. Let's
have a look.

Julie Bishop: And when the government says it's going into deficit albeit on a temporary basis, we
must hold the government to account to what they mean by temporary, and we had the unedifying
spectacle yesterday of the Assistant Treasurer not being able to articulate what the government
means by a temporary deficit, and all this talk about it being up to the economic cycle to dictate
when the government will come out of deficit. Well, in our experience the Labor government come out
of deficit when a Coalition government's elected.

Ashleigh Gillon: Who would have thought yesterday when Wayne Swan made these comments about
Australia going into deficit, he may have been armed with some information telling us how we are
likely to get out of it, but Mitch Fifield, is it realistic to expect the government to know the
length of this deficit. Just exactly how it's going to turn around in the end?

Mitch Fifield: Well the government could give us some undertakings that they will have a Budget
surplus at some time in this parliamentary term; that they will have Budget surplus at some point
during their term of office. They talk about having the Budget in balance over the course of the
economic cycle, but the government won't define what that is. That could be five years, ten years,
fifteen years. I'll pre-empt Mark. Mark will say that we had a Budget deficit when we were in
office. True, but we had a Budget surplus the year before and we had a Budget surplus the year
after, and we paid down all the debt. That's a temporary Budget deficit, so I don't think it's
unreasonable to expect the government to put some broad markers around this. What constitutes a
temporary deficit? Is it one year, two years, three years? It is a parliamentary term? Is it two
parliamentary terms? I don' think it's unreasonable to expect the government to put some markers
around that.

But just going back to the point we were making before about the deficit. The reason I say that we
would've had a deficit regardless under this government is because this government was talking the
Australian economy down at the start of last year before the effects of the economic crisis really
hit home. That affects business; that affects business revenues, that affects the employment level;
that affects social welfare payments. So, that's a factor, and also the government has got to own
its spending decisions which have taken the Budget to the edge of deficits. That's the point I was
making is that this government had the Budget on a track to deficit before the effects of the
global financial crisis hit. I'm not denying that the global financial crisis does have an effect
but this government had us on track for deficit regardless.

Ashleigh Gillon: Mark Arbib, is there a plan to get Australia out of a deficit. Is there any
guarantee that this could be back on track in five years, in eight years. What time period are we
looking at, is there any way to tell?

Mark Arbib: The largest factor is obviously global conditions, and no one can tell you, no one can
say how bad this thing is going to get. I mean every time you think you've reached the bottom in
terms of the financial crisis, things get worse. In the United States, In the UK at the moment they
are talking about nationalising all the banks. I mean who would have ever thought that we'd get to
that sort of proposition. So ...

Ashleigh Gillon: Please tell us though, there is some plan to get Australia out of deficit,
'inaudible' tell us exactly what it is.

Mark Arbib: No, of course there is because it's been our plan from day one, and Mitch talks about
us talking down the economy, we haven't been. We've been boosting up the economy ...

Mitch Fifield: What about the inflation? Genie in a bottle?

Mark Arbib: We've been boosting up the economy. Look at the stimulus package. $10.4 billion
introduced last October and it is working, it is working. I mean I've heard Julie Bishop and
Malcolm Turnbull running down the stimulus package. Look at retail figures. This morning retail
figures were released, $6.5 billion pumped into the economy from Boxing Day to the end of January
ahead of expectations from the retailers. Look at housing figures. Housing figures showed almost an
18 per cent increase in first home buyer grants in November alone. Woolworth, Michael Luscombe is
out there saying that they have seen activity in the areas where there are huge numbers of working
families actually going out and spending. So our plan is to stimulate the economy and that is why
we did it once, and we are looking at doing it again. Our plan is to stimulate, to create activity,
to protect jobs. We've got a plan to protect jobs. The other side, what they're about is just
leaving it to the market, and so there's a real ideological divide here. We are intervening in the
market place, stimulating the economy. The Opposition ...

Mitch Fifield: You used to like markets, Mark.

Mark Arbib: I still like markets, Mitch.

Mitch Fifield: Not sounding very solid.

