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Monday, 10 November 2008
Page: 10270

Ms JULIE BISHOP (2:30 PM) —My question is to the Prime Minister. I refer the Prime Minister to last Wednesday’s government forecast—

Government members interjecting—

The SPEAKER —Order! Those on my right will come to order. The Deputy Leader of the Opposition has the call.

Ms JULIE BISHOP —Thank you, Mr Speaker. My question is to the Prime Minister. I refer the Prime Minister to last Wednesday’s government forecast of two per cent economic growth for this financial year. I also refer the Prime Minister to the IMF forecast two days later of 1.8 per cent growth. Given that the Reserve Bank today stated that it expects economic growth to be only 1.5 per cent and the Treasurer has stated from Brazil that ‘the slowing in growth will be more dramatic’, Prime Minister, which growth projection is the most accurate?

Mr RUDD (Prime Minister) —As the honourable member would know, the global financial crisis is impacting on the real economies of all developed and developing economies. In fact, before I go to the heart of the honourable member’s question, I draw her attention also to the extraordinary action taken in the last 24 hours by the government of China, an extraordinary fiscal stimulus package which I believe is of significance not just to this economy but also to the economy across wider East Asia and the world. When I last looked at the numbers, the stimulus package was something in the vicinity over two years of seven per cent of GDP, some $586 billion. Obviously that reflects the concern in China about their own domestic growth prospects, but it parallels, I believe, in the degree of effort and intensity on the part of the Chinese, what we saw from the Chinese government in the late nineties following the Asian financial crisis. The Chinese authorities have spoken through Xinhua press today of the importance of taking measures in a new proactive approach to fiscal policy in the same language, I am advised, that they used in 1998-99 in relation to the reflationary policies they adopted then in response to the Asian financial crisis. I regard that as very good news for this economy, very good news for the regional economy and very good news for the global economy. Certainly, it is consistent with the many discussions that the Treasurer and I have had with various Chinese counterparts in recent weeks.

On the honourable member’s question concerning the growth forecasts for Australia, I would draw the honourable member’s attention to the relevant section of MYEFO, page 29, which refers to the assumptions underpinning Treasury’s analysis in the MYEFO document. It says:

Interest rates are expected to decline broadly in line with market expectations. This is a departure from the usual assumption of unchanged interest rates, reflecting the fact that markets are forecasting a significant easing in the near term, and it would be unrealistic not to take this into account.

The reason I quote that to the honourable member is simply to point out that, when Treasury does its forecasts, that is the underlying assumption in its analysis. The Reserve Bank, because of its doctrine of independence and not speculating publicly on future movements on interest rates on its part, does not incorporate that within its analysis. That is why you see a difference in the approach to the calculation of the growth number.