PM: Well the purpose of my being here this evening is to talk about the global financial crisis and its effects on households right across the country. And more importantly it is to hear what you have got to say and to try as hard as I can to answer your questions - about the implications for the national economy and implications for the household economies.
A few words first about how we put all of this into context.
When you look at this financial crisis a lot of people are asking, how does it happen, how does it actually come to be like this, particularly for those of us here in Australia who had nothing to do with the way in which this started.
First and foremost, a year or so ago a whole bunch of American banks lent a whole lot of money to a whole lot of people who could never afford to repay those loans for houses.
Well that was one problem, but then it got much worse because a whole lot of other banks in the United States and elsewhere around the world then decided to underwrite those loans. And as a result the cancer spread. And they didn't disclose what they were doing.
That created a crisis of confidence for the banking system and then on top of that you had slowly, the freezing up of global credit markets?
So what are the implications for Australia?
Well there has basically been three for countries around the world and for us. The first is this freezing of credit markets and a lack of confidence in the banking system around the world.
Because if credit dries up it means it cannot flow through for normal lending for households and for businesses creating jobs. That is the first point.
Now the second is, it begins to effect over time, the real economy, that is, real growth, real jobs. And therefore for what you see around the world is the wash through of all this in ways which we don't quite know yet how it is all going to turn out, but over the next 12 months, it is quite critical, that is the second one.
And then of course you go to what you have seen in stock markets. Credit markets, stock markets, real economy. And stock markets you would say, well it is just a whole bunch of people playing with shares. Well, no, it affects superannuation funds and superannuation earnings.
So what has the government been doing to respond? Two or three things, before we get to your questions. The first is we have been working to maintain the stability of our Australian banking system. Our banks are in really strong working order, very strong working order. Great balance sheets, well regulated.
But to make sure that their reputation worldwide continues to be underpinned, a week ago we made a statement as the government to guarantee deposits and to guarantee also the banks lending from overseas, because they use a lot of that lending to support what they do in providing loans to business in Australia.
The other thing we did was, on the jobs question, on the economic growth question was that we released this $10.4 billion Economic Security Strategy. That was on Tuesday.
The reason we have done that is to provide support for growth in the economy and to support further growth for jobs in the economy, because we are worried about all of this happening overseas on our real economy in the year ahead.
We set aside a big surplus at the beginning of the year and the time has come to draw down on that surplus. It was set up for tough times and those tough times are coming.
But we have got to do so responsibly and still do it while maintaining a comfortable surplus for the future.
And the third thing, we will come to the detail of that from December, but it is about a Nation Building Agenda for Australia also to support economic growth, but to get out there and to build the infrastructure we need for the long term as well.
Hospitals, schools, educational institutions but also roads, rail and ports. We have got still a lot of work to do and we will take whatever action is necessary to underpin the long term strength of this economy, but it is going to be tough. Over to you for some questions.
AUDIENCE: Mr Prime Minister, if I may call you Kevin?
PM: That is fine, I have been called worse.
AUDIENCE: I am Max (inaudible) I am a local real estate agent. My area of expertise or my area of marketing hasn't been as badly affected, but I have friends in areas that are in developing areas. These areas were selling off now at prices, at a percentage of what they bought them for some years ago. Some of these people went in on first home buyers grants and GST rebates the first government put in place.
I notice that you just increased the first home buyers grant. Is this going to be a repeat of mortgage repossessions over the next couple of years and what is the Government doing to try and protect this?
PM: Now we are quite worried about housing. Let's take the whole economy first and as you know, your industry, the housing sector has a huge impact on growth across the economy. Because it is not just the building of a house which is important, but it is what goes in it, that stimulates the economy as well.
So, as I have looked at the data carefully, what we have had since the end of last year is starts, that is housing starts, construction starts down by about 18 to 20 per cent. And then if you look at famous state of NSW who are running at 30 and 40 year lows in terms of housing starts, we have got a real problem on our hands.
Therefore what we have tried to do is two sets of things, before this really bit, the Government put out about $1 to $1.5 billion worth of measures forward on the supply side, that is to boost housing construction.
And rental affordability and the rest, they are part of that. But the other thing we have done in this package the other day is to try and encourage people who are thinking about buying their first home, to make it easier for them. And that is why the first home owners boost goes from $7,000 to $14,000 if you are buying your first home between now and 30 June next year. But also on top of that, if you are then buying a first home which is a new home, then that grant goes up to $21,000.
The idea is to put this huge shot in the arm to housing sector which is currently experiencing some real weakness.
Long term, this is your question as well, about how you balance it, a shot in the arm here and maintain stability down the track. We believe that by balancing supply side measures, boosting construction, as well as the demand side measures, which is making it easier for people to go out and buy a house, we should be able to get the balance right.
But we want to make sure that housing is playing its role in providing further economic growth in Australia while the rest of the world is slowing rapidly.
