MIDDLETON: Prime Minister, thanks for joining us again.
PM: Good to be with you.
MIDDLETON: You're off to the G20. What is the minimum required to fix this thing?
PM: Well as you know, the global financial crisis affects not just financial markets but the real economy and that means jobs. Around the world and in the future in Australia. What do we need to do with an international community? Work together on three things. The first is an agreement of principles on how we deal with liquidity or stability in the financial system now. Secondly, agreement on courses of action for governments through budget policy and interest rate policy to boost growth now. And thirdly, agree also on principles for changes to the financial system rules for the future, including on transparency, including on capital adequacies of financial institutions and proper risk management systems, as well as remuneration arrangements for executives. These three sets of changes are needed because they're important for the future.
MIDDLETON: How far advanced then are you on this proposal for restrictions on remuneration of executives and penalties, in terms of capital ratios and so on.
PM: Well, there are 20 governments at work on this at the moment and there are bits of paper flying around the world at a pace of knots and ours is one of them, and our embassies have been active in 20 capitals, advancing our view on what needs to go into each of those three areas I mentioned before.
But on the question of executive remuneration, that'll obviously be the subject of discussion. I couldn't predict now what the outcome will be but I do detect across a whole range of governments, there's a simple view that with the system as it was, it cannot be sustained into the future. Executive remunerations of financial institutions have to change. And that means changing for those institutions which are systemically significant, in other words, those that can affect the whole economy.
You can't have a rewards system which says to people maximise your risks and we'll maximise your pay check. That's just dumb, it's wrong and it's bad. It's bad in Australia and it's bad overseas. We need to change that, but the detail of it is what we're in Washington to look at.
MIDDLETON: This meeting has been convened by President Bush who's just weeks away from leaving office. His own administration's actions, in particular, driving countries budgets deep into deficit, in fact aggravated (inaudible) the global financial crisis. Why would anyone listen to him?
PM: The President of the United States has done the right thing in convening this meeting of the G20. The alternative was to bring a narrower group of economies together, principally in Europe. But because this global financial crisis affects the global economy, developed economies and developing economies, the G20 which brings together the major developed economies and the major emerging economies is the right form. President Bush has made the right decision there.
Our job is to work with him, as the President of the United States, to come up with detailed approaches to the three areas of challenge - stability of the financial system now, growth in the economy now, through what budgets can do and what interest rates can do, and thirdly, rules for the financial system for the future. And us getting together in Washington at this time is one important part of the process of fixing that. Working groups will then be created, I presume, and that'll take a little while to iron out all the details.
MIDDLETON: Before we move on, speaking of being listened to, why would President Bush listen to you given the fracas over what he may or may not have said to you in your conversation with him about, whether he knew what the G20 is or isn't?
PM: I notice Mr Turnbull seems to be going on and on about this. Can I just say that if the White House says and I have said and the US Ambassador has said, that the reported remarks in this article were not made. It's always been my view, and it is my view today. From the point of view of the US Ambassador, that's the end of the matter and that's certainly our view as well.
But Mr Turnbull's other point is this - that there's some problem then in conducting diplomatic relations. I spent this morning on the telephone with the US Secretary of State. A perfectly normal conversation about other matters that we're attending to. The business of government and international government goes on.
Mr Turnbull's interest is this. Prosecuting a political point scoring campaign when the relevant governments have said this matter is dealt with. That's my view, it's the American view - the only one who doesn't have that view is Mr Turnbull.
MIDDLETON: You have denied that the President said this, but did you or anyone in your office use the words ‘What's the G20'?
PM: What I have said right from the beginning is that the President of the United States did not make those remarks and that's been my view right from the beginning and I'm not changing that view because it's the truth. That's exactly what transpired. I've also said that newspapers put together their own stories - it's a matter for them as to how they assemble their stories, as I've said in the past.
But again I draw your attention to the fact that the White House has said, the US Ambassador has said, and I have said that this matter has concluded. That's my view.
MIDDLETON: Is it possible that any of the people who were at dinner with you that night, the Editor-in-Chief of the Australian Chris Mitchell, The Australian Newspaper, might have ever heard words to that effect?
PM: You know something, Jim, people can rattle on about this as much as they like, but the bottom line is there are important matters at stake now in dealing with the challenges of the global economy, dealing with the G20 meeting in Washington and the only person who has any political interest in prosecuting its agenda is one Malcolm Turnbull. It's in his political interests.
If the government of the United States says that this matter is concluded, and that's my view as well, and if on the day that we're having this interview I'm talking to the Secretary of State about the normal business of two governments working together, frankly I think that says it all. It says it all about Mr Turnbull's party political agenda which he prosecutes on a daily basis. So good luck to him, that's party politics. I'm on about dealing with the real challenge of jobs, the financial system and whether people's bank deposits are secure for the future around the world.
That I think is what the mums and dads of Australia are interested in, that's what I'm interested in, not in Mr Turnbull's political gains.
MIDDLETON: What did you talk about with Condoleezza Rice, Secretary of State, in your conversation? Did she call you or did you call her?
PM: Well, the Secretary of State telephoned me as part of the normal discourse between states.
MIDDLETON: Indeed, indeed. You congratulated China earlier on this week on its massive stimulus package, but with China's economy in far, far better shape than the United States, for example, if China is taking such drastic action, doesn't that suggest that things could get even worse that even you have been suggesting in recent times?
PM: Well, the global financial crisis is real and is affecting the real economy and that means jobs and growth in the developed economies and the developing economies.
