Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Transcript of doorstop interview: Kirrawee, Sydney: 28 October 2008: visit to Donald Robinson Village; deposit guarantee; emissions trading scheme.

Download PDFDownload PDF



28 October 2008


Subjects: Visit to Donald Robinson Village; deposit guarantee; emissions trading scheme.

E&OE…………………………………………………………………………………...   MALCOLM TURNBULL:

It’s wonderful to be here with my colleagues, Dana Vale and Scott Morrison. As you will have seen in the discussion we had with the residents here, talking about the financial crisis, it’s causes, it’s implications for Australia, the point I made, and I repeat to you now is that we recognise the seriousness of the issues that are confronting us as a nation and we genuinely seek to work collaboratively with the Government on them.

It’s pretty obvious now that the decisions that were taken by the Government on the 12th of October, while no doubt made with the best of intentions, have turned out to be very mistaken and indeed the Government, as you know, abandoned its unlimited guarantee on bank deposits. But that decision has had a lot of knock-on effects which have created a lot of hardship for many people. So this is the big risk…as a Government, as Mr Rudd likes to say, he said he took swift and decisive action - it turns out to have been rushed and bungled action.

Now it’s important as the response to this crisis develops that it be done with due care. I hope there won’t be any more decisions taken by the Prime Minister without speaking to the Reserve Bank, for example. And we stand ready to collaborate and to cooperate with the Government on a bipartisan basis. But our view of bipartisanship is working together and Mr Rudd’s at the moment seems to be, he’ll make a decision and then everybody has to agree with it and nobody is allowed to question it - and that’s not realistic and it’s certainly not democratic and it’s certainly not Australian as I guess he’s finding out. So that’s the big question at the moment; how are we going to work together going forward? We stand ready to cooperate. So far Mr Rudd has rejected that offer.

I just make one other point on an economic issue which relates to the emissions trading scheme. Now we in the Coalition are as committed as anybody in Australia to our nation


making an effective response to the challenge of climate change. It has to be environmentally effective and it has to be economically responsible. There’s no point doing things which have little environmental benefit but do a great deal of economic harm. That is why we believe the right timetable for commencing an emissions trading scheme is after we have seen what the new US President will do - there’s going to be a big change in the US momentarily - and above all what the nations of the world will do at the Copenhagen Summit at the end of next year.

Now when we were in government we set a timetable for the introduction of an emissions trading scheme which accommodated that. Our aim was to start one in 2011 or 2012. So we built all of that into our plan. Mr Rudd in an election year flourish, one of those grand gestures he loves so much, said no I’ll be greener than the Coalition, I’ll start it in 2010 - and of course that means he’s got to finalise the design in the dark. Now that’s not responsible, it’s likely to be economically very damaging and environmentally very ineffective - so a


It’s important to put Australia first, to be environmentally effective and economically responsible. That’s why we call on Mr Rudd to take a responsible approach to an emissions trading scheme. Not compromise the commitment to an environmental response, not

compromise the response to climate change, but do so effectively on the environmental front, but responsibly on the economic front as well.


Mr Turnbull (inaudible) Australia wants managed funds which have frozen redemptions to free up small amounts of money for self funded retirees, do you think this is feasible and are you supportive of it?


Well the managed funds I’m sure would like to be able to provide money to allow redemptions. It’s a question with each fund whether they’re able to do that. We’re at the moment talking to people in the industry, we’re talking to the regulators and if Mr Rudd permits it we’ll talk to the Treasury. We’re getting all the facts together. We’re not going to make a rushed response to this. It is a major problem.

Mr Rudd’s rushed and bungled actions on the 12th of October have created problems that are going to be very hard to undo. You know it’s going to be very hard to unscramble this omelette. So we’re looking into it very carefully and taking the soundings and the expert advice that we can. But we recognise that there is considerable hardships being concerned, and what can you say about Mr Swan who’s an architect of this mess, when presented with the consequences of his folly could only say, “line up at Centrelink.”


The Government says it could possibly force the funds to do this to the corporations act, will you be supportive of that at all?


Well I’d like to see what they….I’d like to see precisely what’s been said before I comment on it.



What’s your timeframe for being able to comment on it?


Well I don’t know. You’re putting to me a statement that I haven’t seen.


Sorry, just with regards to the partial redemptions (inaudible) of frozen funds?


Let me explain what the problem is with these managed…with these…say a mortgage fund. What mortgage funds do, in fact what banks do, is they borrow short and they lend long. So they take deposits which can be withdrawn at call, at anytime, and they make loans to people, mortgages for years. And so if you get an institution, be it a fund or a bank with a lot of long term assets that it can’t readily liquidate, and short term liabilities, short term deposits and people start wanting their money out quickly, they will struggle to find the liquidity to pay it back.

