Malcolm Turnbull (Wentworth, Liberal Party, Leader of the Opposition) Share this | Link to this | Hansard source

My question is to the Treasurer. I refer the Treasurer to the remarks of the Chairman of the United States Federal Reserve overnight that in the world’s largest economy:

… the recession is very likely over at this point …

I also refer the Treasurer to the Reserve Bank of Australia’s August meeting minutes stating that:

… the global economy was most likely on a sustained if modest recovery path.

Treasurer, now that the worst appears to be past for the global economy, will the government cut back its wasteful stimulus spending to reduce upward pressure on interest rates?

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

I thank the Leader of the Opposition for his question, because I too read the remarks of the Chairman of the Federal Reserve overnight. I took some encouragement from his remarks, but he made one fundamental point that the Leader of the Opposition neglected to mention. Very simply, that point is that the growth outlook is weak. He was making the point that the US might be seeing their first positive quarter of growth in some time. He was actually pointing to a ray of light in the United States economy, but he then said that there was a long, long way to go. He was not saying to the United States government or to the United States President that, as a consequence of the fact that they might grow in one quarter, they should withdraw their stimulus. He was not saying that at all, because in the United States, as is the case in this country, fiscal stimulus has been absolutely critical to supporting jobs, growth and confidence in the economy.

We had a growth figure of 0.6 per cent for the June quarter and of 0.6 per cent for the year. But, if those opposite had had their way, we would have gone backwards in the past year by 1.3 per cent. The truth is that most acknowledge—including the business community and most economists—that the very substantial fiscal stimulus put in place by this government has supported our economy, supported tens of thousands of jobs and kept open tens of thousands of small businesses. The Leader of the Opposition is seeking to construct the argument that somehow now is the time to rip the rug out from underneath the economy. He will not find any encouragement for that in the words of the Chairman of the Federal Reserve. Our stimulus has ensured that we have remained positive while the rest of the world has gone backwards. When you look at the evaluation of the Australian stimulus compared to stimuluses put in place by many other countries around the world, ours generally gets the big tick. It gets the big tick because it has been one of the most effective in the world and it is the reason we were the only advanced economy in the world to grow over the past year.

Those opposite simply do not understand the nature of the global economic challenge and its impact upon this country and, as a consequence, are not qualified to understand what policies are required as we move through to recovery. This government absolutely understand the importance of stimulus and the importance of the monetary policy put in place by the Reserve Bank. We understand both of those things and, as a consequence of that, we have been the best-performing major advanced economy in the world, which is something those opposite are completely incapable of understanding. Our stimulus has kept customers coming through the doors of not just retail businesses but also other businesses across the country. Our investment allowance provided a dramatic boost to many companies when they were purchasing equipment. All of these things are recognised in the figures which come from the ABS on a regular basis. They are in the retail sales. They are in the equipment measures. They are there for all to see. But those opposite are so blinded by their ideology and so driven by their own personal self-interest that they cannot see what is in the national economic interest. We on this side of the House can. We are implementing a stimulus which is supporting Australian business and Australian jobs.

Julie Owens (Parramatta, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Prime Minister. What indications do the RBA’s recent monetary policy statement and other commentary provide on the global economic recovery?

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

I thank the member for Parramatta for her question. Amid continuing talk about green shoots in the international economy, there does remain widespread and legitimate caution over the world’s ability to quickly respond to the damage which has been inflicted upon it over the last 12 months through the global financial crisis and the ensuing global economic recession. As a nation, Australia should be proud of our collective response to the global recession thus far. We are doing better than most other countries in the world. But as a nation we should also be very much aware of the fact that we are by no means out of the woods yet.

I draw the House’s attention, on a sobering note, to comments which were reported, I believe, in either today’s or yesterday’s Financial Times by William White, who is the former chief of the economics group of the Bank for International Settlements. It may be recalled by some members of this place that the BIS actually produced a report some time towards the middle of 2008 which warned the global economy about the grave risks which had been building up from 2003 concerning global imbalances. That was a warning delivered to the world well prior to the subprime implosion which then wrought havoc upon the financial system and the real economy.

This former chief of the economics group BIS indicated in his statements of just a day or two ago that we should still have concerns about the possibility of a double-dip recession—and this individual made the comments recently—therefore, it is important that we adopt a sober approach to the data which is emerging worldwide. Yesterday the RBA board minutes noted that the global economy remains fragile. They pointed to a continued consolidation in the global economy. They also noted there were concerns about the sustainability of the recovery. They questioned whether the growth that had been seen was largely a one-off effect from stimulus measures or if there was also a fundamental improvement. This reinforces the IMF statement last week that the global financial system was ‘far from returning to normal’ and that many markets remain highly dependent on public support. Furthermore, the minutes reinforce a statement made recently by the United States Secretary of the Treasury, Tim Geithner: ‘We still have a long way to go before a true recovery takes hold.’

