MITCHELL: Mr Rudd. Good morning.
PM: Good morning Neil.
MITCHELL: Describe your emotion- are you nervous about this?
PM: No, my responsibility is to absorb information, work with the key officials from Treasury and from the Reserve Bank, decide on the Government's policy action with my colleagues and the Treasurer and Finance Minister and others, and get on with implementing it. And, as you said in your introduction, internationally, talking positively and objectively about the strengths of the Australian economy.
MITCHELL: If you're not nervous, are you concerned about the situation?
PM: Oh look, any reasonable person is concerned by what we face at the moment Neil. All of your listeners would have been following developments on their television screens and on radio programs like yours. Of course it's concerning. One of the problems we have is pointed out in a report by the International Monetary Fund yesterday, which is the solutions to this long term lie in better regulation of the financial market. Everyone has agreed to that. You know what's lacking is the combined political will of governments across the world to work together as one to come up with a new set of consistent global regulations for financial markets. That's where the action now lies, and that's what the Treasurer, Wayne Swan, is working on this weekend in Washington.
MITCHELL: Another disaster on Wall Street overnight. Any idea what's spooked the market?
PM: No, I'm still getting reports in on what happened with the market overnight in the United States, but I think that question you've just raised links to the previous one. On the confidence equation, it comes from two factors: one is, is there enough money in the system globally, and that's this interbank credit strike that's going on at the moment because confidence has disappeared from so many financial markets around the world. And the second is, a lack of confidence in the regulations underpinning the system globally, and that is the other part which needs to be fixed.
MITCHELL: I know this is a sensitive area, a difficult area, but this question is being asked. The front page headline in The Australian today: ‘PM urged to bolster banks'. There's been some action to do that overseas. Will you, will the Government, guarantee depositors' funds?
PM: On the bolstering of banks, Neil, let me put out to your listeners what the Government, and through the Reserve Bank and by other means, has done throughout the year, and I'll come back to your question on depositors in just one tick. What we've been doing through the Reserve Bank all year, now without headline treatment, in March, in June, in August and September, is through the Reserve Bank continue to inject liquidity into the Australian financial market system. We've done that undramatically, consistently and responsibly.
The second thing we've done, is that we've also through a body called the Australian Office of Financial Management only several weeks ago injected a further $4 billion into the system as well.
And finally, what we've done is free up the system by releasing a further set of Australian Government securities which again has the effect of releasing liquidity into the system. We've been doing that all year and the best thing about these things is often they're done undramatically, below the radar and just to make sure the system's properly functioning.
On the question about depositors, three points: first is, the Australian Prudential Regulatory Authority, who regulates our banks, tells us that our banks are in good working order. That is, that their balance sheets are strong, they remain well-regulated and that the regulatory authority is going through them on a continuing basis.
There was an international survey out yesterday comparing our banks with every other banking system in the world - 134 countries. We came in at number four of 134, and depending on how you read the table, we came in equal second. Now that's pretty good. The second thing is, we've had a system which has been here for a long, long time called depositors first. Not all countries have this. That is, in the unlikely event that any bank in the future, and this has been around for a long, long time, got into trouble, and then depositors have first call.
The last thing is, we're adding to it through a financial claims scheme, which we took from one of the recommendations come up with internationally earlier this year. It's been out there with the financial community the last three months, and we're going to legislate on it soon.
MITCHELL: OK. In Ireland, in Germany, they're guaranteeing banks. In the United States they've been propping up banks, in the United Kingdom they've been doing similar things. Will you take those actions if necessary?
PM: Well, you know, all the economies you've mentioned, each of them have had significant banks fail. We don't have that problem. Our banks are in first-class working order, and what these governments have done is react to bank implosions as they've occurred. I mean, we've had 25 major banks around the world, or major and lesser banks around the world, either fail or having had to been bailed out. Australia is not in that situation, and therefore it's important for all your listeners, and for everyone in the economy to understand the underlying and continuing strength of our financial system and our banks. It's also based on those extra insurances that I referred to before.
MITCHELL: I accept your assurances, and I hope people accept your assurances, but the question is still being asked: if the worst, if the most unlikely happens, what do you do?