AUDIENCE: You haven't answered the guts of the question if I may say and that was the mortgage and possession part. We are seeing more mortgage possessions than we have seen for a long time, a lot of these work people went in with no savings for first home buyers grants, and are we going to see this again? And that is a worry to me as an Australian I don't like seeing people in mortgage repossession.
PM: Well let me give you a couple of figures on that. First of all housing arrears in Australia haven't changed. For the national data, and I am talking about national data, not in your area, because I am not familiar with your area, they are standing at about 0.55 per cent and that is where it has been for a long, long time.
We haven't seen that kick up yet, it could. I can't as Prime Minister of the country, shape each individual buyer's decision. What I can try and do is make it easier at the entry point, balance it on the supply side, because the supply side, there is about 50,000 extra units.
But you know, part of our responsibility lies in ensuring our lending institutions are being responsible in what they lend. And that is, and that is, making sure that when the bank or the building society or the credit union extends a line of credit, it is based on a realistic assumption about a person's ability to service that debt long term.
And one of the things that we are doing as a national government and we got the states and territories to agree on this recently, was to create for the first time an agreement with all the Governments in Australia for the national government to have regulation for all credit lending institutions.
It doesn't solve the problem you just pointed to, the government cannot fix everything. In terms of getting the framework right and given what we want to do for the national economy, it is the best we can manage.
AUDIENCE: Oh hi Mr Rudd, I am Cheryl Darcy. I work in a butcher, a small retail store in my area.
I am also the mother of two teenage children who are coming close to finishing their schooling and going into training, and the wife of an Australian serviceman. While my husband was away I decided to gain a skill in a trade because I have been an unskilled worker all my life.
While it was a great experience for me and I had the support of my family, I actually witnessed what is happening first hand to the tradespeople in Australia. People cannot stay in apprenticeships, they are not taking up apprenticeships and I feel like this thing that is happening at the moment with giving people these one off payments for things, and this is what has happened with apprentices as well, it is not keeping people in apprenticeships and it isn't helping us build a skilled workforce.
And you talk about all these other things to fix the economy, I feel like if we could have a skilled workforce and we could have our kids and maybe even older people like me go into apprenticeships with other ways, other than just handouts all the time. Maybe tax breaks, obviously larger wages and also, the TAFE courses are all closing down their sections.
Where I did my course, there is only one place in the whole of Sydney to go and do your course, and that is at Granville. It was hard enough for me, but I can imagine if you are a 15 year old young person having to travel two hours a day just to go and do your course, yeah and I saw it and it is just impossible.
And I just wanted to know what was happening.
PM: These are god questions. You know, it is not either or. It is not either bring about an economic stimulus package now to provide support for growth and support for households in the critical 12 months ahead, and do nothing else.
We are doing that because of the impact of the global financial crisis which I talked about before. But the other part of what we are doing is continuing to roll out our program for what we call, the Education Revolution in education, skills and training.
Here is a couple of facts. For example, in the high schools, the country desperately needs long term, more tradespeople.
So therefore what is the Government doing? We are investing in building trades training centres, new ones, up to $1.5 million in every secondary school in the country to upgrade what you do in terms of woodwork, metal work and all of those basic skills, through the secondary school.
Because we are not getting enough through put there.
The second thing that we are doing is that we have set aside funds for what we call an education investment fund for the future and that is designed, and it is a multi billion dollar fund, to invest not just in universities but to invest in TAFEs.
Now we have been in government for nine or ten months, we have put aside the funds and we are about to unroll the investment in TAFE from those funds as well.
The last thing is this, and it is the package that I announced the other day, is that one of the big challenges we find out there in the community is that people are still saying in various parts of the country, we can't get enough with this set of skills.
Or someone is in an area where there may be some contraction and people lose their jobs so they have got to move over here and do a different set of, a different job with a different set of skills.
So what Julia Gillard, the Deputy Prime Minister has put forward is a new grant which effectively doubles the number of what we call productivity training places across the country, what is called Certificate II, Certificate III, Certificate IV, to move you from one set of skills to another set of skills.
And in the Budget we allocated funds for 57,000 of those places.
In the statement I released on Tuesday we doubled that, because we think the demand is huge. So with the schools coming through, or TAFEs, investing long term or right now in productivity training places, short term training courses to get you from job A to job B with a new set of skills, we are on to this.
It is going to take us time, but it is not an either - or, we are actually doing both.
AUDIENCE: Mr Rudd I am Maureen and I am a retired nurse. My husband is also retired, he is from a pharmaceutical company. And we are in a bit of a dilemma at the moment because of the share market. Income is dropping rapidly and I am just wondering, I suppose the question is which I think many would share is, I am thinking tomorrow, do I cash up or do I trust the market at the moment.
PM: Well you know something, the last thing I can do responsibly as Prime Minister of the country is give you individual financial advice. I just don't know your circumstances and I know when to stop and start. My first responsibility is to take a national view of the entire financial system.
And I became really concerned a week or so ago, not because of anything happening in Australia with our banks and our financial system: well regulated strong profits, etcetera, but I was getting really worried about what was happening overseas and the wash through effect on to us.
