| 25.07,09. 01:26 PM |
Rudd's recipe for recovery
July 25, 2009
AUSTRALIANS should brace for high unemployment, rising interest rates, severe budget cuts and more expensive food and petrol as the nation and the world recover from the global economic crisis, the Prime Minister, Kevin Rudd, warns.
"These four pressures will hit Australian families just as they begin to feel the first benefits of recovery," he says. "As growth returns, the economic conditions facing many families will deteriorate."
The warning is contained in a 6100-word essay in today's Herald, in which Mr Rudd charts the path beyond the crisis and into recovery, a turning point he believes could be reached this year.
The essay, The Building Decade: The Long, Hard Road to Sustainable Economic Recovery, was written while Mr Rudd was on informal leave at Kirribilli House last week.
It gives notice of the dramatic policy changes he says are needed to put the nation on a more sustainable footing, rather than remaining at the mercy of consumer debt and global factors such as mining booms.
"Fundamentally, the shift from crisis to recovery will bring with it one of the most significant changes in global and domestic policy settings that Australians have experienced in their lifetimes," he says.
Australia and the world must start planning a co-ordinated exit strategy - using the Group of 20 nations - to wean economies off government intervention as the private sector recovers. And the lifting of government bank guarantees must also be co-ordinated, he urges.
Mr Rudd reprises his attacks on neo-liberals, whom he blamed in his last controversial essay for causing the global financial crisis. This time he extends the attack by accusing them of trying to stymie efforts to combat and emerge from the crisis.
In comments aimed at the Coalition, which opposed the economic stimulus measures and criticised the debt and deficit accrued, Mr Rudd says: "They now attack the range of policies that have been put in place by governments of the responsible centre to deal with the consequences of the crisis, in complete denial of the impact of the resulting recession on the jobs of working Australians."
He berates neo-liberals for arguing that because of tentative signs of a global recovery "none of the national and global interventions that have underpinned this improved performance were necessary in the first place".
With an election due next year, Mr Rudd has sought to get on the front foot by warning of adverse economic conditions as a consequence of fighting the recession.
"Clearly, Government action around the world has come at a cost," he says. But without it, growth, unemployment and the prospects for recovery would be "much much worse".
He says unemployment, which is running at 5.8 per cent, will rise for at least a year once the recovery begins because it is a lagging, not a leading, economic indicator. And over the next 18 months, interest rates - which have been slashed by 4.5 percentage points since the crisis struck - will start to rise as growth picks up and generates inflationary pressures, he says.
The cost of food and petrol will also increase as the world recovers and demand for commodities increases.
"For Australia, this will be a double-edged sword: providing a boost to our exporters but over time potentially inflicting higher food and petrol prices on many Australian working families," he says.
The Government plan to halve the budget deficit by 2012 and return the budget to surplus by 2015-16 "will involve tough choices and require Australians to accept difficult and unpopular budget cuts".
Mr Rudd defends his self-imposed title of economic conservative, saying it suits someone who borrows to stimulate against recession and maintains a balanced budget in good times.
claim he has too much time on his hands. ...