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

When it comes to the challenges presented by the global financial crisis, you have got to ask yourself two or three basic questions: (1) what can the private econ-omy do in the current environment, (2) what can be done through monetary policy and (3) what can be done through fiscal policy? If we go to the private economy first—what is happening in terms of the global credit crunch and the credit rationing we see across the global financial community flowing through the real economy—the answer is that the year ahead is going to be very difficult and very tough indeed, which therefore leads us to the conclusion reached by heads of government representing 20 large economies from around the world in Washington, reinforced by those of 21 other economies meeting in Lima at the APEC summit, which is that governments must act through fiscal policy and monetary policy to bring about appropriate support for growth and jobs in the critical year that lies ahead.

Secondly, when it comes to monetary policy, right around the world at the moment there are differing degrees to which monetary policy can be activated. Some economies currently are running interest rates at around one per cent; therefore, the capacity for monetary policy to bring about real increases in economic activity is not great. What the honourable member for Wentworth fails to draw attention to is that we have already had 200 basis points worth of reductions in interest rates, noting carefully that the Leader of the Opposition said not all that long ago that a 25 basis point reduction actually did not add up to much at all. Do we all remember that? The honourable member who asked the question about interest rates said quite recently ‘a 25 basis point addition to interest rates is not worth much at all’. So at that stage he seemed to place not much significance at all on shifts in interest rate policy and monetary policy. I would suggest to those opposite that having endured so many interest rate rises in a row while they occupied the treasury bench—10 interest rate rises in a row—the fact that in the last several months we have had a 200 basis points reduction in interest rates should be of some consequence—

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