Mike Symon (Deakin, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Prime Minister. Will the Prime Minister update the House on recent developments in the Australian economy, and what is the government’s response?

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

Our economy in Australia is greatly shaped by developments across the world. We have seen since last August the unfolding of the global financial crisis, the roll-on effect in North America and western Europe and the United Kingdom, as well as what is happening in our own hemisphere and in Australia. You see also the impact which that has had not just on confidence but also in terms of real economic numbers. For example, I draw the House’s attention to data released on Friday showing that consumer confidence in the United States has now fallen to its lowest level in 28 years. Furthermore, the US economy is also suffering from the worst decline in its housing market in a quarter of a century. And this all occurs at the same time as we have global oil prices running at near record levels.

We all know the roll-on impact for Australia is significant, not just the impact in terms of global financial markets and confidence within the global financial services community but also, beyond that, the impact on the real economy. If we look at the flow-through impact on prices for Australian families, there is data released today in the TD Securities-Melbourne Institute Monthly Inflation Gauge which says that it rose by 0.3 per cent in May to be 4.5 per cent higher than a year ago. What this represents is a challenge not just for the economy overall but acutely for families struggling with cost of living pressures. And that, of course, forms the benchmark for how the government itself chooses to respond, because the enemy to all working families, all Australians doing it tough, all working Australians, is inflation and, in turn, its upward pressure on interest rates.

When this government was elected, we had interest rates running at 16-year highs. We had an inflation rate running at 16-year highs and as a consequence there was a flow-through impact on rates. On the question of rates, we have had 12 consecutive interest rate rises, two of which have occurred since the election.

We did not make an irresponsible promise at the last election—unlike the promise made by those opposite at the previous election—about keeping interest rates at record lows. But we understand this: to make it possible to bring downward pressure on rates, one of the important things is to ensure you bring about downward pressure on inflation. One of the important ingredients in that respect is to make sure you are prosecuting a responsible fiscal policy. That is why the budget brought down by the Treasurer and by the government, more broadly, is anchored in a $22 billion budget surplus. That is the cornerstone of economic responsibility: to ensure that the expenditure measures we adopted, and which were new, were funded by savings and, furthermore, to ensure that tax is now lower as a percentage of GDP than it was before and that expenditure as a proportion of GDP is now the lowest it has been since 1989-90. The alternative offered by those opposite is to conduct a $22 billion raid on the surplus, and that has one huge consequence for families: it flows through in terms of overall demand in the economy; it flows through in terms of inflation; and it flows through in terms of upward pressure on interest rates.

Inflation remains the cornerstone of dealing effectively with the macroeconomic circumstances in Australia. This government believes in fighting the fight against inflation; the cornerstone of it is a $22 billion surplus. The cornerstone for the economic policies advanced by those opposite is instead a $22 billion raid on the surplus. I say this: as each one of the budget measures passes through this House and is debated in this House in the weeks ahead, those opposite will be faced with a single responsibility—that is, as you conduct one raid after another on the surplus, as you seek to vote against and pull out one further budget measure after another, the responsibility of those opposite is to identify what is the alternative source of savings. The failure to identity the alternative source of savings means one thing: that you will raid the surplus, put greater upward pressure on inflation and greater upward pressure on interest rates.

So as members opposite vote against and vote down these revenue measures, or vote against or vote on the budget measures, their core responsibility in terms of economic discipline is this: what are the alternative savings measures? Failure to deliver them will result in one equation: walking away from working families and working Australians and saying that the 10 interest rate rises in a row that they delivered to families are of no consequence because they simply want to fuel the inflation fires further. Our response is one of responsible economic management. Our response is to make sure that we stand by a $22 billion budget surplus. Our response has its fundamentals in an attitude to economic management which says, ‘Let’s look after families, not just for the short term but for the long term, and deal effectively with the inflation monster, because if the inflation monster—

Opposition Members:

Opposition members interjecting—

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

which is obviously the object of great mirth on the part of those opposite—begins to wreak havoc on interest rates into the future, those opposite will be dealing with the consequences of their irresponsible actions one after another as they go in idle pursuit of political populism over economic responsibility.