MITCHELL: On the line the Prime Minister Mr Rudd good morning.
PM: Good morning Neil.
MITCHELL: Prime Minister we hear all the economists talking in the usual jargon here and I know its complex but if we can avoid that sort of jargon, because it touches people in a real way this they need to know where they stand. Do you accept that the economy is now in reverse?
PM: Well you look at the retail figures that you just spoke about Neil, plainly what you see is a slowing in retail spending over the two quarters which have been the first half of this year.
MITCHELL: But is it slowing too quickly?
PM: Well its obviously happening out there and the big challenge is as you know getting the balance right between not having an economy which is plagued by high levels of inflation forcing interest rates up over the long term. While at the same time ensuring that enough activity continues to be generated in the economy and this is a challenge not unique to Australia.
MITCHELL: Is the balance right, is it slowing too quickly?
PM: Every economy in the world is facing these challenges at the moment in what are the most difficult global economic conditions in a quarter of a century. In terms of the balance which is you question, I think in terms of what Government can do in budget policy and that $22 billion surplus we've got, a buffer for the future, I think that's right. As you know we have always prior to the election and since the election accepted the independence of the Reserve Bank.
MITCHELL: Yeah
PM: They make their own decisions and I think that's right because you don't want a politically pressure them one way of the other. I think as far as what we can do in providing a strong way through for the future, we got our settings as right as we can but its going to be tough. I don't want to mislead your listeners.
MITCHELL: So there's nothing more you can do to limit potential damage?
PM: What we can do to assist working Australians, working families, pensioners and carers who are under real cost of living pressures now because of petrol, because of mortgages and rents as well as groceries is the measures that we put through the budget, tax cuts which came through 1 July together with what we've done in terms of increases for pensioners and carers. But you know its still very tough out there and we'll have more to do.
MITCHELL: But how do those things that you have outlined, how do they reduce the likelihood of us going into recession?
PM: Well what we can do is cushion people in terms of the impact on their family budgets. Tax cuts for example, remember in the budget that we have just done we have introduced some $46 billion worth of tax cuts right across the economy. They started flowing as of 1 July about 4 weeks ago.
Secondly the child care tax rebate has gone up from 30% to 50% that affects a lot of households. Also there's a $5.2 billion package for pensioners and carers. None of these solve the problem, they simply assist in cushioning the blow.
MITCHELL: Okay well you say its going to get tougher, how is it going to get tougher? Jobs will go?
PM: Well if you look at where one thing relates to another. First thing remember we've had inflation running at 16 year highs as of when we came into office. That then flows into interest rates and you've had 12 of those on the trot going up. That in turn affects the level of activity in the economy and that in turn affects ultimately employment.
That's why if you go back to the beginning of that sequence, its why its very important to do what we can to keep downward pressure on inflation. That's why we have adopted the policy of bringing in such a significant budget surplus.
MITCHELL: Well we have seen a few job cuts Qantas, Don Smallgoods in Melbourne, Starbucks. Do we have to accept that there are more job losses ahead?
PM: Well if you've got a slowing economy coming off the back of the highest inflation rate in 16 years and 12 interest rate rises in a row then the flow through to growth in the economy and the flow through to employment, one just follows from the other. The key thing is to have a strong strategy to see this economy through for the long term. That's why we have anchored that in a very significant budget surplus. That's why we believe that through a continued process of economic reform there is a way through this while helping and assisting working families, pensioners and carers on the way through.
MITCHELL: As I said does that mean that we have to accept that there are more job losses ahead?
PM: Well what I say on that Neil is that when it comes to the statistics provided by the ABS its not appropriate for politicians or Prime Ministers to speculate on future data (inaudible).
MITCHELL: You've already said its going to get tougher and I'm saying is it going to get tougher by more jobs going?
PM: Well what I'm saying to you is speculating on individual pieces of data is not got any real foundation. But what I can say is if you look at the conditions globally and the factors driving it, the global financial crisis coming off the back of US sub prime affecting every economy in the world, the global oil shock the worst that we have seen in 30 years, this is rolling through. Its therefore realistic to say that this is going to affect the whole economy. When you add to that the high levels of inflation the Government inherited and 12 interest rate rises in a row it all means that we have a difficult way through, a difficult way ahead. But I believe the economic policy setting of the Government are strong and we believe that we are better positioned than most other economies in the world to see our way through these challenges.