Mark Arbib: But at the same time the government has to intervene, extraordinary times, to stimulate
it. On your side, it's leave it to the market, let the market rip. The Gordon Geckos of the world
are sort of out there just waiting for the scavenger funs to pick up good buys. So...

Mitch Fifield: It is possible to blow billions and billions and billions of dollars without any
economic benefit. Now the government talks a lot about acting decisively and-I readily concede the
government did act decisively with the first stimulus package but it's possible to be decisively
right, it's also possible to be decisively wrong.

Ashleigh Gillon: Is there any evidence that that last $10.4 billion stimulus package didn't work?

Mitch Fifield: Well is there any evidence that is has so far?

Ashleigh Gillon: Mark, is there any evidence?

Mark Arbib: Yes I just went through the evidence. Retail figures out today, $6.5 billion ahead of
retailers' expectations. Housing figures up eighteen percent for first home buyers. Again
Woolworths are saying it, and again...

Mitch Fifield: I've got a different, I've got a different measure ...

Mark Arbib: But Mitch you sat in this chair, and you supported it ...

Mitch Fifield: Employment, employment is really the determinant as to whether these packages have
been effective. If they've been effective, then we'll see unemployment stay where it is. We'll see
the number of people out of jobs not increase in Australia. If the package has been effective,
that's what will happen. I don't know what other measure there really is.

Mark Arbib: I've just been through the measures.

Mitch Fifield: Well, No. I think the measure is jobs. That is the measure. You can blow $10 billion
and have no effect. Just spending money, it might allow a government to ...

Mark Arbib: So you are now opposed to ...

Ashleigh Gillon: Mark Arbib, what is does now ...

Mitch Fifield: It might allow the government to say we are doing something.

Ashleigh Gillon: We are seeing all sorts of figures coming out, but what does seem clear after
Wayne Swan coming out yesterday and said now we are now looking at a deficit, is that we don't have
the latest figures. The last mid-year economic and fiscal outlook which was released in November, I
think, seems to be completely out of date by now. Why hasn't the government come out again this
year and said this is where the economy is looking, this is where we're at. Isn't that needed?

Mark Arbib: Well we did have that MYEFO mid-year economic figures in late November December. I mean
they are out.

Ashleigh Gillon: A lot has changed since then.

Mark Arbib: Of course a lot has changed since then. No one has been able to forecast how quickly
the world economy is deteriorating; nobody has, and now is the time for action. We've stimulated
the economy once; it is time to do it again. Now in terms of jobs and Mitch was talking about
employment and not-Malcolm Turnbull's out there everyday saying jobs, jobs, jobs. What is his plan
for jobs? What's Malcolm Turnbull's plan? One, it's leave it to the market. Second, setup a
website. I mean this is his only plan to fit-to actually create jobs, set up a website. That's it.
What we're doing is we are actively intervening, stimulating the economy to create activity,
protecting, supporting jobs.

Mitch Fifield: And re-regulating the labour market.

Ashleigh Gillon: Well Mitch Fifield, what is the Opposition's plan to protect jobs, or does Mark
have a point there?

Mitch Fifield: Which you know, and I know, will lead to increased unemployment in Australia.

Mark Arbib: He's talking about his plan right here, which is to bring back WorkChoices. Here we go
again. When you, come, come on, Mitch. When you talk about regulating and deregulating the labour
market, you are talking about the individual contracts that you brought through with WorkChoices.
You gave a speech couple of week ago, I admire you for your honesty. You're the only one in the
Coalition who's been able to stand up and put it on the record. Well you said, we should not run
away from our core beliefs and ideology, and again you were relating that to Workplace relations,
and that means WorkChoices.

Ashleigh Gillon: Mark, let me just respond to your claims that the Opposition has no basis for
trying to support...

Mark Arbib: I love him to.

Mitch Fifield: Warwick McKibbin, Reserve Bank Director, today is in the papers saying that
re-regulating the labour market at this time, at a time of economic pressure is crazy. It's
madness. You know, business knows, I know that re-regulating the labour market will cost jobs. So,
on the one hand you are saying we'll stimulate the economy and try and create jobs that way. On the
other hand, you are re-regulating the labour market in such a way that you will destroy jobs. It is
completely inconsistent. If you think that your stimulus package will help increase jobs then why
are you re-regulating the labour market? Can you tell me, Mark that re-regulating the labour market
will increase jobs in Australia.

