PM: The biggest challenge facing the Australian government today, the biggest economic challenge facing the Australian government today is inflation. That's why the government has declared war on inflation. We must take this challenge seriously. It is core business for the government and the reason is that inflation is the enemy of the economy, it's the enemy of business, it's the enemy of working families.
The challenge we face is that we have been left an inflation legacy by our predecessors. And we must act on it and act on it decisively. We've seen already what has happened when inflation is not acted on decisively. We've seen that those pressures have caused the Reserve Bank to act in the past by increasing interest rates.
Therefore, on the part of the Australian Government, we will deploy every tool of Government policy to ensure that we fight an effective fight against the inflation challenge.
Today in a speech to the business community here in Perth I outlined a clear cut commitment from us to set as a target for this years' budget surplus of 1.5 per cent of GDP. That is a substantial target. We are doing that to enforce disciplines within our own ranks and within the bureaucracy, in terms of the cost cutting exercise in which we are currently engaged.
We believe that is necessary in order to restrain public demand at a time when we need to ensure that we make monetary policy on behalf of the Reserve Bank as easy a job as possible, and not compound the difficulty of a task which the RBA currently has.
Therefore, we have outlined a broad five point plan in dealing with the inflation problem. Number one, I have already indicated which is our target - subject to unfolding economic conditions - of 1.5 per cent of GDP as our target surplus for the upcoming financial year. Two, the government is also examining a range of policy options concerning, how do we boost national savings and how do we encourage a broader national savings culture in Australia.
Three, to act decisively and effectively on the skills crisis. The crisis which has been left unattended for far too long.
Four, to deal effectively with a challenge of public infrastructure and infrastructure bottlenecks which exist across the economy and are creating capacity constraints.
Five - to act also with a clear pathway to the future on how do we boost, effectively, workforce participation.
This is our roadmap to the future in dealing with the inflation challenge. It underlines our attitude to government, which is responsible economic management - taking the tough decisions while still investing in the future drivers of economic growth.
Consistent with today's - this announcement - and the remarks I made in the address this morning to the business community - cabinet today has also decided to establish Infrastructure Australia.
Infrastructure Australia will be a core statutory advisory council created for the following three reasons.
One, to audit the current state of Australia's infrastructure stock. Two, to ensure that subject to that audit we establish national infrastructure priority list, in order to best target the public dollar. Three, then to work with State Governments, Territory Governments, other layers of Government as well as the private sector in ensuring that these priority infrastructure projects are delivered. And looking therefore through that, employing a range of funding mechanisms.
This is an important pre-election commitment by ourselves. We spoke long and hard about the need for Infrastructure Australia during the course of 2007 and in this, our first Cabinet meeting in 2008, here in WA, where the infrastructure needs of this state economy are huge, it's important that we took this opportunity to decide to establish Infrastructure Australia.
I'll be asking the Minister Anthony Albanese to speak on that further in a minute. Finally, just prior to coming in here now and part of the reason for being delayed is that I have been speaking with the Queensland Premier Anna Bligh on the state of the floods in that state. I received from the Queensland Premier an update on the flood situation in Emerald (inaudible). We now have reports of more than 100 isolated properties which have been cut off by flood waters. Also reports of considerable, large scale stock losses. In Emerald itself, we have the dam currently running at 126 per cent capacity. Water is, I'm advised, about two meters about the dam wall. The river level currently running at 14.5 meters with a projection to go higher than that. We're watching very carefully the future needs for further evacuations in Emerald itself. I said to the Queensland Premier that we stand ready to assist the State Government in any practical way which is necessary in the days ahead in dealing with that particular challenge.
Already the Australian Defence Force has been deployed to assist with the construction of levies at Charleville. Already also we have envoked through the national disaster relief and recovery arrangements two other forms of assistance to those flood affected areas. Namely those under personal hardship and distress, and also to assist with State Government expenditure on public infrastructure that has been damaged by flood conditions.
