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Lateline -

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(generated from captions) Tonight - the Republican

obstacle course - President Obama's Obama's two-year

Party tidal wave and we're

sending a message to them. As

the Republicans take control of the House, a warning

within. This is not a time for

celebration, not when one out

of 10 of our citizens is out of

work, not when we've br ried

our children under a mountain

of debt, and not when our

Congress is held in such lowest

steam . This is a time to roll

up our sleeves. This Program is Captioned

Live. Good evening Good evening and welcome to

Lateline. I'm Tony Jones. Since

he lost the prime ministership,

Kevin Rudd has steadfastly

refused to comment on the

internal machinations of his

own government, but a recent

story suggesting that the former Finance Minister Lindsay

Tanner was frozen out of

pre-Budget meetings of key

ministers for fear that he

would leak to the media has got talk. Well, first thing I would Mr Rudd angry enough to

say is that Lindsay Tanner was,

is and will be a very, very

close friend of mine. Secondly, that report is that report is without

foundation as far as I am

concerned, but in terms of

going into the entrails of all

of that, again, nice try. I

don't intend to go

further. Kevin Rudd there in

Beijing and naturally our

interview with the mobile phone

foreign policy issues, Minister focused mainly on big

especially on how to deal with the the emerging superpower of

China. We'll also be crossing

live to Washington to talk to

Michael Duffy, assistant managing editor of 'Time'

magazine who will give us the

latest analysis on the US

midterm elections results. But first our other headlines. Both

sides of politics want big

changes from the big four. Not

in our backyard - residents

tell the Opposition Leader why

they don't want an immigration detention centre in their backyard. And a drug link -

Andy Irons is found dead in US.

Is found dead in Dallas. Er -

As predicted, the Democrats

did hold onto the Senate, but

the President now faces a tough

two years trying to get his

agenda through a hostile Republican-dominated Congress. North America correspondent

Lisa Millar reports. In a year

stage, it was when the Tea Party took centre

its darlings was an early victor and he had a

message. We've come to take our government campaigner Rand Paul claiming government back! Anti-tax

Senate seat in Kentucky But

tonight there is a Tea Party

tidal wave and we're sending a

message to them. That wave

swept Marco Rubio into the

Senate and the Florida

Republican had a warning for

his party. And we make a grave

mistake if we believe that

somehow tonight these results are

is a second chance. The Republican party. What they are

is a second chance. The Republican senator Republican senator considered

a Tea Party kingmaker won

easily. I can feel an

earthquake election going on

all over this country. But one

of his proteges did not This is

just the beginning. Christine

O'Donnell who famously declared

she was not a witch will also

not be a senator. There was Democrats. We have taken the

country in a new direction. We

are not going back to the

failed policies of the past. We

are fighting for the middle-class. Thank

being part of that fight. But

it was clear within a few hours

of polling booths closing, a

power shift was coming to

Washington and the Republicans

were taking the House. I'm

going to be the leader of a large army after tonight.

Thanks for all you're doing. appear destined to cling onto Congratulations! The

the Senate, winning a crucial

seat in West Virginia. When I

look at what challenges we have

ahead of us in

know it's time to take that

fight there. In Nevada, the

Democrat Senate Leader Harry

Reid emerged the winner from

one of the tightest political

races Today Nevada chose hope over fear. In California,

Democrat Barbara Boxer also

pulled through. But this was a night for Republicans teary thank you speech from the

man destined to be the new

Speaker. I've spent my whole

life chasing the American dream. The victory message,

though, was deliberately

tempered. Frankly, this is not

a time for celebration, not

when one out of 10 of our

fellow citizens is out of work,

not when we've buried our

children under a mountain of

debt, and not when our Congress

is held in such low

This is a time to roll up our sleeves. Whether that will

involve any compromise or

negotiation with the President

and his team is unclear. With

the power shift on Capitol

Hill, Barack Obama will have to

decide his next step. The

President is holding a press

conference in a few hours' time

where Democrats will be

watching to see if he is going

to change course to adapt to

this new political reality. And

joining us now live in our Washington studio Duffy, assistant managing

editor of 'Time' magazine.

