O'BRIEN: And if Australia does manage to avoid recession as nearly every other major developed economy hits the wall, Kevin Rudd will have a powerful message to take to the next election. But his highly publicised high wire act of economic management could rebound nastily, if things don't go to plan after he's built the expectation that he has the answers. I'm sure the Prime Minister is only too well aware of the political risks and he joins me now from Canberra.
Kevin Rudd with all your injections of cash back into the economy, and all the interest rate cuts, after all that, can you say with any confidence that Australia will avoid recession?
PM: What I refuse to do Kerry is to haul up the white flag and say, as the Liberal Party have done, that recession is inevitable. My judgment is this - we will act, act decisively and take substantial significant measures to do every humanly possible to continue to support positive growth and jobs. You're right in your introduction or in Michael Brissenden's introduction to say that we are in the midst of a global economic recession, there are many variables beyond our control. Based on what we know now, and by adopting this $42 billion Nation Building Plan, we are seeking to do two things - support growth and jobs now, to seek to do every humanly possible to maintain positive growth, and secondly, to build education, school assets, housing assets, energy efficiency measures for households, which also serve Australia's long term interests. That's our strategy.
O'BRIEN: Okay. But as you said in the package today as has been made plain, all of this is premised, your growth projections and so on, all of this is premised on the global economy not getting any worse and we all know that the solid body of belief on this is that this year is going to be a horror year. It's going to get worse. That being the case will you have anything more in the tank for yet another stimulus package?
PM: Well Kerry, the impact of this global financial crisis which has become a global economic crisis, and is now about to become a global employment crisis, of course has had a huge effect in terms of government revenues. $115 billion has been cut off the top across the forward estimates -
O'BRIEN: Which could get significantly worse again.
PM: We, however, having undertaken that adjustment in our revenue assumptions for the forward estimates, have already taken a prudent approach to where our revenues are likely to lie for the future. But you know something, the Government of Australia cannot control the destiny of the global economy. We must respond to the data as we are presented with it, and put our absolute best foot forward based on the best advice from the Treasury about what will provide the necessary stimulus for the period ahead. And secondly, to also through that activity, to build the schools we need for the 21st Century, to invest in the social housing we need for the 21st Century, and to invest in energy efficiency measures for our households to act also on climate change. These are our two objectives.
O'BRIEN: Okay. Well let's a little more closely at the practical, the ways these will happen. Your stimulus package. How quickly will people start getting their cheques for $950 because I think it starts in April. Is that going to happen almost instantaneously, we're talking about a lot of people and you're hoping that that money will be spent and will stimulate the economy to an extra half per cent of economic growth in three months from April to the end of June.
PM: Well first of all Kerry, the way in which we have devised our strategy over the last several months since the global financial crisis turned into a crisis for the real economy worldwide, is to bring about a series of measures, each of which have an effect on stimulating the economy over time.
Firstly, of course you have the economic security strategy we brought out last October, payments were delivered in December. There'll be some washover of that into we assume, into the March quarter. Because we are concerned about the period ahead, the March quarter, the June quarter, and into the rest of 2009, we've adopted these other measures as well, but again in a staged manner. Some to support households and early consumption, payments due in March-April, depending on the Senate's deliberations. But beyond that also, short term infrastructure, the school building program to kick in from the beginning of the next financial year -
O'BRIEN: I'll come back to that in a moment -
PM: These are staged to flow activity through in this way. To keep the underpinnings of growth and activity there, particularly when the global economy is in retreat.
O'BRIEN: Okay. People who will be entitled to this $950, do they just wait at home and the cheque turns up in the mail? They don't have to do anything?
PM: These are measures which will be initiated by combination of FAHCSIA, that is the family payments system, and by the Australian Taxation Office. They'll be directed and initiated from the Government. And they're designed to help households, then the infrastructure package kicks in.
O'BRIEN: Malcolm Turnbull has been saying for two months now that the evidence from America suggests most people in this scary economic environment, won't spend your handouts. That they'll save them, which keeps it out of the economy. Can you show conclusive evidence from your last package, that the money was spent rather than squirreled away?
PM: Well let me give you one example of that. It is real data as opposed to theoretical projections from you know, Mr Turnbull or anybody else. And that is there is some data produced today by Westfield. They own supermarket complexes in Australia and in the United States and in New Zealand. The results that they put out show that there was an increase in retail sales in December in Australia, contrasted with major decreases in the United States and New Zealand where they also have assets. This is one piece of substantial data.
Does it equal the total solution, of course not. But before people decry the impact of consumption on economic activity, some basic points need to be made, namely that the retail sector, the small business sector are crucially dependent, not just on the confidence of consumers, but also on the ability of consumers to spend. We've been mindful of this together with all the other measures including those directly supportive of small business, and fashioning an integrated strategy with two objectives - to continue to support positive growth and to build long term infrastructure which the nation needs.
O'BRIEN: The $15 billion skills building program which sounds great by anyone's standards I guess, but you're actually going to have to rely on the States to deliver it, and in a hurry if it's going to boost jobs and the economy in the way that you hope it will. Some States will do that better than others, I'm sure you'll agree. In New South Wales for instance, the public wouldn't trust their Government, dare I suggest it, to build a Lego classroom let alone a real one.
PM: Kerry, the $15 billion investment, which is the single largest modernisation of Australia's schools in the country's history, will be of course implemented in partnership with those state and territory governments and with the non-government sector. 7,400 primary schools, government and non-government, this is a big program that's going to require phenomenal organisation to deploy.
