FURTHER interest rate cuts need to be a central element of Australia's defence against recession should the financial crisis in Europe worsen beyond expectations, Julia Gillard says.
In an end-of-year interview with the Herald, the Prime Minister was also defiant amid building leadership tension between her and Kevin Rudd, saying her government would last the full term and she would lead it to the election.
''As we move towards the end of 2011 and start looking to 2012, I think we've got to remember that the predictions this time last year were the government wouldn't last,'' she said. ''I've never had the slightest doubt that this government would go to the next election at the normal cycle in the second half of 2013. I'd hope that as we leave 2011, more people will share my view than perhaps used to.''
Late yesterday, the Resources Minister, Martin Ferguson, issued a one-line statement supporting Ms Gillard, saying she was doing ''a remarkable job''. Mr Ferguson, who has been associated with Mr Rudd, pointedly refused to endorse the Prime Minister on Thursday, saying his loyalty was to the Labor Party. It took him more than 24 hours to clarify and it is believed it followed a call from her office.
Ms Gillard cited her priorities for 2012 as implementing the price on carbon and the mining tax with the accompanying compensation, developing the national disability insurance scheme and aged-care reforms, and keeping a strong focus on the economy. She said the economy was still growing and the region was doing well but there was the potential for the impact of the European meltdown to be worse than anticipated.
With the government clinging to a fragile $1.5 billion surplus target for 2012-13, and spending already tight, Ms Gillard said further interest rate cuts were the most obvious move should economic stimulus be required.
''If circumstances worsen, there is plenty of room for our nation on the monetary policy side, the interest rate side,'' she said. ''Now, that is in the hands of the Reserve Bank, but that does give our nation opportunities to deal with impacts on global growth if they are more profound than we can see now.''
After the big four banks initially refused to pass on the last rate cut earlier this month, they indicated they would be even more reluctant next year, saying their own borrowing costs would be increasing. This would limit economic stimulus but Ms Gillard said the government would pressure the banks as it did this month. She also kept open the possibility of more spending cuts.
The Prime Minister ends the year with a cloud over her leadership, exacerbated by the fallout from Monday's ministerial reshuffle. At least five of the 30 ministers now back Mr Rudd.
Kim Carr, who was demoted from cabinet, went public with his disappointment for the third day yesterday. He said Ms Gillard did not cite disappointment with his performance when she demoted him. ''I'm obviously at a loss to understand some of these matters,'' he said. Some people claim he has been punished because he leaked but there is no evidence of that.
The Tertiary Education Minister, Chris Evans, who lost his Workplace Relations portfolio, is not disgruntled and is telling colleagues he still firmly backs the Prime Minister.
Ms Gillard told the Herald her only motive was to put key people in ''the key areas of work for the government in 2012'', including disabilities, aged care and industrial relations. ''That is what is driving me.''
Fearing a campaign of destabilisation over summer, a Gillard supporter said: ''Kevin has to decide how many favours he wants to pay to Tony Abbott.''