HOST: Julia Gillard, good morning.PM: Good morning.HOST: Are you taking advantage of people's generosity? They've given generously to the flood appeal and then you slug them some more? They may not be so willing to make donations from now on.
PM: I think Australians around the country realise this is a time where we need to pull together. We are seeing a natural disaster of unprecedented economic proportions still unfolding in our country. We have still got flood waters rising in parts of Victoria.Now we need to rebuild, to help the people of Queensland and beyond rebuild the roads, the rail, the bridges, the ports, all of the things that are necessary to rebuild communities and rebuild the economy. That's what this package is for.HOST: People pay their taxes and they expect the Government to manage for contingencies such as floods and fires. Why not blow the budget surplus?PM: We're a nation that does see a lot of natural disasters. We live in a continent that regularly serves up to us floods and fires.What's different this time is the huge economic cost. I mean, we've seen 75 per cent of a State declared a natural disaster zone. We've seen flood waters right around the country doing damage.Given the unprecedented scale of this we have to put together the right package so we can rebuild now and the right package for our economy, and it is in the interests of our economy to bring the budget back to surplus in 2012-13.HOST: Is it? Because economist and Reserve Bank board member Warwick McKibbin and others say the impact of blowing the budget would be negligible, that this is exactly the circumstance in which you could and should borrow more and wear a deficit even - if you blew the surplus.PM: Well, I respectfully disagree. By 2012-13 our economy will be running very strongly, very near capacity, and in those circumstances we've got to manage demand in our economy.HOST: They've take that into account.PM: Well, I respectfully disagree. I've made a different judgement call and I'll stick by my judgement call, and my judgement call is with an economy that will be running near capacity, near full capacity in 2012-13, we've got to manage demand. Part of managing demand is to reduce the Government's footprint on the economy. That's what having a budget surplus is all about, and if we don't get that right then we put upwards pressure on inflation and interest rates.So, the package I announced yesterday is about rebuilding and making sure we manage the growing capacity constraints in our economy. That's why we have done things like deferred some infrastructure spending.HOST: If you'd borrowed more, even the lot, say $5 billion, what would have happened to interest rates?PM: Well, simply don't accept the argument that it's not in our nation's interest to be bringing the budget to surplus to 2012-13.HOST: You just said bringing the budget to surplus was necessary in order not to keep, put pressure on interest rates. So, if you had borrowed the lot and you didn't have a surplus, what would have happened to interest rates?PM: Well, clearly, if you have got greater demand in the economy when it's running close to capacity that feeds inflationary pressures. Inflationary pressures feed interest rate pressures. That's why it's in everybody's interest that we manage this demand in our economy.So, yesterday's package - yes, it's got a levy, and I think Australians around the country will want to help in these times. It's also got spending cuts, very important - the Government making sure that we are paying for this package, and if you actually look at the balance, you, know there's $2 in spending cuts and re-profiling of infrastructure compared with $1 in levy in this package. So, more has been done on the Government's budget than we are asking Australians to do through this levy.
That's the right way to manage demand.HOST: Just on this point, how much do you think interest rates would have risen if, for example, you'd borrowed the lot or-PM: -You're asking a question that's incapable of answer by any living human being. There is not a mathematical-HOST: -But you made a judgement about-PM: -Well, I made a judgement, but your question is asking me for a mathematical equation. There is no mathematical equation here. There is no-one who can answer that question for you, but what everyone can say is the hotter the economy runs, if you don't manage demand that leads to inflationary pressures and that can put upwards pressure on interest rates. That's undeniable as an economic proposition.HOST: But you can't say how much pressure?PM: No living human being can tell you that. There is no mathematical equation, so you are in search of something that doesn't exist.HOST: There is a risk that the damages bill will blow out. You've acknowledged that and you've pledged that any extra funding will be found from budget savings, so clearly there is more room to cut fat. Why couldn't you find those savings now?PM: Well, I'm not going to agree with the language of blow out. That's not appropriate language in these circumstances.What I said yesterday is we were working off the best preliminary estimates available to us, having worked hard with Queensland Government officials, for example, to see what the damage rebuilding is going to cost.Now, of course there is a risk that the bill is more than that. I wanted to assure Australians, and I offer them that assurance again - this is a temporary, one-off levy. It will be there for 12 months and that is all.So, if we need to find more money then we will do that through further budget cuts. We have already made major budget cuts in this package and if we need to do more then we will.HOST: Why not do that now instead of slugging people with an extra tax?PM: Well, given the unprecedented economic scale of this we needed to get the mix right. The mix is that the Government has rearranged the budget to manage demand and to free up money.We are asking people to make a contribution, too, and let's be very clear about the size of that contribution. You know, if you look at people earning $60,000 a year, they are being asked for less than $1 a week. People under $50,000 a year in income won't be paying anything at all.So, we are asking people to make a contribution to what is a huge rebuilding effort.HOST: You set the target of a budget surplus a while back. It's a political target by definition, and you set it to prove that you are good economic managers. That's by definition playing politics, isn't it?PM: I disagree with every assumption in your question. It's an economic need to bring the budget to surplus in 2012-13-HOST: -But a raft of economists say that's not necessary.PM: Well, I've made a different judgement call - full stop. Don't agree with them. Sorry about that.My judgement call is, with an economy that will be running hot in 2012-13, a budget surplus is the right thing to do, and our economy despite, this big disaster, is strong now. We've got strong employment growth; we've got strong wages growth; we've got inflation in the band where we want it.