Thanks for being there, Michael. Good evening, Tony. We

haven't seen anything quite like this since the Republican

revolution in '94, but bim

Clinton still went on to win a

second term. What's today's

rout going to be for Barack

Obama and his future? I think

they're spending a lot of time

trying to figure that out this morning, and as your correspondent noted

a first look at that when he

has a press conference later

today. This is a much bigger

deal in some way than

The House changed in some ways

and this is a much more

complicated Republican party

for John Boehner and some of

his folks to manage. Both sides

have big challenges, managing

their coalitions as they move

into the next phase here. Yes,

Boehner is the new Republican

Speaker. He has made it clear

that President Obama needs to

sort of change could we change course.

possibly see? Well, I think

we'll start seeing President

Obama talk a little bit more about deficits and spending

cuts and looking for common

ground with the Republicans,

which wasn't really part of his

first two years in office. He

sort of made a head fake in

their direction when he came

into office in 2009, but there

was not a lot of cooperation

coming from the other side, so

he did most of his deals - in

fact, nearly all of them - with

luxury any more, Tony. He is

going to have to reach out.

It's got to start today, and he

has to be careful not to just

make it a series make it a series of stunts and

photo opportunities, he has to

really get to know some of

these Republicans and see what

kind of common ground he can

forge with them. Of course, we

don't know if they will be in

the mood to dance. We're just

going to have to see whether

either side can take the steps politically they're required,

courageous steps to do business

aisle. As the Democrats come to

terms with what went wrong

here, we've seen some key

analysis and one has said it's clear the Democrats

overinterpreted their mandate.

Is that the case? Yes, I think

it is. They came into office

thinking it was best to worry

about health care when clearly

the country was much more concerned

concerned about the economy. As

unemployment has climbed

steadily over the last two

years, they really made it

their second or third priority

that. Was a huge mistake. I

think Obama does recognise that

now. He probably wouldn't admit it,

it, and we have a history in this country, recently in

particular, of new parties

coming to power, one right

after another, over the last decade, and overreading what

they think the voters ask them

to do, and we're in a time

where they're getting punished

for it rather quickly, and

tossed out almost as quickly as

they were brought into power.

It's quite volatile here. Can

we see or could we see

Republicans actually reverse some of

some of the reforms that Obama

already managed to make, and particularly I'm thinking of

health care reform, because

this same Democrat analysis

suggests the health reform

isn't wholly writ, you can go back and look at it again? You're right, the

analysis does suggest that and

a lot of people I think believe there could be some drawback. I

do not. I think once these

things are passed it's very

difficult to undo them. They

could use that health care

reform as a rallying cry to wake up don't see them finding the will

to actually, as they say,

repeal and replace it. Don't

forget, even though it's been

passed here, it has hardly gone

into effect and won't for a

more years. I could be wrong,

but I tend to this there will

be no retrench ing, I think they will

they will have their hands full just dealing with the huge

problems we face in this

country before they undo stuff they spent a year or two

creating. Here is one of

thelements of the Obama agenda threat, action on climate

change. It is a very big deal

in the rest of the world.

Americans have pushed it

further and down the agenda and maybe it may maybe it may be off the agenda

altogether? It is, I think, and

in fact a lot of people who

lost last night across the

country, particularly in the

lower chamber, lost because

they took votes on climate

change that were not popular,

and White House has never been

as gung-ho about taking steps

in that area as it has seemed.

