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Transcript of joint press conference: Prime Ministers Courtyard, Parliament House, Canberra: 4 March 2008: RBA interest rates; ABARE conference; skilled migration; visit to United States and China and Europe; Commonwealth Grants Commission; means testing on Family Tax Benefit; political donations; US elections; Newspoll.

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Prime Minister of Australia


Joint Press Conference with Wayne Swan, Treasurer, Prime Ministers Courtyard, Parliament House, Canberra

04 March 2008

Subject(s): RBA Interest Rates; ABARE conference; skilled migration; Visit to United States and China and Europe; Commonwealth Grants Commission; means testing on Family Tax Benefit; political donations; US elections; Newspoll


PM: Today’s news is a double blow for the family budget. Two rate rises will really hurt working families. Working families are recovering from the first rate rise which occurred only a short time ago and they’ve already tightened their belts.

The same families are now looking at a second rate rise which will mean that the family budget will be even harder to balance. Australia’s inflation problem has taken a long time to build and it will take a long time to fix. As Prime Minister I take responsibility for the Australian economy, the good news and the bad news, and this is bad news.

As Australian Prime Minister I also take responsibility for doing whatever we can as Government to fight the fight against inflation. That’s why we announced in January our five point plan of attack when it comes to dealing with the inflation challenge.

Also as Prime Minister of Australia I take responsibility for implementing those measures which can assist working families who are already under financial pressure and are now under even greater family pressure.

That’s why we will proceed with the implementation of our tax cuts. That’s why we will proceed with the implementation of the increase in the child care tax rebate. That’s why we will proceed with the implementation of those measures we’ve announced in recent days to improve housing affordability.

This is a difficult day for working families, added to the other cost of living pressures, it makes it very tough indeed. But we the Australian Government will be doing everything we can to fight the fight against inflation and doing everything we can to assist working families with practical measures to relieve some of the financial burdens they are under. There is no

silver bullet with any of the measures that we’ve announced. And it will take a long time to turn around but we’re determined to prosecute this course of action.

JOURNALIST: (Inaudible)

PM: Well when you look at the inflation problem it’s quite clear that it’s a demand side challenge and a supply side challenge. On the demand side as consistent with our 5 point plan of attack announced in January we’ve already indicated what we’ll do in terms of public demand by producing a budget surplus with a target of at least 1.5% of GDP.

When it comes to private demand we’ve indicated the measures that we’ve embraced there so far. And that relates to what we can do to boost private savings by measures such as the first home saver account.

But on the supply side, and that’s the other half of the inflation equation, we’ve already put forward measures to assist with the formation of skills in the economy, the 20,000 additional training places which were announced the other day. Also on infrastructure bottlenecks, also measures to improve workforce participation.

On workforce participation we know from the survey work that’s already been done that the introduction of the tax cuts is projected to increase the number of people in the labour force by a considerable number, up to 65,000. Inflation is an aggregation of all these factors, that’s why we’ve got a program of action ahead in each of them.

JOURNALIST: Mr Rudd the opposition has claimed a couple of times that because you have got this two speed economy if you make massive spending cuts in your budget you could end up while dampening activity in the booming states,

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clobbering the non booming states. Putting aside the fact that we know you think this is the previous government’s fault could you just address in economic terms, whether you think that is a fair argument and explain why it isn’t.

PM: Well the first point to make about monetary policy settings is that they are independently made by the Reserve Bank. That’s the first point, the second is when it comes to dealing with the overall state of the economy; it’s important to ensure that we at the level of Government do what we can to rein in public demand, we’re doing that. That applies across the national economy and that has its effect over time and to do what we can across the economy to help rein in private demand by the measures that we’re talking about there. That is one the ones I referred to before when it comes to the first home saver account.

The critical thing is this: inflation is the core economic problem. Inflation runs up by way of inflationary pressures and numbers. The consequence is that interest rates go up. The core problem and challenge therefore is to deal with the inflation challenge. None of this is easy, but if we were to take our eyes off the inflation ball, frankly the challenges and the impact for working families and businesses across the economy would be even more severe. That’s why our eyes are fixed firmly on the inflation challenge.

JOURNALIST: You said you would take responsibility for the economy (Inaudible)

PM: Well, as I said before we take responsibility for the management of the economy, I’m Prime minister of the country; I take responsibility for the good news and the bad news and this is bad news when it comes to the impact which increased interest rates have on working families.