And that is why last Sunday, the two measures that the Governments announced, unprecedented in the history of Australia: to guarantee all deposits, all depositors, without limit, banks, building societies, credit unions out to a period of three years.
And also to provide a guarantee for the banks themselves going out to borrow money. Why were those necessary? To ensure the continued stability of the financial system.
Now where that dovetails with your concerns is, unless you have got underlying continuing stability in the financial system, it flows through to the stock markets.
And the stock markets are what directly impacts people who have superannuation funds because, on average, a slice of the superannuation fund will be in shares, a slice will be in property and a slice will be in cash. So we have done that to provide stability for the future.
But you know, it's a rocky road. But if you take a historical view, if you go back 35 years if you were taking our superannuation policy way back then, on average, I'm advised that your growth and earnings over that 35 year period after inflation is about five per cent a year.
So if you take a long view of history, a long term view of superannuation, the advice remains valid. That it is the best way to secure your long term future. That there are going to be gyrations along the way. And what I'm trying to do at present is to reduce down the size of this current rollercoaster by making sure that we can underpin stability in the financial system. Because that is fundamental.
AUDIENCE: Good evening Kevin, John (inaudible) is my name. I've got a history going back over many years of running marketing operations for major corporations across Europe. And I came back to Australia and ran my own company and I sold it a few years ago to retire or become a consultant or a commission salesman. So every penny I earn has got to do me for the future.
What really gets up my nose in a big way, especially when I hear people like George (inaudible) who ran AMP and worked on the buy-out of GIO, and really obliterated both companies. After 14 months, he was allowed to walk away as a failure with $15 million. And I now hear so many people in major corporations that are walking away with millions and millions of dollars (inaudible) people in the audience could ever get in a lifetime. What I'd like to know is now that your government has guaranteed savings, what is your government doing about looking at contracts because you've effectively become a de-facto partner in these financial institutions where you are guaranteeing savings. What are you doing about contracts and looking at bonuses and pay-outs for these people, especially when they are in negative earning and badly run companies?
PM: Your question is absolutely right because it goes to I think a deep sense in the Australian community that enough is enough is enough.
And, when you look at what's happened, I don't know if you've seen the testimony in the United States recently where I think it was a guy from Lehmann's Bank, was it $400 mil? I mean, I don't know how anyone could earn $400 mil in a salary, but there you go. Notwithstanding that Lehmann's doesn't exist anymore. I mean, I find that remarkable.
So to go to your question about what we're doing.
I went to New York about two or three weeks ago and spoke to the UN General Assembly. What I was doing in that speech was spending most of the time outlining our response to the global financial crisis and what we believe needed to be done globally.
What we do in Australia, that's important. Getting it lined up for what we need to have here done in Australia, like the measures I spoke about before on our bank guarantees, and, economic security strategy that I was referring to before in what it provides for growth for the economy long term.
But you know, those things don't work unless you are getting the same sort of action internationally. A lot of the financial institutions that we're talking about operate internationally.
So in that speech I actually ran through a whole series of measures, one of which was this, it's called corporate governance. And within that, what I said was making sure the remuneration packages for the future in financial institutions are directly linked to performance and are directly linked to the standards which are applied to those financial institutions by the regulators.
So, if you want to be a financial institution that is going to have a higher remuneration package which is linked to a higher degree of risk, then the central bank of the country in question should insist that that company has to attain a much larger amount of money in its reserves to deal with bad times.
Now what we are doing in terms of that is working with all governments around the world to put forward a specific proposal in detail about what that will look like in terms of dollars and cents, but more particularly, the conditions attached to it.
So that's the work agenda for the next two months. And, the Australian Prudential Regulatory Authority, with us and the banks, are working on that because it's part of the long term stability of the system.
So you should have from us a detailed draft rule which we'll apply across the world for us and the rest of the world by year's end.
AUDIENCE: Can you (inaudible) at the executives of these financial institutions to (inaudible)
PM: I think sometimes you'd like to. But it's a free country governed by laws. And, ultimately shareholders are going to hold the boards of these companies accountable.
Why do these financial institutions (inaudible) a big difference. And again, I go back to the point I was making earlier. They were actually part of what you could call the systemic stability of our system. Companies out here that were manufacturing other things, or providing other services, they are important, they provide jobs, they provide growth. But financial institutions, credit underpins so much. It underpins what happens at the stock market, it underpins what happens in the real economy as well. And so, that's why we can't allow these guys, the Gordon Gekko's of the current age, any more rope. Game over. We've got to rein them in.
AUDIENCE: My question to you is, why won't you allow the superannuation funds to invest in our own homes? I'm locked out of superannuation (inaudible) equity (inaudible)
PM: Our view on superannuation is this: it is really important, really important, to provide to people long, long term retirement. Most people are in superannuation funds for 35-40 years, they then draw upon them for 15 or 20 years or more. Therefore, getting it right is really important. The second thing is this, Australia, through the Australian Prudential Regulatory Authority, supervises in detail each of the 600 plus superannuation funds in Australia to make sure that they are properly cashed up, that they are doing the right thing, because they occupy a position of trust in the community. And the decision that we have taken, and governments before us as well, is that the best thing to do is to have a balanced portfolio between stocks and property, and then, on top of that, ensuring that you've got sufficient holdings in cash as well so that if there is a problem in one area, you can balance out that time in another area.
