Mr MILES (Braddon—Parliamentary Secretary (Cabinet) to the Prime Minister) (4.53 p.m.)—I move:

That the bill be now read a second time.

The Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Bill 1996 will provide legislative authority for measures required to give effect to a substantial restructuring of the Housing Loans Insurance Corporation. It will also provide for the abolition of related legislation, namely, the Housing Loans Insurance Act 1965 and the Housing Loans Insurance Corporation (Sale of Assets and Abolition) Act 1990.

The proposed restructure is the same as that envisaged by the previous government. As such, the bill that I am now presenting is virtually identical to one which was introduced by the former government late last year and passed by the House of Representatives on 24 October 1995. That bill, however, was not considered by the Senate prior to the federal election and therefore lapsed.

The Housing Loans Insurance Corporation was established as a statutory authority just over 30 years ago to meet a structural deficiency in the highly regulated financial environment which existed at that time. Its primary charter was to help low income earners with small deposits to obtain housing finance by insuring lenders against the costs of mortgage defaults.

Since the establishment of the corporation, a number of private mortgage insurers have entered the market with the result that there is no longer any justification for retaining the corporation in public ownership.

A sale of the Housing Loans Insurance Corporation was first attempted by the then coalition government in 1979, but processes were terminated by the incoming Labor government in 1983. Two further attempts at a sale were made by the previous government.

Following the most recent sale attempt, financial advisers to the task force on asset sales, Baring Bros Burrows and Co. Ltd, were commissioned to undertake a review of the sale process and the corporation's position in the market. The review concluded, among other things, that the corporation enjoyed a number of advantages over its private sector competitors arising from its statutory authority status, including the guarantee of its liabilities, and from the fact that it is not subject to the supervision of the Insurance and Superannuation Commission.

As these benefits, which effectively placed the Housing Loans Insurance Corporation on a different basis to its competitors, would not be available to any potential purchasers, it was difficult for them to gauge the true commercial worth of the corporation.

The legislation I am now introducing is intended to address these concerns. It will, in particular, facilitate the re-establishment of the Housing Loans Insurance Corporation as a company incorporated under the Corporations Law and subject to the regulatory requirements of the ISC, as well as those of the states and territories. The new company will be fully capitalised in line with the require ments of the ISC, drawing on part of the present capital and reserves of the corporation.

The existing Commonwealth guarantee will be removed as far as borrowings by the new company are concerned. However, the Commonwealth guarantee for non-borrowing liabilities will be retained, at least for the present, to minimise any uncertainty in the mortgage insurance industry that might arise as a consequence of the restructuring of the corporation, given its prominent position in the market. Furthermore, to enable the company to attain the minimum credit rating required for mortgage insurers by state legislation, it would, in the absence of this guarantee, be necessary for the Commonwealth to commit significant additional capital resources to the new company, over and above what is already proposed.

In setting a target rate of return for the new company, nevertheless, account will be taken of any advantage the retention of the guarantee may accord it. With the removal of the guarantee on borrowing, there is no longer a need for a specific legislative provision pertaining to any government guarantees as the Treasurer has the powers under the constitution to guarantee liabilities of a non-borrowing nature.

The Housing Loans Insurance Corporation will cease writing business on the day before the new company comes into operation. The insurance policies of the corporation entered into prior to and including that date, which are referred to as the `old book', will become the direct responsibility of the Commonwealth. In exchange for accepting these liabilities, the Commonwealth will receive the balance of the corporation's capital and reserves. It is estimated that the level of funds to be transferred to consolidated revenue will be in excess of $100 million.

The `new' Housing Loans Insurance Corporation, expected to be known as HLIC Ltd, will be contracted by the Commonwealth to administer the unexpired portion of all insurance obligations contained in the `old book'. Funds will be set aside by the Commonwealth in a special account to be established by the new company and will be replenished as and when necessary to meet claims against these insurance contracts. Separation of the `old book' will, among other things, enable the new company's performance to be judged independently of the corporation's previous operations.

The bill currently before the House is designed to assist in giving effect to the arrangements that I have just outlined. It includes the following:

.   provision to the Treasurer of the necessary powers to direct the transfer of assets and liabilities in whatever way is considered appropriate to give effect to the abovementioned objectives;

.   authority for the Treasurer to enter into any agreement with the new company which would cover the terms under which existing insurance contracts would be managed, as well as the means by which payments for claims arising from these contracts could be made. The latter includes a standing appropriation for the required funding;

.   the transfer of staff of the corporation to the new company, as well as the transfer of all current rights enjoyed by those staff to such matters as long service leave, superannuation, maternity leave and Comcare. It is not intended that the interests of the staff should in any way be adversely affected by this corporatisation exercise; and

.   finally, the winding up of the Housing Loans Insurance Corporation and the repeal of all relevant legislation relating to the corporation. As part of the winding-up exercise, a final report and detailed financial statements as at the date of cessation of the corporation's activities will be prepared by the Housing Loans Insurance Corporation. After being audited by the Audit Office, they will be tabled in the parliament in due course.

I conclude by noting that this legislation will assist in maintaining an efficient, competitive and diverse mortgage insurance market. This in turn will assist many Australians to achieve the goal of home ownership. I present the explanatory memorandum which contains more detailed explanations of the provisions of the bill. I commend the bill to the House.

Debate (on motion by Mr Kerr) adjourned.