Mark Arbib: This is a hugely important debate. What our plan is, is to provide fairness in the
workplace, fairness that the Opposition took away when they were in government through WorkChoices.
There's no doubt about it, fairness, but at the same time is that we are providing employers with
flexibility. This is not about re-regulation, this is about providing balance in the workplace, and
that is what the government is providing, and it's pretty clear from what Mitch is saying today and
what we've heard from people like Nick Minchin and others, Tony Abbott. They want to return to the
bad old days of WorkChoices, they are using the economic crisis as an excuse to try and bring back
those individual AWA contracts which the Australian population completely repudiated.

Ashleigh Gillon: We do need to go to a very quick break, but coming up next we'd be looking at the
government's proposed second economic stimulus package. What's going to be in it? Is tax relief on
the cards? We'll discuss that with the senators in just a couple of minutes.

Ashleigh Gillon: Welcome back to AM Agenda. Joining me here in Canberra, the senator Mark Arbib and
senator Mitch Fifield.

Speculation of course is mounting today that the government is set to announce its economic
stimulus package as soon as later today. We are hearing that Cabinet's going to be signing off on
this decision today. The big question seems to be whether or not tax relief is going to be part of
that package. The Opposition has been arguing for broad and sweeping, tax cuts. But yesterday there
seems to be some mixed messages coming from the Opposition Leader and the Shadow Treasurer. Let's
have a look.

Malcolm Turnbull: You've got to look at the most effective tax cuts, the best targeted ones.

Julie Bishop: Tax cuts, broad and sweeping tax cuts, so that it will increase the tax base and
increase tax revenue.

Ashleigh Gillon: Senator Fifield, which is it? Narrow tax cuts needed, broad tax cuts needed. Are
any needed at all.

Mitch Fifield: Well I am always a fan of tax cuts and the broader the better. That's the Mitch
philosophy. Just back to the first stimulus package for a second. My concern with the second
stimulus package is it could be throwing good money after bad. I would have preferred the first
stimulus package to, as I've said, bring forward tax cuts, to put real money in people's pockets
week-in week-out to boost spending, to boost the economy and also infrastructure spending to help
improve the long term productive capacity of the nation. That didn't happen. My concern with the
second stimulus package is, again don't want to see good money being thrown after bad. I always
lean towards tax cuts rather than, you know, cash handouts. There is ample evidence that tax cuts
do lead to a greater boost. Before I make a call on the second stimulus package, what I want to see
is updated forecasts. MYEFO is completely out-of-date. We need a new economic forecast update. We
need to know what Treasury's view is in terms of unemployment. We need to know Treasury's view as
to what effect the first stimulus package will have. I mean, how can we make a call on the second
stimulus package when we don't even have advice from Treasury about the likely effect of the first
stimulus package. To me that would seem pretty basic so that the very first thing we need is
updated Treasury forecasts, and so far there is no undertaking from the government that we will
have that.

Ashleigh Gillon: Okay, that's the Mitch philosophy. What's the Mark philosophy?

Mark Arbib: The Mark philosophy.

Ashleigh Gillon: Can we look forward to-It seems to be we are getting a lot of hints there will be
tax relief for low-income earners as long as there's-as well as a mix of infrastructure spending,
spending on education, skills training, that sort of thing. Do you think that's the sort of thing
we are looking at? Can you give us some more hints?

Mark Arbib: I can only tell you what I saw yesterday when the Treasurer was speaking on the Nine
programme in terms of-he was talking about a mixed package that has short-term impacts, medium-term
impacts and long-term impacts, and he was talking about at the centre of it, nation building, and
that means infrastructure, and I think that is a very very sound way to be approaching the stimulus
package, to be actually looking to stimulating the short-term, and that's what the IMF says really
needs to happen. You know, a short-term stimulus, and that's why they favour infrastructure and
direct spending rather than tax cuts, because tax cuts are over a period, a longer period and they
don't provide the short-term effect. But at the same time as that we've got to be looking over the
horizon, looking at our productive capacity, and that's why infrastructure spending is so so
important to ensure that we are actually productive, to ensure when the economy picks up, we are
ready to compete on the global stage and infrastructure will protect jobs.