But you know, most superannuation systems of the world don't require that. In fact, in the United States, I'm advised, that firms which run their own super fund for that company often have no limits on how much they use the superannuation fund to reinvest in the firm. And again, I think it's Lehmann's and I stand to be corrected, not only did the company go bust and everyone lost their jobs, all of the employees had their superannuation go up in smoke because their laws enabled the managing partners of that firm, and again I stand to be corrected that I've got this not completely right, to simply invest that into the company concerned.
Now, the reason I go through that in some detail is we've got to stand back from each person's individual decisions about their house and their street and their area and say, ‘look, we're concerned about your long term earnings. And if you happen to make yourself a dud investment in a particular house, the overall attitude of our regulators is we want you to be best protected long term'. It's not a perfect answer to your question, but we're trying to look after people (inaudible)
AUDIENCE: (Inaudible) sleep each night you knew your investments were safe. At the moment, we're relying on people in Wall Street and other areas -
PM: Except in Australia, our laws require that each of these funds is handled by an independent board of trustees that under law are required to look after only you. Under law. And furthermore, they can't invest those funds in their own corporate operations. I think there is a limit of about five per cent that could go into an individual company's super firm.
So, and again I go back to this question of risk, a lot of people put their money in super, don't feel confident about their own personal financial management. They would rather it be in the hands of a board of trustees who can make sensible long term decisions.
Ouor super funds across the spread of history have performed pretty well. It's a rocky time right now, I understand that, but our job as the Government is to try and make those governments as smooth as possible over time despite these huge gyrations in the stock market which occur from time to time. And let me tell you, this is a big one.
AUDIENCE: Hi Mr Rudd, my name is Sean Matthews and I work in the not-for-profit sector. What I'm finding is with a lot of pensioners, carers and disabilities, that the money that you've offered in a one off payment is welcome, but wondering whether you're looking at the long term of increasing those pensions. And maybe you're looking at doing it now rather than waiting for next year? Because these people have been struggling on pensions that are fortnightly paid $272, and to give them a one off payment is great, but really, they're looking for an increase in their pension and they would like it now. And I think it's long overdue.
PM: I think you're absolutely right to raise this. And one of the things that we as the government have been concerned about since the election is that frankly it's been decades since anyone properly examined the underpinnings of the pension system long term. In particular for the single aged pension. And what we have done is commission a bunch of people to do that. It's very complicated, because everything relates to everything else, including, if you call it more broadly the retirement incomes, including how you treat superannuation.
So we're trying to get that right.
But rather than have pensioners, carers, those on disability support pensions, widows and veterans - wait for us to finish that, and it'll be finished some time in the first of next year. That's why we took this measure now to bring forward these one off payments.
It also helps deeply in dealing with the challenges of maintaining growth in the economy in what's going to be a very difficult nine to 12 months ahead. And those amounts that we've spoken about, those one off bonuses, they do relate into a single aged pensioner, for example, of getting the equivalent of an extra $35 a week and for a married pensioner, something like $24 a week. And all together, that's a bill of about $4.8 billion. It's expensive to do, but what I'm saying to you is, we are going to deal with this long term as of when these one off payments conclude, and that will be by the May budget next year.
AUDIENCE: So, it's the one off payments paid out and the money spent and perhaps wait for a period of time, how long will they be waiting for their pensions to be reviewed or an increase in the pensions?
PM: Well, the review will be concluded in the first half of next year. And as we've said, we'll bring in long term pension reform in the Budget next year which is in May. But given the challenges that we have right now, the judgment we took was to provide pensioners, carers, and those on disability support pensions, with help right now. Equivalent to the amounts I just described.
So in other words, you've got this coming though now, but the time you get through to May next year you will have delivered long term pension reform.
It's not perfect, but I am trying to deal with a system that hasn't been touched for the previous 12 years. Frankly, it just wasn't touched in terms of the underlying base rate of the pension. We're trying to fix it.
AUDIENCE: Hi I'm Margaret. I'm a mature aged student.
Prime Minister, my concern is the money that you're handing out - the concern is that it's not enough to stimulate our economic state?
PM: It's okay, I understand exactly what you're saying. That it might not be enough to actually make a difference -
AUDIENCE: Yeah, to stimulate. My question is, what is plan b?
PM: Sure. In stimulating the economy now, there are two options. You can wait until it's too late, you can wait until all the numbers come in and, you know, in several months time or in early next year turn around and say, ‘oh gee, we've got a problem with growth and people losing their jobs, what are we going to do about it?'. Economic history tells us these things - when you know from what is happening around the world that there is going to be an impact on Australia, for the reasons I outlined at the very beginning, then the best thing you can do is act early, act decisively, and act hard. And hence, the $2.4 billion economic security strategy.