This is affecting us all which is why this meeting in Washington is actually unique. We are at the beginning, if you like, of a new international period. Because this crisis is so overwhelming for so many economies, we have no alternative but to work together on this, and that includes the Chinese, that includes the French, ourselves and the Canadians, the Americans, the Brazilians because we're all in this together and I think all the governments of the world have finally woken up to that fact.
On the question of the Chinese economy, I certainly welcomed the stimulus package which they announced the other day. It is significant and it does reflect their concerns about slowing global growth, because China's own growth is in part export dependent.
The slowing global economy, it means that China's own export growth would be affected as well. But China also I believe is acting not just in its national interest, but has also realised that if it reflates its own economy, or should I say adds to growth in its own economy, it helps the wider region and it helps the global economy as well. As China did after the 1998 Asian Financial Crisis. Important for us in Australia as well.
In fact I was speaking on Chinese television about this a couple of days ago to a Chinese audience about our experience of the financial crisis and what China can continue to do to assist the global economy and adding to growth is one of those things.
MIDDLETON: Would floating its currency be another?
PM: Well Chinese attitudes to its own currency policy, as you know, is a very sensitive matter. And certainly it's been caught up in the bilateral difficulties which have arisen from time to time between China and the United States in particular in recent years.
There has been some movements in Chinese currency over time. The Americans have argued that it's not as fast as it should have been, but I think it's important for us all to work together through budget policy, through monetary policy and other coordinated actions to assist growth in the global economy and Chinese domestic demand is a huge part of it. 1.3 billion consumers with access to credit to consume more helps us deal with this challenge and that's why I think the Chinese have been helpful to the world so far.
It's certainly part of the discussions I had with Chinese leaders here in Canberra over the weekend as well.
MIDDLETON: Australia's announced, already announced, it's own fiscal stimulus package, quite a big one by Australian standards, growth is still on the slow - are you prepared to go into deficit to prop up growth?
PM: Our view is that, first of all, we can keep this economy growing in positive terms. That is going to be difficult because the rest of the world is now sliding into a global recession.
But we believe that through the actions that we've taken in fiscal policy, supported by the actions by the Reserve Bank on monetary policy, can continue to support positive growth, but it's going to be tougher and tougher and tougher as global conditions get worse and worse and worse -
MIDDLETON: So you wouldn't rule out deficit if necessary.
PM: - that's on the question of positive growth. Let me go onto the question of the budget. Our policy as you know is to support a Budget surplus over the economic cycle.
That's been our position since the days of Opposition, it's the position I took to the election campaign, it's our position today and you will see from the midyear financial and economic outlook that we are projecting modest surpluses across the years ahead. That remains our position but again that challenge will get tougher and tougher and tougher.
MIDDLETON: And you have had at least one of your Ministers, Assistant Treasurer Chris Bowen acknowledge the possibility of deficit and also indeed (inaudible) as markets eased (inaudible)
PM: Well the Government's policy is clear cut, that is we support a Budget surplus over the economic cycle and the action that we have taken, strong decisive action in support of a fiscal stimulus package of $10.4 billion, about 1% of GDP and crunched into a 9 month period reflects the strong, sensible, conservative Budgeting we did in May to prepare for contingencies like this, and we are glad that we have done so.
The Government also remains prepared to take further decisive action as is necessary for the future. But you know something this is going to be tough and hard and bumpy on the way through. There are no quick fixes here, you are dealing with a global challenge.
But this Australian Government is determined not to simply stand idly by as I think Mr Turnbull would have us do and wait for things to happen. But instead act on the Budget stimulus $10.4 billion, act in support of the auto industry $6.2 billion, act in terms of nation building and infrastructure with a package that we will announce presently and for the future, as well as match the strong action which has been taken on monetary policy or interest rates by the Reserve Bank.
This is a decisive way forward, the alternative is to simply act as a casting commentator which seems to be Mr Turnbull's preferred position.
MIDDLETON: Before we wrap this up, (inaudible) the way in which the world financial system is to be run and regulated is changed, should China and perhaps India be given a real seat at the table, real decision making powers?
PM: I believe that China and India do deserve a greater place at the international table, one of the ways in which that can be secured is through the continuation of the G20 into the future and that will depend in part on how this is managed through this conference in Washington. If we deliver a good outcome, a good outcome then it does suggest itself as a meeting of major emerging economies including China, India, Brazil, Mexico and others including Indonesia, as an appropriate vehicle for dealing with these challenges longer term.
MIDDLETON: But the bigger the group the harder it is to get effective decision making, if you get beyond the G8 and China certainly, possibly India that's really about the size, a manageable size, anything bigger than that becomes too large to play cricket (inaudible).
PM: You know something, what has been the big let up of this global financial crisis so far. Everything is connected to everything else, who would have thought that banks in Iceland would have a huge impact on what's going on in London and elsewhere and they have. Because of the interconnected nature of the current global financial system and economic system, having the major developed and developing economies together in a common body to deal with these challenges I believe is a smart way to go.
The virtue of the G20 represents something like 90% of global GDP, represents a huge slice of global trade, a huge slice of global stock market equity and a huge slice of the global financial system together around the table.
And that's about the size of an Australian Cabinet, 20 people. Can I suggest it's actually not a bad vehicle for dealing with these challenges for the future. But it will depend entirely on how countries as diverse as Brazil, India, Germany, Japan, Indonesia and Australia fashion a common outcome, that will be the test of leadership and this will be tough. We will see what happens.
MIDDLETON: Prime Minister thank you very much for your time, happy trails for this official visit.
PM: Thank you very much.
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