President Obama gave a lot of

speeches about it, but their

heart hasn't been in it since taking

absolutely right, Tony, as far

as the United States goes, the Congressmen

Congressmen will not be adding to the climate change policy in

the next two years. It's just

not going to happen. They may

put some more money into wind

and solar and other things, but

I don't see them taking further

steps any time soon. Back in

'94, the Democrat President

Bill Clinton had to learn how

to live with a Republican-dominated Congress

and Senate. In this case, the

Democrats have managed How significant is that? Well,

I suspect that that will help

President Obama keep some of

these changes he has made beinging undone. It is another

sort of place where he can stop

things from being reverse ed,

buts ayou interred - pointed

out, with Bill Clinton, it was

hard for him to reach out

across the aisle, as we have to

do in this country, when his

own party is a little

put it at the top, he faces

obstacles both dealing with an

Opposition party and keeping

his own group from revolting. We have Democrats tend to get

challenged if they get too far

to the centre. When they run

for re-election, and he doesn't

want that, so it's a real

obstacle course, as you said,

going forward here, and it

suggests to a lot of folks that

perhaps not much will happen in

the next two years, that it's

simply too complicated a a maze for anyone to really

navigate successfully. If

that's the case, will it have a

serious impact on Obama's

chances for a second

term? Well, I think Republicans can see now that the public is

not completely sold on Obama or

his agenda, that he has the

capacity to misread or

overread, as you said, what the

public wants, and they will be

emboldened, I think, more

people will probably get into the race now as a result of

what happened last night. But I

would just sort of caution that whatever happens

whatever happens in Congressional elections in this country, the coalition for

electing presidents is made of

a different chemistry set and different elements come into

play, different sorts of people vote in vote in presidential contests,

and you really can't rule out

the sheer power of a sitting

president. Americans like

four-year presidents. In fact,

they like 8-year presidents,

they like continuity, so any

sitting president of any party

starts with an advantage that

is hard to remember on a

morning like this when for

bleak. One of the key things of

this campaign was the anger, I

have ri ol and the energy of the Tea Party movement. How

successful were they in translating that energy and

rhetoric to actual

representatives in Congress?

And I suppose since we know the

answer to that, has the movement blown itself

out? Yeah, I think it is a

great question, Tony, because

while they had some victories

last night, they also had some losses. A number of their

candidates simply were too

extreme, a little wacky. The

voters said,

interested in those folks," and

defeated them. Sharron Angle in thief vad da who went to some

of her rallies wearing a 44 magnum

magnum on her hip was probably more than the market could have

borne and they tossed her. So a

up in of candidates like that who simply didn't survive last

night because they were too

new, too inexperienced and a

little nuts, so there are limits to their success

overnight. Having said that,

though, a number of the new senators and the new Congressmen coming to

Washington in January will have campaigned on 100% Tea Party

campaigns. They want to cut the

government, they want to cut

entitlement programs. The Republican party has no recent

history of doing either, so collision is coming in that

party as well, and it will take

a lot of, I think, behind The

Scenes politics to keep that

party from splintering. So both

sides have huge challenges. In

fact, you could say, Tony, that

what we saw last night was a

country really split into four

different pieces - the Democrats and the a huge group of Independents in

the middle that is swigging

back and forth every two years,

and now the Tea Party. Whether

these are going to these are going to coalesce back into two parties or remain

split into three or four is

really another way to look at

the next two years. Michael, we

have to leave you there won a

day with yes we can has Col

collided with, as your own

editorial says, "oh, no, you

don't." Thank you very much.

We will see you again soon. You

bet. Well, the last of the big

four banks has announced its

annual results and it has

highlighted consumer anger at interest rate interest rate hikes. Westpac

has posted a profit of more than $6 billion. The latest

bank result comes a day after

the Commonwealth put its rates

up by nearly double the fish rate rise. Both sides rate rise. Both sides of politics continue to talk tough

about banking sector reform.

Chief political reporter Mark

Simkin is with us now. The Commonwealth Bank isn't

customers are. You could call

it rates rage It's bullshit.

It's too hard to pay. I think

it sucks, actually. I'm very

angry. Just disgusting the way they've done it all. Some

called for the bank to be

re-nationalised. Others took

aim at its $16 million man, CEO

Ralph Norris If you're going to

stump up 300 grand to the chief

executive, where else will you find the money.

It's disgusting. It's

disgusting I hate the bank

profits. I hate the banks. Those bank profits keep

piling up. The big four piling up. The big four have

now broken through the $20

billion mark. West park's

contribution, more than $6 billion, an 84% increase It is

a very competitive environment,

it is a strong industry. We

have healthy and professional industry relationships. Westpac

won't say if it will match the

Commonwealth's super-sized rate

rise Interest rates decisions

are also very important and are

never taken lightly N coming to our position, into account a wide variety of factors, including the effects

on all of our stakeholders and on all of our stakeholders and our competitive position. So at

this stage no decision has taken and our interest rates

remain under review. But it did

echo the complaints about

funding pressures. I think what

we need is some really cool heads

heads and some quiet

conversation to actually better

explain how the world has structurally changed and that

it won't go back to where it

was before, and the most

important change that we ex-are experiencing here within Australia is for us on funding. Cool heads?

Not likely. Politicians lined up to talk tough. Instead of giving us the four-pillar

policy, the banks have given us

the four middle finger approach.

