Today the government is announcing a $10.4 billion Economic Security Strategy to deal with the challenges of the global financial crisis, to support continued positive growth in the Australian economy, and to provide practical support for households as well.
The global financial crisis, as I've said before, is the economic equivalent of a rolling national security crisis. Inspecting the financial system, we've seen the impacts around the world in terms of large banks collapsing or having to be bailed out.
It's affecting stock markets, we've seen the gyrations on stock markets in recent times.
But it's also affecting the real economy. The real economy: jobs, growth, overseas and here in Australia.
The Government's approach throughout this global financial crisis has been to plan ahead, to examine unfolding events, and to act early and to act decisively. The Government has done so in the course of the last weekend in relation to the measures necessary to underpin the long term stability of the Australian financial system.
But the global financial crisis has entered into a new, dangerous and damaging phase, one which goes to the real economy - growth and jobs.
And that's why the Government has decided to act decisively and early on the question of this Economic Security Strategy for the future.
An Economic Security Strategy to help underpin positive economic growth into the future and to provide practical support for households.
Decisive action, responsible action, early action, all in Australia's interest.
Why is this measure necessary? Let me advance three reasons.
Firstly, if you look at the data which has been produced by the IMF in recent times about the global economic outlook and global growth forecasts, you see significant downwards revisions in global economic growth. At least one percentage point off global growth numbers larger than that across the most developed economies.
The second is, we see evidence also of softening prices for Australian commodities on international markets.
And thirdly, you look at the business and consumer confidence indicators both here and in other countries. These point to difficult times ahead.
So you can either sit back and watch this data unfold, or you can act on it. This Government has decided to act on it.
That's why we have assembled this $10.4 billion Economic Security Strategy for the future.
It contains five elements, and I'll go to them now.
Firstly, a $4.8 billion immediate down payment on long term pension reform.
Secondly, a $3.9 billion payment in support for low and middle income families.
Thirdly, a $1.5 billion investment to help first home buyers purchase a home.
Furthermore, $187 million to create a further 56,000 new training places in '08-09, a doubling of training places as they currently exist.
And fifth, accelerating the implementation of the government's nation building agenda, bringing that forward as I've indicated in earlier remarks.
Let me go to each of these measures.
Firstly, on Australian pensions. The Government will deliver a $4.8 billion down payment to Australia's four million pensioners, carers and seniors. This will contain within it a $4 billion down payment for pensioners which will be made available through a lump sum payment of $1,400 to single pensioners, and $2,100 to pensioner couples.
This will be payable in December.
The decisions necessary to implement that change by December need to be taken this week.
Also, people who are receiving carer allowance will also receive $1,000 for each eligible person they care for.
These payments will be made from 8 December 2008 and are intended to provide additional support in the nine months between now and the middle of next year, when long term reforms will take place as the government has already indicated, consistent with the recommendations of the Harmer Committee of Inquiry
Secondly, family payments. $3.9 billion which will take the form of a $1,000 payment for each eligible child in care for those who currently receive support through Family Tax Benefit A, and families with dependent children who receive youth allowance, Abstudy or a benefit from the veterans' children's education scheme payment.
In all, about 3.8 million Australian children will receive a $1,000 one off payment to their families. These payments will be made from 8 December this year as well.
The third measure, first home buyers. At present, as you're aware, first home buyers are eligible for a $7,000 grant. The government is concerned about softening demand for housing over time. Therefore, the government has decided to act decisively in this area as well in consultation with industry and with others.
As a consequence, for the duration of '08-09, the First Home Owners Grant will be increased from $7,000 to $14,000. On top of that, first home buyers who purchase a newly constructed home will receive an extra $14,000 to take that grant to $21,000. In other words, a doubling of the First Home Owners Grant if you are buying your first home, a tripling of it if you are buying a newly constructed home.
This is designed to support activity in the housing sector. And the housing sector is critical in terms of the overall performance of the economy.
The fourth measure. I indicated before that the government already had in place a number of productivity training places which have been oversubscribed based on the advice provided to us by the Deputy Prime Minister. The Government, therefore, in the period ahead through to the end of the current financial year will effectively double the number of productivity training places from 57,000 to 113,000 in '08-09, costing $187 million.
Finally, in relation to nation building, the government will continue to implement the bring-forward of its nation building agenda. We will make a comprehensive statement on this in December with the bring-forward of the priority lists, both for the Building Australia Fund as well as in education, health and in hospitals.
All together, these measures, as I indicated before, come to a total investment in the economy of $10.4 billion. As I've said before, the government prepared well ahead for this set of circumstances that by ensuring that in the current Budget we provided ourselves with a strong buffer for the future.