That's the equivalent of one per cent of gross domestic product. That may not sound like a lot of money, but in terms of what will be a couple of critical months ahead in the economy, it's actually pretty important.
What I'll be doing in December is unfolding the next stage of our economic security strategy, that's the nation building agenda. That's investing long term in ports, road, rail, hospitals and education institutions. We set aside a lot of funds for that purpose. The country needs that long term. We are, by instinct I believe, a country of nation builders. That is, it's not just doing what we need for tomorrow lunch time, it's building what we need for 10, 20, 30 years time, including a national high speed broadband network. That we've brought forward to December. So that will come out then. And by the way, by the time we get to July next year there'll also be a further round of tax cuts which come in effect as well.
So what I'm trying to do is assistance now and support now for economic activity through this $10.4 billion economic security strategy. Part two will come with the nation building agenda which we'll begin to unfold by the end of the year with projects to flow for next year. And part three, the next round of tax cuts which come into effect from July next year.
AUDIENCE: (Inaudible)
PM: Kevin Rudd in Chinese, hello.
AUDIENCE: (Inaudible) I came to Australia 14 years ago and one of the many things (inaudible) tiny international community trading company and also we have some small investments in Australia, resources stock. As I can say you and your government have tried everything to protect Australia and Australians from the bad damage impact of this the financial crisis. And I was (inaudible) China slowing down and (inaudible). Has your government considered some other resources to fill the gap such as (inaudible) uranium production and exportation? (Inaudible)
PM: Well, the key thing for Australia is, not just the challenge we face now but our long term economic strategy is to make sure we're building an economy which is as diversified as possible, as strong as possible, so that if we have some setbacks here or some setbacks there, we still have some drivers of growth going forward. And we're seeking to do that.
I said prior to the election that I wanted to make sure that Australia would have a strong economic base for the future for that day when the mining boom may end. You've got to plan ahead and part of that lies in the building Australia, nation building, infrastructure agenda that I was talking about before. High speed broadband in particular.
China, I've got to say, is absolutely critical for Australia's economic future. It's already our largest trading partner. It is, and together with Japan, represents a huge part of Australia's economic future.
I was talking to the Chinese Premier only a week or so ago about their growth strategy for the future. You are right, their growth numbers have come back a bit by about two percentage points. And that means something for us. But they are still growing, in the year ahead, by about nine per cent. The rest of the world is growing at about three, and the developed economies growing at about zero, and slightly less, according to the International Monetary Fund.
So China is really important. And that's why we, as the government, are embracing our Chinese friends at the moment in making it possible for them to invest in Australian resource projects and other projects, because China itself possesses $1.8 trillion in foreign reserves, sovereign wealth funds of about half a trillion dollars in size. So we want a strong relationship with China. And, the Treasurer and myself are spending a lot of time with our counterparts in Beijing on this question.
You raised uranium. Right now one of nuclear safeguards agreement that we negotiated with the Chinese since last year, it's possible to sell uranium to China. I think we've still got a few things to nut out. So, I think once that's done, and together with any other country in the world, do long as there is a nuclear safeguards agreement, and we've done one with China, then sales can flow. That's one part of the future. But China is much bigger than that. And in the 21st century part of our mission for Australia is to make sure that we are best positioned to take every advantage of a region where we are. Where the economic powerhouse of the 21st century is going to be. That's part of the mission statement of being in government.
AUDIENCE: Hi Prime Minister Rudd, my name is Penny and my partner and I are currently renting. We're saving for a deposit so we can buy our first home, so we were really happy to hear about the increase in the first home owners grant. But I'm also a little bit worried that with the cut off for the increase, at least June 2009, that it may put some pressure on young Australians to perhaps rush into buying a house and taking on a mortgage earlier than they might have otherwise done. And they may not be able to meet those mortgage repayments. So I guess while it is a good initiative in the short term, do you think it's perhaps a negative long term impact for young Australia?
PM: It's one of about three things that we're doing which may help.
The first is some time ago Tanya Plibersek, our housing minister, announced first home saver accounts. That means, to save up a deposit, having an incentive which runs for about five years whereby if you put money in the bank to save for a deposit for a first home and you use it for that it will be treated in the same preferential way, for tax purposes, as we treat superannuation deposits and earnings.
So, that's one thing we've done, first home saver accounts. Go down to your local bank, I think some of them have already for them operating.
So, you know, you shouldn't feel compelled to do anything next week. I mean, that's there for a long term plan.
But if you're at that pointy where you can make a decision, you are wondering whether you should or not, that's why we provided some of the additional incentives. And beyond that period, 1 July, there will still be a continuing first home owners grant of about $7,000.
But the other thing is this, a lot of people starting out want to go into something which is affordable - really affordable - in the rental market. And this is where there's a huge gap in what's around the place in many parts of Australia now. So we're investing now in the national housing rental affordability scheme about $600-700 million to co-invest in making about 50,000 units of affordable rental accommodation across the nation as well.
