Sid Sidebottom (Braddon, 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 the Australian government’s response to the global financial crisis?

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

I thank the member for Braddon for his question. The global financial crisis has an impact not just on credit markets around the world but on stock markets and, through stock markets and credit markets, on the real economy. That means growth and that means jobs and therefore that affects communities everywhere.

There was more evidence over the weekend that the United States economy is slowing dramatically. A prominent measure of US consumer confidence, the University of Michigan index, fell to 57.5 from 70.3 in October. This was the biggest decline ever recorded in the 30-year history of the index. US housing started to drop by 6.7 per cent in September, which was the lowest level since January 1991, and US building permits fell by 8.3 per cent in September to a new 26-year low. There is also more evidence that we see of some slowing in the Chinese economy. A Bloomberg survey of economists showed that China’s economy is expected to grow at a slower pace in almost four years in the third quarter of 2008—that is, the quarter we are currently in. Of importance, though, for Australians concerned about China’s future growth trajectory is a significant statement made on 15 October by the Governor of the People’s Bank of China, Governor Zhou Xiaochuan, who said, in referring to his own country, that policymakers needed to do more to boost domestic consumption in the world’s fourth biggest economy. The future shape of fiscal policy in China will be as important for us as the future shape of monetary policy building on the recent 27-basis-point reduction and Chinese interest rates, given the significance of China to the global economy but , in particular, to this economy.

Recent developments in the global economy point to the importance of early and decisive action in dealing with the challenges which all countries around the world face. Policies act with a lag, and that is why governments around the world need to be ahead of the curve as much as possible. For example, I refer to recent comments by President Bush delivered to the US Chamber of Commerce referring to the impact of the measures recently introduced by the United States government. He said:

The actions will take more time to have their full impact. It took a while for the credit system to freeze up; it’s going to take a while for the credit system to thaw.

The same is true in Australia. Monetary policy acts with a lag, with its full effects felt some time after rate cuts are announced, and it will also take time for credit markets to bounce back. This underlines the importance for the government to have acted recently, decisively and early on the question of fiscal policy, providing additional stimulus to the Australian economy. Of course, we have seen liquidity action already taken by the RBA through its recent 100-basis-point reduction. The government have also implemented a range of measures recommended by the Financial Stability Forum, but our economic security strategy announced less than a week ago goes to the important role to be played by fiscal policy in providing necessary stimulus to the Australian economy at a time of significant global financial crisis. This package is designed not just to boost growth in the national economy but also to provide assistance to Australian households—pensioners, carers, seniors and families—while also making life more manageable for first homebuyers as well as increasing training places and accelerating our nation-building agenda. I note comments by the President of the BCA recently, who stated that the government’s package was ‘well timed, well targeted and temporary’, and that is exactly how the government has intended it.

We have acted early across a range of policy fronts to help stabilise financial markets, to reassure depositors, to guarantee bank funding, to strengthen households and to strengthen the overall national economy. We have done these things early and decisively and according to a plan so that they take effect before the full force of the global financial crisis hits Australia. The beneficiaries of these actions range across small businesses and, from our recent discussions as ministers and in our collaboration with the business community last Friday in Sydney, it is quite plain that businesses, including small businesses, are facing real problems in terms of being able to access credit, which is why the government moved so early on the question of providing a guarantee to banks for their term funding requirements in order to assist in freeing up credit arrangements. Secondly, the government has also acted in relation to the housing sector. The most recent data on housing is disturbing. Since the end of last year building approvals have fallen by nearly 17 per cent. In the state of New South Wales, house approvals remained at a 44-year low. On top of that, other households have been assisted by this package—pensioners, carers, those on the DSP, widows and veterans.

These measures are designed to provide additional assistance to the Australian economy at a time when the full impact of the global financial crisis is yet to be felt across growth, across jobs and across the rest of the activity in our economy—hence the importance of acting early and acting effectively. We have done so by deliberately reducing the surplus which we crafted out of the May budget, we have done so in a manner which is responsible given the challenges that we face in providing necessary stimulus for the Australian economy going forward and we have done so responsibly by ensuring that we can deliver the next budget outcome within the framework of a comfortable budget surplus.

On Friday the Treasurer, the Minister for Small Business, Independent Contractors and the Service Economy and I, as indicated before, met in Sydney with representatives of Australian business at an event hosted by the Australian Industry Group. I am pleased to announce that on Friday of this week the government will be hosting a meeting in Brisbane involving small business and representatives of small business organisations as well.

Joe Hockey (North Sydney, Liberal Party, Manager of Opposition Business in the House) Share this | Link to this | Hansard source

Mr Hockey interjecting

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

I notice the member for North Sydney finds that funny. The purpose of the government’s engagement with business and with the general community is to continue engaging with business and those at the coalface of experiencing what has been a significant slowdown in the delivery of global credit. That is why the government has acted. As I have said before, the government remains determined to act further in the future as is necessary, firstly to ensure the continued stability of the Australian financial system and secondly to ensure that we continue to deliver additional support for growth in this economy and what will be a troubled and difficult time ahead.