The purpose of a surplus in the Budget is to deal with tough times. And tough times are with us. Therefore, the government intends to deploy this surplus in the ways in which I have just described.
Finally, the government remains determined to take whatever action is necessary in the future, firstly, to continue to maintain the stability of the Australian financial system, and secondly, to continue to underpin positive economic growth in the Australian economy going forward.
If I could turn to the treasurer, who has just returned from Washington, to add to my remarks, and then we'll take your questions.
SWAN: Well thanks very much, Prime Minister.
It is the case that we are in the midst of the worst financial crisis ever to confront the modern market economy. And the sooner that governments act to protect their people the better. That is the lesson that I learnt in Washington and New York in recent days. That is the lesson that other world leaders have learnt in their economies.
The situation is moving very fast, and it does require decisive, decisive action.
And decisive action requires a fiscal stimulus. This is a fiscal stimulus and it will support monetary policy as well.
We've acted on monetary policy, now we are acting on fiscal policy and of course we have acted to strengthen our financial system and to strengthen the stability of our banks.
Now it does remain the case if there was ever, if there was any country in world that you wanted to be in in these circumstances it is Australia. But we are not immune and the situation in the last couple of weeks has changed dramatically. The face of the crisis has changed dramatically.
I was comforted, comforted by the fact that leaders on the weekend recognised the seriousness of the situation, and its threat to the world economy and decided to take decisive and coordinated action.
And as you have seen through the last 24 hours and will continue to see, that coordinated action is happening on a global basis. And part and parcel of that coordinated action is action on fiscal policy. This is an important package, an important strengthening of the Australian economy. Over to you.
JOURNALIST: (inaudible) will be left in the surplus for this financial year after this package and do you have an estimate of what this will mean in terms of growth, GDP figures, could add?
PM: On the first question, as the Treasurer just indicated, we are confident that we will still be able to deliver a comfortable surplus going forward. The details of that will be contained in MYEFO which will be released during the course of November.
On the second question about our growth assumptions, they were last forecast in the Budget. The reason we are taking this measure though is to provide us with an extra buffer for the future. What you are looking at is an economic security strategy, the equivalent of one per cent of GDP. And the reason we are doing that is to give this economy that extra buffer for the future. We think it is the right thing to do and it is the right thing to do now.
JOURNALIST: Mr Rudd did you not have forecasts ahead of MYEFO for unemployment and growth and how they would be affected by this crisis on which you based this package?
PM: Certainly, talking to our advisers in Treasury, we have been very mindful of what would logically follow in terms of the softening of growth and employment projections for Australia going forward, given what has happened.
But here is other thing, it is very important to act early and decisively. If you are to learn anything from economic history it is this: at a time when economies need stimulus support, don't leave it too late.
There are critical messages and lessons to be learned from history here, which is act decisively, act responsibly and act early. And we have done that and we are acting ahead of the curve, looking to where our economic circumstances would be well into next year.
That is the right course of action.
SWAN: I might just add to that because Lenore, it is really important to understand that the world changed. It changed dramatically in the last couple of weeks. That is what policy makers around the world are all dealing with and we are simply not immune from that. I mean that is why you have seen some of the actions in the financial system in recent days, throughout Europe.
That is why you have seen more action in the United States. Something changed fundamentally and of course, what is now required because of the shock to the global economy is a domestic stimulus, a domestic stimulus to give us a buffer against this adverse movement in the global economy.
The IMF is talking about zero growth for advanced economies and a downgrade of growth for emerging economies.
PM: (Dominique) Strauss-Kahn, the managing director of the IMF, said about the developed economies - either in recession or on the cusp of it. That is what we are up against globally. And the key challenge here is what we do to deploy our surplus by planning ahead and to make sure we have an extra buffer for growth and for jobs into the future.
JOURNALIST: Mr Rudd, the payment to pensioners, was this something you were planning to do or has that been changed by events in the last couple of weeks? And is that quantum what pensioners can expect to get and retain beyond the review, the Harmer review?
PM: The two things are separate Mark. We will still be attentive to the recommendations which come forward from Mr Harmer for a long term pension reform. If you take the figures which have been put out today, in terms of the equivalent payment per week which comes from the bonus which has just been described, or the one off payment which has just been described for singles, it is in the vicinity of $35 per week and for each member of a married couple, some $26 per week.
But we will wait until we get the full report from Mr Harmer in terms of long term pension reform. I emphasise this: this applies to all categories of pensioners, carers.
JOURNALIST: (inaudible) do you have any estimate of the effect of this package on inflation and going in the other direction do you have any revision on inflation as a result of the general slowdown?
