O'BRIEN: It's been a rollercoaster year, Mr Rudd. In January you were warning in the midst of a resources boom that inflation was out of control. You're ending the year battling to stay out of recession. You must regret now that the Reserve Bank, like you, was so fearful of inflation then that it really crunched confidence in the economy with those rapid succession interest rate hikes, just as the global crisis was coming around the corner.
PM: Well Kerry you referred to January this year and the first speech I delivered on the economy, in Perth from memory, I indicated that Australia was subject to conflicting economic forces. There were those which were fuelling inflation at home and those which were acting to curtail growth abroad.
And those were the two tensions we were dealing with then. Those tensions were reflected also in the statements delivered by the Treasurer at budget time.
You mentioned the impact of cumulative interest rate rises. Let's just put a few facts on the table there. Ten interest rate rises in a row under the Liberal Party over a two or three year period. That has a huge effect on confidence in the business community and in the housing sector and the ability of people to pay home mortgages.
That is the circumstances we inherited. We've had to deal with the challenge of the global financial crisis, we've outlined our strategy for doing so and we are determined to see Australia through.
O'BRIEN: But without casting blame you have to wonder, or you must have wondered once or twice as you've been trying to grapple with this crisis how much better shape Australia would be in to handle it today if we hadn't copped those last two interest rate rises as we did in quick succession?
PM: Well again the reality in the first six months of the year, as reflected by statements by myself and the Treasurer, was that we were dealing with these dual conflicting challenges - inflation at home and recessionary pressures abroad. And those were alive in our comments then.
Secondly, what we did at budget time, mindful of those two sets of challenges, was put away a very large budget surplus to be prepared for when times got worse. And of course times did get worse. Times rapidly became worse after the acceleration of the global financial crisis in September.
That put us in precisely the position we needed to be in October to bring forward an Economic Security Strategy of $10.4 billion; one per cent of GDP. And thereby our strategy was able to deliver the response we needed when the time came.
O'BRIEN: Well you're doing your best to stimulate the economy now as you're saying, urging people to spend the $8 billion or so that you're sending out to pensioners and people on lower incomes. I'm sure the irony hasn't escaped you that the reason the developed world is in this mess is because people have been on a spending spree for years, including to some extent Australians. Living beyond their means and creating a massive debt bubble. We understand the strategy but the irony is there, isn't it?
PM: Well step back in terms of what has actually caused the global financial crisis: A complete failure of effective regulation of financial markets most particularly in the United States. That's where this crisis began.
And as a consequence, the cancer through the various forms of unregulated financial instruments spread right across the global financial system. That in turn created a credit crunch. That in turn has created a crisis of confidence in financial institutions. That in turn has created a real crisis in the real economy, including employment.
My job as Prime Minister of Australia is to respond.
O'BRIEN: But Australia too had and has its own debt problems, doesn't it, both at a personal level and at a business level?
PM: Well levels of indebtedness have grown over a long period of time as you know from the statistics Kerry. But I'm not inaccurate to say that this current crisis was born out of the US housing market. That's where it was financed and refinanced by a series of exotic financial instruments.
As I've said repeatedly the extreme form of capitalism, which gave rise to the unregulated financial markets, enabled this risk to be spread throughout the financial system, a cancer which of course has now brought about real consequences for growth and jobs in countries like Australia.
O'BRIEN: You're saying to people now to spend. But can you blame them, those of them, for being cautious after all the warnings as Glenn Stevens says they might actually want to save it at least temporarily or heaven forbid actually use it to pay off debt, which is not really what you want right now.
PM: Well, Kerry, Australians are grown-up people they'll make up their own decisions. I've simply been very blunt from day one when I brought in this economic security strategy, with a large allocation of funds to pensioners, carers, as well as to families and to first home buyers that the objective was very clear and very simple.
It was to stimulate this economy when so many economies around the world are already either in negative growth or in recession. Therefore my motivation, our objective, has been clear from the beginning.
