Thanks very much.
Treasurer, Assistant Finance Minister, Craig Emerson the Minister for Small Business and Heather and all those from the Ai Group, and it's good to be in this gathering today, an important stage in this country's economic history, and an important stage in this country's economic future.
It's been an interesting week, this week. In the space of five days the Australian Government has guaranteed all deposits and all depositors in Australian banks, building societies and credit unions.
The Australian Government has provided a guarantee to the wholesale funding arrangements for Australia's banks until market conditions stabilise.
The Australian Government has increased to $8 billion its activities through the Australian Office of Financial Management and the purchase of residential mortgage backed securities.
And the Australian Government has announced a $10.4 billion Economic Security Strategy to assist in underpin positive economic growth into the future.
That's been the last five days.
This is an intense period of government effort and it will be intense for a long period to come.
My message to you today is along these lines. First, that throughout this year, the government has been planning ahead. Planning ahead mindful of unfolding threats, mindful of unfolding challenges and acting ahead of the curve.
The second is this, the government in the period ahead remains determined, absolutely determined, to take whatever action is necessary to continue to underpin economic growth and to continue to maintain the stability of the Australian financial system.
And the third message is this, that government, business, the unions, the community - we're all in this together. And together, we're going to come through this thing. We're going to come through this thing in good shape.
Government action in the year so far. Earlier this year, not long after the government was elected, the Treasurer and I sat down with the Treasury and with others and it became clear to us that we faced an uncertain year ahead.
This year was reinforced by my discussions in the United States and United Kingdom and in Brussels in March/April, reinforced by the Treasurer's discussions with his counterparts in many foreign capitals in that time period as well. Reinforced by recent meetings with leaders, when I was recently at the United Nations General Assembly. And reinforced again most recently in the week just past by the Treasurer's meetings in Washington as part of the International Monetary Fund and the G20.
All through this year, we've been conscious of these unfolding economic circumstances. Today it's unnecessary to go to the question of the causes of what has happened. Today it's more important to explain what has been done and what we still intend to do.
During the course of this year the government has acted in absolute close coordination with our financial and economic regulators. Can I say, in this having spoken now to many foreign heads of government, we are profoundly well served by our regulators. The Australian Prudential Regulatory Authority, the Reserve Bank of Australia, ASIC and the Treasury.
In very difficult and virtually unprecedented circumstances they have performed a first class job. We are well served by them.
The government has worked in close coordination with them throughout the year. Often, in fact invariably, below the radar, as is often best the case.
Throughout this year, and invariably without much fanfare, the Reserve Bank of Australia has injected more and more liquidity into markets.
Throughout this year, measures have been taken of a legislative and regulatory nature when most particular action was required at that time, but to make sure that we had a capacity to act when action was necessary.
The Treasurer back in May introduced legislative authority for Australia to extend its activities in the Commonwealth Government securities market. Extending our activities with the bond market to the quantum of $25 billion, releasing $5 billion in the shorter term.
Furthermore the Treasurer introduced legislation to make it possible for the Australian Office of Financial Management to engage in the purchase of residential mortgage backed securities. Again, ahead of the curve.
Again, earlier this year the government foreshadowed legislation for a financial claims scheme as it relates to the long term security of depositors. Again, ahead of the curve.
The point in raising these things is to say that your regulators have been hard at work, they've been ahead of the game providing us with timely advice about when it's been necessary to act and the government has so acted.
This brings us to the dramatic decisions of recent days, those announced by myself on Sunday and through close collaboration again with the regulators and the Treasurer on the phone from Washington, and also with the other members of the strategic policy and budget committee of the Cabinet.
The judgment we took, based on the advice of the regulators, is that notwithstanding the fact that Australia's mainstream banks are in absolute first class working order, well regulated, strong balance sheets, and across the world with 20 AA rated banks our four, our top four, being among those 20. There was a danger that with the provision of foreign government guarantees for wholesale term funding on markets, on capital constrained markets, that our banks despite their (inaudible) ratings, were going to be compromised. That is, that those banks operating in foreign jurisdictions with less robust balance sheets, with then the new underpinning of government guarantees in the marketplace, would be in a more competitive position than our banks in order to secure term funding for the future.
This is not an abstract debate about finance policy; it's a real debate about future lines of credit into the Australian economy. It's a real debate about how, in fact, you provide secure lines of credit into the Australian economy for the purposes just described before by Heather in her presentation. Making sure there's enough credit for loans to businesses out there engaged in real economic activity and in the real economy.