If the banks don't start behaving themselves there will

need to be additional

government regulation. I don't

favour regulation I rk, I don't want to see government

intervention, but the banks at

the moment are out of control

and they're getting very close

to needing additional

government intervention. The

tough talk into touch

action. The banks should not underestimate

underestimate for one moment the determination of this government

government to put in place a range

range of reforms which will make the system competitive. The Government has

been working with our

regulators for some months now

on a package of reforms that

are essential to make the system more competitive. Those reforms won't

reforms won't be unveiled until

next month. Well, Labor hasn't

taken any action. The Labor

Party hasn't lifted a finger

yet. It's huffed and it's

It says "in a month it will

announce what it's going to do.

I just say to you don't be conned

conned by this government. They

are lying through their teeth. For all their furious

disagreement, the Government

and Opposition basically agree

- small lenders should be

encouraged and the competition

watchdog should be given more power. Federal Opposition

Leader says the Government is

rolling out the red carpet to

asylum seekers with its

Adelaide Hills detention

centre. Tony Abbott has met residents and toured the Inverbrackie facility just days after the Immigration Minister

made a similar trip. Angelique

Johnson reports. Sharing a cuppa and a chat cuppa and a chat with Woodside locals, the Opposition Leader

was mostly among friends. It's

just that I don't agree with

how the Government has handled

it and I think the community

deserves better and until we

get better, I will fight tooth

and nail to try to stop it.

I'm on the main street so that means they will come past place. I live in Nairne Road. I don't want them. But some

didn't appreciate Mr Abbott's

position 4% of our full intake, Tony. I accept that. He argues

the flood gates could open if

the Government keeps opening detention facilities like the

one proposed for Inverbrackie.

Of You do not send idyllic

picture post cards from

Australia to the people

smuggers and their customers.

This is effectively a post from Australia saying, "Come on

over." Mr Abbott wouldn't comment on whether he thought

re-opening the Baxter detention

centre in the State 's north

would be a better idea. The

Government thinks not. I don't

think, for example, that children and families should be

located in remote locations in

high-security facilities, which

is what Mr Abbott seems to be

implying. He said it implying. He said it wouldn't

happen under him because he

would stop the boats, but he

doesn't say how he will stop

them. Is he going to put up traffic lights or

something? Despite Mr he can do to residents opposed to the detention

centre.-the-Government plans to

move the first asylum seekers in late next month. Immigration Minister Chris Bowen has

appointed a liaison offerser

and set up a and set up a community

reference group to ease local

concerns. He visited residents

of Inverbrackie on Saturday and

met with representatives but

didn't speak to anyone at Woodside. The Defence

Department is investigating

claims that a civilian was killed during a The Little Fighters involving Afghan soldiers. Baluchi Valley region, after the exchange

Defence says soldiers were approached by locals carrying

the body of a male who claimed

he had been killed in the

fight. There will will be no further information from Defence until the internal review is completed. The

United States Secretary of arrive in Australia on Sunday

for the Australia-United States ministerial meetings. It's

expected she will be

discussing, among other issues,

the United States' increasing

concern about China's military expansion. Our own Foreign

Minister Kevin Rudd has offered

a third way of dealing with

China. Is he in Beijing at the

moment and I spoke to him just

a short time ago. Kevin Rudd,

thanks for joining us Good to

be on the program. You've

talked recently about a third

way of dealing with China that

involves neither kowtowing. What do you mean

exactly by that? What I mean,

Tony, is that for many, many

years now, the debate in Western countries in

particular, and to some extent

even within China itself, has

said that there are only two

ways of approaching the rise of

this great power. One is that

we're in some sort of insipent

or emerging conflict with China

and the other way forward is to

kowtow, in other words, comply

with everything China says. I don't think paths is productive. I think

there is a rational third way

to proceed and I believe they

can be done through a comprehensive political and

economic relationship where we agree on our interests both in

the region, both on a world

stage and bilaterally as well,

but also not walking away from those areas in which we

disagree. I think that's the

right and rational way to

proceed, rather than having this simple, black-white alternative which frankly

doesn't lend itself to the

great complexity that is modern

China. OK. Using that how should Australia respond to

China's rapid expansion of its offensive military capability? Well, on that question, we've got to

acknowledge a number of facts.

One is, as China becomes a wealthier country and its GDP

rises, it follows that its allocation of funding to

military resources will also

rise, and that's occurred with

countries right around the

world and basically throughout

history. The second is this, though, and that is with China,

we also need to recognise that

other countries returned around

the world and the region are

increasing their military outlays, but again on the

specificity of China and the

size of the country and the

size of its military forces,

there are continuing questions

about, number one, the capabilities which China is

acquiring, two, the doctrine or

intentions to which those

capabilities would be put, and,

three, broadly on the

transparency of military budgets as well. we need to see progress and

that's where we're engaging

drktly and frankly our Chinese friends. What's the rationale

for this extra Chinese spending

for the offensive capability.