At the end of the day you can't mandate what individual consumers do. But, I've been in Bendigo today and stopped for a coffee on the way back to Melbourne, I ran into lots of people who are out there doing their bit. One lady said she was going off to get herself a new set of false teeth using her money. I thought that was kind of nice. I presume that's going to be Australian made.
Another lady said that -
O'BRIEN: That's a big assumption.
PM: No, well, another bloke said that he was off to buy a rainwater tank.
Another one said that she was buying extra Christmas presents for the kids and then having a holiday.
Everyone is going to make their own decision. My job as Prime Minister is to provide as rapid a response possible to the rapid global deterioration in the economy and to try and support growth and jobs. And this is the best instrument available to government at this stage. But as I've said before, there are other actions for government to take including nation building, including infrastructure investment.
O'BRIEN: Of course, China has slowed down now as a double whammy for Australia. What was our strength is now a serious part of our problems. It's certainly looming that way. Does your intelligence out of China agree with that of the Reserve Bank Governor that China's industrial production, as he said a couple of nights ago, has probably been in decline since July?
PM: Certainly in our multiple discussions with the Chinese leadership, they are concerned about the state of growth in the Chinese economy. That underpinned the extraordinary stimulus package we saw announced by them only a month or so ago.
I believe also the Chinese will act further in the future, to further stimulate their economy. But the challenge which they face is almost in some respects like the challenge of other economies - to stimulate domestic demand at this time, because when you have a global financial crisis becoming a global economic crisis the opportunity simply to generate an export-led recovery is reduced because all economies are experiencing contractions in demand.
Therefore the challenge for the Chinese, like we've just been talking about for Australia is to boost domestic consumption. And the Chinese leadership will act in this area.
But remember in our part of the world Kerry, we are still seeing positive economic growth from major economies like China - revisions down from plus ten to something like eight or a little less.
O'BRIEN: Well yes, you must be concerned though at the rapidity of that drop. I mean, the Chinese predictions keep being revised like everyone else's, they're now down to seven and a half and presumably falling.
PM: Well we are in unprecedented territory here. This is a global financial crisis. But when I look around the major G7 economies and look at the fact that practically all of them are either in negative growth or in recession, the fact that we are in this region and we are linked so much to the economies of this region has provided us with some support.
But I've got to say, this country is not out of the woods yet. This is a long, long row to hoe but we are determined to take whatever decisive action is necessary to support growth in jobs.
O'BRIEN: Well there are those who are saying of course that we are really just going into the woods. Looking at Rio Tinto's reaction to the post-boom realities: a huge global cutback in its workforce, including in Australia, and a halving of its capital expenditure. What do you say to those who are now predicting and they're a growing band of voices, who are now predicting a recession in Australia for much of next year?
PM: Well I've looked at the statement by Rio Tinto and obviously that is bad news. Let's just be blunt about it. But I don't intend to engage in the business of simple economic commentary. The job of political leadership is to provide a strategy through.
And what I've said is, here is stage one: stabilisation of the financial system through the bank guarantees we've provided. Stage two, the stimulus package, the $10.4 billion plan we've just been discussing. Then the other measures that we've done in recent days, including a $15.1 billion package for the States, $3 billion of which flows additionally in the coming year. And further action yet on infrastructure.
These are concrete measures supporting also a 300 basis point reduction in interest rates. These are practical measures designed to stimulate jobs and stimulate the economy.
But Kerry - 2009 is going to be very tough and I don't wish to try and gild the lily with people watching your program. And, we're all in this together. If we stick together - business, unions, employers, employees, governments at different levels - we can see Australia through. It's going to be a pretty bumpy road.
O'BRIEN: After you introduced your $10 billion package, you and the Treasurer have indicated that if there has to be a further stimulus then you're up for it. One has to assume since you made that more recent economic statement in the parliament that conditions now are even more critical globally than they were when you made that commitment. Then one assumes that the prospect of a second stimulus, the necessity of another stimulus is increasingly likely.
PM: Well Kerry I've always been blunt about the fact that we'll take whatever further decisive action is necessary to support growth and jobs and families.