So the real issue is looking at each of these funds and seeing what their particular situation is - and you’ll find that all of them will have different situations. So it’s not a question of a…I’m not going to do a Kevin Rudd and give you a grand gesture. What the next steps in this measure - and you’ve got to remember we’re not the government, we’re seeking to help, but we’re not the government - the next steps have got to be very carefully considered. We can’t afford to have any more rushed and bungled decisions. You know swift and decisive turned out to be rushed and bungled and a lot of people are paying the price for that.


Are there any other sort of measures that you think could be put in place to help people like who are here, self funded retirees?


The most important thing is to restore confidence. Mr Rudd has undermined confidence. Nobody felt Australians’ bank deposits were unsafe. You know we have the best regulated banking system in the world and yet the Government imposed a deposit guarantee that was more comprehensive - you know, completely unlimited - than any other country in the world with the exception of Ireland.

You know so he could not have a more comprehensive deposit guarantee. And of course a lot of people interpreted that as meaning, gosh, if the Government needs to guarantee everything then maybe they’re not as safe as people say. The idea of - let me stress this, this is very important - the idea of a deposit guarantee is to have it high enough to pick up most deposits, which are small, most household and small business deposits, but not so big as to distort the market. And that is why you find around the world deposit guarantees are generally set at


around that $100,000 mark. As I said inside, in Europe its 50,000 Euros, Britain its 50,000 pounds, in American it was $100,000, they’ve recently increased it, but that’s the type of level you’re talking about. So we recommended, in order to provide additional comfort and a

sense of security, a guarantee of up to $100,000.

Now every economic writer, every financial writer is now, editorials are now saying if the Government had only done that we wouldn’t have had the same adverse consequences that we’ve got. I mean Mr Rudd went way too far in his effort to be swift and decisive and get a

big headline, he went way too far. And it is as my late father used to observe, not understanding the difference between scratching your ear and ripping it off. And he just went too far and of course now he is trying to claw back but it’s very hard to undo the damage, the lack of confidence. But the critical thing is to rebuild confidence.


Mr Turnbull we had an economist on air on 2GB this morning who suggested scrapping the whole guarantee and starting again with a lower limit. Is it too late to do that?


Well that’s basically what the Government is doing. I mean they have brought it back to $1 million limit and there are a lot of economists like the person that you refer to on your radio station who are saying it should come back to something like the level we proposed, $100,000, you know whether it’s $75,000 or $100,000 or $150,000, it’s in that ballpark.

I mean there is a reason why just about every other country in the world has got a deposit guarantee at that level. Because that’s the sweet spot which gives you the security for household deposits, retail deposits that you need without distorting the wholesale market. And it’s not just managed funds by the way. I mean you look at the way the companies that provide finance to the motor industry are pulling out. One of the problems they have is that because of the guarantee people prefer to invest in guaranteed institutions rather than buying commercial paper, rather than lending money in other words to GE or GMAC and so forth.

So again it just, it wasn’t thought through. Mr Rudd did not think this through. It wasn’t swift and decisive it was rushed and bungled.


Are we already in recession?


In my view certainly not. No, I think…growth will slow next year, okay. The estimates that are around say that our economy will grow at about two per cent next year. That’s the estimates. Now I think most people feel it will be less than that. I don’t think the Government would have been spending $10 billion a few weeks before Christmas if they thought growth

was going to be two per cent next year. But I don’t think it’s going to go negative. That’s my view but as I say we live in uncertain times and this is no time to be complacent.


Is the budget already in deficit?



Well I don’t believe so, no. The budget was estimated this financial year to have a surplus in excess of $20 billion. Now the Government is spending half of that between now and Christmas basically, almost all of it, of the $10 billion about $9 billion plus will be spent before Christmas. So the surplus will obviously be a lot less.

Will it go into deficit? I wouldn’t have thought so. I think the Government, well again you know my crystal ball is as cloudy as yours and the big question is how much of a slowdown will we see in the economy. Obviously a slower economy means benefits are higher, so the cost to government is higher and it means tax receipts are lower, so revenues are lower. So a strong economy is good for the surplus, a weak economy is bad for it. So it’s just a question of how weak it is.

But it is vital…look we are in circumstances globally not of our creation. We all understand that. But it is imperative that the Government take decisions wisely and carefully and not make a tough situation worse. Now they’ve already done that, you know the decision about the deposit guarantee was rushed, it was bungled and the Government has admitted as much because they’re rolling it back. I mean they’ve abandoned it.

When can you recall an economic policy as sweeping as that that was abandoned so quickly? And I saw Mr Bowen yesterday had a new phrase which I thought was something that should get him into the dictionary of quotations, he said “the Government’s approach was decisive and flexible.” Now what that means is they can make a decision and then change it and make another decision. So it’s a contradiction.

But look, let’s make sure the next steps are well considered. We’re happy to help, to cooperate, but it does take two to tango.

Thanks very much.