KARL STEFANOVIC: The Prime Minister joins me now to talk about that and then many other things. But PM first of all, your reaction to what happened to that little girl in Rocky.

PRIME MINISTER: Horrified and heartbroken for the families and prayers for the young child, for their full recovery today. And, you know, the regulations were improved several years ago following the last incident, but they have to be enforced. And I'm expecting swift action from the state enforcement authorities on this issue, and I'm sure that will follow. But for the parents, this is just absolutely heartbreaking. And I just can't even imagine the terrible anxiety that they're feeling at this time. And so to all of those who are taking care of the young child right now in hospital, my thoughts are with them as well. I know they'll be doing everything they can and I look forward to hearing better news. But it's horrific.

STEFANOVIC: Okay. Well said, thank you for that. Let's shift gears now back on to things that are happening right now, not just in Australia, but in our neck of the woods. Look, you've had a lot to say about our relationship with the Solomon Islands. Their PM is filthy, saying that you and others are effectively threatening his country with invasion. I mean, what do you, how do you respond?

PRIME MINISTER: Well, of course that's not the case. We continue to provide, we're the single largest provider of development assistance to the Solomon Islands. We have the Australian Federal Police there. They were there within 12 hours when they called and needed our support to deal with some serious unrest there in the Solomon Islands in December of last year, our defence forces, then went there out of Townsville, restored the situation and we continue to be there and supporting the Solomon Islands and and we will always do that, they’re family. And that's how we see our relationship with all of those Pacific Islands and will continue to, whether it was in Tonga when we saw the eruption there, or the Budget support we've provided into Papua New Guinea, similarly, the vaccine support into Fiji over the course of the pandemic. We're always there for our Pacific family and will continue to be.

STEFANOVIC: If he's family. I'd hate to see an enemy. Here's what he had to say.

[Clip plays]

Look, some say he's unhinged. Who knows? Either way, he's seriously ticked off and that's a dangerous combination when you're in bed with China. How are you going to respond? Are you going to ring him?

PRIME MINISTER: We'll continue to work constructively with the Solomon Islands Government as we as we always have -

STEFANOVIC: PM. What does that mean, PM?

PRIME MINISTER: We went to Solomon Islands at the request of the Prime Minister. He contacted us. It means that we deal with these things diplomatically. We deal with it professionally, calmly, rationally, dealing with the many challenges that are in the Pacific, and that's what we do every single day, Karl. That's how sensible, professional adult governments respond to challenges like this.

STEFANOVIC: So you're saying that he's not approaching it in an adult way? He is ticked off.

PRIME MINISTER: No, I'm not saying that, Karl. I'm not saying that at all. I'm just saying that the relationship and the views of the Prime Minister, he's expressed and, you know, he's sovereign country, he's free to express whatever he likes. He's made comments about Russia's invasion of Ukraine as well, which we obviously don't share his opinion on that issue either. But we'll work constructively and patiently and we'll work in a professional way and a calm way. And that's how we manage these issues. I mean, we deal with these stresses and pressures every single day. These things are not new. They've been challenges for a long period of time. That's why we respond quickly and that's why we have significantly increased our investment in the Pacific countries to ensure we can deal with the pressures that we're facing in the Pacific.

STEFANOVIC: Okay, to the rate hike now, do you accept, as most economists contend this morning, that your Budget spending partly led to the Reserve Bank having to lift rates?

PRIME MINISTER: No, I don't. And neither did Treasury. Treasury were asked that question specifically, specifically, and particularly given we're talking about a time for the March inflation figures that was even before the Budget was handed down. And Moody's Analytics, one of the key international ratings agencies, said that was rubbish as well. I mean what we did in the Budget was ensure that people facing cost of living pressures got relief. We halved the petrol tax which actually has a quarter of a point decelerating impact on inflation rather than the alternative. And what we're doing is actually helping people deal with these cost of living pressures. But the point you make about interest rates are real. Of course, there are upward pressures on interest rates. We saw interest rates in the United States last night go up by 50 points, In New Zealand they have increased five times what they have here in this latest increase in Australia. In the UK, they're up to, they went up 65 points, in Canada, they went up 75 points - three times what we've seen here in Australia - what we're seeing around the world is global pressure on these interest rates. Not only have they moved earlier in other countries, but they've moved many times over. As I said, in New Zealand, five times. They're at 1.5 per cent compared to 0.35 per cent here in Australia. So we've been providing that shield on these pressures. And that shield is indeed ensuring that the impacts felt in other countries, just like Australia, is not being felt the same way here.

STEFANOVIC: You can't drop 1 per cent of GDP in the economy and not expect it to inflate the tyres.

PRIME MINISTER: I'm sorry, but that's- Treasury made it very clear when asked specifically at Senate Estimates on that very point. They said that the scale of what we were doing in the Budget compared to the overall size of our economy and the overall size of the Government's Budget, they did not consider to have that impact.

STEFANOVIC: Was Treasury wrong?

PRIME MINISTER: No. And Moody's Analytics, Karl, say the same thing. I mean, they're the ones who've said that Australia should retain its AAA credit rating and they did that after the Budget. So he handed down the Budget and our AAA credit rating was reaffirmed.

STEFANOVIC: Okay, couple of quick one-

PRIME MINISTER: And we're only one of nine countries in the world to have achieved that during the course of the pandemic.

STEFANOVIC: A couple of quick ones. You also don't really have any control over the banks, obviously, and they were quick to raise rates, but not savings accounts. What a surprise.

PRIME MINISTER: Well, I called that out yesterday and then they moved. So I'm pleased that they did and I think they should have. I mean, our self-funded retirees, pensioners and others who have those savings accounts and have kept those savings in the banks. So I think the bank should have done the right thing by them and I'm pleased that they did move. Yesterday, we made the decision to freeze deeming rates and that's important for people and their access to the part-pension. We've frozen them for the next two years. So as with the pressure on interest rates rising, then that won't impact on people's access to the pension. Now that follows what we did with the Commonwealth Seniors Health Card, 50,000 more retirees having access to that. And of course, what we've also done on those minimum drawdown rates, we've also extended the relief there for a further 12 months. So, you know, that's what the shield does. The shield protects Australians, whether they be senior Australians in their retirement or ensuring we've got downward pressure on rising pressure on interest rates and being able to shield Australians as we've had compared to other countries around the world.

STEFANOVIC: Okay.

PRIME MINISTER: But our policies today, we're pushing today on small business, 400,000 small businesses we believe we can see established in the next five years. That's what we've achieved in the last five years - 400,000 - and that was through a pandemic.

STEFANOVIC: Okay. PM, are you okay? You sound croaky. You haven't got the VID again, have you?

PRIME MINISTER: No, mate. I'm fighting fit.

STEFANOVIC: That's a denial. I wish you all the very best. It's not easy at the moment, is it, out there with the flu and the COVID?

PRIME MINISTER: I'm feeling great.

STEFANOVIC: Okay.

PRIME MINISTER: How are you feeling, Karl?

STEFANOVIC: I feel terrific. I haven't got any croaks. I've got a few, well croaks in the bones, but other than that, I'm perfectly fine. Thank you. Good luck today. Thank you, Ally.

PRIME MINISTER: Thanks.