TREASURER: Thanks Michelle. Well the Reserve Bank itself has made the observation that inflation will begin to turn down, following a peak around September. But around the world there is a substantial easing of monetary policy because of a forecast dramatic slowing of growth.
So the risk on inflation is now abating.
JOURNALIST: (inaudible)
TREASURER: Well our numbers Michelle will be published in MYEFO which will be out in the next month.
JOURNALIST: Just on the housing package, you said in your opening remarks that they were designed to support activity in the housing sector. Is that talking about the building sector, and is it also essentially designed to help keep housing prices from falling?
PM: Our principal concern here Laura is activity in the economy. This is a macro economic package, through fiscal policy and it is designed to promote activity. Our policy action here, given the significance which private dwelling investment represents in the national accounts, is to ensure that we maintain activity in the sector. That is why these one off measures have been embraced.
JOURNALIST: (inaudible) this looks like being a great Christmas for pensioners and low income earners. What's your message to people who are missing out? I think with the Family Tax Benefit Part B, I think if you start earning over $42,500 you start missing out, and when you get to $94,000 you lose 30 cents in the dollar. So what's your message to those people who might be seen as earning a bit more and missing out here?
TREASURER: Well Family Tax Benefit A runs right up the scale. So this is a very inclusive package and it is for Family Tax Benefit Part A. It is a very, very strong package and I can't give you the exact percentage of people that are eligible for that but it is a very high percentage of all families and I will get back with the exact number for you.
But make no mistake, this goes to a lot of families out there, a lot of families. And it, as you correctly point out, is a significant boost. Because the other thing is that families have been under very significant pressure because the other shock in the world economy has been of course the oil price shock, which people have been carrying in addition to relatively high inflation early in the year.
So these people actually have had a fair burden on them, which is why we are seeing an easing of monetary policy and why we have the capacity to ease fiscal policy, and that is what we are doing.
PM: These measures affect millions of families, affect millions of pensioners and affect a lot of people out there who are contemplating a decision now about whether or not to go ahead with that critical decision to invest in their first home.
JOURNALIST: Obviously you have said this is designed as a stimulus so will you be - and the timing before Christmas - are you actually encouraging people to spend this money when they get it? Is there a danger that people will hold onto it and will pay down credit or increase their savings?
PM: Now Dennis, it's important to put this into the context of various other measures. Firstly, you have a 100 basis point decision reduction by the Reserve Bank. Now secondly, you have the measures that we're taking today, as they affect pensioners and they affect families. And thirdly, of course you have the measures taken by the government, the action taken by the government over the weekend concerning the guarantee on deposits in banks, building societies and credit unions.
All these measures affect confidence, and do you know something - part of our job in this business is to continue to construct the rational grounds for confidence in the future.
We will not dictate how any individual consumer or person spends their money, it's a matter for them. But what we're on about is making sure the financial system is sound and secure, in which people can have confidence, that the public finances of this country are sound and secure, in which they can have confidence, as well as delivering practical support on the way through.
JOURNALIST: Do these measures leave room for the Reserve Bank to keep easing monetary policy?
PM: The Reserve Bank will make its own call in the future, Paul, and all I can say is that we, being responsible fiscal policy, are doing the right and responsible thing, and furthermore we are in a position so to do because of the cautious and conservative approach we took to the budget when it was constructed in May, to give us this buffer for the future.
TREASURER: Can I just add to that, what has happened here is fiscal policy is now supporting monetary policy because circumstances have changed dramatically around the globe.
PM: Also remember what the Reserve Bank Governor said in his statement the other day. He used a term which reflected very much what the Treasurer was saying before. He referred to recent events as having reflected quote: “A material change” unquote and that is why decisive action across the policy instruments available to government is necessary and that is why the Reserve Bank has equally acted decisively.
JOURNALIST: You won the election declaring yourself to be an economic conservative. Has this calamity, this economic calamity worldwide, transformed you into an economic radical?
PM: The credentials of being an economic conservative is about this - planning for the future and putting money away for that. This government has planned for the future, it's put money away for that, and we've decided the time has now come to invest, and to invest in the ways which we've described.
TREASURER: Can I just add to that, if that's your categorisation, just look at those people around the table at the G20.
JOURNALIST: Prime Minister, you're spending a lot of money here to really address market failure, and you have to do that because you want to protect people, the real economy. How important is it that there is regulatory reform across the whole global system so that we don't have to sit here in another five years having to bail out failed banks again?