PM: Well, the financial claims scheme which we will be introducing into the Parliament very soon is a further insurance in that direction, and it will provide coverage for at least 85 per cent of depositors out there in the Australian community.
MITCHELL: Well, are you saying that 85 per cent of depositors are $20,000 or less?
PM: That's correct, and if you go through the banking data, but on the final detail of this Neil, we're working through it, between the Treasury and the banks as we speak. We've done this in only a matter of a few months, and before this current crisis came to bare, and I've got to say, this recommendation for a financial claims scheme was first made to the previous Government after the HIH collapse five years ago. Nothing was done.
MITCHELL: This is going to flow through to the real economy, isn't it? I see that GM shares were down in the US overnight. I saw reports that 700 car dealers could be closing in the United States. Clearly it'll mean jobs in Detroit, jobs in the car industry. This will flow through to the real economy in Australia, won't it, it must cost jobs?
PM: Well, the International Monetary Fund yesterday, Neil, put out its global economic outlook, and it makes for sobering reading. And you're right, the global financial crisis is affecting the real global economy, and we're not immune from that. But again it's important to underline the difference. If you look at the growth numbers put out for the economy worldwide and for the major economies within it for 2009, it's either zero or into recession. The numbers for Australia have a ‘2', a positive ‘2' in front of them. There is a difference, but you're absolutely right, there is going to be an impact.
MITCHELL: It will cost jobs?
PM: Well, we've always said that the global financial crisis is going to affect growth in the economy, therefore it affects employment, and that is, I don't believe in misleading people or gilding the lily, that's just the truth. My responsibility is to continue to implement a strong course of economic action for the country, and including bringing forward our $76 billion nation building agenda, which helps build the economy long term, build critical infrastructure, and creates jobs.
MITCHELL: I'd like to get to that in a moment, but the sort of indication I'm talking about is Melbourne Airport has announced overnight that they're postponing a $500 million redevelopment they were planning on going ahead with because of the uncertain economic times. I mean, if that keeps happening, that's a lot of jobs.
PM: Well, you're right to point out that firms are being affected around the country and around the world through one of the points you raised before, and that's this virtual freeze which has occurred globally on interbank lending which underpins so much of the project finance for projects, infrastructure projects, around the world.
That's why it's really important for us, a - to have budgeted early for a very significant Budget surplus, $22 billion, to b - bring forward a nation building agenda which we, the Government, fund and do so in partnership with state governments as well. Ports, roads, rail, infrastructure, and we have brought forward our priority list and we intend to get cracking.
MITCHELL: I'd like to get to the specifics of that in a moment, but just first, can we clear up pensions? Will there definitely be some sort of pension increase next year?
PM: Firstly, we've said that we'll have the pension reform, long term pension reform, done by the Budget. Secondly, on the detail of it, as I've said, I think on your program, before Neil, because this is a massive exercise, we want to get all the numbers right.
Every $10 a week is $8 billion across the forward estimates. That's a $10 a week increase is $8 billion across the forward estimates. We've got to get it absolutely right and not just pick and choose one small group of pensioners, but bring about comprehensive reform for everybody.
MITCHELL: Is there a danger that because of these tough times, there will be nothing there next year?
PM: Can I say Neil, we are absolutely determined to deliver pension reform. We said back at Budget time this is a complex exercise, involves millions of Australians, it's very expensive. We will do it and we will do it by the next Budget.
MITCHELL: And you stand by that?
PM: Absolutely.
MITCHELL: Will there be cuts in other areas?
PM: Well Neil, the Budget process is under way and we'll go through the usual exercise which the Finance Minister, Lindsay Tanner, presides, which is the Expenditure Review Committee, and we will work our way through unnecessary expenditures in order to deliver savings, and that helps us fund much needed long term reforms, including pension reform.
MITCHELL: So there will be some pain in those cuts, presumably?
PM: There's never been a Budget without any pain, but let me say this: there's never been a responsible Budget without some pain somewhere, and because at the end of the day the country's got to balance its books and we have taken a very conservative approach to public financial management, and I'm absolutely glad we did so in the last Budget and created ourselves a $22 billion surplus buffer for the future.
MITCHELL: We'll take a break and come back with more from the Prime Minister, including your calls and the nation building - where will it be spend and when?