What do they see as military

threats to their sovereignty? Well, historically

I think it's fair to say, Tony

that China's overall military

posture at least at a

conventional level, and in

terms of some of its theatre

weapons as well, has been around what's called the Taiwan

contingency. China, as you

know, has long said that Taiwan

is is part of the People's

Republic and it Republic and it doesn't withdraw from its position,

that in extremist it would use

military force to regain tie

wand and retain it for the PRC.

Is any of that in immediate prospect? No. Relations across

the Taiwan straights have been

better since 1949? want to know what one of the

core principles has been for

China's md Dernisation, it's

been that. As China acquires that that capability, what happens is it also acquires

capabilities which are also

able to be deployed beyond the contingency, and that's why we

need greater transparency with

the Chinese, greater exercises

so we don't have accidents,

mishaps or misperceptions at

sea between our respective

Navies and those of the United

States, States, and thirdly, as I said,

a greater clarity in Chinese

military doctrine. That's why we have, for example, bilateral

dialogue with the Chinese at

chief of Defence Force

level. Expansion - that will be

a key issue when you speak to

Hillary Clinton in Australia

this week, is it not? Well, I

won't foreshadow the content of

what goes on in AUS minute

negotiations. This is for the

Secretary of State, Stephen

Smith and myself. For

the next couple of daysly be

meeting General, the chief of

the general staff here of the people's Liberation Army here

in Beijing and these are the

questions I will continue to

discuss with him as I have in

the past and I'm sure his

Australian counterpart Angus

Houston has as well. This is the sort of content to the

Defence security and strategic

dialogue we've been having with

the Chinese for quite a number

of years now - quite frank,

quite to the point, but in overall framework of a very

productive and very economic

relationship. Hillary Clinton

has been quite frank about this and indeed the Americans,

Pentagon has been undergoing a

large-scale review of its military standing, particularly

visiting China. Wow have to think that would be part of

your talks? The United States, like interest with the People's

Republic of China hand that is

to maintain the stability and

peace of this Asia-Pacific

region. That stability and

peace has underpinned the

phenomenal economic growth and

prosperity we've seen in this

region over the last 30 or 40

years and, looking to the next

30 or 40 years, we need to see a continuation of that, and

that must be a core focus for

our diplomacy. Just put it in a

slightly different way. I

believe one of the core

challenges for the 21st Century

or at least this first or at least this first half of the 21st Century is to make

sure that we, the United

States, its allies and friends

in the region, together with

China, work together to frame a commonsense commonsense of security cooperation, even security community or a concept of it,

in our wider East Asia, West

Pacific region, to avoid any

conflict. Another global issue involving China is climate

change, somehow do you assess

the importance of these two

issues, China's growing

military power and China's response response to climate change? Well, I believe if you

sort of pushed all the

day-to-day to and fro of

politics at home and abroad

just to one side for a moment

and just stood back for a

moment and drew breath, there are

are two or three big ones which

are facing our country and most

countries in the region and

indeed the world over the next

several decades which we must

get right. Number one is

climate change and make sure

that our actions abroad match -

our actions commitment as broad to bring down greenhouse gas emissions,

otherwise our common interest

in the planet frankly

undermined, and that's

fundamental to everything else.

But number two, I think n terms

of global priorities is this

phenomenal growth of China. Its

economic footprint, its

economic power, its diplomatic

presence, the matters we've

just been discussing in terms

of its military capabilities as

well and how the region and well and how the region and the

world at large embraces and manages the

manages the emergence of this new great power. Presumably

climate will also be high on

your agenda with auks with Hillary Clinton. How much harder will it be to get serious United States action on

climate change now that Obama

has lost - the Democrats have lost control of Congress? Well,

I'm sure we Australians could

exchange a few notes with the

Americans on that question. As

you know, in the period of the

last Parliament we saw to pass

our own Emissions Trading

Scheme through the Australian

Parliament and Senate on occasions had it rejected by the Conservative-dominated

Australian Senate. In the

United States, now of course,

based on the figures that I have just

Beijing, the Republicans have control

control of the House and the

Democrats are likely to

maintain control of the Senate,

so this will be tough going in terms of the Democrats'

previous commitment to a cap-and-trade system, but let's

see what happens. Also we've

got to be very careful in our

analysis of American actions in terms of which may be within their

armoury to deal with the challenge of climate change.

