PM: The decision by the United States congress not to pass the measure by the US administration for the stabilisation of the US financial markets is disappointing. This is a bad development. I have spoken this morning to Australia's Ambassador to the United States and our understanding is that this measure or a similar measure will be re-presented to the United States Congress later this week.
I have spoken also to the British Prime Minister this morning, Gordon Brown, and the attitude that we will adopt and I believe other friends and allies of the United States will adopt is to urge the United States Congress to pass this or a similar measure when it is re-presented to the congress later this week. This is necessary for the stabilisation of the US financial markets. It's necessary for the stabilisation of global financial markets.
The other point I would make is this, that when it comes to Australian circumstances and that of our financial markets, as recently as last week the International Monetary Fund delivered its conclusions about the status and the standing of Australia's banks. The IMF concluded that when it came to Australia's major banks which represent 85% of the Australian banking system, that these are in good order.
That they are weathering the financial crisis well. That they are well regulated, and they are well capitalised. That remains the situation.
Australia's four major banks are among the world's 20 double-A rated banks. In part that is because of the strength of our regulatory system. In part that is because of the strength of their balance sheets. In part that is because when it comes to our banks' exposure to subprime, which began this financial crisis more than 12 months ago, our banks exposure to subprime is less than 1% of Australian total mortgages, in the United States it's something like 15%. Therefore the circumstances of the Australian financial system, the Australian banking system are fundamentally different to those which pertain to the United States.
Furthermore, the Government has spoken this morning with the Australian Regulators, the Australian Prudential Regulatory Authority - they have advised that the developments overnight in the United States do not affect the fundamental stability of the Australian banking system.
Developments overnight in the United States will prolong the liquidity problems that we are experiencing in financial markets and that we have been experiencing for some time. The regulators and the RBA will continue to do what is required to provide ongoing liquidity to Australian financial markets as they have been for some time.
The bottom line is this. Strong regulation, the best regulatory system in the world, strong balance sheets on the part of our banks, as well as a strong budget situation on the part of the Australian Government means that the Australia's situation in this period of global financial turbulence is the best that you could have against what is being experienced by other countries and economies around the world.
These are difficult times, these are worrying times. But the strength of our banking system, the robustness of our budget surplus place Australia in a strong position to see the Australian economy and banking and financial system through this global financial crisis.
SWAN: Thanks Prime Minister. I just want to underline the strengths of Australia in this uncertain international environment. We have been in contact with our regulators overnight. Indeed as we have said on many occasions, we have been in constant contact with our regulators all year. And of course as the Prime Minister said, these events don't change the fundamental strength of the Australian banking system. But of course, these developments do prolong the liquidity problems that we have been experiencing for some time. And of course the Reserve Bank has been dealing with that and it will continue to do that. We do have first class regulators and we also have a strong economic position, a strong budget surplus. We also have high commodity prices and we also have a budget and budget settings that suit the times.
As we said back in May, we anticipated that these events in the United States would have some time to run. And unfortunately that has been the case, but we have put in place the best possible settings to cope with the fallout from these international circumstances and in this environment we also have some of the best regulators in the world to deal with it.
JOURNALIST: Mr Rudd, last week in New York you with Gordon Brown, Nicholas Sarkozy, a whole bunch of world leaders called on Congress to pass the bill. They didn't listen to you then, why do you think they are going to listen to you now, especially as this now seems to be caught up in the Presidential politics?
PM: Well Phil, you are right. We are in the midst of a US Presidential election campaign and what you have is a whole lot of political passions unleashed in the midst of this serious economic debate, for which there are global consequences. Our understanding from Washington, is that a package, a similar package will be re-presented to the Congress later this week. I believe it is important when that package or a similar package is re-presented, for all American Congressmen to understand the united interests which friends and allies of the Unites States have in the passage of this new package.
I believe that's the attitude of the British Government, that's the attitude of the Australian Government, I believe you will see the same from other European Governments as well.
