O'BRIEN: Mr Rudd, we're seeing quite an incredible set of government interventions in just the past few days. The final stamp of Congress on the US bailout, Australia's big rate cut, the other central banks cutting over night, the massive British bailout. But absolutely nothing has stopped the slide of confidence for more than the blink of an eye. That must really worry you?
PM: Well, we're in the midst of a global financial crisis. And you're right Kerry, we've seen some 25 banks, or more than that now, either fail or have to be bailed out around the world and that's got a real roll-on effect to what's going on in the economy, globally and a wash-on effect here.
Our view is this: what are the essential needs? Liquidity in the global financial system, and that's why we've supported both the US and the UK measures, and they're very substantial measures. I was talking to Prime Minister Gordon Brown about his financial assistance package on the telephone this morning.
There's a second part to this equation, which hasn't been done yet, and that is to summon the global political will to agree on the changes to the regulations in the system. And the reason why that is necessary is it's the other half of the confidence equation. Fixing up liquidity now is one half, fixing up the rules for the future, that's the other half, and I don't believe... (inaudible)
O'BRIEN: Just on that point, with all respect, fixing up for the future is a long way from many people's minds right now. They are deeply concerned about the present and the immediate future. As everyone keeps saying...
PM: Can I just make one point, though, Kerry, is that confidence in the system now hangs off both those factors. It hangs off- is there enough liquidity in the system now...
O'BRIEN: But primarily, primarily about that liquidity. And the judgment of the market, day after day is, you guys, governments, George Bush, Gordon Brown, whoever, we don't really think you know what you're doing or we don't think you're doing enough. That is the market's judgment, right or wrong.
PM: Well, can I go to what the International Monetary Fund said today. It said that on this second half of the equation, getting the rules right, which is a core part of the confidence equation going forward, it's not that there's a great disagreement about what those rules should be, it's a lack of political will between governments to agree on them. That is why one of the significant things to happen in the last 24 hours is US Treasury Secretary Paulson's decision to convene a meeting of G20 finance ministers, including our Treasurer Wayne Swan, this weekend, and part of the mandate must be not just global liquidity requirements, but the fortified key changes which must be made to the rules, including transparency, capital adequacy, prudential standards, corporate governance, and for those to be consistent across major economies.
O'BRIEN: OK, well let's concede the point for the sake of the argument, but that's not going to stop right now Australian house prices going into a slide. If what we heard on this program was right last night, that our own housing prices in this country are at such unsustainable levels that the debt binge of this country's households is also unsustainable and the only way for them to go is down. Does that bother you?
PM: Well, Kerry, I believe in levelling with the Australian people. This is a very difficult time, it's a very difficult set of challenges. There's no point gilding the lily here. But equally it's important to say this: our responsibility as the Government is to provide tough, decisive action to keep the economy strong, relative to what's happening around the rest of the world, and secondly, to underpin and to maintain the stability of our banking and financial system.
These are two great strengths. Is that going to deliver us, problem-free, out of this virtually unprecedented global financial crisis? Well of course it's not. But is it going to deliver us in a stronger state, stronger condition, than would otherwise have been the case? You betcha. That's the decisive action to which we've committed and we're going to do it.
O'BRIEN: What message do you have for people who feel they're at the mercy of the markets? Stay calm? Don't panic? Don't rush to liquidate your assets?
PM: Kerry, I don't provide individual financial advice to individual investors or mortgage holders. That's the responsibility that's provided by financial advisory services to households around the country. My job is this: my job is to maintain the stability of the Australian financial system, and you know something? When I see 25 banks collapse around the world, that is a very fundamental, and can I say, focussing challenge when you've had virtually a global credit strike in terms of inter-bank lending. This has taken much of the Government's time.
And the second is this: a set of policies which continue to generate in Australia positive economic growth when the world, the IMF tells us today, much of the world is heading into recession, at least the developed world.
O'BRIEN: You keep saying that Australian banks are the safest in the world, but doesn't the real vulnerability in Australia lie with those massive levels of household debt, with our own debt binge, and isn't that largely beyond the control of Government to protect those households that have extended way beyond their means if the global economy really turns nasty?
PM: My responsibility, in dealing with the challenges faced by households and the economy overall, is to continue to take the action necessary to grow the economy. That is the core challenge at present. That's why our $76 billion nation building agenda is critical as well. To continue to grow the economy is critical, because that way we can sustain continued growth in jobs in the future, and that's going to be very difficult, given what's happening around the world.
Nothing in this is easy Kerry, I'm not misleading anybody. But our job is to maintain that difference which exists between our conditions and those around the rest of the world, and to do what is necessary to achieve that, and that's the Government's resolve.
O'BRIEN: Economist Steven Keen pointed out on this program last night that America's private debt levels are way beyond what they were going into and during the '29 Great Depression, and so are Australia's. That must worry you?