We'll continue to maintain close contact with the Queensland Government as the flood situation unfolds, and, as I said before, stand ready to act and assist the Queensland Government as appropriate. Before taking your questions, if I might ask Anthony Albanese to speak further about Infrastructure Australia.
ALBANESE: Thanks Prime Minister. I'm very pleased that the Cabinet today signed off on Infrastructure Australia. It is the second step in the commitments that we made throughout 2007 during the lead up to the election of the Rudd Labor Government.
The first was the creation of an Infrastructure Minister, and of course that was done. The second is the creation of Infrastructure Australia. It will be a statutory advisory council to advise a bureaucratic assistance body, the office of infrastructure coordination will be allocated in Sydney within my Federal Department of Infrastructure.
It will consist of 12 people, five from the private sector, one of whom will be the chair. Three from the Commonwealth, three from the States and Territories nominated by the States and Territories, and one chosen from Local Government.
The Prime Minister outlined the three major functions of Infrastructure Australia which go to the core of addressing what the Reserve Bank has warned on 20 occasions, which is that infrastructure bottlenecks are causing capacity constraints in our economy, causing inflationary pressures and therefore causing pressure on interest rates.
It will consist of trying to address the challenge which is there to address our infrastructure deficit which the Business Council of Australia has indicated is more than $100 billion. We know that CEDA has said that 0.08 per cent of GDP could be added if we addressed the infrastructure deficit. And we know that this occurs at a time where there is significant capital available from the private sector. Not the least of which is the $1.1 trillion which exists in superannuation funds which people in the superannuation industry are saying is available for investment in infrastructure here in Australia, rather than being directed towards overseas.
This is a body that will be able to make policy recommendations to the Government and to the States and Territories through the COAG working group, which will be meeting for the first time in Sydney on Wednesday, that was established at the COAG meeting held in Melbourne in December.
It will address issues such as how we get planning consistency across the States and Territories. How we develop consistent guidelines for investment in terms of Public Private Partnerships. How we address the infrastructure short falls, whether it be the short falls of water infrastructure in our capital cities, whether it be addressing traffic congestion in our cities. Or whether it be dealing with the issue of getting out exports from our regions to our ports.
These priorities are a priority for the Government. We will be introducing legislation in the first session of parliament, and making announcements as to the composition of the Infrastructure Australia council at that time. Thanks.
JOURNALIST: Mr Rudd, How confident are you this road map, this five point plan to combat inflation will keep pressure off interest rates?
PM: Well, ultimately interest rates are set in this country by the Reserve Bank, and we've said from day one that we respect the independence of the Reserve Bank. In fact, we've instituted a number of measures to enhance the banks independence. But, when it comes to ensuring that the job of the bank is made as easy as possible, there is a role for fiscal policy.
We've seen the level of growth in outlays that has occurred in recent times by the Federal Government. Frankly, that's not made the job of the bank easier, and it's time we took some of that pressure off.
Therefore, we're adopting a hard line approach of fiscal discipline to produce a substantial budget surplus for the upcoming financial year. We think that's the right way to go. We think that it makes the job of the bank easier. There are a lot of other factors out there as well, but this is one important critical step in the right direction.
JOURNALIST: Malcolm Turnbull said it's overwhelmingly probable that you will get that surplus - in fact, exceeding 1.5 of GDP because you have so much money (inaudible).
PM: Well, it's interesting that when the projection was made for the state of the budget by the previous Government of which Mr Turnbull was part that they projected a surplus for the year in question of either 1.1 or 1.2 depending on whether you're looking at the estimates that put forward at Budget time or at MYEFO and PEFO time.
We've gone much higher than that, much more substantial than that. And the reason we believe we need to do that is because we have been left an inflation problem by the Howard-Costello Government. We need to act on it in order to make the job of the bank easier when it comes to interest rates.
JOURNALIST: You mentioned extra savings measures, these are going beyond what you were promising in the election (inaudible) - can you give us a little more detail on that and (inaudible).