Ultimately this is subject to the US domestic political processes. We can do what we can do, but we intend to be arguing this case strongly, robustly in the days ahead. This is necessary for the stabilisation not just of the US financial markets but of global financial markets.
JOURNALIST: What would be the consequences of this package not being passed and when you say you will be arguing the case, will Dennis Richardson be making representations at a specific level in the United States?
PM: Representations will be made at multiple levels both by our own Government and by other Governments. You see the thing about this global financial system is it goes beyond the interests of individual national Governments and we will be acting in concert with our friends and allies to make sure that Congressmen, Republic and Democrat, are acutely aware of the interests which are at stake here across the global financial system and when you ask at what level those representations will be made, from the top down.
JOURNALIST: President Bush warned of a long and painful recession if this package didn't get through. Do you share that forecast and what would that mean for Australia?
PM: I strongly support US President Bush's leadership on this question, because the consequences of the failure of this measure are significant for the US financial system and more broadly. In terms of the prognosis for the US domestic economy I leave the US national Government speak on their own behalf.
What I know is the roll on implications for the global economy are significant and that's why every friend and ally of the United States must be in there pitching in, making our case to US Congressmen Republic and Democrat.
JOURNALIST: You're right we don't have a subprime crisis like the United States but we do have the most deeply indebted households in the world. What is your advice on how well placed they are to survive an international recession?
PM: The responsibility which the Government has is to ensure the stability of the economic system of this country and the stability of the financial system of this country, that's the lynchpin.
How do you do that, by making sure that our regulators are doing their job and they have been and the regulators advised us that in terms of the four major banks which make up 85% of the Australian banking system, are in good working order, strong balance sheets, in a good position and as I indicated before among the best in the world.
That represents the core of the system, our job is to make sure that the core of the system is healthy and that means us taking every practical measure to ensure that continues to be the case.
SWAN: I just wanted to add to that because it is true that for some time household have been under financial pressure. We recognised that in the Budget, it's why we delivered the tax cuts, it's why we delivered additional assistance to pensioners and to carers. We fundamentally understand that they need a helping hand in difficult and uncertain times such as this, and of course as you know Chris we were criticised at Budget time for delivering that additional assistance. But we delivered it in an economically responsible way because we made room in the Budget through other savings to provide this additional assistance for households which is arriving precisely at the right time.
PM: The global financial crisis is a challenge to a national economy, it's a challenge to the household economy and that's why some 6 months plus into this crisis unfolding, because it began last August, the Government deliberately embraced a $54 billion family assistance package through the Budget amidst considerable criticism at the time. And that's because household budgets are under pressure, the global financial crisis doesn't help that.
JOURNALIST: The 85% of the Australian banking system that's under the big four. What about the other 15% the smaller banks, particularly when we see fears overseas?
PM: Well the measures announced by the Treasurer last Friday through the AOFM, Australian Office of Financial Management, will be important in supporting all of Australia's financial institutions including the ones to which you refer.
We believe that again based on the advice from the regulator that the financial system is in good working order and we have confirmed that again this morning. The problems we face as the regulator has advised us again this morning is the developments overnight in the United States will prolong the liquidity problems that financial markets have been experiencing for some time. But the regulators as they have been doing in the past and will continue to do so in the future, will continue to provide ongoing liquidity for the Australian financial market in all of its elements as they have been for some time.
SWAN: I just wanted to make the point that our regulators have been very active in terms of all deposit taking institutions.
JOURNALIST: Given the worsening liquidity crisis, will you be more relaxed with or take a softer line on the banks if they fail to pass on all of any interest rate cut given by the Reserve Bank?
SWAN: Well, as you know, Mark, I was most insistent earlier this year that any cut in the cash rate should be passed on because when borrowing costs go down, rates should go down as well.