In the past, the federal government didn't do this sort of thing, and we've got it done in the last nine months. We think housing and the great Australian dream of owning your own home own day should be kept alive. So you're going to see a lot of activity from us in the housing area. And, some of these policies will continue into the long term future. Others are designed obviously for the short term stimulus effect that I described before.
AUDIENCE: Thank you for being with us today, Mr Rudd - I was going to call you Kevin.
PM: It's okay. As I said before, I've been called a lot, lot worse.
AUDIENCE: Fair enough - my question is, my husband Gary and I, we own a small business, a (inaudible) company, we're fairly new at it and we're concerned about the future of small business and the financial crisis at the moment it's tricked down and it's affected our customers and employees. And, I suppose the other thing that hasn't trickled down is the current cut in interest rates. And 96 per cent of all businesses in Australia are owned by people like us and we're very concerned about, there seems to be a blind spot in the current policy and I want to know how you are going to inspire confidence in small business owners and people who actually want to become small business owners. Perhaps a GST vacation, or something?
PM: I've never heard of anyone voting for a tax going up, only got a tax going down or going away all together.
Hey listen, I reckon a big part of it, and you're dead right, you're absolutely right, the small business community, people are feeling the impact of confidence in the economy as are our larger businesses as well. And also in the housing sector, which is why we brought in some of these measures to say ‘look, here is something to help you to make that decision'
I will say to the country at large, because it affects so many people that will be going down to make a purchase at a local small business, is this: this country is in fundamentally good order. In levelling with the Australian people about the challenges we face for the future, and I've been as upfront about them as I can in terms of growth and in terms of unemployment and in terms of the challenges in maintaining the stability of our financial system.
We should also be upfront about the extraordinary strengths of this economy as well. Because that's part of reminding people just how strong Australia is. And the underlying strength of our banking system, frankly, puts us leaps a part compared with many countries and businesses operating in those countries around the world.
Second thing is, a lot of small businesses depend on their growth on having larger credits in the bank. The core reason why we as a government have extended the guarantee to the banks in what is called getting their term wholesale funding right, that is, the money that they actually get from the financial institutions, is to provide money to provide loans for small businesses.
We don't want any credit strike coming from overseas to affect tthe way in which banks lend here to small businesses and that has been a core driver in the decision we took last Sunday.
So I've got to say, the consumer initiatives that have been taken as well, both for Family Tax Benefit A recipients by the end of the year this payment of $3-4 billion, the payment of (inaudible) to pensioners, carers and disability support. Recipients as well of what we do in the housing sector. It's all designed also to provide extra activity in the economy now, so that small businesses and the customers that support those small businesses continue to have that extra money in the economy as well.
There is no magic solution. There are three things that we've done. We've been very mindful of small business in that second decision. Namely, guaranteeing the banks so that the credit lines remain open to business and small businesses across the country.
AUDIENCE: Mr Rudd, my name is (inaudible) and with my wife Rebecca we have a small family, two young kids, single income, and a healthy mortgage to go with it. And, when we were given the opportunity to come in and speak with you, we sat around our kitchen table and we tried to work out what works for us and what doesn't. And one of the things -
PM: I'm all ears.
QUESTIONS: And one of the things we see not working for us is our superannuation. You said earlier that we should be looking at about 35 years at about five per cent growth, and with the current markets we're certainly not seeing that now. We may in the future, bnut that's still uncertain.
What we do see working for us in the money we put in our mortgage off-set account - the reduces the interest we pay on our mortgage. Currently our mortgage rate is (inaudible), you also mentioned that the home saver accounts are treated like superannuation for those saving for a house. So what we'd like to see is for those who already have the mortgage and have the house the ability to invest our super as a mortgage off-set. Not straight on the mortgage, but as an offset, to help to pay the interest that we pay on our mortgages. Help us own our home sooner, and spend the money on the economy.
PM: You know, I could give you the very populist answer and the very populist answer to that would be to say ‘yep, no problems'. But I can't. And I just want to level with you.
And that is, when you're dealing with something as complex as superannuation, as the Prime Minister of this country, for goodness knows how short or how long, my job and the government's is to make sure that the superannuation system is there to look after you in 20, 30 and 40 years time. And that means, and I go back to my answer to our friend up the front here, that means making sure that those decisions are being taken in a conservative way across a spread of years so that when you do retire that there is a reasonable income stream there. It's tough on the way through, it really is.
What I can do is this on the way through for a family such as yours is go to the other ways we try and help the family budget. As of 1 July this year, we brought in $44 billion worth of tax cuts. I'm not probing about your income level, in terms of kids, I don't know whether you've got school aged kids or pre-school aged kids - one of each, okay. Well, for the school aged kids as of 1 July next year we are going to start funding an education tax refund which means that whatever you invest in some specific areas to support your kids education at secondary school and primary school, you can claim 50 per cent of that back up to a given threshold at the end of the financial year. $1500 a year per kid at secondary school, $750 per kid at primary school level. And for the pre-schooler, as of 1 July, the biggest change in childcare tax rebate that there's been, it's gone from 30 per cent to 50 per cent, and you get paid quarterly.
