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Transcripts from the Prime Ministers of Australia

Transcript 16178

Press Conference Prime Minister's Courtyard, Parliament House, Canberra

Photo of Rudd, Kevin

Rudd, Kevin

Period of Service: 03/12/2007 to 24/06/2010

More information about Rudd, Kevin on The National Archive website.

Release Date: 12/10/2008

Release Type: Interview

Transcript ID: 16178

The global financial crisis is affecting markets across the world, including Australia. It's affecting economic confidence across the world, including in Australia, and it's affecting the real economy across the world, including Australia as well.

Australia is better positioned than practically every other country in the world to see its way through this crisis.

As you know our economic regulators are the best in the world, our major banks have the best balance sheets in the world, and our budget surplus is the envy of most other countries across the world.

And the reason for this is that as this global financial crisis has unfolded, we in Australia have sought to anticipate events and to put in place prudent preparations for those events and to act accordingly.

We've done this consistently in the period that we've been in office.

It's also the fact that the Government has been in close contact with governments across the world all year - the G20, International Monetary Fund and through the Financial Stability Forum.

I've spoken again this morning with the Treasurer, Wayne Swan, who is on the ground in Washington meeting his counterparts in the IMF and the G20. Coordinated international action is critical to the overall confidence equation in dealing with the global financial crisis. Knowing the changes which need to be made is one thing, summoning the global political will to execute those changes is the other. Both must be done.

In this context, the Government has decided today on three further measures to maintain the continued stability of the Australian financial system.

First, as of today, the Australian Government will guarantee all term wholesale funding by Australian banks operating in international credit markets to make sure that they have the best possible access to global capital in the future.

Over the past year, many banks in other parts of the world, banks that are much less well regulated and they have been in fact, poorly managed, these sorts of banks have got into trouble. And a lot of those banks have in fact failed and some of them no longer exist.

In order to prevent other banking failures, what's happened is that governments around the world, have in recent weeks and in particular in the last week, developed guarantees and various other support mechanisms for their banks' international credit raising arrangements.

Australian banks, despite the fact that their balance sheets are in excellent shape, now have to compete with these foreign banks for funding on global financial markets. Foreign banks which, despite their weaker balance sheets, now have the advantage of government guarantee. That presents Australian banks with a challenge.

As Prime Minister of Australia, I will not stand idly by while Australian banks are disadvantaged in international credit market places because of the actions taken by foreign governments in support of them.

We must act now because other governments with weaker banks have moved to make those institutions more competitive than our stronger banks in the marketplace.

For that reason, I can announce today that anyone who lends money to our banks in the international marketplace has an absolute assurance that their money is safe. With the explicit guarantee now offered by the Australian government, our banking system will be even stronger in the future in its international credit raising operations.

It will remain competitive in securing finance in international markets. This measure will remain in place until global financial markets stabilise.

Having taken the decision to guarantee the borrowings of banking institutions, the Government has also decided as of today to enhance the level of protection provided to depositors under our financial claims scheme.

If we are guaranteeing the national institutions lending to banks then it is only fair that we guarantee working families, pensioners, carers, small businesses and all deposit holders, guaranteeing that they have the same protection.

Accordingly, the Australian Government will guarantee all deposits, whatever their size, in all Australian banking institutions for three years - banks, building societies, credit unions.

As Prime Minister of Australia, again I am not prepared to stand idly by in dealing with the concerns of Australians as they watch global financial developments unfold.

Furthermore, this measure puts our banks on a similar footing to other banking systems around the world. At the end of three years, the Government will review the cap on the guarantee that I have just announced.

The third measure I announce today goes to the availability of funding for non-Australian deposit taking institutions. Further to the Treasurer's announcement in September, the government has decided to direct the Australian Office of Financial Management to repurchase an additional $4 billion in residential mortgage-backed securities. The government has been monitoring the market closely and has determined that an additional $4 billion in funding is required for the purchase of residential - backed mortgage securities from non-ADI lenders.

