UHLMANN: Prime Minister good morning.
PM: Good morning Chris
UHLMANN: Is this the slow down we had to have?
PM: We're facing very difficult global economic conditions. I think we have just got to acknowledge that fact Chris. The bottom line is we have an impact on the global economy flowing through to Australia from the credit crisis coming out of the US sub prime.
Secondly we've had the further shock to the economy coming off the back of the global oil shock, the biggest that we have seen since the 1970's. All these factors affect the real economy and real growth across the world and that in turn impacts on Australia. The key challenge is that we have a course, a pathway through this and that's got to be built on a strong approach to budget policy and a strong approach to long term economic reform so that we can come through this in better shape.
UHLMANN: But isn't this part of your handy work, your budget cut spending, the Reserve bank is putting up interest rates, your trying to help them in their inflation busting exercise. Isn't this partly your handy work?
PM: Well I just ran through before Chris the global economic conditions which affect not this economy, but every economy across the world at present..
UHLMANN: And interest rates are also affect the economy?
PM: Yeah I'm about to go onto the domestic factors as well. And if you look the registration of businesses and consumer confidence across most western economies at present you can see the wash on effect of these global economic factors.
Here in Australia what's compounded that is that as at the point at which we assumed office seven or eight months ago we were given the highest inflation numbers this country had seen in 16 years. The economy had just been through 10 interest rate rises in a row and as a consequence that flows through to real economic activity and that's partly reflected in what we are seeing in the retail numbers in recent times.
UHLMANN: The Reserve Bank gets to decide where interest rates are set. Did the Reserve Bank get it wrong?
PM: Prior to the election and since the election we've maintained our policy of the independence of the Reserve Bank. And the reason we support that policy is in terms of the long term strengths of the Australian economy the independence of our monetary policy authority, the Reserve Bank, is fundamental. We intend to stand by that.
What Government can do productively is help out the task faced by the Reserve Bank and it had a challenge it faced on the inflation front as the point at which we took over Government. And what we can do at the point of fiscal policy is to assist with the overall task of bringing down inflationary pressures by ensuring that we have done the right thing to bring down a significant budget surplus, which we did through the last budget, thereby contributing through fiscal policy to deal with the inflation challenge which we and the Australian economy inherited.
UHLMANN: Yes you say that you're trying to help the Reserve Bank. The Reserve Bank is trying to slow the economy, the question is did you help them slow the economy too fast?
PM: We believe that we have done the responsible thing through our $22 billion budget surplus and remember that surplus is there to provide also a buffer for uncertain global economic times ahead.
UHLMANN: Are you concerned the economy is slowing too fast?
PM: We believe that in terms of the budget settings for this Government's approach to fiscal policy, we got those right. And it's far better to have a $22 billion surplus to deal with future contingencies, a buffer for the future, than not to have.
Remember the underlying problem which we confronted and other economies around the world are confronting two challenges. One of inflation and of course the roll on effect in terms of the impact of those global factors I referred to before. Therefore what we've got to make sure we do in this economy is get the balance right. We believe through fiscal policy we have done that. We also believe that in terms of national economic policy management we have a strong course of action to see our way through what is plainly a very large global economic challenge facing all economies.
UHLMANN: Prime Minister is the balance of fiscal and monetary policy right? Is the economy slowing too fast, are you concerned that it might be slowing too fast?
PM: We believe that when it comes to budget policy, we have done the right thing. It is the right course of action and as I said a $22 billion surplus is the best way you can position this economy going forward. It gives you a buffer for the future.
Secondly we also have a long term program of economic reform and in part that surplus assists that through our investment in education, skills and training and the productivity reform we need to see long term.
On the other part of economic policy which is monetary policy, that of course remains the independent preserve of the Reserve Bank. I go back to what I said before, if you start to have Governments preaching to the Reserve Bank about particular levels of monetary policy at particular times it is not a good recipe for the long term future because then you have the monetary authorities subject to day to day political pressure.
UHLMANN: Prime Minister there is now a glut of unsold houses on the market. Last year you worried a lot about the fact that houses were unaffordable, the prices were dropping fast, is that a good thing?
PM: Well housing affordability is a deep concern facing all Australians and it affects people differently in different parts of the country.
UHLMANN: So it's good news that house prices are falling?
PM: I would say that housing affordability is a challenge facing many households across the country and it affects people in different ways in different parts of the country. In certain places we have through our approach to housing policy including our first home saver account, through also the approach that we have taken with affordable rental accommodation, doing what we can to assess where there is housing shortages. In other areas obviously through the roll on impact of 10 interest rates rises in a row under our pre-decessors that's obviously having an effect on activity in the housing sector as well.
We need a strong way through this for the long term, we believe we've got that course of action. Of course there's going to be pain and dislocation on the way through. Let's just face that for what it is and not pretend that its not happening. The key thing is the strength of this economy for the long term.
UHLMANN: Prime Minister finally have you asked treasury for advice on what would happen if you increase business costs by putting a price on carbon at a time when the economy is slowing?
PM: On the question of the advice sought from Treasury that of course remains internal to the Government and it's a question best directed to the Treasurer as well.
UHLMANN: You would ask that question though wouldn't you?
PM: In the context of the Cabinet sub-committee on climate change deliberations on the Carbon Pollution Reduction Scheme we've been exceptionally mindful of getting the balance right in terms of doing the right thing for the environment and the economy long term, while also helping households and affected businesses in the adjustment process.
That will be painful and difficult on the way through as well, but we believe that we have done the right thing. On the question of specific advices from the bureaucracy I'm sure there's a thousand of them, that's the right way to in fact do public policy in Australia, not lock the bureaucracy or anybody else out.
UHLMANN: Prime Minister thank you
PM: Thanks very much