And that certainly was foremost in the government's mind when it took the unprecedented step of providing that guarantee.
Secondly, because other foreign governments had acted, and a number of other governments prospectively were going to act, the guarantee in relation to all deposits, all depositors, for all banks and building societies and credit unions, was a necessary second step.
Necessary because we could not say and look squarely in the eye the citizens of Australia and say that guarantees should be extended to banks for elements of their commercial operations and not provide a guarantee for working Australians concerned about their deposits long term.
Again, as the bad news filtered its way through the television screens over time, concerns were beginning to emerge in Australia about this deluge of bad news from abroad that someone there'd be some concern about the security of our financial institutions here at home. And again, the government was determined to act ahead of the curve. And we did so.
The second area which has confronted us in recent weeks has been the flow through impact of these extraordinary convulsions on financial markets through credit markets, through stock markets, onto the real economy. And again, it has been necessary to be ahead of the curve.
If you look at the emerging economic data from around the world in the industrial economies in recent months, the downward revisions in growth projections across the OECD and beyond have been significant.
The world economic outlook from the document that was produced by the IMF only a couple of weeks ago indicated clearly that growth projections in the global economy were down one per cent for the calendar year ahead, '09, for the industrial economies down one per cent for calendar '09, and for industrial economies at best bumping along at zero and something worse than that as well.
And the quotation from the IMF managing director referred to by Heather before is a steely quotation - it focuses the mind. That is, for the major economies around the world that they are either in recession or on the cusp of recession. That's that data from which we have been presented.
That data was presented by the IMF collating the data from across member economies prior to the extraordinary convulsions that we saw in the last two to three weeks in the United States.
That series of events, from the bail out of a range of name institutions through to the troubled passage of the measures put forward by the Bush Administration through the United States Congress and through to subsequent actions from other governments including in Europe.
The conclusion therefore that the Australian Government reached in close consultation with our advisers was that given that growth was being revised downwards across the developed and developing economies around the world, and that those most recent downwards revisions occurred prior to the recent dramatic events in the United States. That the only prudent and responsible course of action looking forward was to engage in a substantial stimulus package for the economy.
We stand by that decision, it is the right decision - it is absolutely the right decision for the times that we confront.
When you're confronted with these sorts of challenges to the real economy and how they flow through to real growth and real jobs in Australia, the three dictums which apply are as follows when it comes to fiscal policy - go hard, go early and go to households. And we've done so. Some were surprised by the dimensions of the package which we released the other day, the Economic Security Strategy, we stand by that resolutely as the appropriate response for the circumstances that we now confront.
And the point I make to you today, parallel to what I said earlier on, is that we remain equally determined to take resolute action in the future as is necessary to continue to support economic growth in the economy.
Of course, that Economic Security Strategy which we announced on Tuesday is built on the back of the government again planning ahead.
In May this year when the Treasurer brought down his first Budget, we set aside a substantial government Budget surplus for the purposes of providing a buffer for us for the future. A buffer for Australia for the future. A buffer against tough times. A Budget framed against the discussions that both the treasurer and I have had around the world prior to the framing of the Budget. I'm glad that we did so. Those tough times have come. And we're now drawing, using and deploying the financial resources available to the government through that surplus.
Of course, the other thing is that as of 1 July this year the Government, also through the Budget, legislated going forward a $55 billion plus package of family support measures anchored in a $44 billion plus tax cut agenda, the first of which flowed through from the 1st of July against some of the counsel of some of the commentariat at the time. I'm glad we took that decision as well.
But also reinforced by other measures designed to assist the family budget, including the increase to the childcare tax rebate.
So from July, we had those stimulus measures flowing into the economy. By setting aside the surplus through careful preparation of the Budget, the capacity to act with the economic stimulus package that we announced on Tuesday of $10.4 billion, activity which will flow into the economy over the period ahead, and I'll come to its detail in a minute.
Then, moving forward again, come December, the Government will bring forward its nation building agenda, its infrastructure agenda. And you'll see announcements flowing from that from early next year.
The Government unapologetically is a Government of nation building. We've said that before the election, we set aside funds for that purpose, again through our Budget preparations in May this year. And the time has come again to deploy those resources, building infrastructure. Not necessary just now, but necessary importantly for the long term productivity of the economy as well.