PM: Well, personal consumer credit and personal consumer debt has been growing year-by-year over a decade plus. That is true. The key question however is the overall balance in the Australian economy, and on that question, I can say that we continue to provide, for example, through a strong Budget surplus, strong management of public finances, as well as the other measures the Government is taking, a fundamentally different set of macro-economic circumstances going forward compared with the Americans. The Americans are what? Grossly in debt in terms of their public sector, that is, public sector debt. They are running budget deficits, and on top of that, of course, they are, in terms of their credit regulations and their financial regulatory environment, much worse than we have been.
O'BRIEN: Whether that's so or not, do you agree with Professor Keen's assessment, he's been studying this for a long time now, he's been warning about this for a long time now. Do you agree with him that Australia's housing values, our real estate values, are unsustainable and secondly, that developers by-and-large are not going to invest in new land and housing developments because they know the capital gain is simply not going to be there for the foreseeable future?
PM: Well Kerry, again, I'm not in the business of providing advice on the future shape of the Australian housing market, because it differs...
O'BRIEN: But surely you have to be vitally interest in this because...
PM: I am Kerry...
O'BRIEN: ... the issues of homelessness, the issue of adequate public housing, the issue of adequate housing generally, the issue of young people being able to get into homes, the issue of rental prices, the issue of people who've got very big mortgages watching the value of their home go south?
PM: You're asking two sets of questions there, which is to provide a prediction about where house prices are going to be across the country over a period of time. I'm not in the business of doing that, that's irresponsible.
What is responsible for me to do is this: on housing policy, what have we said in the nine, 10 months we've been in Government? There is a major supply-side problem. If you look at not just homelessness but you look at the lack of availability of affordable housing, and the overall problem we've had with price escalation in the general housing sector, putting home ownership beyond the reach of so many Australians, this is a critical public policy need.
What have we done? In 10 short months in office, $2.2 billion worth of housing policy programs, a first home savers account on the demand side, if you like, and on the supply side, $625 million national rental affordability fund and secondly a half-billion dollar general housing affordability fund.
The rental affordability fund is designed to construct 50,000 units of affordable rental accommodation in the period ahead.
We have an active set of policies and programs here. They're all on the supply side, necessary to do, and necessary to give a more affordable outcome for working families and there is...
O'BRIEN: All of which you were promising you had in train before we knew the extent of this tidal wave, this huge onslaught on the global financial system and you'd have to concede yourself, surely, that you along with everybody else, nobody knows really where this is going to go, nobody knows its limits. We could end up in a global recession that sweeps Australia up in it. Is that not so?
PM: Kerry, based on our analysis within the Government, we have no information available to us which causes us to conclude other than that we will continue to generate positive economic growth in this country.
Now of course it's difficult globally, but let's cause the country at large to have before them the objective facts about the state of the economy. That is, look again at the International Monetary Fund report today. What does it say about the most advanced economies in the world in 2009? Basically, close to recession or in recession. What does it say about Australia? A growth number with a ‘2' in front of it. What's it say about unemployment? In the most advanced economies, the unemployment rate in 2009 of 6.8 per cent or thereabouts, in Australia an unemployment rate with a ‘4' in front of it. Well, can I say that represents a fundamental difference. My job is to do everything possible, everything decisive available to Government to maintain this difference between our circumstances and those of the United States and elsewhere.
O'BRIEN: What is your biggest fear for Australia? Right now, what is your nightmare for Australia?
PM: Kerry, my responsibility to Australia is to speak objectively about the problems we face and equally objectively about the strengths we have. People running around throwing their hands in the air, talking about nightmares is not leadership, that's commentary, and I'm not in the business of commentary. The nation requires plain talking, straight talking about the problems we face and the strengths we've got, and that's what I intend to keep doing.
O'BRIEN: And are you able to say that you are completely levelling with the Australian people about your fundamental confidence in the Australian economy to withstand this, to actually stay in positive growth no matter what comes at us?
PM: Kerry, I am confident that we have the policy settings in Australia here to see Australia through what is an unfolding economic storm, a global financial crisis which has created an economic storm. It will be tough, it'll be rough, and there's going to be lots of rocking of the boat, let me tell you.
But, if you go back to what the settings of the Government's policies are: one, of all the OECD economies now that have been buffeted by this problem, there are very few indeed who can boast a $20, $22 billion Budget surplus as a buffer to act, and let me tell you, this provides us a buffer which comes in very handy in circumstances right now, hence our nation building agenda.
And secondly, all those economies, before the events in the United States in the last couple of weeks, six of the seven of them are either zero growth or negative growth already. We're continuing to generate positive growth. It's going to be tough and hard, but I can tell you that we in the Government will be prosecuting a hard-line economic agenda which has one overriding objective: to continue to generate positive economic growth in Australia, despite the difficulties we face.
O'BRIEN: Kevin Rudd, thanks for talking to us.
PM: Good to be with you.