This will benefit Australia's mortgage market and ensure that this sector of the lending market has access to funding for their future operations.

The measures I've announced today are based on the advice of Australia's economic regulators. The measures I've announced today have been the product of extensive deliberation between myself, the Treasurer and other Ministers who are members of the Strategic Policy and Budget Committee of the Cabinet.

The measures I've announced today are part of also international measures designed to help unclog the arteries of the global financial system. Critical to the international economy, critical for the Australian national economy and critical also for the household economy.

There will be many bumps in the road during the period ahead and the ride will not be smooth. We are in the economic equivalent of a rolling national security crisis and the challenges are great.

But the Government has set a strong course of economic policy action to see Australia through this economic storm and we are determined to do so. I'll take your questions.

JOURNALIST: (inaudible)

PM: First of all, the measures today are three fold. One is to do with the ability of our banks in the future to secure funds for their long term lending operations. And that goes to the availability of commercial finance long term in Australia as well. The significant guarantee decision that we have made today makes it easier for those banks to operate in international credit markets in the future and frankly, that is of fundamental importance to credit flowing in the future to Australian businesses and others needing finance.

Secondly, the measure that we announced in relation to depositors, as you will have noted from my remarks just now, goes to all depositors.

It also goes to deposits without a cap. And that is, whatever the size. And the reason for that is to provide fundamental confidence in the system, given the news, the bad news often, which people are seeing on their television screens each night, coming in from around the world.

And furthermore, as a reason for that too, and that is there being no cap and again in the international financial market's assessment of Australian banking institutions for them to conclude that government guarantees are as comprehensive as possible.

And the third measure that I mentioned, the AOFM and the extension of a further $4 billion into the mortgage market, is critical particularly in terms of non-deposit taking institutions.

JOURNALIST: When you say that it applies to all deposits, that applies to all deposit products - term deposits, deposits with foreign banks in Australia (inaudible)

PM: We are talking about all deposits. Let us be clear about that. Now, for Australian banks, building societies, credit unions and also for the foreign subsidiaries of banks operating in Australia taking deposits.

JOURNALIST: (inaudible) with higher costs relative to other banks (inaudible)

PM: Our responsibility is to look ahead - three, six, nine and 12 months. And what we in the government have been particularly concerned about is what various foreign governments have done to guarantee their banks' term funding arrangements into the future, in particular banks which haven't been performing well at all. Banks which have a far inferior credit rating to Australia's.

So what have those foreign governments done is come in over the top and saying ‘Okay, we'll fix that by providing a sovereign guarantee'. And the problem is in international credit markets looking ahead is that that causes international credit institutions to look at those banks more favourably.

I'm not prepared to stand around and allow that to happen and to place our banks, our Australian banks at a disadvantage. That's just wrong. It's not just wrong for them. The flow through consequences for the availability of credit longer term in the Australian economy for businesses and for other operations is of massive importance to the real economy. This is a most significant decision and one which we haven't taken lightly.

JOURNALIST: Given how serious the situation is, have you spoken to Mr Turnbull to try to encourage a bipartisan approach (inaudible)?

PM: On the first question, I've certainly asked the Treasury today to brief the Leader of the Opposition fully on the decisions we've taken and the reasons for so doing. On the second question, let me say this: this global financial crisis has entered a new and dangerous phase with real consequences for growth, for jobs and therefore for the future.

And as a consequence the government of course is examining measures for the future about how best to deploy the surplus that we've had set aside for the future.

JOURNALIST: How quickly will you legislate the package? And what happens if it doesn't work, if it doesn't restore confidence, what else is there for the Government to do?

PM: Well my first responsibility is to take actions in a measured, calm and responsible way and to be ahead of the game.

Our major banks don't face a crisis of raising credit on international credit markets today or tomorrow or in the next week. I am concerned about three, six, nine, 12 months ahead and again anticipating events and putting in place prudent preparations for that.