And then from 1 July next year the next round of tax cuts flow as well. What we've sought to do therefore through this integrated set of measures is to provide continued injections into the economy. Tax cut based activity flowing through from 1 July. Furthermore, on top of that, the economic security strategy which I've just referred to, the $10.4 billion stimulus package announced on Tuesday. And on top of that again, what comes in December, the nation building agenda, the first instalment of which will be announced at that time. And flowing through again into the first round of tax cuts which flow from the 1st of July next year.
That's on the fiscal policy front.
On monetary policy you've seen the dramatic action taken recently by the Reserve Bank of Australia in its decision to reduce rates by 100 basis points. If you read carefully the statement of the Reserve Bank Governor issued at the time, he refers quite explicitly to a material change in our economic circumstances. That's why he acted, and that's why we have acted. Fiscal and monetary policy working together against the challenges that we now face.
On the package that we just announced on various measures, you're familiar with those which flow directly to households, those which flow directly to pensioners. I draw particular emphasis on those which flow through to the housing sector. We've been mindful of the construction of the growth drivers in the economy. We've been mindful of the role of consumption, private consumption, and we've been mindful of the role of private dwelling investment as a big driver of growth in the economy and its flow on effects across the economy. And that's why when it came to private dwelling investment that we took the measures that we did, unprecedented, to double the first home owners grant from $7,000 to $14,000 - but then on top of that, to triple the first home owners grant if the first home owner in question proceeds to invest and buy in a newly built home.
Now, this has been done with the clear objective, which is to stimulate the housing sector. As for the measures done, they've been taken to stimulate consumption.
The credit related measures I referred to before have a weather eye plainly on the challenges which business face in terms of private fixed capital investment into the future as well.
And, when it comes to the infrastructure agenda, that goes to the other main driver of economic growth, namely what happens through public expenditure in public investment.
The purpose of my running through all these measures is to indicate this has been planned, in terms of Budget preparedness, well in advance. It has been executed in a systematic way for the future. And, when it comes to further measures which may be necessary in terms of fiscal policy and the future underpinnings of economic growth, the government remains determined to act as is necessary.
There is a third area where the government has sought to be ahead of the pace, ahead of the curve, and planning ahead. And that is I believe the other part of the competence equation.
I've spoken so far about the necessary measures which have been taken in ensuring the continued stability of the Australian financial system. I've spoken about the measures we've taken so far in terms of proper investment into the real economy through the fiscal stimulus measures that I've just referred to, and those which are coming down the track. But there is a third part of the real economy, real financial markets, and confidence equation as well. And that is what the governments of the world choose to do in terms of their global response through regulation to the overall challenge of the global financial crisis.
I believe what the markets of the world have been saying to the governments of the world in recent times is collectively ‘will you please get your acts together'.
A stimulus package here, a regulatory initiative there, a liquidity measure over here, the economies A, B and C or X, Y and Z - that's terrific, tick the box, wonderful. But I think the markets of the world are saying this in what is a definition in global financial crisis mandates an integrated global regulatory response and a global policy response.
Those are the the debates in which I've been deeply engaged, and which the Treasurer has been deeply engaged with his Finance Minister counterparts in the G20 and in the IMF most recently.
What I'll be releasing later today is a proposal which I'll be putting to heads of government across the G20 about how we, the governments of the world, agree on a long term reform package going to the future of the global financial system.
The Treasurer will attend a meeting of the G20 Finance Ministers in November. It's important that we in Australia build political consensus around the world to ensure that this is not a meeting, that it actually produces a considered and reasoned outcome for the future.
The Australia proposal, and it is consistent with the proposal that I advanced recently in an address to the UN General Assembly - there are five action points. The first is that systemically important financial institutions should be licenced to operate in major economies only under the condition that they make full disclosure and analysis of balance sheet and off balance sheet exposures.
Systemically important financial institutions are not just commercial banks, but can include investment banks, insurance companies, hedge funds and financial clearing houses.
Which institutions are systemically important will vary by one country over time. The central bank in each country should have responsibility for financial systemic stability. This should be reflected in the agreed best practice code for financial regulation and monitored and assessed by the International Monetary Fund, through its FSAP and surveillance activities.
Action 2, we need to ensure that banks, other financial institutions, as some of the additional earnings that they make in good times, using predictable rules to build up capital as a buffer for the bad times. Supervisory frameworks need to be counter-cyclical not pro-cyclical.
The Basel rules need to be changed to deal with this.