MITCHELL: The Prime Minister is with us, obviously financial issues are paramount but there are a number of other issues I want to raise with the Prime Minister, so I'll try to be quick. Sam, go ahead please Sam.
SAM: Good morning. Mr Rudd, has this financial meltdown been caused simply by greed and stupidity? And if so, moving forward, can we legislate worldwide to minimise those two elements?
MITCHELL: Can you legislate against greed and stupidity? That's a big ask. Prime Minister?
PM: You can do a bit about greed, I'm not sure about stupidity. Look, a couple of reasons why all this has happened. One is, that the rules around the world haven't been transparent enough. That is, that when loans are made, that banks around the world and in the United States declare to the financial regulation system how much they've lent, to whom, and how that has been underwritten by other banks, so that when we have a problem with enough money in the system, the central regulator can say, ‘here's where the problem is, here's how much it is, and here's who's got it.' That's the problem now, and that's what largely creates the confidence problem.
MITCHELL: Prime Minister, there's a report in The Australian today that the states are demanding $23 billion in extra funding to go along with your plans, is that correct?
PM: I have not seen any such report from the states themselves, I've seen the report in the newspaper. Neil...
MITCHELL: Will they get it?
PM: I reckon this is one of the larger try-ons of the century. We're engaged in a long negotiation with the states over the future of hospital funding, and on schools funding. We're going to sort that out in the middle of November. I'm sure there'll be a lot of argy-bargy in between time, but what was that great line in The Castle? ‘You've got to be dreaming'.
MITCHELL: When will you start spending?
PM: We've said that on the nation building fund, the nation building agenda for Australia, that we will have the list from Infrastructure Australia, the priority lists, their first report on that by December. Now that means that we have done it within our first year, we've got in the submissions basically from all the states now, I think one is still to come in, and once we've gone through that, and Infrastructure Australia provide their recommendations, we can then begin to make announcements.
MITCHELL: Obviously, I don't want to lock you into things, but would you be looking into things like the tunnel that's being talked about from Caulfield to Footscray in Melbourne, that sort of things.
PM: I haven't looked in detail at what the Victorian Government has put forward, but can I say this as a general principle: when I go around Melbourne, I go around Sydney, and I go around Brisbane, you look at urban congestion, and you've got to say, it's time for the national government to help shoulder some of this burden, and whether that's with underground rail, whether that's through roads systems, I'll let the experts provide the advice but we've got to act on the congestion. And can I say, in nation building, it's not just a question of providing extra activity in the economy, jobs and growth, it's building infrastructure that the nation needs anyway.
MITCHELL: Prime Minister, it strikes me that unlike some other financial crises we've had when the speculative stocks go down, the blue chips are getting hit hard here, which says something about the nature of the crisis, but it also says superannuation funds are getting hit hard. Is it fair that when we're all suffering, the politicians have guaranteed superannuation that we pay for?
PM: Well the super system, as you know Neil, has been around for yonks, before Members of Parliament, and was changed somewhat I think a few years ago. But you're right, it's a pension system. On the question of the private superannuation market, people are copping it left right and centre at the moment because of stock markets, you're right on that. Over the last 35 years, Australian superannuation has delivered returns of approximately five per cent over and above inflation.
MITCHELL: True, I understand all that, but is it fair that the politicians are immune from all this?
PM: Well, the politicians, or the Parliamentary superannuation scheme has been built around a pension system going back decades and decades, through good times and bad times in the superannuation system, and that's been the case under Mr Howard, it's the case under me, and it's been the case under many previous Prime Ministers.
MITCHELL: A couple of other things if I may. The young Melbourne backpacker missing in Dubrovnik, Britt Lapthorne. The Family's been critical of the way the Government has handled it, are you aware of the case?
PM: I'm totally aware of the case. I've been talking to the Foreign Minister, Stephen Smith about it regularly and to my advisors. This is terrible for the family, and it's really distressing for any mum or dad in Australia losing track of one of their loved ones anywhere around the world. You know we've got around 1 million Australians overseas at any one time, and this is horrible whenever it happens.
MITCHELL: Are you confident the Federal Police are doing all they can?