MITCHELL: But Prime Minister you've said its going to get tougher. If I'm just a member of the public going to work today or just started work, how is it going to get tougher for me?
PM: Well tough in the sense of the impact on people's family budgets.
MITCHELL: So its going to be harder to pay the bills? Am I likely to lose my job? All those issues are what people worry about.
PM: That's absolutely right which is why I have said many times during this discussion and previous discussions we've had on air that I fully understand the direct impact that this has on the family budget. For example what's the biggest driver at the moment in terms of making ends meet around the family breakfast table. Its paying the mortgage because the mortgage has gone up with 12 interest rates rises in a row because of inflationary pressure being so high.
So the responsible course of action against that big driver being cost of living pressures for working families and working Australians is to put as much downward pressure on inflation as possible so that there's no further cause for interest rate rises.
MITCHELL: Do you accept a recession is a possibility?
PM: I believe that we have a strong policy course of action to see this economy through, we are in the best position, in a better position than most other economies in the western world given our strong budgetary position, the independence of our Reserve Bank and as well as a clear strategy of economic reform. It will be tough, we are not immune from the global economy but I believe we've got strong policy settings for the future.
MITCHELL: Okay so do you accept it's a possibility?
PM: I believe that we have a responsible strategy for the future and I believe that the best way of ensuring that is through a responsible approach to budget policy, we've done that. And if you've got a $22 billion buffer, which is what we now have off the back of the last budget Neil, we have an ability to therefore provide and use that buffer in the future if the global factors get tougher and tougher in the period ahead.
I'm not in the business of making wild promises for the future. Before the election for example we were challenged on multiple times could I guarantee that petrol prices would come down - I said no, could I guarantee that grocery prices would come down - I said no. What I can guarantee is that we will have strongest most solid set of economic policy directions into the future anchored in a strong budget.
MITCHELL: I understand the independence of the Reserve bank and as Prime Minister you can't advise them publicly or even privately for that matter to reduce interest rates or anyway to make any decision. However if interest rates do come down, which is the broad speculation across the economist today, how can you guarantee the banks will pass on the interest rate cut?
PM: Well I think the banks will be under huge pressure in the marketplace to act in response to official interest rate changes. I know that with great disappointment a qualified response to that question the other day when it was put to one of the heads of the commercial banks as to what they would do when that happened.
Can I say operating in the market these banks have a responsibility to act despite recent adjustments both by NAB and by ANZ in response to some bad lending decisions made in the past. Look at the overall profitability levels of our banks, they are huge. Therefore I believe they have got a responsibility to pass on. And if for what ever reason they don't fully we have brought in bank switching devices which enable people very simply to change their accounts from one bank to another.
MITCHELL: Is the migration rate relevant at this stage? John Brumby said today we shouldn't increase migration rates any further in this environment, well he's reported as saying that. Do you agree?
PM: I haven't seen the Premiers comments on that. The migration debate is complex, on the one hand there are various parts of our economy which continue to suffer from labour shortages and look particularly at various parts of Western Australia and Queensland but elsewhere as well, and in particular categories. So there's no blunt answer to that.
On the other side of the equation Neil we also know that when migrants come to the country - guess what we've got to actually build more houses as well. Therefore it actually brings extra economic activity at the same time. It's a complex equation, we believe we've got to get the settings right.
MITCHELL: Are the setting under review then. The migration act?
PM: We review these on an annual basis and we adjust them according to the Governments very close consultation with the industry organisations about what they need where. And the good thing about the migration program is that we can ratchet it up and ratchet it down consistent with where the economy is a particular time.
But it's a very varied economy.
MITCHELL: David, go ahead please David.
DAVID: Good morning Neil, good morning Mr Prime Minister.
PM: G'day David
DAVID: Ever seen the Hollowmen Mr Prime Minister? Probably every morning.
Listen the biggest danger for the Australia people
PM: The answer to your first question by the way is no I haven't but go on.
DAVID: Well you should. The biggest danger to the Australian people is your Government. Its got to pull its head out of its backside, your going to lead the world with carbon trading are we. We're going to lose jobs by the (inaudible).
I am in business and one of the biggest problems we're facing at the moment is interest rates and petrol prices taking all the free money away from people. People aren't spending and their looking down the tube at what your carbon trading. You are going to teach China where a man has crawled overt he top of 2 billion people, 90 million in his own party to get to the leadership of that country. Your going to tell him are you, your going lead by example and show him what Australia can do (inaudible)
MITCHELL: David what's you business, what sort of business?