So in terms of the actual family budget, you're dead right. The feedback I get across the country is that people are really finding it tough to make it all add up. What we're trying to do is help on the tax front, try to help on the childcare tax rebate front, and help also on the education tax refund front.
Other measures in the future are possible, but I can't honestly say to you that I can simply flick the switch on the super measure that you'd like, otherwise I would just be fibbing.
AUDIENCE: Tony (inaudible) three years old a family man and a self employed -
PM: And a Rabbitoh's supporter -
AUDIENCE: And a Rabbitoh's supporter.
PM: We all have our problems.
AUDIENCE: As such, I understand Budgeting and cost cutting and I believe there's an awful lot of waste (inaudible) at the moment. I think the prices can come out of greed and our life of excess and I think of the $10.4 billion, while necessary, is probably, it may just be a temporary measure, sort of a band aid solution. Something that might help us every year from now might be the fact that we are very over-governed in this country, and I think the duplication between federal and state government. I believe that we should remove state government and I would like your -
PM: Starting where?
AUDIENCE: Also in areas like health and education, I would like you to consider a referendum to consider the issue. Section 128 of the constitution.
PM: That's a really good one. The Rabbitoh's, thanks for that idea.
On the waste and duplication between the Commonwealth and the States, and to some extent between the states and local government, you're dead right, it's a problem. I'm not going to stand in front of you folk and say it's all find and dandy - it's not. I just spent nine months with the premier and the chief ministers since basically the first month I was elected, and we've met now three times to deal with this question.
The rubber will hit the road, and I'm not going to guarantee the outcome yet because I don't know if they will agree with me, in the middle of November of health and hospitals. We will either come up with a system on health and hospitals which is properly funded long term, but secondly deals with this mindless duplication and overlap between primary health care, that is, prevantative health care, what you do with accident emergency, what you do in acute care hospitals, what you do with aged care, what you do with dental care. Because what I find across the system is basically it's the blame game. It's people throwing each other hospital passes the whole time, literally. Rather than anyone taking responsibility. So you've got to clean up the lines of responsibility about who does what, fund it properly for the long term future.
But as I've said before, and I said it prior to the last election, if we can't get there with a decent rational system for the future, I've said that next year I would make a decision about whether we went to the people through a referendum about the commonwealth taking over the hospitals.
AUDIENCE: Should we confine ourselves to that, though?
PM: Well, it's a fairly big one to bite off to start with.
Health and hospital expenditure around the country is, you look are looking at tens and tens and tens of billions of dollars each year. And it's not a decision to take lightly. I think you've got to move your way through this systematically. The other thing we've got up for a decision with the states and territories in the middle of November is the future of the Australian education agreement - basically the funding package for schools, that's another huge slab of activity.
I'm determined to throw everything I can at fixing this, fixing the federation, to get rid of to the absolute greatest extent possible waste and duplication and to clean up the lines of responsibility about who does what.
And plan b, in relation to health and hospitals, is to go to the people. And we'll make that decision next year.
AUDIENCE: Mr Prime Minister, my name is Peter Henderson, I'm a 70 year old self funded retiree. I've been very interested to hear about the $1,000 you are going to be giving pensioners and people with children and carers, etcetera, etcetera. But I am puzzled by the money coming into the economy in such a very short period of time, December, January, February this next year. There will be a gap before the (inaudible) measures like the infrastructure measures come to the fore, 12 months to three years, these things take a long time to build. How do you see that gap being filled so that our economy will keep going and our share market will keep going up?
PM: Well I think I'd put it in these terms. First and foremost, I will do anything that is necessary to maintain tbhe future stability of the financial system, that's the bedrock, that's the foundation stone, and that's what's taken so much of our time, making sure that we're kept free of the contagion from overseas by the measures that we've taken.
The second is the measure that you've just described, and I tried to be as frank and open as possible about the fact that the measures that I announced the other day are temporary measures. They are designed to provide stimulus to the economy now, in what I am concerned will be a period where the wash through effect of recession overseas is going to have a bad effect on Australia.
Let me just remind of you of a few figures. Around the world right now, in the major economies in the major seven economies, six of the seven are either in negative growth now or are in zero growth now. And our last numbers have the Australian economy still running at about two per cent plus growth.
So, what I'm trying to do is to make sure that we continue activity in this economy now when the impact of those recent effects and movement on stock markets has been huge in terms people's confidence and real activity in the economy. So there's a real problem here and now.
You're right about the infrastructure agenda, it takes a while to spend and to spend intelligently. And we're going to do this investment. We'll be investing from early next year in projects that are ready to roll. And so you'll see some activity happening quicker than would otherwise be the case.
But the next instalment, as I mentioned over here also, is another significant slab of tax cuts which come through as of 1 July next year.
We're trying to phase and stage these in order to provide further underpinnings to growth, because I want to make sure that when we look back that I can say to myself it's been tough, it's been hard, nothing is guaranteed, but we've done everything that we logically possible at the time to keep this economy as strong as possible given the impact of the global financial crisis.