Let’s just be blunt about it you can sit around and duck and weave. We are responsible for running the country. We will therefore take responsibility for dealing with the reality as it presents itself and that means fighting hard the fight against inflation through the framework I’ve already announced. But also implementing a series of measures of the type that I announced yesterday in Brisbane, to assist working families dealing with the housing affordability crisis, but also assisting with other matters which help the family budget as well, like child care.

JOURNALIST: (Inaudible)

PM: When I say responsibility, it’s that. We are the Government of Australia, I’m the Prime Minister of Australia. If when it comes to responsibility for the economy, we are responsible for dealing with the good news and the bad. And therefore that means responsible for taking the hard decisions necessary to deal with bad news when it comes. And that means when interest rates go up, it underlines therefore the responsibility we have to fight effectively the fight against inflation. I don’t walk away from that, that’s what we were elected to do.

JOURNALIST: This morning, you were at the ABARE conference, the bureau is forecasting a 30 per cent increase in the value of Australian exports. (inaudible) Does that mean you will have to revisit your 1.5 surplus target (inaudible) and possibly further because we have got so much extra income coming into the economy?

PM: I’ll let Wayne attend to the ABARE numbers.

SWAN: No it doesn’t mean that, our target of 1.5% of GDP at least stands and we’ve said that we are looking for further savings and we will bank additional revenue. We’ve made that statement very clear.

JOURNALIST: Mr Swan is there any justification of banks seeking to push up interest rates beyond the official rate as they did last time and do you fear that once is enough?

SWAN: Well I think bank customers will treat banks harshly in an environment where we have rising interest rates through the official cash rate if they take the opportunity to pass on in an excessive way, other costs that they face. It is true, it is true that the banks are facing an increased cost of borrowing and in some cases that is substantial. But we’re not sure how long that will last.

This is one of the reasons why the government put in place, over a month ago now, a bank switching package that would allow customers to vote with their feet. If they were unhappy with what their bank was doing, then they could move more easily.

We put that package in place - well they don’t necessarily all do the same thing and there are a variety of packages out there. One bank for example abolished exit fees a few weeks ago in a new package. We want to see that there is strong competition out there between the banks, in an environment where interest rates are rising. It is very important that people can vote with their feet.

JOURNALIST: In pure economic terms, would it be helpful (inaudible) if unemployment was to increase?

SWAN: It is not a choice. It is not a choice at all. We can have growth and we can have low inflation. There is no doubt that elevated inflation is a long term threat to growth which is why we have to deal with it. I mean Mr Turnbull and the

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Liberals just don’t understand the inflation problem.

They will not even admit the size of the problem and they don’t understand the causes. You have got to deal with the supply side capacity issues in the economy. We are dealing with those. They ignored repeated warnings from the Reserve Bank over three years and the consequence has been elevated inflation. We are dealing with the causes of the inflation problem.

JOURNALIST: (inaudible)

SWAN: Well we’re making it very clear. We’re saying that fiscal policy has got a role to play. The previous Government didn’t think there was a role for fiscal policy so they went on a reckless spending spree and they didn’t attend to the capacity constraints in the economy. We are doing all of those things, we want to help the Reserve Bank, we want to assist the Reserve Bank by taking the pressure off monetary policy and having fiscal policy play its legitimate role. A role that it hasn’t been playing under the previous government.

PM: To add to Laura’s question, you either cop the independence of the Reserve Bank or you don’t. We have said that from day one, we said that prior to the election. And that’s going to create some very difficult and uncomfortable times. That’s just the reality. Let’s not pretend it is anything other than that. You either have an independent monetary policy or you don’t. What the Treasurer, Wayne has just said is absolutely right.

The problem is, fiscal policy has not been lifting its share of the load for a long time. When you had outlays, public demand running at 4.5 per cent of real growth at the time which the government changed, that is out of control. That’s why we are applying a razor gang, and we believe that fiscal policy should play a greater role, hence the disciplines we are engaged in internally within government. But you either have an independent Reserve Bank, or you don’t.

JOURNALIST: (Inaudible)

PM: We believe that we can get the policy settings as right as possible. Remember we are currently in a full employment economy, our target is to sustain a full employment economy as long as physically possible. That’s always going to be subject to international economic factors as well. If you note the current projections on the terms of trade, which are a live factor in this whole debate, the terms of trade are projected to increase further in the year ahead, but this is a difficult predictive game. The Government’s core target though is to maintain full employment, that has always been our objective. It will be into the future. Of course, we are subject to international economic circumstances as much as anyone else. Michelle.