Ashleigh Gillon: can we trust though, the states to handle those extra infrastructure funds, and I
am thinking in particular here of New South Wales. We've seen that some of these states don't have
a good track record when it comes to completing these programmes, projects efficiently and on time.
Do you think they can be trusted with these extra funds?

Mitch Fifield: Joe Tripodi, can we trust him?

Mark Arbib: Well we've got Infrastructure Australia. It's been setup. It's an independent body and
that is going to be the group responsible for infrastructure, and of course they will be putting
into place processes, checks and balances to ensure if infrastructure is committed to and promise
that they are actually-that the states-and also local government. Remember local government is also
involved here. The government in its second-in its first stimulus package provided $300 million to
local councils so they can get infrastructure underway themselves. So Infrastructure Australia, an
independent body will be responsible for ensuring that we actually get on with the job and deliver
on what we're saying. But from what the Treasurer was saying that is not going to be the whole
package. I mean the package will have other measures as well, it's not just going to be
infrastructure spending. There's obviously going to be a spending to try and get consumer spending,
moving as well. We've got to keep it in perspective.

Ashleigh Gillon: Mitch, you keep pointing out that we don't know the full effects yet of the first
economic stimulus package. Are you suggesting then that we do need to wait some time, wait until we
have the new figures and see the full impact before there's a second package?

Mitch Fifield: Well, we shouldn't have to wait. The government should release the updated figures
when they announce the stimulus package. Or better still, give us the updated figures today so we
can know what the lay of the land is. That's what they should do.

Going back to infrastructure which Mark was talking about. I've got some worries about
infrastructure spending, not because I think infrastructure spending is a bad thing, but because
Infrastructure Australia which Mark keeps saying is the independent body. They will make
independent recommendations to government for projects which is good, but the government has said
that they are not going to release the advice of Infrastructure Australia as to the projects that
they recommended. So we will have no way of knowing if the projects which the government funds are
chosen purely for political reasons, purely to help particular federal states or purely to help
particular dysfunctional state Labor governments. We are not going to know that because the
government has said that they are not going to release the advice of Infrastructure Australia as to
which projects should be funded. So I think there're two things ...

Ashleigh Gillon: Is pork-barrelling a concern here, Mark?

Mark Arbib: Well that is exactly why-if you look at their time in government, the Coalition's time
in government. They pork-barrel left, right and centre... and that is why we setup Infrastructure
Australia for that very reason to stop pork-barrelling to ensure there was an independent body
involved in the process and the analysing of ...

Mitch Fifield: To give it a cover.

Mark Arbib: And the analysis of these projects. But can I just return back to something Mitch said
in terms of the figures, waiting for figures. We've got the IMF figures. The IMF figures are out
and, they are absolutely abysmal. You took-looking at world growth, 0.2 per cent ...

Mitch Fifield: What's wrong with Henry's figures?

Mark Arbib: And what we have to do as a government and what we've been working at from day one is
to stay ahead of the curve. To stay ahead of what is happening internationally, to ensure that our
economy is insulated as much as possible from the global effects. That's been the strategy so far
and it has largely worked. We are not going to change now and sit on our hands and wait for figures
into the never-never, because that will mean a loss of jobs.

Mitch Fifield: You won't have to work for them, you're the government.

Mark Arbib: What Mitch is talking about is to sit on our hands and see jobs go out the back door.

Mitch Fifield: No.

Mark Arbib: That is not what we are going to do. We are going to act. Take the actions necessary to
stimulate the economy.

Mitch Fifield: Mark, you're the government. Ask for the figures.

Ashleigh Gillon: It is going to a fascinating week. Welcome back to Canberra. Glad to see you both
here in fine form as usual. We look forward to talking to you again next week.