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Treasury head rebuffs Coalition on stimulus -

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SHANE MCLEOD: Malcolm Turnbull is hoping Kevin Rudd meets him half way on emissions trading, giving
him the best chance of convincing the Coalition to vote with the Government next month.

The Opposition party room is expected to support Mr Turnbull's plan to negotiate changes to the ETS
but dissident MPs are demanding the Government accept substantial amendments for high emitting
industries and agriculture. If not, Mr Turnbull's plan to pass the scheme may be thwarted.

He's taking heart from eminent economist Professor Ross Garnaut's critique of the Government's big
economic stimulus spending.

But the head of Treasury Dr Ken Henry says the stimulus is still needed to avoid the real risk of
the economy stalling.

From Canberra, Alexandra Kirk reports.

ALEXANDRA KIRK: Malcolm Turnbull has been battling disgruntled MPs and very public criticism of his
leadership for months. But just like his optimistic claim that the party is unified, he's trying to
downplay the damage caused by those who've been agitating against him.

MALCOLM TURNBULL: That's what I read but again it's not, it's not something that I can, you know,
waste a lot of time on frankly.

ALEXANDRA KIRK: The bubble has burst for now. Mr Turnbull is hoping it stays that way.

MALCOLM TURNBULL: What I have called for and what I must say every leader of a political party
where this has occurred on, Labor or Liberal, has always said the same thing, we've got to stick
together and invariably we do.

ALEXANDRA KIRK: On ABC radio in Melbourne this morning he was fed up with all the attention on his
leadership.

MALCOLM TURNBULL: You know, here we are, we've been in the studio for 10 minutes and we've had,
gone on and on about leadership and we haven't actually got onto any policy substance.

ALEXANDRA KIRK: Shortly after Mr Turnbull got his way, with the focus shifting to the economy.

MALCOLM TURNBULL: There is no good coming out of the Rudd Government's reckless economic management
and Ross Garnaut who is very much on the Labor side - he was the man of course who did the big
study for their climate change legislation - Ross Garnaut's remarks in The Australian today confirm
it.

ALEXANDRA KIRK: But the head of Treasury Ken Henry isn't in favour of Mr Turnbull's push to wind
back the Government's stimulus spending.

KEN HENRY: So far these effects have largely been through the stimulus to household consumption
from the cash payments. And without this stimulus we estimate that the economy would have
contracted not only in the December quarter of 2008 but also in the March and June quarters of this
year.

ALEXANDRA KIRK: Dr Henry has told a Senate hearing clawing back some of the yet to be spent
stimulus billions is not a good idea. He says the positive economic news isn't reason enough.

KEN HENRY: It's on the public record that the Treasury has advised the Government that withdrawing
the stimulus more quickly could risk stalling the economy and causing a steeper rise in the
unemployment rate.

To illustrate the point: if all the stimulus scheduled to impact in 2010/11 was cancelled that
would mean a further detraction of 1.5 per cent from GDP growth and the loss of up to an additional
100,000 jobs.

ALEXANDRA KIRK: The Deputy Prime Minister Julia Gillard has enforced that message.

JULIA GILLARD: We are still anticipating that unemployment will rise. We've always said to the
Australian community we weren't going to be immune from the global recession. What we could do is
act quickly, decisively to cushion the impacts.

We've done that through economic stimulus and I think the figures are showing that is working to
support jobs. But we've got to keep economic stimulus going to continue to support jobs whilst we
build the infrastructure we need for tomorrow.

ALEXANDRA KIRK: The Government hasn't updated its economic forecast since the Budget. One is due
before year's end. But Ken Henry says the news will be good, backing the International Monetary
Fund's forecast for unemployment to peak at 7 per cent.

KEN HENRY: Well I, look I think that's a reasonable figure for us to be talking about. Without
saying, without publishing today the Treasury's revised forecast for the unemployment rate I think
that's a reasonable figure to be talking about.

I think the IMF's quite a credible organisation. They have a lot of information available to them
and they've talked to us quite a bit as well. We wouldn't be saying that 7 per cent is too low.

ALEXANDRA KIRK: But the more immediate challenge for Malcolm Turnbull remains the impending Senate
debate Mark II on emissions trading. He has his fingers crossed that the Government will accept
many of the Coalition's amendments.

One of Labor's climate change negotiators Greg Combet is warning Mr Turnbull against going to the
negotiating table with some take it or leave it propositions.

GREG COMBET: Malcolm Turnbull needs to assert his authority here and the Liberal and National
parties need to front up to the huge challenge that climate change represents in a constructive
way.

ALEXANDRA KIRK: The Government is waving the prospect of a double dissolution election in front of
Mr Turnbull; one he may have foisted on him if the climate hardliners in the Coalition win out and
the Government's legislation is rejected again.

MALCOLM TURNBULL: If there was an election held this Saturday and the opinion polls are right we
would obviously do very badly. Yes, that's true.

INTERVIEWER: So you're against a, back against a wall aren't you?

MALCOLM TURNBULL: Well not at all. I mean, you cannot be in the business of politics and be afraid
of elections; double dissolutions or otherwise. I mean we have to have an election every three
years so elections are, elections are the business we're in.

ALEXANDRA KIRK: But it's not a prospect Malcolm Turnbull and many of his colleagues relish.

SHANE MCLEOD: Alexandra Kirk.