Principal carriage here of

course lies with Greg Combet. He will He will be dealing very closely with the Americans and in fact I know from my conversations

with him he was on the phone

with his American counterpart

only last week in preparations

for Cancun. It should not deter

us from landing an outcome for

our nations and for the

planet. Let's go back to China in

in a minute and approach didn't seem to work too well with the Chinese in

Copenhagen. What went wrong

there? I believe that in the

preparations for Copenhagen, we didn't strike pre-agreement between the major

developed countries, including the United States, ourselves

and the Europeans and China and

India on the other. As we move

forward through Cancun forward through Cancun and

Durban and onto Rio again,

we've got to make sure that

that work is done well in

advance so we have manageable

agendas for agreement on

ambitious outcomes because the

planet cannot wait and cannot

endure further delay. I've got to

that you used a that you used a metaphor

involving cop lating rodents to

describe the behaviour of the Chinese negotiators in Copenhagen? Tony, Copenhagen? Tony, I'm not going

to comment on that one bit. It's very late in the evening.

I gave an off-the-record

briefing to a whole bunch of

Australian journalists and it

was now about nine months ago,

so I will leave that stand well

within the parameters of the

ethics of your

profession. Indeed . Julia Gillard wheels when it comes to foreign

policy. How would you rate her

performance so far? Well, the

first point is I disagree with

that proposition. As I've seen the Prime the Prime Minister engage with international counterparts and read the reports of her engagements with international counterparts, she is

effectively arguing the

Australian national interest on

a whole bunch of complex

matters where we've got big

interests on the table. As for

the way in which we conduct

foreign policy in Australia, as Prime Minister necessarily leads. Foreign ministers work in support of the Prime

Minister. That's been the case

when I was Prime Minister. That

will be the

well. It is a big world out

there, though, for a leader who

would rather be sitting in a

classroom than in some sort of foreign conference or speaking

to foreign leaders and has no

passion for it. Are you helping

to guide her through this? The

Prime Minister has many highly

competent foreign policy advisers, many of whom advised

me in the past. They located both within the Department of Foreign Affairs

and Trade, they are located

within the Prime Minister's

department and elsewhere, and

beyond that, can I say that the

challenges we face around the world are great on the very big

questions, some of which we've

touched upon on this interview.

Of course that requires prime ministerial leadership. In

other lesser matters, as

occurred when Stephen Smith was

Foreign Minister and morn

ministers go out and deal with the fundamental principals of

Australian Cabinet apply and

for the Australian national

interest, when you've got such

big questions at stake, like

China and how we manage chin

choin's future in our own

region, the emergence of this

new institution, the East Asian Summit which reflects so much

of our argument in recent years

for an Asia-Pacific community,

how we deal with the challenge

of regional and global

terrorism, how we deal with the challenge of climate change - these are big nationwide

decisions which affect frankly

most members of the Cabinet and where Cabinet again takes the

lead as well . Briefly, we're

starting to see a kickback by

those in Labor's left who are concerned at losing political

ground to the Greens. Now, Greg

Combet, who you mentioned

earlier, says Labor needs to

rebuild its standing on issues like climate change, where vote-switching was caused by the deferral of an emissions trading scheme. Do

trading scheme. Do you agree

with that, first of all? Well,

first of all, I don't intend to

engage in debates about domestic politics one bit,

least of all while I'm here in

China prosecuting the national

interest. As for debates within

the party and our future direction, they're properly held held internally within the

party. Greg Combet is a fine

minister and of course he, like

many of us, is concerned about

the party's future. He has

spoken out on that subject. He is

is right to do so. But as for

me, being drawn into that little hornet's, Tony, nice

try, but I don't intend to. Here is Hornet's nest I'm bound to ask

you: If as Prime Minister you

used to hold fake pre-budget

meetings with the gang of four to make sure

Tanner didn't leak details to the media, Haas been

reported? The first thing I

would say is that Lindsay

Tanner was, is and will be a

very, very close friend of

mine. Secondly, that report is without foundation as far as I

am concerned, but in terms of

going into the entrails of all

of that, again, nice try. I don't intend to go There is going to be a lot of

attempts to put colour and spin

on things - that's fine. Others can do

can do that. I'm on about the Australian national

I'm on about what you do as Foreign Minister to prosecute

that interest and on the big

questions we've been talking about tonight because they

affect our kids, our country

over the course of the next

half-century. That's what I'm

about. Of course, you could

squash that story completely by

saying it's not true. you have just done that I will

let you interpret my remarks as

you seat fit. Kevin Rudd, we

will undoubtedly do that, along

with everyone else who is watching. We thank you very much for taking the time to

join us from Beijing. Thanks

very much, Tony. Good to be on

the program.