That package was announced on, I think 12 October. The payments, one and a half million payments I think, made yesterday and another 1.6 million today to pensioners, carers, seniors, families and more to come next week.
But you're right. Further stimulus is necessary, particularly to support infrastructure investment, and as I've indicated already we'll be making another statement on infrastructure before year's end. And also, we intend to deliver a further statement in the first part of the New Year.
That is because we want to embrace a series of measures to support growth in what will be a very difficult, late ‘08, early ‘09, in terms of the growth numbers. And I intend not to get to the end of next year and scratch my head wondering what would happen, what would have happened had I acted.
I intend to act as far as possible ahead of the curve, do the right thing to support growth, try and support business confidence, try and support consumer confidence but against the great odds of a global financial environment which has been extraordinarily difficult to deal with.
O'BRIEN: You're also grappling with climate change policy. The Australian Industry Group, as a group one of Australia's biggest employers or representing Australia's, amongst Australia's biggest employers, is pleading with the Government to recognise the diabolical dilemma as they call it, for business. Trying to deal with the economic crisis themselves and face up to your climate change policy, introducing an emissions trading scheme in 2010.
Heather Ridout says, of AIG, says the nation's commitment to address climate change was conceived in times of prosperity. She wants you to delay its introduction until the economic storm has passed. Will you consider that?
PM: Kerry, what the business groups, like the Business Council of Australia, have said is that business wants long-term certainty about the rules which will govern carbon emissions into the future. And remember we're talking about an introduction in 2010, not on the first of January 2009. We're talking about some time hence.
But it's important that the rules are out there so people can understand them.
The second point I'd say is this. This Government is determined absolutely to get the balance right. We understand the need for decisive action on the environment long term. If we fail to act there the economic and environmental consequences for Australia are horrendous, as they would be globally.
Secondly, we intend also in framing our approach to the carbon pollution reduction scheme to be entirely mindful of the difficult economic circumstances Australia and the world is facing as well. And I'm sure when this is delivered early next week, we'll get attacked from the left, we'll get attacked from the right. We'll get attacked by various radical green groups saying that we haven't gone far enough because we haven't closed down the coal industry by next Thursday and -
O'BRIEN: I think that's a little unkind but -
PM: Well I think it states the - no, Kerry, this is absolutely true. We'll be attacked from the far right and by various business groups, I suppose, certainly the Liberal Party for doing anything at all. We'll be attacked by extreme green groups for not taking the most radical course of action. We intend to steer a balanced course.
O'BRIEN: Okay, I won't try and get any targets out of you before Monday, I know that's a wasted exercise. But are you saying that regardless even of a recession next year, regardless of many businesses facing going under, many jobs potentially being lost - one way or another you are committed to introducing your emissions trading scheme in 2010?
PM: Kerry let me put it in context. We have not changed our ambition in terms of that 2010 reduction. Secondly -
O'BRIEN: But will you consider it?
PM: No. I've just said our ambition remains and we have no cause to change it. But let me add two further points. Firstly, is that in introducing this carbon pollution reduction scheme we're talking about 2010, we're not talking about the events in the economic cycle in the first, second and third quarters of 2009.
Secondly, in terms of the immediate challenges of the economy, this Government is introducing a massive range of stimulus in the economy to help business to help business.
And finally, when this scheme is introduced, as you would have seen in the Green Paper we put out, we have outlined a whole range of industry transition measures to support industry in a very gradual transition path to a lower carbon future. This is a responsible and balanced course of action.
O'BRIEN: I assume - last question for the year - I assume you must have learnt some lessons from your first year in office. What is one outstanding lesson learned? Briefly.
PM: Get a good night's sleep.
O'BRIEN: How about, how about don't have journalists to dinner if you know you're about to receive a call from the White House?
PM: [Laughs] It's important to have a good night's sleep and I wish your viewers a very happy Christmas and I hope you get a good night's sleep in your break over Christmas as well.
O'BRIEN: Same to you Kevin Rudd, thanks for talking with us.
PM: Thanks for having me on the program.