MEL: We are joined by Prime Minister Kevin Rudd, good morning to you. Thanks for joining us Prime Minister.
PM: Good morning to both of you.
MEL: Will there be any more changes do you think to the Bank Deposit Guarantee?
PM: Well the fundamentals of course is to maintain the stability of the banking system and there are millions and millions of people watching this program, mums and dads with their deposits in banks who want to know whether those deposits are secure.
That's why we acted on the basis of the Reserve Bank advice, the Treasury advice, to provide that guarantee for all bank deposits and that covers $800 billion worth of deposits across the country and on top of that also a guarantee from the Government for what's called the term wholesale funding of the banks themselves. What does that mean? Enabling the banks to continue to lend to business. That covers some $1.2 trillion, that is a lot by way of Government guarantee, those two things are the fundamentals of our system.
But on the implementation of this on the way through, the Government, the Treasury, the Reserve Bank, the Prudential Regulatory Authority will work through the implementation details of all of this through every aspect of the financial services industry. Bearing in mind what challenge do we face, a global financial crisis, which is driving down stocks, driving down property as well and also lifting hugely the cost of capital.
KOCHIE: Ok because you have got the Government guarantee on bank deposits, so people who don't have bank deposits are wanting to take their money out of other investments like mortgage trusts and stick ‘em where there is a guarantee. Now that puts pressure on say mortgage trusts, because now they can't fund a lot of the redemptions there, have you thought of extending the guarantee to products like them?
PM: Kochie, there is a basic different here. A deposit in a bank is the money that you put in knowing that with a given interest rate that is what you are getting back. And as you know, that is the condition under which a banking licence is issued and we take seriously our responsibility to the millions of Australians who do that. That is a deposit.
Over here you have an investment which as you know, you're a person who works in the financial services industry historically, a bit today as well, is that an investment is a form of financial activity with a different rate of return over time depending on market circumstances. It's linked to the global economy, it's linked to the state of the property market, it's linked to the shares market.
Now the question arises - if you provide a guarantee to people who are depositing in their bank accounts and that is as I said you know $800 billion worth across the country, that is a fundamental on the system. Providing guarantees to market linked investments - that's quite something else.
KOCHIE: So you won't extend them?
PM: We will work through the implementation of this over a long period of time but market linked investments goes beyond the scope that the guarantee that the Government announced the other day and we did so directly on the advice of the financial regulators of Australia, that's the responsible thing to do. And remember why are we having this discussion, this is a global financial crisis so the alternative was, I presume this is Mr Turnbull's position, not to extend a guarantee to all bank deposits.
Remember the alternative position of the Liberal party is only give it to deposits up to $100,000. That leaves three quarters of a million -
KOCHIE: Okay, leave the politics aside because we're going to get sidetracked here -
PM: No actually, let me just finish this. It's very important that you understand this, and your viewers understand this.
There's been a lot of debate on this bank guarantee. We provide a guarantee for all bank deposits. The alternative being put forward by Mr Turnbull leaves three quarters of a million deposits out there with no guarantee whatsoever.
What would the implications of that be if that was the policy of the government today? It would be mayhem in the financial system.
KOCHIE: Will the financial crisis get worse? And are you prepared for the Budget to go into deficit to fight that financial crisis?
PM: We've been doing our numbers, we believe that we can maintain the Budget in surplus over the course of the economic cycle -
KOCHIE: Is that important though? Do you care if it goes into deficit?
PM: Our view is that it's important to maintain surplus over the course of the economic cycle.
But let me tell you why we think that's deliverable. Back in May this year when we framed the Budget for the year ahead, the Treasurer and I and others were concerned about how the economy would unfold, that's why we put aside a very large Budget surplus.
As you know, in the decision we took just under two weeks ago, the economic stimulus package, the Economic Security Strategy, $10.4 billion, we're able to draw on that surplus for that purpose while still maintaining a comfortable surplus on the way through.
We still need a buffer for the future. We're in very uncertain times here with the global financial crisis, but right now Australia is better positioned than most countries in the world.
MEL: Can I ask you very, very briefly one of the things affecting a lot of families is petrol. The Petrol Commissioner says prices should come down this week. If they don't, what can he do?
PM: Well, our job through the Petrol Commissioner is to provide maximum competition policy pressure on the petrol retailers. Part of our job is to make sure the information gets out there about when people are being ripped off -
MEL: But it's all well and good for me to know that I'm being ripped off, but what can you actually do to prevent it? Can he have powers to make them drop their prices?
PM: Well, ultimately, the Government of this country does not regulate prices. That's set in the market.
But can I say, why have we argued all year for FuelWatch, which has been working in Western Australia now since 2001 but which the Liberals are going to oppose in the Senate, which is why they are relevant to this general debate, they can block legislation in the Senate. On FuelWatch, if you're in Perth today and there is a 20 cent a litre difference between one petrol station and the other, you can know that 24 hours in advance and you can go there rather than there. We've tried to take that nationally to provide that information to consumers, but that's been blocked in the Senate, we can't do it.
So ultimately, short of the national government say, regulating the price of petrol each day and saying ‘it'll be this, it'll be this, it'll be this' -
KOCHIE: Which you won't do.
PM: Which is like regulating the price of bread - you don't do that. But what you do is maximise the consumer power pressure back. It's what we're trying to do.
KOCHIE: Good to see you, and good to see you supporting Pink Ribbon Day.
PM: Well, good to see you guys supporting it. Very important day, important to be out there supporting a very important cause.