Three-time world surfing champion Andy Irons has been

found dead in a hotel room in

Dallas, Texas. Initial reports

said the 32-year-old had been suffering from

of dengue fever, but subsequent

stories have suggested a drug

link. The Hawaiian took a year off

off the world surfing tour last

year for personal reasons

he had made a successful return to professional competition

just this year. We're very,

very deeply saddened and in

mourning at the moment. We're

all grieving and our thoughts

and best wishes go out to the

family and all his

friends. Irons is survived by

his wife birth to the couple's first

child next month. A quick look

at the weather now:

And that's all from us. If

you would like to look back at tonight's interviews with Kevin

Rudd and Michael Duffy or

review any of Lateline's

stories or transcripts, you can

go to our website and you can

also follow us on Twitter FaceBook. I will see you again

tomorrow night. Goodnight. Closed Captions by CSI. This Program is Captioned

Live.

Good evening, and welcome to

Lateline Business, I'm Phillip

Lasker. Tonight - bumper

profits at Westpac, but Gail

Kelly on the defensive after the Commonwealth Bank's

hospital pass. I think what we

need is some really cool heads

and some quiet conversation to

actually better explain how the

world has structural changed

and that it won't go back to where it was before. Bendigo and Adelaide's chairman tells

bank shareholders to get used

to lower returns. The profits

that, I think, investors have

long-term are probably not sustainable. And Westfield makes changes to boost returns and

and fund expansion. We are proposing to create a new investment vehicle to be known as the Westfield Retail Trust,

which will become partner with

the Westfield Group. First to

the markets where there was a positive

positive lead from market, but volumes were light.

Speaking of higher, Westpac

posted an 84% rise in profits for the year, so the big four

banks made a total of $21

billion. Westpac's statutory

net profit was $6.3 billion

driven by a strong second half

performance and a fall in bad

debts. As for the bank's own

mortgage rate that remains on

hold for now. Here's Simon

Palan. Another day, another

big bank, another profit. And big bank, another record

profit. And I'm pleased with our our performance. This is a strong high-quality result. Westpac has unveiled a

full-year profit after tax of

$6.3 billion - that's up 84% on

last year. Overall, the

was very close to expectations.

I think most of the analysts in

the community had a fairly

narrow band of expectations and Westpac have been Westpac have been guiding towards that and they delivered

very comfortably. The result is

fuelled by very cash earnings

and vastly reduced impairment

costs and Westpac says its

merger with St George is paying

off. From an operational point of view all

have been achieved, all on have been achieved, all on time

and within budget. On the

benefit side, we're ahead with

expense synergies 28% higher

than planned at this point. Most parts of the business posted earnings

increases.

The primary reason was a reduction in exception fees, these are the fees on

dishonoured cheques, late

payments from credit cards et

cetera. There was some impact

from the higher interest cost

they have in

fund their lending growth. Westpac is the last of

the big four banks to report

annual profits. The other three also impressed the market. The Commonwealth

turned in $5.6 billion. posted a $4.5 billion profit

and the smauls of the big four

NAB wasn't far behind. There's

no doubt the Australian banking

sector is very sound. The

Australian banks are amongst

the best capitalised in the

world and have come through the

GFC much better than banks overseas. The combined net

profit of Australia's big banks

surged almost 50% this year to

more than $21 more than $21 billion. It comes at a delicate time for

the big four - they're trying

to convince the community that

higher funding costs means they

need to lift their interest rates by more than

Bank. After yesterday's

surprise Reserve Bank rate hike

the Commonwealth Bank upped its standard variable mortgage rate

by 4.5%, almost double the cash

rate rise. Westpac says it's

yet to make a decision. We

review rates all the time.

Rates are always under review

and here we are today having

not made a decision with rates under under review. We will over the

course of the next period

assess all of the factors that

need to be assessed to go into

this important decision. We

truly do understand the

implications of this decision

on the range of stakeholders

that we have. I think what we

need is some really cool heads and quiet conversation to better explain how the world

has structurally changed and

that it won't go back to where it was before. The Treasurer has attacked the big banks

calling them arrogant over

rising rates and fees.