AUDIENCE: Prime Minister, I'm Laura, and I'm (inaudible) and this is (inaudible) my husband and he works for an investment bank. We're a young professional couple trying to do the right thing and save and we've been doing that for about two or three years. We, like the other young couple, are happy that you've extended the first home buyers grant. However, we don't think we're going to be able to rush in and use it to be able to go and get our dream first home. We do understand that the first home buyers account -
PM: Name me the non-dream first home.
AUDIENCE: No, we're going to get here.
So, with the first home buyer account, we know about that. However, we're probably only going go to buy our home in about two years. The first home buyer account you have to have it for four years. Could you possibly look at having a transitional sort of arrangement so that if we can show the bank that we have been saving for those two years that we can open the account that get the benefits (inaudible) for three years (inaudible) and are trying to save.
PM: Well look, in fairness to your question, Wayne and I, and I'll get you these after the program and I'll pass you to the Housing Minister Tanya Plibersek, we've had a huge internal debate and discussion about the rules underpinning this first home savers account. And there were tos and fros with the bank about what was doable what what was not. So rather than me mislead you, I will plug you in directly with Tanya with what, if anything, can be done about what you just put forward.
But can I just go back to a point I made before. Maybe getting into the housing market, now you don't get the ideal home first up, maybe it's just pitching down a little bit. But, I think the key thing for all of us is to get in as early as you can. And, if you're an account, I'm sure you'll take it very carefully on the way through.
[break]
KOCH: And welcome back to the program.
It's almost been like direct democracy tonight, hasn't it? Questions have been absolutely fantastic.
Prime Minister, what have you learnt from tonight? You've seen lots of questions, what are you going to take away from it?
PM: That people are really worried about their super. And, about how it is deployed, how it is used, how it is growing.
There have been a lot of other questions raised as well, but I think that is heard loud and clear.
And the second one is I think people just having had a gutful with greed in terms of the obscene salary structures in the financial institutions. And I think people's response to the question put by the gentleman up the back there is felt right across the country. People think ‘enough is enough'.
KOCH: I must admit, our Rabbitohs mate over here, Russell Crowe's good mate, are we just over governed, it seems. Everyone is being asked to trim down corporates, households, becoming more efficient except government. Do you reckon we're over governed?
PM: I think we're intelligently governed in the structures we've got. That's what I really think. And what I'm trying to do is do it in two stages. Fix up the structures cooperatively. If that doesn't work, as far health and hospitals are concerned, go to plan b.
I think the mood of the country is to do that. I think we're now 107 years old as a country, as a nation. And we can't just assume that what we crafted together back in 1901 fits for today.
KOCH: I said this last week when you announced a $10 billion package, it came as a bit of a shock to everyone and shocked them into thinking, ‘oh, things must really be tough, what does he know that we don't know?' What is treasury telling you? How bad could it get on unemployment and things like that?
PM: Look, I just think it's really important to be up front with people. I look at what's happening around the world, economic history tells us that what happens around the world effects us. And there's often a lag in time. So, if I see negative growth around the world and I see rising unemployment around the world, and then I see what we saw on Wall Street in the last two or three weeks, you know, you can't just sit around and say ‘oh, gee, we should sit around and see what happens'.
The key to it, having seen those things unfold, is to say, ‘we need to act early and decisively to make sure it's done'.
It's like car, you can either wait until the car starts to run completely out of fuel or you can see that the gauge is getting and bit and say ‘let's whack in some fuel'. That's what we've done. But we've done it responsibly and we've done it early.
For example, the surplus. I'm so glad we put aside a big surplus in May. Because doing that has enabled us to take this decisive action and still enable us to deliver the next Budget with a comfortable bottom line, a comfortable surplus still. But I'd much rather look back in a year's time and say, Kochie, ‘we acted early and decisively, and not just in terms of the money that gets injected into the economy, but the confidence question out there that so many people have been concerned about as well'.
KOCH: Will we avoid a recession?
PM: You know, every number that we've got in the government now says that we have positive growth ahead. But I fear that the buffer is too thin. That's why the government has done what it has done. It's going to be tough, it's going to be hard, but as I said, responsibly, we reserve our capacity to take whatever action is still necessary into the future to underpin growth, jobs and, of course, the needs of households.
KOCH: That's pretty decisive. Thank you for your frankness tonight. We really appreciate it. And really appreciate your time.
And also thank you for everyone who asked a question, they were just sensational.
PM: Can I add something? Years ago they used to have things called town hall meetings in politics. They sort of disappeared about 30 years ago. So it's really good that you've taken some time out to be here. In my electorate in Brisbane, I have done this regularly with what I call mobile offices - just talking to people to keep in touch with what is actually happening. So what you are doing is the same. So, I always come from these meetings believing that I've heard something new, and I have. And, it informs our thinking. Thank you.
KOCH: You'll be back some time next month on Sunrise?
Thank you for watching at home. Hopefully you've learned a lot from tonight and can take some comfort in what the Prime Minister has outlined.