DAVID: Well I'm in pie manufacturing, all be it very small. But the fact is I'm right at the sharp end of it and I can see it straight away and I'm in a very tough area, Coburg. And I can see it straight away that these decisions that are made and business losing. I've watched companies close down all around me. They are going directly to China, some of them have picked their machinery up and gone to China.
MITCHELL: Okay I think the point Prime Minister is without the vitriol, that people are hurting in a very real sense and they are looking for some hope that their going to get through this in better way. I mean that's the point I was making at the start, this is starting to really bite people.
PM: It is and its biting people right across the world. That's why you need a strong decisive course of action for the future. One is through an approach to budget policy which says we have a strong surplus, a buffer for the future. I'd much rather have $22 billion to draw upon from this budget than not to meet the contingencies which arise.
Secondly we have amongst the best financial regulators in the world in terms of our financial institutions and thirdly we have a clear cut strategy to fight inflation, which will be tough given we inherited it at 16 year highs. But if we don't, go back to the cost to business, the cost to small businesses, one of the biggest drivers in business costs is the cost of capital and therefore we've got a responsibility to do what we can to put downward pressure on interest rates because it affects everybody, households and business.
Where David mentioned before in his tyre business and things going offshore to China.
MITCHELL: Pie I think it was.
PM: Sorry
MITCHELL: Pie I think was
PM: Sorry, I thought he said tyre
MITCHELL: As in eating pies
PM: Oh right okay, sorry, I misheard him. The reality is this has been a process which has been happening over 20 years and you've seen right across the world with lower labour rates in China, so much of the world's manufacturing having gone there.
The key challenge is through an activist industry policy which is what we're doing through Industry Minister Kim Carr for example on the automobile industry, do what you can particularly through new green car technologies to keep jobs in Australia.
MITCHELL: Okay in this environment his other point. In this environment can we really afford to push ahead with the carbon trading scheme on the same timetable if countries like China and India, as they gave indication during the week, are not going to do anything? Can we really afford to stick to your timetable?
PM: Well, let's go to where the international negotiations now stand. First of all, we all know that there is a clear economic case for acting on climate change. For Australia, we're already the hottest and driest continent. It therefore follows that unless we act globally on climate change that we are going to be hit hardest and earliest. And that affects the economy, it affects agriculture, it affects the Murray-Darling, it affects tourism industries including the bleaching of the Great Barrier Reef, which of itself employs, in tourism, some 60,000 people.
Therefore, we're got an immediate economic interest at stake, with a sharper edge of this in terms of impact -
MITCHELL: But we also have an immediate economic crisis to cope with.
PM: That's true, but the responsibility lies in making sure that you have a clear cut strategy to act on climate change, which is responsible, and make sure we're also around the negotiating table with the rest of the world, which we've achieved through ratifying Kyoto. And that means turning into reality the undertakings given by the world community at the Bali Conference about six months ago which says, for the developed economies, that's us, that we'll have binding targets for the future. For the developing economies, like China and India, that they'll undertake what's called, in the jargon of the conference, verifiable action.
MITCHELL: I understand this. But are you locked into that timetable?
PM: We've said that we're committed to the introduction of the Carbon Pollution Reduction Scheme in 2010. Right around the world there is some 27 states in Europe which have these arrangements at present. About 27 states and provinces in the United States and Canada are doing the same. The Japanese are in the process of the same debate as we are at the moment.
We need to act nationally and globally. And you're right, it's got to be a global solution. What the developing countries will -
MITCHELL: Prime Minister, if I can interrupt. The environment is changing and has changed. The economy is getting worse. Some people are talking about the danger of recession. Do you remain locked into that policy despite these changes in the economic environment?
PM: Our objective remains, Neil, to introduce the Carbon Pollution Reduction Scheme in 2010. We're in a detailed process of negotiation with industry over the next six months. We had already discussions through Penny Wong and the Ministers on the impact in particular industries and particular sectors. Remember, that the direct impact of this scheme flows to 1,000 of our largest businesses in the country. We still believe it's the right course of action. We also have adjustment schemes for households and for businesses on the way through for the short term and the medium term.
But the long term, unless we act on this, we're burying our heads in the sand in what is a real economic job loser from Australia. And that is, climate change with no response to it.
[BREAK]
MITCHELL: You're going to the Beijing opening, the Olympics. Will you in your talks raise human rights issues with the Chinese officials?