Westfield has announced a major

restructuring which it says

shareholders. Half the group's

Australian and New Zealand

assets will be tipped into a new listed trust which will be accompanied

accompanied by a $3.5 billion capital raising. In a moment

we'll hear from chairman from founder Frank Lowy, but first this report from Andrew

Robertson. This is not the

first time Westfield has changed its structure to suit

its goals. We are proposing to create a new investment vehicle

to be known as the Westfield

Retail Trust, which will become Group. Westfield Retail Trust

will contain half of Westfield

Group's 54 shopping centres in

Australia and New Zealand.

It's hoped it will start life

with nearly $11 billion in equity made up of a

distribution of units to

existing Westfield Group

investors and a capital raising

of $3.5 billion which will be

used to pay down the debt

attached to Westfield Trust

centres. For at least one

Westfield security holder the benefits are hard to see. The

up side is a promise of returns

that will differ and also a

lower cost of capital to the entity. That comes at a cost. That cost is the $200

million in advisers fees and other

other charges to establish the

new Westfield structure and the

fact that investors who don't

take part in the public offer

part of the capital raising

will have their holdings day Lleyton Hewitted. Lincoln

Sharemarket Solutions head of

investment research Dennis Ng

says there's also downside from

the move away from the single

Westfield Group

2004. It comes up with a lot of

questions, I think, because a

lot of the benefits which you

would have expected the company

to reap from the combination

into 2004, a lot of it is going to be lost in to be lost in the process

now. Dennis Ng believes the

main reason for the revamp is

to position Westfield Group for an aggressive acquisition phase

and he thinks Sen tro will be

high on Westfield's list of

targets. There's obviously a

lot of other possibilities out

there, but I think Sen tro

screams out as something to us

that's worth a look into, because these may be distressed

assets going for less than they

would be worth usually. Winston Sammutt believes expansion could be could be the motive behind the new strategy. They believe the strategy is suitable for current conditions and that in

terms of cost of capital it

will be better for the group as

they access capital around the

world. We believe that there's

a strong investor demand for a

trust like this, one which is focussed on

Australia and New Zealand

retail property. One of those assets Frank Lowy will be in

big demand with investors is

Westfield's new Sydney CBD

shopping flex. It will be the

flagship asset in the Westfield Retail Trust with Westfield Group guaranteeing a yield of

nearly 6% for the first three

years. Westfield Group

managing director Stephen Lowy

isn't overly concerned by the

current softness in retail

sales figures or the latest rises in interest rates. This

year we've had more than 5%

compound growth in like for

like sales over a 5-year period

of time. There's a very

healthy underbelly to the state of the retail environment. The

Lowy's plans to split Westfield

Group in two will be put to a meeting of security holders on

9 December. It's been called a backflip, reversal and

unscrambling the egg, but Frank

Lowy says he's simply changing

to suit the times. I caught up

with the Westfield chairman earlier today.

Frank Lowy, thanks for joining

Lateline Business. A pleasure. This restructure has

the egg, a partial reversal of

the consolidation that took

place in 2004, why is it

necessary? Well, I think it's

wrong to characterise it as

unscrambling the egg. That egg

was good what it was doing, but

I think there are other ways to run this business in a different different capital structure that I believe will produce more for the shareholders. So

how is this structure going to help Westfield Group's

growth? It can grow the same as

it did before

and if it means that we use

less capital, earnings per

share should be more than it was before, because we have now created a partnership with the

Westfield Retail Trust and whatever we build from now on,

they will be 50% partner. We

have other partnerships, so we

are looking to spend about

between 700 million to $1 billion redevelopment. Out of that,

our own capital will only be

needed around $300 million. So

we need less money to create

the same business. And is this

a vote of confidence in the US

economy, a sign that you're going

going for growth in the

US? Yes, I mean there are

opportunities everywhere, but I don't think you can characterise that we're doing

it because we want to grow. We

have a platform now for the next few years where we will be

spending about $1 billion a

year of which we need about 3

or 400. Now regenerate cash

reserves within the group of

$600 million, so that means $600 million, so that means we

can grow without raising

additional capital, but if we

see something that requires

more capital or going to new

market where it requires additional capital there's no

reason why we can't raise