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

It is good to see the Manager of Opposition Business responding so forcefully to the representations made in his joint party room yesterday.

The government’s fiscal stimulus is designed to phase down as the economy strengthens. The Treasury advises that the impact of the stimulus on growth was, in fact, at its peak in the June quarter of this year and that its impact on growth will diminish over coming quarters. As I said yesterday to the House, the stimulus has its maximum effect of 2.2 per cent of GDP in 2008-9, 2.2 per cent of GDP in 2009-10, 1.4 per cent of GDP in 2010-11 and 0.2 percent in 2011-12.

I just draw the House’s attention again to a statement by the Governor of the Reserve Bank, which goes to the impact of both monetary policy and fiscal policy over time in responding to the crisis and the gradual emergence of any signs of recovery in the economy. On stimulus, he said:

… provided it is temporary support while the private sector sorts itself out, and then the government gradually reverses that over time and things go back to roughly where they were—that will be a good outcome, if that is where we end up. It is just like interest rates: abruptly adjust, and then gradually normalise things as the economy normalises.

Just as the government’s economic stimulus was designed to be withdrawn as the economy recovers, the Reserve Bank board will make a judgement as to when monetary stimulus can be safely wound back from its current emergency settings.

The Governor of the Reserve Bank has said that, as the global economy recovers from recession, interest rates in Australia will rise from emergency levels. That means that fiscal and monetary stimulus will both be being withdrawn as the private sector recovers. This represents, overall, an entirely appropriate conservative approach to economic management, which is: as the private economy is weak, the public economy expands and, through public stimulus, as the private economy recovers, those official supports are withdrawn. This is the right approach for Australia under complex and difficult circumstances in the global economy today.

See this speech in context