PM: I'll turn to Wayne to give a fuller response to this because he's had a full diet of this around the table of the IMF and the G20. But (inaudible), the bottom line is this, and my discussions recently with President Bush and Prime Minister Brown and others is part of the global confidence equation affects here as well.
It is for the markets of the world to see the governments of the world embrace a unified, uniform, consistent set of measures on liquidity, on capitalisation, as well as regulation for the future.
And in the process, not to go down the road of what we described as, you know, Balkanised regulation. If ever there is a single message the governments of the world, that now this is one planet, it's this one and the challenge we still have ahead of us, and the Treasurer's been doing some excellent work on this in Washington in recent days, is to arrive at that point where on those three core elements of consistent regulation, we the governments of the world get it right.
Transparency on the question of liquidity and capitalisation and also the regulatory framework across the top.
TREASURER: I just wanted to add to that, because (inaudible) but (inaudible).
PM: I was going to speak shortly and briefly, wasn't I? Sorry.
TREASURER: Both the G7, the G20, the IMF - they all regard this as a global problem that requires a global solution. From early on this year both the Prime Minister and myself have been very active across a range of forums arguing for the recommendations of the Financial Stability Forum to be implemented globally, and that has not happened across all countries.
But also the Prime Minister has put forward an important new agenda to add to that of the Financial Stability Forum. That's been on the agenda, and he's taken that up with other world leaders, including President Bush.
I believe, as a result of what occurred on the weekend, all nations, particularly the largest developed and developing nations, will now seriously consider that forward agenda, because in all of the meetings I was at, the United States particularly recognised that the source of this crisis was there, and they do feel a responsibility to work globally to solve it.
JOURNALIST: You spoke about confidence. We've seen a massive bounce back on the markets overnight, how much heart do you take from that, and what do you say to people who might see that as a sign that the crisis is over?
PM: Well, I believe in taking things one day at a time and planning well ahead invariably on the worst assumptions. That's part of our job in government, and that's why we're being prudent and rational about our way forward and, you know, there's a lot of work to be done yet, and can I just say here and now, there are going to be huge bumps in the road yet, it's not going to be even sailing.
But, if there's one single lesson for us all from economic history it's this - there will be action. Responsible action. Decisive action. And I believe the government has done so.
TREASURER: Sorry, I just want to add to that - you might recall, Karen, in late March-early April this year when there was action on the investment bank Bear Stearns, many people concluded that that was the end of the global financial crisis.
When I was in Washington for the IMF meetings at that stage, I met with a number of people in the United States who said to me ‘This is not the end. It's just the beginning'.
Now sadly, that has turned out to be the case. Granted, particularly through May and June, it appeared that the world was going to settle down, but the world has changed, particularly in the last couple of weeks and what we must do is to act early and to do everything that we can to protect our people, but we must also deal with the issues internationally and we're doing that as well.
JOURNALIST: Mr Rudd, two questions - the opposition have been calling for months for a $30 a week increase in the pension, you called it irresponsible, but were they right all along? And secondly, if the world has changed, do you still intend to introduce an emissions trading scheme in 2010?
PM: We've committed to long-term pension reform after those opposite after 12 years did nothing - first point. Secondly, in terms of the measures that we've adopted, as we've said consistently, they should apply to all categories of pensioners and carers, not just cherry picking some. I think that answers that point.
On the question of emissions trading, our ambition remains 2010. And do you know, part of the Government's thinking there is the calls from many in business for consistency and predictability for the future. Climate change is not going to go away. The question is getting the rules right, getting the design right, mapping it out early so people understand the rules within which they're operating and can responsibly operate.
The long-term economic cost to the entire economy and to the entire global economy of not acting on climate change remains formidable.
JOURNALIST: Prime Minister, will the cost of this package have any impact on your ability to deliver all of your election promises and your COAG agenda, or the pace at which you're able to deliver those?
PM: We are confident, having been prudent financial managers, that we can honour our pre-election commitments, we can honour our Budget commitments, and we are confident that we'll continue to advance our nation-building agenda as well. The second part of your question was?
JOURNALIST: The COAG agenda and...
PM: On the COAG agenda, we're up for a lot of argy-bargy on that fairly soon. I'm looking forward to that. But, you know, long-term reform on health and hospitals and schools, that's still important. It's out there, it's bread and butter stuff for people in the community. We intend to get it right, so yes.
JOURNALIST: $10 billion is a big package but very little of it seems productivity-related. It seems to be pensions and a family assistance package. Have you softened on your attention on productivity?
PM: As we said quite explicitly before, this is a macroeconomic package designed to do two things - which is to support positive economic growth into the future, and secondly, to support the household economy as well.