PM: I've done in the past and I will be doing so in the future, Neil.
MITCHELL: What about censorship issues? Because the media is being censored in Beijing.
PM: Yeah, I've seen those reports. I'm quite concerned by them. I saw the reports, and also the comments by Kevan Gosper.
My attitude to our friends in China is very simple - they should have nothing to fear from open digital links for the rest of the world during this important international celebration of sport.
MITCHELL: So you will raise that with him?
PM: Yeah, absolutely. And, I think that's the right thing to do.
I'm as surprised as I think Kevan Gosper is by what has gone on here, and apparently, some, according to Kevan at least, some deal between the IOC and the Chinese authorities.
MITCHELL: The new Governor-General has sacked one of her staff which is creating quite some debate. Do you support her decision to do that?
PM: Well, every new Governor-General has the right to decide upon who his or her official secretary should be, that's the first point.
The second is, on the question of the turnover of the position of official secretary, this person who has done the job I think in an exemplary way in the past, he has been in the position for five years. His predecessor was in the position for five years. And also, the individual concerned is an officer, I think, of the Australian Public Service. And therefore, head of the Prime Minister's Department will offer that person reappointment within the Australian Public Service as would be normal.
MITCHELL: I understand we're spending $20 million exhuming the bodies of the World War One diggers at Fromelles to give them individual graves. Would it perhaps not have been better to have left them undisturbed and erect a monument? I'm thinking of the money, I'm just thinking of the sensitivity around it. Why the individual approach?
PM: Well, this is, as I understand it, been the subject of considerable discussion between the Australian and British Governments and through the relevant ministers. And the decision which has been reaches between the two Governments is that this is the most appropriate way to honour the loss of this extraordinary number of our serviceman in that one day, I think it was nearly 2,000 Australians killed. It's just appalling when you think about it. So, if you go to the western front and the battlefields, and I've seen a little bit of them over the years, where we can our obligation over time has been to honour the individuals where you can do that. And, you know, even though it is nearly 100 years ago, I think these are all young men with families and I think it's the decent thing to do.
MITCHELL: Do you think you're arrogant? Did you see the poll this week?
PM: No, I didn't see the poll.
MITCHELL: Newspoll suggested that you are being seen as increasingly arrogant. Do you think you're arrogant?
PM: Oh, people make their own judgments about me, Neil, and that's a matter for them. My job is just to get on with providing the best policy leadership for the country. And people will make their judgment about me over time. And frankly, that's a matter for the Australian people.
MITCHELL: Who would you rather face in Opposition - Peter Costello or Brendan Nelson?
PM: The problem with the Libs is not personality or even structure, it's policy.
MITCHELL: Well are you going to give us a tip on Peter Costello - will he come back?
PM: Oh, I wouldn't have a clue. I mean, it has been a while since Pete has called me for some advice. But, you know, at the end of the day, whoever it is, what's the key thing? It's the party of WorkChoices, which was to reduce our -
MITCHELL: You won the election, we don't have to go through it all again.
PM: It's the same party - WorkChoices, they still stick by that. It's the party of climate change sceptics -
MITCHELL: Okay but you need Opposition don't you. You need strong Opposition.
PM: Well that's a constitutional requirement, I'm a strong believer in a strong Opposition. But remember this -
MITCHELL: It makes good Government.
PM: Yeah, but I've always said that in the past and that's important. But Mr Costello left us with what we've been talking about in a lot of these discussions, and that was inflation running at 16 year highs, 10 interest rate rises in a row, and he's been a life long supporter of WorkChoices.
MITCHELL: People look back on a pretty good 10 years for the economy, though. As even your own party admitted at the time, things were going well.
PM: But look global factors, you had a global commodities boom which began in 2001 which pulled in a large amount of money into this economy, and now we've got global factors coming out of the US sub-prime crisis, washing in a negative direction.
You know, it's important to put all these things into context, and to have a clear cut economic strategy to see this economy through - we've got that.
MITCHELL: Fair enough. One last question. I read you have a criminal history. Did you know your ancestors were crooks?
PM: I certainly did, yes. I didn't realise there were quite that many. The Mormon Church has apparently done a family history for me, they handed it to me yesterday. I knew I had one sizeable criminal back there, in a bloke that came out here first up -
MITCHELL: Proud of it?
PM: ... apparently there is half a dozen of them. Mate, we all have a past.
MITCHELL: Thank you very much. The Prime Minister, in Brisbane, Kevin Rudd.