Secondly, you know, if you are in the midst of a rolling, if you are in the midst of the economic equivalent of a rolling national security crisis, I think everyone needs to understand that there's going to be a lot of bumps along the road.

And it's going to be rough, and it's not going to be even, it's not going to be smooth.

There won't be a magical response in the next 24 hours. But this is a strong clear cut course of action, both for the banks themselves, critical to providing credit to the real economy, but also to depositors who have had their confidence affected because of what they have seen on their television screens about international financial markets.

JOURNALIST: Prime Minister are you saying there is no circumstance under which you would allow an Australian bank to go bust and would you allow any of the big banks to merge and effectively end the Four Pillars policy?

PM: First of all, the advice from the Australian Prudential Regulatory Authority is that our banks today, as last week and as for the period ahead, remain in first class working order. The measures I have announced today go to their ability to continue to provide credit long term into the Australian economy, because the banks raise a large slice of their funding for domestic credit reasons offshore

And I am not about to have them in a position where they are placed at a disadvantage by foreign governments' actions which have artificially helped badly performing banks in those foreign countries. We remain committed to the Four Pillars policy.

JOURNALIST: The Treasurer this morning was talking about policies being under review (inaudible). You've given a (inaudible) on pensions by the next budget. Is there anything else that you can assure or is everything that is yet to be implemented now, under review?

PM: No, we remain absolutely committed to implementing our pre election commitments and those commitments which you saw in the Budget. As I said, the core discipline of the Budget was to put aside a substantial surplus to meet the contingencies of the future.

How long have you all heard me say, it is good to have a surplus like that as a buffer for the future? Well the future is here. And the question now is how to most intelligently use our surplus to maintain positive growth in the economy, given what I just said before. The global financial crisis has now reached a new and dangerous phase for the global economy with real implications for economic growth in Australia and jobs in Australia.

So we are examining all measures necessary to maintain positive growth in Australia into the future.

JOURNALIST: (inaudible) mini budget is possible and secondly, on the questions of the emissions trading scheme, can you give a guarantee that you still plan to introduce that at the time that (inaudible)

PM: Michelle, I meant what I said before which is that, and I have been saying this in recent days, is that one, we have a nation building agenda which we are bringing forward $76 billion.

Two, as I have said just now in answer to Lenore, that we are examining other measures but we've got to be realistic and practical in response to the new challenges to growth which the global financial crisis has delivered. And the Carbon Pollution Reduction Scheme, our ambition remains as I have described it before.

JOURNALIST: (inaudible) what's your estimate of the value of the liability that you have undertaken with your guarantee?

PM: Well across the Australian banking system at any one time, there will probably be deposits in the order of six to seven hundred billion dollars. And that's reasonably constant over time.

The key thing is for everyone to bear this in mind - that Australia's regulators all year have been going through the balance sheets of all of our banks. And we ask them on a regular basis, ‘how is it all going?'

And the balance sheets of our banks are in good working order, first point.

Second is, the measures that I have announced today are simply to make sure that the banks have proper access to global credit into the long term future, that's important. And to make sure that our depositors have a guarantee from Government, given the uncertainty which they are seeing on their television screens each night.

JOURNALIST: Prime Minister, what guarantees are you getting from the banks (inaudible) you are going to guarantee their borrowing costs overseas (inaudible). What guarantees are you going to get from the banks that they won't indulge in risk-taking behaviour now that they have a government-backed guarantee?

PM: The guarantee that we are speaking of will also come at a cost to the banks by way of an insurance premium. And that will be levied at an appropriate rate, determined between the Treasury and themselves, which will go to ensuring that this is not simply a free gift from the Government by way of a guarantee to the banks, but that in providing this guarantee long term, providing this Government gilt edged guarantee long term, out there in the international credit place, that the banks are paying something back to the taxpayer on the way through.

