He says the crisis will cause unemployment to rise and the economy to slow with real consequences for job growth and thus for the future.
Mr Rudd says Australia is in a better position than other countries but the crisis will mean a higher unemployment rate than the four and three quarters predicted in this year's budget.
He says the government is looking at how it can use the surplus to help the economy cope with the crisis but he promises the government will meet all its election commitments.
Earlier, Mr Rudd announced that the government will guarantee all deposits in all Australian banks and other financial institutions for three years.
The measures are in reponse to the global financial crisis that he says has entered a new and dangerous phase.
The government will also guarantee that any money Australian banks borrow from foreign institutions would be repaid.
The prime minister says Australia's institutions are sound, but these measures are needed because other governments are offering guarantees on their institutions.
Mr Rudd says as prime minister he is not prepared to stand idly by in dealing with the concerns of Australians as they watch international financial developments unfold.