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Rudd Govt prepared to embrace a deficit.

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7.30 Report Rudd Govt prepared to embrace a deficit


Rudd Govt prepared to embrace a deficit

Broadcast: 01/12/2008


KERRY O’BRIEN: And while we would all like some glimmers of good news on the economic landscape, the evidence of the continuing gloom just keeps rolling in.

A report released today by the Australian Industry Group suggests that the manufacturing sector, which is a big and important generator of jobs, is already in a serious downturn.

The Reserve Bank meets tomorrow and is expected to respond with another big interest rate cut. And as the bad news builds, the political response to it is firming on both sides of politics.

After a weekend of big handouts to states in health and education, the Government insists it is prepared to embrace a deficit if that's what is required to avoid recession and protect jobs, and the Opposition continues to challenge the need to borrow.

Political editor Michael Brissenden reports.

MICHAEL BRISSENDEN: The Parliament is staggering into its last week of the year weighed down by the realities of the dramatic economic crisis, as those realities start to hit home hard the arguments about how best to deal with them is as well.

WAYNE SWAN, TREASURER: A deficit is not necessary now, but it is irresponsible to rule it out.

JULIE BISHOP, SHADOW TREASURER: There is no need for the Government to go into deficit at this point. In fact, announcing last week it would go into deficit sent a very bad sign to the Australian public. We need confidence in our economy at this time. If confidence is shattered the banks don't lend and people don't spend.

MICHAEL BRISSENDEN: But evidence is vast emerging that confidence has been well and truly sapped. Tomorrow the Reserve Bank board is likely to cut rates again as it becomes clear inflation is falling fast, some expect the RBA could deliver another one per cent cut.

And the Australian Industry Group's Performance Manufacturing Index released today, shows in the last month new orders slumped to their lowest level on record. The index has been falling now for six months in a row, but it's now at 32.7. Anything under 50 indicates contraction.

HEATHER RIDOUT, AUSTRALIAN INDUSTRY GROUP: All sectors of manufacturing fell in the month of October which is unprecedented in the 16 years of the survey. It shows that exports are very soft as well, but new orders are very weak of overall a very grim result.

MICHAEL BRISSENDEN: The 'D' word is the one getting the most attention at the moment, but it's the 'R' word that's starting to seriously trouble many.

And these manufacturing figures will be causing some considerable grief. Manufacturing employs more than a million people.

HEATHER RIDOUT: Companies are cutting their costs, taking deep dives into their business, trimming their sails and hunkering down for a very rough 2009. Employment is also suffering as a result of that. It's a very soft picture with rising unemployment in the industry.

MICHAEL BRISSENDEN: Staving off a recession is what it's now all about. With the US and many European countries now already there, the Government argues that spending is the best way to build a protective wall around our economy.

The Opposition argues if it wasn't for the good economic parameters this Government inherited from the last we'd be in the same boat and that that should give Australia more leverage than most.

MALCOLM TURNBULL, OPPOSITION LEADER: The critical thing is the quality of the spending, that Kevin Rudd, having inherited probably the best public finances in the developed world from the outgoing

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Coalition Government, what Kevin Rudd is seeking to get is a leave pass to have undisciplined and unbridled spending.

MICHAEL BRISSENDEN: While the Government has end clear it believes pump-priming the economy is the best defence, it has had to embrace the probability of a deficit. It took some time but those menacing three little syllables now slip off the tongue with relative ease. For the Opposition that has become a line that must not be crossed, and despite the consensus among economic analysts that a deficit is a legitimate lever the Opposition leader is sticking resolutely to his argument.

REPORTER: Can we just be clear on this. Are there no circumstances that you can foresee in which a Government should go into deficit? Is that what you're saying?

MALCOLM TURNBULL: Chris, we're not having a debate about the economic theory. We're all familiar with economic theory and surpluses and deficits and so forth. The real question is this. Until a week ago Kevin Rudd said he was an economic conservative and the test of that was, the proof of that was he was going to keep Australia's budget in surplus.

And now what has happened is he's panicked and he's seeking a leave pass to run into the red and I fear massively into the red.

WAYNE SWAN: This morning he was asked four times on the radio, whether he would run a deficit. Four times he dodged that question.

MEMBERS OF PARLIAMENT: Oh no! He was going to give straight answers!

WAYNE SWAN: Four times. He then finally got pinned down. He said, "It's the quality of the spending".


WAYNE SWAN: Now, which spending have we announced that doesn't meet that benchmark? Perhaps he could answer that question. Is it the payments to pensioners and families? Is it the money that was spent in COAG? Is it money to be spent on infrastructure? What doesn't meet that standard?

MEMBER OF PARLIAMENT: Computers in schools!


SPEAKER OF THE HOUSE: Order. The House will come to order.

WAYNE SWAN: That's right.

MICHAEL BRISSENDEN: The Opposition's refusal to accept the merits of a deficit do leave it exposed to a Government attack like this. It is hard to be seen to stand in the way of the rivers of cash the Government seems determined to release.

The Government on the other hand uses the largesse to help define its broader political objectives. The extra $800 million for the computers in schools program was announced just before the weekend's COAG meeting that saw more than $15 billion handed out to the States, mostly for health, hospitals and education. All part of the plan to reshape federalism. It's no surprise that money can make a State Premier

a lot more pliable.

KEVIN RUDD, AUSTRALIAN PRIME MINISTER: Mr Speaker, COAG on Saturday represented a significant outcome for the national economy, stimulus of $15 billion worth of additional investment to the national economy, capable of creating 133,000 additional jobs.

MICHAEL BRISSENDEN: Both sides agree protecting jobs is the big challenge for the future. The real question is how much government spending and stimulate something needed in the short-term to do that.

The Opposition also wonders how the Government will manage the deficit itself taking every opportunity to remind us all that the last Labor Government deficit lasted six years.

But amidst all these jobs under threat there seems to be a particular focus on one a little closer to home.

JULIE BISHOP: My question is to the Treasurer...

MICHAEL BRISSENDEN: Julie Bishop has been fending off suggestions that her own colleagues are starting to wonder if she's up to the job of Shadow Treasurer.

Speculation began in The Australian newspaper a few weeks ago, and was continued in the Sunday Telegraph on the weekend by the West Australian academic Peter van Onselen.

JULIE BISHOP: Well in fact, um, this Edith Cowan University academic seems to have developed a rather unhealthy obsession about me. This is just one in a whole series of interviews and articles he's written. I'm starting to feel I've got a political stalker.

MICHAEL BRISSENDEN: There's no doubt Julie Bishop has made some mistakes. She admits that herself. Many Liberals have been publicly and privately defending her today but they also recognise that she is under pressure and needs to perform well from here.

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KERRY O’BRIEN: Political editor Michael Brissenden.

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