Mr FILING(4.43 p.m.) —Firstly, I refer members to the Economist magazine's weekly table of interest rates and other economic indicators. Those who follow that would know that Australia has the second highest prime bank rate of the 16 nations, I think it is, which the Economist uses as its basket of nations for comparative purposes. That gives an indication of exactly how high Australia's interest rate regime is. Notwith standing the comments from time to time by the Treasurer (Mr Costello) about how interest rates are being driven down, there is no doubt—particularly for small businesses and the rural sector—that interest rates are still very high in Australia.

So what are the effects of cuts in the official lending rate by the Reserve Bank? It is not obligatory for banks to follow any cuts made by the Reserve Bank—nor would this or the previous government want to legislate to make that a requirement. Rather, the complex relationship between the Reserve and the commercial banks would usually tend to encourage mimicking once a change is made to interest rates. The cost of money, through lending and borrowing, and the cost of Commonwealth bonds are perhaps the most significant influences.

Clearly, it is the intention of this government to create an environment of confidence and financial prosperity—at least it says that. We have seen the Treasurer constantly claim that, by creating the conditions for interest rate cuts on home mortgages, the government has given average Australians significantly more money in their weekly pay packet which can be reinvested or spent.

It is interesting, I might point out, that, at the time the Treasurer was trying to put pressure on the banks to drive down interest rates, the Australian Taxation Office was effectively charging a penalty interest rate of something like 19 per cent. That is one of the government's own policy rates. So the government is being a little two-faced there, but at least the Treasurer agreed to have a look at it.

If the government wants to regulate the market indirectly by creating the type of environment which would increase prosperity, it must ensure that the inputs it makes will guarantee the results it wants. Clearly, the need for the banks to follow cuts in official interest rates is a highly political issue. Any doubt about this was evidenced by the Prime Minister (Mr Howard), who had previously described those who criticise some aspects of the conduct of banks as `bank bashers' but then joined them unreservedly when the banks chose not to follow his agenda. So we see that the question of rates is becoming highly politicised.

Why wouldn't banks drop their rates immediately and to the full extent that the Reserve Bank has from time to time? The general consensus amongst commentators was that the banks had asked the question, `Can we make more money by delaying or reducing the level of the rate reduction?' and their answer obviously was yes. Anyone who might doubt this has only to look at precedent. In the past, the banks have shown that they can and do immediately pass on increases in interest rates. They stood to make millions of dollars by delaying increases and millions more by not adopting the full rate cut.

I clearly recollect the leader of the government in a past period attacking the banks for their margins. I can also recollect raising that matter with another senior shadow minister who now has a very senior cabinet position. I said, `I think the member for Flinders is exactly right. Why aren't the coalition pursuing this?' Mr Reith replied, `Why should we? They are our biggest supporters.'

The commercial banks are not responsible to those people who maintain their accounts with them other than through legislative protection or by the desire to maintain customer loyalty. Banks are large multinationals which trade around the world, rate their profits in hundreds of millions of dollars at present and are seen as very profitable enterprises. Their primary responsibility is to their investors and shareholders, who will generally see the profit motive in trading as clearly outweighing the needs of account holders.

Small, private savings accounts are not a lucrative business for the banks. They have effectively tried to discourage the operation of these accounts by imposing significant penalties on most accounts. The Commonwealth and state governments have acted with com plicity in this discouragement of personal savings in bank accounts. They impose federal and state charges and an unrealistic deeming rate on pensioners. All of these things affect the national savings psyche. No wonder we have pitifully small levels of private savings in Australia, especially in bank savings accounts.

I will conclude by observing that the recently announced budget taxation incentive for personal savings is in fact a regressive move, because it is a net transfer from those who cannot save to those who can—in other words, the poor who cannot save are effectively subsidising those who can. I can clearly recollect a previous Leader of the Opposition, John Hewson, in answer to a question about the specific suggestion to give those sorts of incentives, saying that it would not encourage one extra dollar of personal or national savings in the country because it represented that transfer in the public account from those who cannot save to those who can. Even when the government tried to intervene, as it did in this particular instance, it did it in the wrong way by requiring a transfer from the poor to the people who can save. (Time expired)