O'BRIEN: Kevin Rudd, the national accounts today show that the national economy, with the exception of the farm economy, is in recession. The non-farm economy has now recorded its second successive quarter of negative growth. What are the most worrying aspects of today's figures for you?
PM: Well, the first point Kerry is that you know that growth numbers have been calculated since time immemorial, including both the non-farm and the farm sectors of the economy. And going back some time we've had some periods of negative contribution to growth from the farm sector as well. So these things change over time.
If you go to the actual elements of the national accounts themselves, there are strengths still, but there are weaknesses.
And you asked specifically about weaknesses - the one which stands up out of those national accounts, of course, is the fact that there has been a recourse to inventories by firms, rather than bringing in new production into their warehouses for the purposes of on-selling to consumers.
Well why has all this happened? We're in the midst of a global economic cyclone. These are global factors at work. They're buffeting every economy in the world and we're not immune.
O'BRIEN: Are you concerned that your first economic stimulus package hasn't worked?
PM: The key question with our stimulus package is this; had we not done it, what would have been the impact in terms of growth and jobs?
O'BRIEN: It's not a question of had you not done it but if you'd done it differently.
PM: No, for us the key question was this - and I think I said this on your program or others at the time - the advice from Treasury was ‘when you see the emerging economic storm, this global cyclone building, intervene with stimulus, go early, go hard, go households'.
You compare where we are, even with this performance on growth in the December quarter, against the rest of the advanced economies in the world. This economy is still performing as one of the top five economies of all advanced economies in the world. Let's put this into context.
And secondly if you look at some of the drivers of that, in the rest of the big economies around the world, you've seen a collapse in retail sales and consumption, at least in the large number of them.
And in Australia, by contrast, in the December quarter we saw an improvement in overall retail sales. That comes directly off the back of what we've done in stimulus.
O'BRIEN: Mr Swan acknowledged today that a significant part of your package went into household savings rather than household savings rather than household spending. That suggests, doesn't it, that there's some strength in what Mr Turnbull was arguing that the package should have been differently directed via tax cuts?
PM: But Kerry, I have consistently said that government can't mandate how individual consumers use their money, whether they spend it, whether they save it or what they spend it on.
And if you look at what has been assisting households in recent times, you've had a four percentage point cut in interest rates, and if you're on a $300,000 mortgage, that translates into about a $9,000 a year saving.
Some people are using that to pay down their mortgage further; others are putting it into other forms of savings. That's happening over here with monetary policy.
Then on fiscal policy, through the payments we made to households in December, and remember that was just one month in the quarter, obviously some of that was spent and I've just referred the retail sales figures to you relative to the collapse in retail sales elsewhere in the world. But some of it obviously would've been saved as well.
The key question is this: there was no credible alternative strategy and we are absolutely convinced that had we not done this then we would have placed at risk many more Australians in terms of the prospect of job loss than is currently the case.
O'BRIEN: You said at the time of the first package that it was the equivalent of one per cent of GDP, that it would create 75,000 jobs. Do you now have any evidence of what jobs have been created? Or even of what jobs have been saved or of what GDP growth your package has actually produced?
PM: Well Kerry, let's be statistically realistic about this. These payments flowed in December. That is about, you know, two or three months ago.
In terms of putting together the complete retrospective analysis of the data, that's simply analytically not possible at this stage.
O'BRIEN: But isn't it true that it's never really going to be possible to demonstrate it?
PM: Well, on that basis you then flip into the camp of opinion which says the data's always incomplete and therefore do nothing. I have never been in that view and when presented with the warnings -
O'BRIEN: But again, again, with respect, it's not about doing your way or doing nothing. It's about doing it your way. Mr Turnbull asked, Mr Turnbull argued for alternative ways of spending.
PM: Well, Mr Turnbull actually supported the Government's economic stimulus strategy last December.
He now opposes the Government's economic stimulus strategy because Mr Turnbull is a political opportunist, not interested in an economic strategy for dealing with the global financial crisis, just a political strategy to take advantage of the crisis.
O'BRIEN: Your most recent Budget update said that $115 billion had been wiped off tax revenues for the year. It's a foregone conclusion, isn't it, that tax revenues are going to drop further, probably significantly because we're some way from feeling the full effects of the business investment bust that's on the way, or happening already, the big drop in export earnings from the resources boom that's still in the pipeline. That does mean an even bigger Budget deficit, doesn't it?
PM: Kerry, we have taken this one step at a time based on what is an unfolding global economic cyclone and we have been upfront with people about the collapse in revenues which has occurred with other governments around the world.
We've been upfront with people, therefore, about the need for temporary borrowing in order to deal with that and for temporary borrowing to deal with the need to stimulate the economy.
O'BRIEN: But to come back to the point -
PM: Yes, I'm coming to that -
O'BRIEN: It is inevitable that we're going to see a significantly bigger Budget deficit, isn't?
PM: Kerry, we take this one step at a time. The next point in the process which is the Budget, which only lies two months away and we will be obviously engaged in complete and sober analysis of the numbers up until then.
We've said with the last statement on the state of finances that all the risks are on the downside. Wayne Swan, the Treasurer was upfront about that and I have been as well.
And the reason is this is a global economic cyclone. Starting in America, off to Europe, through rest of the world. What's our strategy going to whether we could have done anything different? It's this.
You can either seek to prepare people, prepare the country, prepare the economy, put up as many defences as you can against a cyclone but you know something? You can't actually stop the cyclone from hitting.
Mr Turnbull's approach is don't worry about the defences, let the free market sort it out - .