Action 3, financial institutions need to have clear internal incentives to promote financial stability. Regulators should set high capital requirements for financial firms that have executive remuneration packages that reward short term returns or excessive risk taking. Again, the Basel rules need to be changed to deal with this.
Action 4, supervisory systems must be compatible with financial stability. We need to make sure accounting rules used to evaluate risk take a more medium term perspective and do not encourage institutions to think that risk is low just because current asset prices are high, or recent asset price volatility has been has been low. Again the Basel rules need to be changed to address this.
And action 5, the International Monetary Fund must be given a strengthened mandate for prudential analysis. International Monetary Fund and the Financial Stability Forum, in which Australia is an active member, should provide early warning of vulnerabilities and provide advice and remedial policies. These prudential reports by the IMF should form the basis of active engagement with the G20 to shape understanding and action on global risk and system stability.
I will be corresponding with heads of government counterparts across the G20 in the next 24 hours in support of that proposal and in anticipation of the G20 Finance Ministers meeting which will be held in Brazil next month, which the Treasurer will be attending.
Also, there'll be upcoming meetings of heads of government at APEC and heads of government meetings in the East Asia Summit as well. It will be important to deploy political momentum from those meetings in support of an integrated global reform agenda.
Again, the government has sought to be ahead of the curve. The government has sought to be in the business of planning ahead and through these proposals, in concert with some positive proposals coming out of the British government and other governments in recent times, we believe that we can make real progress. More importantly, we must achieve this outcome because the stability of the global financial system underpins all the other discussions which will be alive around this table today.
To conclude, for the future, actions by government planning ahead is just one part of the equation. Planning ahead on needs for maintaining the stability of the Australian financial system, as I've said before, we will act as necessary.
Similarly, we will act as is necessary for the future stimulation of the Australia economy. And we will act as is necessary in concert with other governments in bringing about a consistent regulatory regime for the future, because until that is finally got right I believe we are going to face continuing uncertainties on global financial markets.
But that is what governments can do. The other part of the equation is what we do with business. And part of the reason we're here today with you is to hear what business has to say firsthand about their own experiences. It's important that we maintain a continuing dialogue with business and with the general community while this global financial crisis works through Australia's economy.
This is going to be a tough time, it's going to be a hard time, and it will require from time to time unprecedented measures and unprecedented actions. We wish to do so collaboratively and in a consultative fashion with business. And that's part of the reason that we're here today.
You are part and parcel of the agenda of maintaining confidence in Australia. Government is part and parcel of the agenda in maintaining confidence in Australia. Consumers are part and parcel of the agenda in maintaining confidence in Australia. We're all part of that overriding economic mission now.
I was challenged before by Heather and by others as to what happens with the rest of the government's continuing economic policy agenda.
My attitude to that is the productivity agenda - full steam ahead. Australia will come through this. We can't use this as an excuse to push to one side necessary long term productivity reforms aimed at producing higher a productivity force outcome in the overall Australian economy.
So our investment in education, skills and training will continue apace. Our investment in infrastructure will continue apace. Our investment of policy and political energy in the national business deregulation agenda through the Council of Australian Governments will continue apace. And there are currently 27 separate items of national business deregulation which are up for decision by COAG in the period ahead.
Similarly, I was challenged about the continuation of the government's approach to climate change and important and critical technologies like carbon capture and storage. These problems do not just disappear; they are with us for the future. They need to be acted on, systematically, sensibly, rationally; on a continuing basis and the government will continue to do that. As reflected recently by the government's announcement of its intention to establish a global carbon capture and storage institute. The core reason is our technology is good, our economic need is great because we are the world's largest coal exporting economy, and the rest of the world needs us to take the lead, and we intend to do so.
Finally, this is as much about what we do and the concrete actions we take as it is about the spirit of the nation as well. You know, people can get gloomy and down in the mouth and there is a lot to be gloomy and down in the mouth about if you watch the news all the time. That's true. But you know something, part of leadership, nationally and in corporations and in the general community, lies in pointing realistically to the challenges and threats we face, but equally realistically to the strengths that we have as an economy and as the community.
And I look to the spirit of the Australian nation, they're not a bunch of panic merchants, they're a bunch of very practical people who believe passionately in the future of the country.
I believe with the policy settings we have, we the policy actions we've taken and with the active participation of you, the men and women of Australian business, and with the broader community, we'll see Australia through in a very strong shape indeed.
Thank you.