There is no doubt that the government’s economic stimulus strategy here in Australia has supported the Australian economy. Yesterday’s minutes of the board of the RBA recognise the positive impact of the stimulus, particularly on business investment, something to which the Treasurer just referred. The minutes stated:

The data for business investment in the June quarter indicated a strong rise in spending on plant and equipment, with a sharp increase in spending on a wide range of capital goods, including cars.

This mostly reflects the bringing forward of spending to qualify for tax allowances. This also follows endorsements earlier on by the Governor of the RBA in testimony to the House of Representatives Standing Committee on Economics, where he stated:

… I think an objective observer would say that the size and speed of that response has been one of the important factors in supporting private demand over the past nine months.

Treasury has provided analysis about the impact of the fiscal stimulus in its own right on the overall economy. It has advised that the economy would have contracted by 1.3 per cent over the past 12 months in the absence of stimulus. Instead, as noted just now by the Treasurer, the economy has grown by 0.6 per cent. The stimulus has been essential therefore to supporting jobs. The Treasury is advised that it will support 200,000-plus jobs in each of the next two years.

I think it is worth the House reflecting for a moment on what would happen in Australia if we were currently running the unemployment rates that we have seen elsewhere in the developed world. For example, if we were running the unemployment levels which currently apply in Europe and the United States, there would be 422,000 more Australians out of work, which would mean a million unemployed.

Christopher Pyne (Sturt, Liberal Party, Shadow Minister for Education, Apprenticeships and Training) Share this | Link to this | Hansard source

Mr Speaker, I rise on a point of order. I invite you to suggest that the Prime Minister conclude his answer now that he has reached four minutes.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

There is no point of order. The question was in order, and the Prime Minister is responding to the question.

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

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

My question is to the Treasurer. I refer the Treasurer to the remarks overnight of someone he keeps referencing—the British Prime Minister, Gordon Brown—that his government would ‘cut costs, cut inefficiencies, cut unnecessary programs and cut lower priority budgets to wind back the British fiscal stimulus.’ Given Australia has a far stronger economy and an even larger fiscal stimulus than the United Kingdom, and given daily revelations of waste and mismanagement in the Building the Education Revolution program and other programs, will the government cut its wasteful spending to reduce the upward pressure on interest rates?

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

The member for North Sydney asked me about the government’s preparedness to put in place a fiscal strategy that deals with the challenges of the future. Indeed, we announced our medium-term fiscal strategy in the budget this year, and it takes into account fully the fact that at the moment we have weak growth globally and weak growth domestically. But, as the Prime Minister was saying before, as growth gradually returns and as the private sector demand comes back, the stimulus is gradually withdrawn and, of course, the Reserve Bank from time to time will make adjustments to interest rates—which are at 50-year emergency lows—because fiscal policy and monetary policy should work together when an economy grows. Of course, the logical proposition that those opposite are putting forward here is that in this country at the moment we should pull the rug out from under the recovery by getting rid of stimulus.

They want to walk into this House and pretend that there is some element of fiscal responsibility in their approach when, only a few days ago in the Senate, they knocked off a savings measure worth $9½ billion over 10 years: the means testing of the private health insurance rebate. That measure is an essential part of the medium-term fiscal strategy that we put in place in the budget, particularly in the context of the need to make savings for the long term, given the ageing of the population and the fact that we had to put in place justice in the pension system by giving a $30 increase in the base rate of pensions. What we demonstrated there was long-term fiscal responsibility—of the type, I assume, the opposition should be thinking of. But, the problem is, they are not. Over there they are a complete rabble. They are incapable of putting together an alternative fiscal policy. They are incapable of fronting up to their responsibilities in the Senate, where they should be passing long-term fiscal sustainability measures that we have put in place to make sure the budget is in good shape to cope with the ageing of our population as we go through the next 40 or 50 years.

The government are very serious about our medium-term fiscal strategy, very serious about applying our two per cent expenditure cap when growth returns to above trend, and very serious about doing all of those things that we outlined in the budget to make sure this country is in great shape for the future for our children and our grandchildren. But we understand the responsibilities of the here and now. The responsibilities of the here and now are that the economy requires substantial stimulus to support demand to keep the doors open in retail, to keep the construction sector going, and to give confidence a boost, given how weak the rest of the world is.

The end result of the resilience of the Australian economy, of our economic stimulus and of the lowest rates in 50 years in terms of interest rates and the confidence of the Australian people is the strongest growing advanced economy in the global economy. Those opposite should be celebrating that fact and celebrating the fact that Australians have come together to face down this global recession and produce some extraordinary results. But of course they are not capable of that. All they want to do is play a petty political game. They are not capable of supporting measures in the national interest, and for that they should be condemned.