O'BRIEN: Again with respect Mr Rudd you're over simplifying Mr Turnbull's responses. He's not saying do nothing; he's saying do it differently. But I'd like to move on.
PM: Well, I'd beg to differ on that because it's difficult each day to know each day what the Liberals position is, and I use the example I used before.
O'BRIEN: Yesterday you laid out the argument that you'll take to the next summit of the G20 in April - to isolate the huge bundle of toxic assets preventing the biggest banks to get the money back into the global economy. You say all non-viable banks must be closed. Have you really thought through what that would mean?
PM: Well, the challenge we face right now is - and you and I have just been having a legitimate debate about the forms of fiscal stimulus and their effectiveness, and these are debates that are happening in every capital around the world.
But that's one part of the economic policy dilemma. The biggest part of the global economic policy dilemma is how do you restore the world's biggest banks to health in order to restore global capital flows to anything approaching normality? Because that's what directly affects jobs and investment right across the world, including Australia.
Therefore, as we lead up to the G20 summit, the big challenge is this: do you simply push that into the too hard basket or do you seek to develop a framework with which those governments who are faced with these banks with toxic balance sheets in their jurisdictions to restore those banks to proper health?
Part of the problem is if you have banks, big banks at the moment, in various parts of the world which have very bad balance sheets, what happens is that the rest of the banking system becomes so suspicious, so lacking in confidence of those banks that normal interbank credit doesn't flow anymore. That's part of the problem now.
So, it's important that the global financial community and those governments responsible for the regulation of these banks cauterise the wound. Otherwise you will still have bleeding throughout the financial system and that in term affects the artery of the system, which is private credit flows. That's why I argue in this direction.
O'BRIEN: There are so many banks around the world right now who are only still floating because they're being propped up one way or a Government or even partially nationalised by Government. But is this what you'll be telling President Obama when you see him later this month: all your non-viable banks must be closed? I, Kevin Rudd, believe you've got to close all your non-viable banks?
PM: What I absolutely believe Kerry, is that whether it is in the United States or in Europe, the UK, Germany, Switzerland, Belgium, the Netherlands - this is where we've got a lot of these banks which are domiciled in those countries which have problems with their balance sheets and represent such a huge slice of global credit including that which comes here and to our business - is that the governments of the world can't just do uncoordinated actions in each national jurisdiction.
You know why? Because global financial markets will look at that and say that's not going to work, because if you have systems set up in one country which don't properly evaluate the assets of a major bank, say, in the United States, against what is perhaps being used as system in the UK or in Germany, then markets will still vote no in terms of confidence.
What they're looking for, markets, is coordination, a common regime of principles, and for governments to act within an agreed time frame. And that's why I believe the G20 has a responsibility to move in the direction of establishing such a framework for all governments to agree to.
O'BRIEN: A leading market economist, Saul Eslake, said people approaching retirement, say they're 60, perhaps have five years to go before they retire, don't stand a chance of making up what they've lost from their savings, from their superannuation investments, their retirement funds. That they're either going to have to work longer or just cop a reduced standard of living in retirement. Is there anything you can say to those people? I mean, you're powerless to help them, aren't you?
PM: I haven't seen Saul Eslake's comments, but I always listen carefully to what he has to say. He's been a close observer and analyst of the Australian economy over a long period of time.
Through Nick Sherry, the responsible Minister, we are in deep and rolling consultation with the superannuation industry in Australia. This is a period of great stress for that industry and for those depending on the retirement schemes based on stock market investments.
But you know the core of the problem in dealing with this is what you and I have just been talking about; you cannot effectively look at a restoration of anything approaching normality in equity markets, stock markets, until you get back to the normal flow of credit.
O'BRIEN: But the core of their problem is the money's gone.
PM: This is a crisis, as I've said before, caused by extreme greed, turbo-charged by under-regulated and unrestrained financial markets.
The key thing is to get the rules right for the future but in the meantime act on the question of restoring banks, global banks, to normal credit flows, and that's why the global agenda here is of core importance if we're to see a return to economic normality in Australia as well.
O'BRIEN: Very briefly, Ross Garnaut, the architect of your plan to reduce carbon emissions and tackle climate change, said in a speech last night that the economic crisis gives you some breathing space in mitigating climate change, perhaps two or three years. Given the enormous pressures on business right now for at least the next year or two, given your desire that you express all the time to protect jobs in this crisis as much as possible, hasn't Professor Garnaut given you the opportunity to now delay and to justify delaying your Emissions Trading Scheme by a year or even two?
PM: What Ross is obviously pointing to is the fact that global emissions will not grow as much as people thought because global economic activity is now slower than what was thought or concluded by international organisations and others in recent years.
Can I say Kerry, when we framed the Carbon Pollution Reduction Scheme we did so to get the balance right between protecting jobs on the one hand and dealing with the long term challenge of greenhouse gas emissions -
O'BRIEN: But the whole economic landscape has changed massively and you are saying on the one hand you're in the game right now to protect jobs, to save jobs. On the other hand you're being told by business jobs are going to haemorrhage; jobs are going to bleed if you persist in introducing your ETS scheme in 2010.
PM: Kerry, when we framed this through the good work of the Minister Penny Wong, the challenge was to get the balance right. We were attacked from the left and from the right on this scheme.
We believe we have got the balance right. Our intention is to legislate the scheme. We think it's the right long-term strategy for Australia and the planet.
But we are very mindful, acutely mindful, of ensuring that we manage the proper protection of jobs the way through. That's why there is so much built in the scheme to do that.
O'BRIEN: We're out of time. Kevin Rudd thanks for talking with us.
PM: Good to be with you.