The Government's long-term productivity agenda remains in place. My answer to Dennis' question before about the role of the Education Revolution and the broader productivity agenda in the negotiations with the States and Territories remains on track. Furthermore, the other big driver or productivity is what you do in terms of infrastructure. That remains on track as well.
There's not an either/or business. Sensible long-term planning gets the challenges presented to us from outside the square right, as well as those that we've been working on for some time as well.
JOURNALIST: Treasurer, will this package be enough to prevent Australia from falling into recession or will you guys be back here in six months' time outlining more spending to keep the economy ticking over?
TREASURER: I don't ever use those terms about the Australian economy. As I said before, there's one country in the world you would want to be in in these circumstances, it is Australia. We have underlying strengths here that virtually no other country in the world has, but we're not immune from the fallout and that's why we've decided to act - for the short-term - to act immediately now.
We have a long-term agenda which strengthen our economy, a long-term investment program. This is not a substitute for that. That continues. And some of these payments are one-off - one off for good reasons. What they do is recognise the enormity of the shock to the economy that is flowing from these international circumstances. But our long-term agenda remains on course.
PM: The Government remains determined also, as I indicated, I think, in my remarks before, to take whatever action is necessary in the future to continue to maintain the stability of the Australian financial system and to continue to support positive economic growth in the economy. That's the responsible course of action.
JOURNALIST: On infrastructure, realistically, how quickly could you get the first of your projects up and running, given that you've brought it forward by three months and there's going to be quite a time lag before you can get...
PM: The Federal Government in the past has not had a nation-building agenda. So, we've had to start from scratch, point one. Point two: we've been out there with the States and Territories for some time now putting together a priority list for infrastructure and submitting those to rational analysis, and to bring forward, as I've suggested for first reports in December.
When we make a further statement on our Economic Security Strategy for the future we will give you a clear indication as to the rollout pace which is possible under that agenda. We've got to get the policy right because this is serious stuff - getting infrastructure right for the future. And that's why we cracked the whip, made sure it's going to be ready in time, but we want to make sure, equally, it's done in a responsible way.
JOURNALIST: A question also for the Treasurer. Is this enough to ensure that economic growth next year stays with a two in front of it, as Lindsay Tanner suggested on Sunday? And secondly, if this is such an unprecedented crisis, if tax revenue falls at the same time you need to stimulate the economy, what's your position on posting a deficit, if necessary?
TREASURER: Our fundamental commitment is to keep the Budget in surplus over the economic cycle. That was the commitment we took to the last election and our commitment now. That's why we describe ourselves as economic conservatives, not radicals.
PM: The other point is, as I've said before, the numbers we have before us all suggest this economy will continue to generate positive growth. What we are doing today, given the extraordinary events which have happened abroad, is to provide this economy with a buffer for the period ahead. That, I think, is a responsible course of action.
JOURNALIST: Is it your view, or the view of those people you met in Washington, that the world has changed forever? Are we going to get back to a situation where we were before? And isn't it the reality that whatever we do in our economy, given the global nature of this, we're still at the mercy of what other countries do?
TREASURER: (inaudible) was we can't continue with business as usual, otherwise we will be condemned to these events in the future. You might recall this has happened before. This event is now bigger. It was called the Asian Financial Crisis and indeed, the G20 was formed as a consequence of that. But despite that, in the 10-year period since then, the fundamental reform that needs to happen to the financial architecture has not happened.
I certainly believe that the scale of these events, their threats to the fundamental stability not only of the economy, but of security, will now galvanise world leaders to put in place some of the fundamental reforms that are absolutely required. And that's what the Prime Minister and I have been arguing for all year and I now believe that commitment is there.
But the world and the globe is going to be tested in the next few months. Hopefully, actions of recent days will place a floor under what's occurring internationally, but whatever occurs, we can't lose sight of the need for fundamental long-term reform.
PM: Just to finish on the G20, you know it's one of the best vehicles around for dealing with this - the reason being it includes both developed and developing economies - the 20 most advanced economies in the world. It includes China, it includes India. Australia, through the Financial Stability Forum and through the G20, have below the radar, been at the forefront of developing reforms in the system all year.
We'll continue to do so. We'll continue to argue for the effective resolution of these matters at a political level.
It is my strong view and the view I've conveyed to other political leaders around the world, is part of the confidence equation globally lies in this: for the markets of the world to stare in the eyeballs of politicians of the world and conclude that the politicians of the world have reached a uniform agreement on the precise content of the future regulatory package on liquidity, on capitalisation and the rest.
That's the solution. That's what we're working towards globally, as well as taking the necessary decisive action here locally.
Thank you very much.