In those economic circumstances it's the right thing to do to pay as you go and that's what this package enables us to do.HOST: The Opposition is vowing to vote against the levy, so you'll need the support of the Greens and independents, many of whom want the Government to set up a permanent disaster relief fund. Will you?PM: Well, firstly I think Tony Abbott's got some thinking to do. I mean, if it was good enough for him to say to the Australian people he was going to put a levy on to fund his election promises then how can it be right for him, in these circumstances, with a disaster of this scale, to say it's not good enough to have a levy to rebuild Queensland and other parts of the country?HOST: Well, you're not going to get his support, so you'll be dealing with Greens and the independents-PM: -Well, I think he has got some thinking to do and I will be making that case very strongly.Tony Abbott needs to answer the question to the people of Queensland and beyond, why was it good enough for him to levy for his election promises but it's not good enough for him to support a levy to help their rebuilding and recovery? It's a key question.HOST: So, on the question of the Greens and the independents, to get their support will you set up a permanent disaster relief fund as they have suggested?PM: What I'll do is go to the parliament and say this is the right package and it's an urgent package and it requires people's support so we can get it through the parliament, get on with the job of doing the necessary rebuilding.HOST: Do you think that climate change has anything to do with this flood disaster?PM: I don't think you can look at one weather event, one disaster- I mean, this has been a huge, unprecedented disaster, but I don't think you can look at one, a bit of the weather and say that equals climate change. I don't think it's as simple as that.But, having said that, of course I do believe that climate change is real and is going to impact on our country.HOST: Independent MP Tony Windsor says there have been enough disasters to show that a fund is warranted, so to keep insisting they are one-off events is to ignore the role of climate change.PM: What I would say to that is we do cope with natural disasters. We do it all the time. We see some floods, some fires, and we manage them.Now, there is a difference with this event. There is a difference with the scale of it. There is a difference with the economic effect, and it is because of that difference that the Government and I laid out the package yesterday and we are asking Australians to make a contribution, but the Government is also implementing major budget cuts and changing infrastructure spending to make sure that we can rebuild Queensland and other parts of the country that need our support.HOST: So is a permanent disaster relief fund on or off your agenda?PM: Look I understand Mr Windsor and others will want to have that discussion, but what I would say is first and foremost we've got to get on with rebuilding Queensland. We've got to get on with rebuilding those parts of the country that need our help now: to put back vital economic infrastructure; roads that need to be rebuilt; bridges that need to be rebuilt; rail lines that trains can't get through now unless work is done.We need to deal with this package urgently. That's what I will be asking the Parliament to do.HOST: You say that taxpayers will get better bang for their buck by putting a price on carbon than funding a raft of green programs that you've either slashed or put off, but there is no certainty that you will get a price on carbon, because after all you promised an emissions trading scheme and didn't deliver.PM: Well, I'm very determined that in this Parliament we will get a price on carbon, and that's the most economically efficient way of dealing with carbon pollution, and given that economic efficiency it is a better way than some of the programs that I determined should be axed or re-profiled to make way for the spending we need to rebuild the nation.HOST: Julia Gillard, thanks for joining AM.PM: Thank you.