JOURNALIST: Mr Rudd, the states obviously are looking for money for both health and education (inaudible)

PM: What has changed?

JOURNALIST: (inaudible) Will the states need to be ready to take less now as a result of the lower growth projections (inaudible)?

PM: Well we are in difficult economic times and we will have a tough negotiation with the states and territories, but for working families, pensioners and carers, what happens in the future with hospitals and schools is still really important. And we have a good reform agenda.

It will be a tough negotiation, probably a tougher negotiation, let's just be blunt about it. I understand that. But we have got a strong reform agenda to implement. The Government is in a strong budgetary position because of the measures we took earlier this year and we intend to get on with the business of delivering better schools and better hospitals for working families as well.

JOURNALIST: (inaudible) unemployment going over five per cent (inaudible)

PM: Well I would draw your attention to the most recent publication on that which is the IMF's World Economic Outlook, which still projected for Australia an unemployment rate with a four in front of it. The rest of the major industrial economies had an unemployment rate with a six in front of it.

But given the developments in global financial markets in what has been a really turbulent couple of weeks, as night follows day there is a roll-on impact in terms of the real economy and jobs.

So unemployment is likely to be high. That is just levelling with people, it is likely to be higher.

JOURNALIST: (inaudible)

PM: Likely to be higher than has been projected. We don't have numbers on that. I am just telling you.

If you look carefully at what's happened in terms of the impact of global financial markets on confidence, both business and consumer across the world, Australia's major export markets as well and the consequences for confidence within Australia, it is a much tougher set of circumstances.

I go back to this, the Government has a clear cut, strong course of policy action to see Australia through. And I'd much rather be in our position with a strong budget surplus to draw upon, to help maintain positive economic growth in this country given the challenges which are unfolding in the real economy across the world.

JOURNALIST: (inaudible) are they very much signalling to the Australian public, don't panic?

PM: Look, our attitude is very simple. Our banks and our financial institutions are in first class working order and on top of that now, the Australian Government guarantees your deposits.

It is really important given the bad news which so many ordinary Australians have been seeing down their television screen each night.

It is the right thing to do. It is also the right thing to do to help our banks in the international credit market, not be disadvantaged by the actions of foreign governments and that is why we have acted on this other important measure as well.

I am equally concerned about the availability of credit for businesses into the future as well, hence the other measure.

JOURNALIST: Isn't there a possibility it might have the reverse effect (inaudible) the banks are so secure, why are you taking such extraordinary measures (inaudible)

PM: What I have been saying, Mark, in previous discussions with the ladies and gentlemen of the press as well, is it is always important to be thinking three, six, nine, 12 months ahead.

Right now the balance sheets look great. I am concerned about where it is going to be with the wash-on effect of these actions by foreign governments in six months time.

JOURNALIST: So the banks are secure now but they might not be in 12 months time?

PM: No, I am saying something quite different, quite different to that.

And that is the availability of credit in the economy. That's why this measure in providing a guarantee to the term funding arrangements used by the banks in the international credit market is so important. I don't want an Australian bank to be discriminated against, a first class Australian bank discriminated against, because some other foreign bank which has got a bad balance sheet, has been propped up by a guarantee by a foreign government.

That is the bottom line.

JOURNALIST: (inaudible)

PM: Well I repeat what I said before. We are determined to implement our pre election commitments and our budget commitments. Remember, we produced a conservative budget document with a strong buffer with a strong surplus for the future.

On your other question, which is what is most effective for the future, or what is best for the future, we are spending our time working our way through that.

This Government is calm, methodical and rational in the way in which it approaches challenges. We spend a lot of time examining what's going on. We spend a lot of time looking at the policy options. Then we decide and we get on with it. We have done this in relation to the measures I have just been talking about today, we are doing so into the future as well.

The Government is determined to take whatever decisive action is necessary to secure the long term interests of this economy and the Australian people. Thank you.

Transcript 16178