Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Hansard source

The challenge we have is inflation running at a 16-year high. It is a fact. Those opposite may rail against the fact, they may find it politically uncomfortable, but it is a fact. It is not a production of ALP publications; it is a production of national statistical data. The challenge for responsible government and responsible economic management is: what do you do about this 16-year high inflation record? That is, if you leave it unattended to, it continues to do what inflation has been doing for some time, which is punish working families by causing upwards pressure on interest rates. That is the economic equation: if you leave inflation unaddressed it rolls through to interest rates pressure, which rolls through to working families.

Here is where the rubber hits the road for those opposite. By failing to act on inflation so consistently, they sat there and allowed interest rates to go up time and time again and thereby punished working families. That is what happened as a consequence of the previous government’s inertia on inflation. Our response to dealing with the inflation challenge is to look at the total equation on the supply side and the demand side. On the demand side of the equation, if you make sure that through responsible budget management you have a decent budget surplus by way of a target then you bring down public demand as part of the overall demand equation. We are mindful of the fact that, when it comes to private consumption and private demand, we are delivering tax cuts. That is why it is important for us to show restraint as far as the overall architecture of public demand is concerned. Furthermore, the government continues to examine measures which assist in boosting private savings on the way through. That is half the inflation equation.

The other half is dealing with the supply-side measures. And it is there, after 20 warnings from the Reserve Bank of Australia, that those opposite failed to act on skills and failed to act on infrastructure, resulting in all sorts of capacity constraints. Frankly, if you have a situation where you have demand exceeding supply over a long period of time, you get inflation and interest rate pressures go up. We will act responsibly on this, as those preceding us did not.

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