Now, what we've seen in recent weeks is a very big spike in borrowing costs internationally, and that will certainly have an impact on domestic institutions. There's no doubt about that. I'm not going to speculate about what the Reserve Bank will do next week. But we do know that when borrowing costs go down, rates should follow. But of course, the reverse also happens. When borrowing costs are pushed up, and particularly pushed up sharply, then that has consequences as well.
JOURNALIST: Prime Minister, it's likely that Government revenues are going to be below the projections of the Budget. And you've got a lot of bills stacking up, obligations stacking up. What were your reasons for rejecting borrowing as a source of funds for infrastructure or other programmes?
PM: We believe that through the money that we dedicated to our future investment funds, the Building Australia Fund, the Education Investment Fund as well as the Hospitals Investment Fund, are sufficient to the investment challenges that we face for the period ahead. That's more than $40 billion worth of activity. We believe that we can make a strong start through those funds. That's the right course of action, and we will continue that course of action into the future. That's a lot of money, and that's -
JOURNALIST: (Inaudible)
PM: The other part of it is that if you add that $40 billion to the overall nation building strategy which the Government has, it comes to a total of some $76 billion once you roll in Auslink funding. We are a Government, and a party, of nation building. We'll be doing that. And, certainly discussions we had yesterday in Newcastle in the Cabinet and with the Infrastructure Minister Anthony Albanese, this is a major and emerging priority for the Government to get cracking on these projects.
SWAN: I just wanted to add to what Malcolm had to say. Malcolm, it is the case that these events will certainly put pressure on the revenue, no doubt about that, that's why it's so important for the Government to get its remaining measures through the Senate.
JOURNALIST: Mr Rudd, do you think it's (inaudible) now to soften the welfare controls on indigenous people in the Northern Territory?
PM: What I think it's time to do is to review carefully the review that we commissioned some time ago of the intervention. And we'll look at that. We said that we'd get that done about the middle of the year. We haven't received it yet. We'll go through it -
JOURNALIST: (Inaudible) things need to change now?
PM: No, I'm sympathetic to the view that you take it step by step, look at the evidence, what's working, what's not, and act accordingly. And, remember we provided bipartisan support for this intervention in the first place. We said that against the objectives which have been set that we wanted to see the evidence of the first 12 months. Let's look at the evidence, see what's working, see what's half working, see what's not working, and act accordingly. That's our approach. And none of that is ideological.
JOURNALIST: Mr Rudd (inaudible) difficult and worrying times, what should Australian families do to prepare for the difficult times ahead?
PM: Our responsibility as a Government is to ensure the stability of the economic system and the financial system, that's the absolute core of the wellbeing which flows to Australian families. And the Treasurer and I have been hard at work on that. This is a difficult task given the global financial factors that are involved.
The second thing is to make sure that through the Budget measures which we brought in, and that subsequent measures through subsequent Budgets, are focussed squarely on the needs of working families, pensioners and carers, who are doing it tough out there, and who face additional pressures flowing from this global financial crisis.
We understand that, we get it, and as a result of which, it's not just future direction of the national economy, it's how we provide practical assistance on a continuing basis to the household economy as well.
JOURNALIST: What's you assessment of the global crisis on China, our biggest trading partner?
PM: In discussions that I've had with officials it's quite clear that there will be some downward revision of China's growth prospects itself. But, based on our analysis of China's rolling demand for Australian commodity exports, we are well positioned still into the future. And that is on top of the forward contracts which have already been signed against pre-existing price levels.
Therefore, our economic relationship with China in this period of global economic uncertainty continues to be of great importance and we are continuing to work on how to free that economic relationship up further and further.
You know, this crisis affects us all. And what's important, and I conclude where my remarks began, is that all people of goodwill around the world act in concert with our friends in the United States to see the right measures taken through the US political process to stabilise the global financial system.
All of our interests are at stake here, including those in the US. And we'll not be leaving a stone unturned in making sure that all those who need to know in Washington have our views and the views of our friends and allies. Thanks very much.