PM: I've absolute confidence in the Federal Police. The Federal Police Commissioner, Mick Keelty's been on the phone to the chief of the Croatian police, we've got a Federal Police officer on the ground, we have two consular officials from the Department of Foreign Affairs on the ground in Dubrovnik. We've also have had the President of the Australian Senate meet with the Croatian Prime Minister, President, Minister for the Interior, and of course, we are working as effectively as we can in a foreign country to try and help in what is an awful situation.
MITCHELL: It's not hard to relate to is it, I mean you've got a daughter of a similar age yourself.
PM: Exactly, I mean, we've always got to think: there's a million Australians out of the country at any one time, any family that loses track of a loved one, that is a real concern to all Australians and a concern to the Government. Then you're faced with the practical challenges of trying to help track them down in a foreign country.
MITCHELL: It's reported today that American intelligence reports are saying that the situation in Afghanistan is in a downward spiral. Do you get the same reports?
PM: I haven't seen that report, or the US intelligence report, but the security situation in Afghanistan is very hard. Diggers on the ground in Oruzgan province are doing a fantastic job, but it's becoming increasingly violent, and you've seen evidence of that with attacks on our diggers in recent times, but in Oruzgan in our part of the country where we're responsible together with the Dutch, we're doing a good job and I believe that over time we're stabilising that part of Afghanistan. More broadly across the country, it is a huge challenge.
MITCHELL: Because of the economic situation, would you review our immigration policy, you know, our immigration targets? Cut immigration levels?
PM: As with all previous Governments, and mine is the same, whenever we set immigration targets, we will adjust them according to economic circumstances of the day. Those targets that you've referred to before represent an increase on the previous year and that was in response to demands from employers across the country, particularly in Western Australia and Queensland and in the mining and resource intensive states, for more skilled labour. What we'll do in the future is adjust according to economic circumstances.
MITCHELL: So does that mean we'll expect less immigration next year?
PM: We'll wait for the advice on what's needed where and it's not one-size-fits-all across the country, that's the problem we face Neil.
MITCHELL: Hello Jim? Go ahead please Jim.
JIM: Good morning Prime Minister.
PM: G'day Jim.
JIM: (inaudible) in regards to the American markets doing so poorly, and the state of our markets doing well (inaudible), why is the value of the Australian dollar so low?
MITCHELL: Okay, I'm going to repeat because the line was bad. Why is the Australian dollar down if we're in the good shape we say we are?
PM: Jim, it's like this. International financial markets mark Australia and the dollar on a number of things. They look at the strength of the financial system, they think it's good and strong, but at the same time they're looking at the future of world economic growth and therefore what the world's going to need in future commodities like coal and iron ore. They see commodity prices coming off and as a result, they take a more pessimistic view of Australia's long term economic prospects. That's what's happening in markets. My job is to work as hard as we can as a Government to make sure that our policy direction remains strong and the economy remains strong.
MITCHELL: Having said that, are you concerned about these reports coming from the mining sector that China is starting to cut back its demand for iron ore?
PM: Look, what I've known about the Chinese demand and global demand for Australian commodities is it really goes up and down, Neil, depending on the cycle.
MITCHELL: But this environment is pretty worrying isn't it?
PM: Yeah, but the more fundamental thing is that China's growth strategy remains on track. They've come off from 12 per cent growth to around nine to 10 per cent growth. They've brought down interest rates by 27 basis points two days ago. We're going to see obviously fluctuations in what they demand in terms of raw materials, but long term we should have confidence that in China we have a huge continuing market, as we do in Japan and the Republic of Korea.
MITCHELL: Something else, the Governor-General's comments on paid maternity leave. That's a partisan issue, should she really be commenting on it?
PM: Neil, I haven't seen what the Governor-General's said on paid maternity leave, and...
MITCHELL: Well she was supporting it earlier in the week, she was supporting paid maternity leave.
PM: Oh, look, I'm pretty relaxed about the Governor-General expressing her views. I think having the Governor-General in some sort of ivory case where they are precluded from making personal observations about priorities, I mean the previous Governor-General had strong positions, for example, on the environment and would often speak on that, and on indigenous policy. I'm sure the current Governor-General will do the same in areas of personal priority to herself.
MITCHELL: Just finally, quickly, Prime Minister, the context of the economic crisis - is this the worst in a generation?
PM: It is Neil.
MITCHELL: Thank you very much for your time.
PM: Thanks.