O'BRIEN: Which comes back to my point.
PM: No. We're determined to do that. Let me say this very clearly to anyone out there in State Government land. One, this Government will not tolerate for one minute, any State Government of whichever political persuasion, withdrawing effort, as a consequence of the Federal Government, the Australian Government, moving into this area of building and rebuilding schools.
We will simply not tolerate that. The whistle will be blown and there will be punitive financial measures imposed in terms of a withdrawal of those moneys from the subsequent general revenues grants to the States.
O'BRIEN: How tough has your rhetoric been to the Premiers direct, along these lines?
PM: Well the Premiers were not apprised of the details of this package prior to it being announced. We have been working on elements of it in consultation with Premiers in terms of the costs of particular constructions, in the social housing area, as well as the schools area.
So we are determined to ensure that this strategy is implemented within in a timeframe which delivers real stimulus.
O'BRIEN: So let me just ask you this - how quickly would you hope and expect schools to see the first roll out of activity, the actual classrooms starting to be built, the maintenance starting to happen, how soon would you expect to see that actually happening, concrete being poured?
PM: In terms of maintenance programs, and there are grants of up to $200,000 to each school in the country for this, this small scale maintenance, that activity can flow through very quickly indeed, over the course of the next several months.
In terms of the actual construction of 21st Century libraries, of multipurpose halls, and of language laboratories and science labs in secondary schools, that will take a couple of months at least, to organise the consolidation of plans for each of those and for construction to begin in earnest, from the beginning of the upcoming financial year. It will then spread out over a couple of years in waves, but we have spoken at length to the States about model plans and blueprints which exist for each of these categories of buildings.
They will have a limited time frame now to negotiate with individual school communities so that those agreements are made about which of these plans for which categories of buildings which will be built on what schools. It will then be sequenced. And this has been meshed also with spare capacity which exists within the construction sector.
O'BRIEN: Okay, you have delivered another address to the nation tonight, just like the one you did after the last stimulus package. You have got the Parliament and an army of media to explain your actions and report your statements. Why this extra little bit of drama? Why is it necessary? I mean, arguably you keep underscoring the sense of crisis, this sense of danger. This is another national security stimulus package, which surely just feeds the public anxiety and becomes counterproductive to at least some degree. I know you have got to inform, but why this endless kind of packaging as a sort of package of anxiety?
PM: Kerry I completely disagree with your point of view. And the reason for it is as follows: you can't, as FDR said in the 1930s, simply subscribe to the ballyhoo school of politics, which is, you just tell people to be confident because it kind of sounds good.
People out there are concerned. There is fear in the community. I understand that, and most members of parliament who are in connect with their local communities, understand that as well. Therefore what you need to construct is a rational basis for optimism, confidence and hope. And that means explaining to people, not just what the problem is frankly, but also the structure of your response, the dimensions of your response. What is going to be done, how much money over what period of time, what is it to be invested in.
People need to know therefore, that there is a basis for optimism, hope and confidence: what I call a rational basis for hope. That is why I believe in direct communication and I did it once before in October last year, three months later, can I just say the global economic environment has deteriorated considerably further since then.
And this is a significantly larger package which therefore demanded a separate explanation.
O'BRIEN: Okay, we have got very limited time left. On interest rates, you said today that you expect the banks to take quote, "an open hearted and compassionate approach to people and small businesses struggling to meet their loan commitments", that's not exactly the banks' culture, is it?
PM: Well I think the banks have to be very mindful of their long-term corporate reputation. Look, on the one hand, our major banks have fared well in this crisis so far. And the stability of our -
O'BRIEN: Well the Commonwealth today has announced another $2 billion half yearly interim profit.
PM: And can I just say, if I am to contrast that with the state of the commercial banking sector worldwide, I am supportive of us having a strong mainstream banking system because in those countries where it doesn't exist, the crisis of which we have been speaking is in fact, much worse. I have got to balance that on the one hand, and on the other hand, the supports we have given to the banking system by measures such as the Government guarantee for all deposit holders, the Government guarantee for interbank fundraising and loans, and say to the banks directly, we expect them to play their part of the bargain, their part of the social contract with Australia, and take an open-hearted and compassionate approach with small businesses and others, including people who are struggling to pay off their bills, to apply a long-term view to their customer base as well.
No magic to this, but that is my appeal directly to them.
O'BRIEN: You accept that you'll be judged harshly by the Australian people next year if your economic management of this crisis is seen by them to have failed or at least not lived up to your promises and your expectations while leaving a legacy of Budget deficits.
PM: Kerry, I will leave the political judgment of me and the performance of the Government that I lead to the Australian people to make whatever conclusion they wish to make later on.
My responsibility here and now is to act in the national interest. And based on the best advice available to me, we are doing precisely that. No silver bullets in this, I cannot guarantee a perfect landing with this. No responsible Prime Minister speaking frankly to his people today, anywhere in the world could say that, and I don't intend to either.
I tell you what, this is a strategy which we have designed to see the country through. And we intend to get behind it.
O'BRIEN: Now I had read your 7,500 word essay on neo-liberalism and economic orthodoxy in the hope that I could ask you a few questions about that tonight but we are out of time. So hopefully at some point in the future we will find the time to do that. Kevin Rudd thank you for talking to us.
PM: Thanks very much Kerry.
[ends]