PM: We are working hard on extra savings, and to answer your question, the first part of your question Michelle, yes they are in addition to those which we nominated pre-election. Secondly, the reason we nominated a razor gang prior to the election was to go through Government outlays department by department, program by program, line by line to find further savings. That process is underway. But I'm not in a position today to nominate individual areas of further saving, that job is being undertaken now by the razor gang.
JOURNALIST: (inaudible)
PM: Oh, sorry, I thought you meant savings in public outlays. No, on the question of private savings, which is where your question goes, as I said in the speech this morning and reiterated in my remarks today, we take the challenge seriously to examine all range of options which may encourage a savings culture - a better savings culture - in Australia. And to boost, therefore, overall national savings.
Those options are being developed within Government. It will take time to work our way through but we believe there is room for further work in this area and for further directions in Government policy. But those announcements will be made in the months ahead.
JOURNALIST: In the Budget?
PM: In the months ahead.
JOURNALIST: (Inaudible)
PM: Well the Government has noted carefully, recent statements by the Reserve Bank Governor, most recently in his speech in London about the inflation projection for the period ahead. We're also very much aware of the fact that we've seen these inflationary pressures emerge now over the last couple of years. Pressures which have not been acted on by the Government so far.
We see our job as doing what we can at the level of fiscal policy but also investment in skills and infrastructure, to bring down the pressures on inflation, in order to bring down, therefore, upward pressure on interest rates. This is a tough task. We've got to attack this at multiple levels. Hence, the speech that I have delivered today. And hence, one of the key elements of that - to act also decisively on the question on infrastructure. These two decisions relate. That is, what we've done, by way of our policy target on the upcoming budget surplus vis-à-vis public demand. And on the question of infrastructure provision, the decision to establish Infrastructure Australia. We have got cracking on both these fronts and there's more work to do
JOURNALIST:Would you agree (inaudible) worse in the short term before it is likely to improve in the long term.
PM: I'll turn to Wayne in a minute on this but our judgement is, and looking very carefully at what the Reserve Bank Governor had to say, is that we've got a challenge, a serious challenge lying ahead. These pressures have been building for a couple of years and you can't turn these things around overnight. What we've decided to do within the first month or so of this Government's existence is to outline a course of action, a plan of action, and have made a significant statement today about what we'll do in terms of a target for the next budget surplus. Wayne?
TREASURER: Well certainly Treasury has forecast that inflation will be elevated for the next 18 months, at or above the Reserve Bank's target band. Underlying inflation is high. That's what drives the decisions of the Reserve Bank. Their decisions are independent. So we don't speculate about Reserve Bank decisions. They take their decisions based on the case, as they see it at the time. What the Reserve Bank Governor said over the weekend was that he was concerned about inflation. We're very concerned about the inflation problem as well, which is why we have begun work immediately on coming to Government to put in place short term and long term approaches to bringing down inflation.
JOURNALIST:Mr Rudd what message then does today's (inaudible)
PM: Well we're not in the business of sending messages coded or otherwise, public declarations or private declarations, to the bank. They make their own judgements. We're responsible for fiscal policy. We're responsible for budget policy. There's a large slab of money out there and how you deploy it and how wisely you deploy it is a critical decision. What we're saying in the earliest months of this Government's existence is that we intend to be very tough minded when it comes to the use of public finance.
We have got to do everything we can to fight this fight against inflation and that means an attack across multiple levels of policy and I think the plan we put forward today does that.
JOURNALIST: (Inaudible)
PM: Well here in the West, and I should say again what I have said earlier today - it is good to be back in West Australia. Prior to the election we committed to having our first Community Cabinet in Western Australia, we did that yesterday. And the fact that our Cabinet in terms of its formal national agenda meets here in WA for the first time in 2008 says something about the seriousness which the Government attaches to the WA economy and this economy's needs and for the future.