JOURNALIST: Mr Rudd on the supply side, you have indicated that you would consider letting in more skilled migrants for the residential construction industry. Would you think that it would be wise to boost general skilled migration even though it might (inaudible) effect the demand and or full employment (inaudible)

PM: Well Michelle the economics of migration are complex on this very question because when you bring in skilled workers obviously it assists on the supply side of the economy by aiding for example the residential construction sector or the broader construction sector or other areas of skills demand. At the same time, by virtue of their contribution to consumption, it has an effect there as well. What’s the net impact? Well the best advice that we have had within government is that - it underpinned a decision recently by the Immigration Minister Senator Evans to increase skilled migration by 6000 - was that given the current constraints, for example in WA and elsewhere that it is the right thing to do.

On the specific point you have raised about the submission put to us by the housing industry association, we are looking at that. We haven’t said yes, no or even maybe. We are looking at it and that’s what I indicated in the speech yesterday.

JOURNALIST: (inaudible)

PM: Yes I spoke to President Bush this morning about a visit to the United States. I will be in Washington as of Friday 28 March and I will be meeting with the President at the White House that day. I will be seeing representatives of the Congress early the following week in Washington. Subsequent to that I will be travelling to Brussels for meetings with the European Commission. Then to Bucharest for NATO on the question of Afghanistan. London for bilaterals’ with the British Government and to address the British confederation of industry, and then on to China. And I will be meeting with President Hu Jintao and Premier Wen Jiabao and then back home.

JOURNALIST: (Inaudible)

PM: Oh I won’t go to the detail of my discussions with the President, you wouldn’t expect me to. But we had a good conversation and he said that I was a welcome guest in Washington, as we welcomed recently both the Deputy Secretary of State and Bob Gates the Defence Secretary here in Canberra. He is looking forward to friendly constructive discussions, a range of foreign policy agenda items, also other key challenges here in our immediate region as well, including on the Korean peninsular.

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JOURNALIST: Mr Rudd the Commonwealth Grants Commission put out a recommendation today (inaudible) which Victoria and NSW in particular both still (inaudible) GST funds are split up amongst the states?

PM: Before I ask the Treasurer to comment on this, when I first became involved in Commonwealth-State relations which was in 1990 or 1991, the Commonwealth Grants Commission then was described as an impenetrable black box. It still is. I will now hand to the Treasurer.

SWAN: And we support the decision of the independent commission.

JOURNALIST: (Inaudible)

PM: Well you accept an independent Reserve Bank or you don’t. But we are putting every effort into every element of policy at the Government’s disposal to put downwards pressure on inflation to put downwards pressure on rates. The exercise in which Wayne and myself and Lindsay Tanner and Julia, the Deputy Prime Minister, are engaged in at the moment, in the Expenditure Review Committee process, is intense. And it is all designed with one thing in mind which is reducing public demand in order to take some of the pressure off inflation, or to take some of the pressure off rates.

SWAN: We’re working day and night to tackle the problem.

PM: Mr Swan, are you expecting those cuts to clobber the non-booming states, Mr Swan?

SWAN: No, I don’t expect that. What Mr Turnbull is saying is just, frankly, silly. Inflation is elevated and inflation is Australian wide. And we have to deal with it on an Australia wide basis. And one of the problems that we have had in recent years is that national policy has not been directed towards enhancing the productive capacity of the economy. And that has impacted particularly in Queensland and in Western Australia. So we have a program which is balanced which looks after the national interest, and in particular, is directed towards enhancing the supply capacity of the economies, particularly in Queensland and Western Australia.

JOURNALIST: Mr Rudd, do you have any advice as to how many people could be forced out of their home as a result of this interest rate rise? And, are you both considering at some point some sort of immediate relief to these people rather than long term strategies you have in place?

PM: Working families are under a whole lot of financial pressure and today they have been delivered a whole lot more financial pressure. When we look at some of the numbers involved, they are huge. Remember, we the Government commissioned that work from NATSEM which was released yesterday.

1.1 million families on low to middle incomes who are currently categorised as being in housing stress. That is, spending more than 30 per cent of their gross income on either mortgage payments or on rent. That’s something of the vicinity of ten per cent of Australian families. That’s a lot of people, that’s a lot of people.