Infrastructure Australia is a key decision which obviously is relevant to WA's infrastructure needs. On the question of inflationary pressures in WA, the fact that you have such an acute skills shortage, that you have infrastructure bottlenecks here which have built up over a period of time, in large part though the absence of national leadership - means that inflationary pressures exist here. We need to act on these nationally and effectively and across the various levels of policy which I have been talking about. In terms of your specific question about what areas, all I can say is, there is a skills shortage, there's an infrastructure shortage - both of these things have been identified by the Reserve Bank nationally over a long period of time. Twenty warnings in the case of the last three years, no action ensued. We are taking action.
JOURNALIST:How long will it take to have impact?
PM:Well, as I said, these pressures have been building for the last several years. And that's not our say so, that's there in the data. Therefore, it's going to take a fair while for us to start to turn these things around. But we've put forward a concrete plan of action for doing that. The other thing I've said is that I'm not in the business of criticising the previous Government on its performance on inflation unless we can put forward an alternative plan. And what I'm doing today is saying the previous Government - the Howard-Costello Government - dropped the ball on inflation. We intend to put our best foot forward in ensuring that we fight the fight as effectively as any Government can.
JOURNALIST: (Inaudible)
PM:I'll turn to Albo in terms of Infrastructure Australia's operation. But on the question of the nation's infrastructure needs they are many and diverse. In the resource states - WA and Queensland - obviously there are particular and acute needs. But if you go to the urban transport needs in Sydney and Melbourne and elsewhere, and look at the cost to the national economy of lost time in commuting - for example - because you have overstretched road networks, then, plainly there are infrastructure needs nationwide. Albo, you might want to add.
ALBANESE: In terms of Infrastructure Australia, we have said that it will develop and infrastructure priority list within twelve months. So we will expect Infrastructure Australia to do that by early 2009. That will provide an impetus for investment in that infrastructure priority list to address it. It's no accident that we've made this decision here at the Perth cabinet. I have sat down on a number of occasions here in Perth and also in regional Western Australia to discuss the issues of the infrastructure shortfalls with the business community. What the business community have said to us here more acutely perhaps than most places in the nation is that they need coordination. They've been calling out for it in Budget submissions year after year. We're actually providing a vehicle for that to be delivered.
JOURNALIST: (inaudible)
PM:Well, Government spending is all about priorities. It is also about the quality of the spend. One of our criticisms of the past has been the fact that so much by way of this surge in revenue in recent years has not been invested in the productive areas of the economy. In particular, skills formation and infrastructure formation development. We believe we can roll out a substantial infrastructure program for the nation based on the advice of this body, this statutory advisory council, Infrastructure Australia, and through the Minister's department.
You know something, it won't all be public provision. One of the tasks which the Minister just referred to was how do we, for example, set about harmonising effectively PPP regulations right across the country? If you're out there as a private investor in infrastructure one of the impediments you face at the moment is these multiple conflicting, or in some cases, non existing, regulatory frameworks for effective investment in infrastructure projects. One of the tasks we've got to do is to fix that up. It stuns me that it hasn't been done before. But if you do that, then you've not just got the public dollar at work, you've got the private dollar as well. And that's how we want to see the future. But to conclude, on Albo's last point, the business community - particularly in Western Australia - has been calling out for national leadership on this question for years and years and years. They've called for it, we've promised we would act on it, now that we've formed the next Government of Australia we're delivering on it. Thanks for your time.
JOURNALIST: Are all your election commitments quarantined from your spending cuts?
PM:Yes they are. We are committed to delivering everything that we committed to prior to the last election and in advancing the budget surplus target of 1.5 per cent of GDP which we announced today we have factored in the costs of implementing our pre-election commitments. Remember, we were modest about those commitments. We produced a more modest set of commitments and certainly a more robust set of savings than did the then Government. But that's why we are in a position to act responsibly in implementing those undertakings to the Australian community and at the same time providing a clear cut national direction when it comes to a hard line approach to fiscal policy given the inflation challenge and problem left for us by our predecessors. Thanks very much.
ends