The figures I also saw said there have been a 220,000 increase in recent times in people crossing that line. What we can best do is the measures we have outlined on housing. What we can best do is deliver support for working families through tax cuts. What we can best do is for working families suffering child care costs and increasing child care costs is do what we’ve done by way of increasing the child care tax rebate which flows through from 1 July as well. All these things are designed to provide some help with the family budget in order to do something to assist families under pressure given two interest rate rises on the run in the last couple of months.

JOURNALIST: The Reserve Bank did note today that household demand has slowed substantially with interest rate increases. Just wondering, do you both take some heart in that and what is your reading on the (inaudible)

SWAN: Well I don’t think we comment on the particulars of the Reserve Bank statement.

PM: We go back to what is the province in which we can operate which is public demand. And, that’s where we’ve got core responsibility on the supply side measures that we continue to emphasise, and needed to have been emphasised, for a long, long time, up until now.

JOURNALIST: Well on that theme, does that mean that you would look at further means testing on Family Tax Benefit B? You have a cap of $250,000, it’s a high amount, would you look at lowering (inaudible)

SWAN: We’re not buying into any speculation about Budget matters at all.

JOURNALIST: Inaudible)

SWAN: Either way.

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PM: Here we go Patricia, rule in, rule out, start with an (inaudible) -

SWAN: We made that clear in the Parliament.

PM: (Inaudible) that’s where that came from (inaudible).

JOURNALIST: The unions are proposing that superannuation be increased to 12 per cent up to 2012. Do you think (inaudible)

PM: We’re the party of superannuation. We’ve always supported ways and means by which you can boost private savings and encourage that. Remember, part of our five point plan for dealing with inflation on the demand side of the economy was to assist and encourage private savings. One of those measures you would see is the First Home Saver Account.

And that, when implemented, we’re advised could result in additional private savings of something like $4 billion. Our mind is always open to other means by which you could encourage private savings, and we continue to work through those options.

JOURNALIST: Your language of taking responsibility - you seem to be looking back less than a while ago in terms of blaming the former Government -

PM: There’s not much to look back on.

JOURNALIST: Has there been a bit of a line drawn under (inaudible)

SWAN: Michelle, on day one we put up our hand and took responsibility for tackling the inflation problem when we received the briefing in Brisbane from the Treasury and from the Department of Prime Minister and Cabinet. We have been talking about accepting responsibility for tackling the inflation challenge from day one.

PM: I think it is just important to accept up front responsibility for the economy for good news and for bad news and get on with the measures that need to be implemented to deal with the bad news, and that’s what we’re doing.

JOURNALIST: On political donations, the Opposition has said that was this was for was a stunt. (Inaudible)

PM: Well can I just say on political donations, the Opposition sat there, in silence, while the previous Prime Minister increased the disclosure level from $1,500 to $10,000. Mr Turnbull just sat there while all that happened. I’d just ask people to reflect on that in terms of whether they are serious about campaign finance reform.

I put out three proposals there, and I’m serious about them.

One is, bring down the disclosure limit from $10,000 to $1,000. I think that is responsible, and the right thing to do. You don’t want democracy for sale. The second thing is to put a ban on foreign donations, be they from individual citizens or from corporations. And, as I said I think last night, both the Labor Party and the Liberal Party have received such donations in the past.

The third is, I’m open to suggestions and discussion about what we might do in terms of capping donations, be they individual or corporate. But I think it is seriously a bit rich for those opposite, having stuck their hands up to increase by, what? $8,500 the declarations.

JOURNALIST: Mr Rudd, do you have a size of cap in mind?

PM: Oh, I think we need to have, I think, a genuine public discussion and public debate about. But I think you get to a stage in a democracy when it goes to this point, and you’ve got to say, oops, I think this has actually gone too far. Let’s bring it back -


PM: … when it comes to reigning in campaign finance. I think, When you start to look at campaigns in the United States which are costing, how much this one? $1 billion or something? I mean, they’re starting to hurtle off into outer space on these things.

JOURNALIST: Will you meet Obama or Hillary Clinton while you are there?

PM: If they are solid and effective campaigners like those I’ve known in Australia, they’re probably out there working hard for votes at the time that I’m there. We’ll see what the program permits.

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JOURNALIST: Mr Rudd, did today’s Newspoll bring you any more faith in the polling process?

PM: Oh, I think, you know, there is only one set of numbers working families are interested in at the moment. And that’s the numbers which are coming in on their dinner table tonight as they try and work out their budget for the weeks and months ahead. I don’t think anyone else is much concerned about opinion polls, and I think we’d better zip.

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