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Wednesday, 17 November 2004
Page: 129

Mr EDWARDS (6:00 PM) —Mr Deputy Speaker Jenkins, I compliment you on your re-election to the position, and I also take the opportunity to congratulate Mr Speaker on his election. I also congratulate the government on their re-election. I must say that I thought in the lead-up to the election that my own chances of being returned to this place were rather slim. I say this because Cowan is a seat most sensitive to the issue of interest rates, with an extremely high proportion of mortgagees. Indeed, I think Cowan has the second-highest proportion of mortgagees of any electorate in Australia. In the face of these odds, and despite an extreme fear campaign, the Liberal Party was unable to unseat me. That is something in which I and my supporters take great pride.

Part of their failure in Cowan was due to the fact that the Liberal Party in the northern suburbs of Perth is a divided party. It is deeply divided on factional and power based grounds. It is also deeply divided over the decision to allow the state member for Kingsley to pass the baton to her husband as the endorsed candidate for the seat when she stands down at the next state election. This decision has infuriated a number of decent local Liberals who have walked away from the party in disgust at this piece of blatant nepotistic factionalism. Fortunately for me, this scandal and division helped defuse what could have and should have been a potent campaign against me in Cowan. The Liberals must now look at Cowan as a squandered opportunity and as the one that got away. The fact that they did not finish me off is something I intend to make them pay for by reminding them constantly of their responsibilities, promises and pre-election commitments to thousands of Australian families, and by keeping them accountable for their actions.

The Cowan Liberal candidate was largely left out in the cold, with only two people believing that the seat could change hands—that is, the Liberal candidate and me. I congratulate him on his campaign, despite the fact that he campaigned on some rather silly personal issues which I think distracted from his main focus. Had the Liberals concentrated their interest rate fear campaign on Cowan, I would have found my victory much harder to achieve. Another factor in my re-election is the fact that my office and have I worked extremely hard in Cowan for over six years. We have established a good, solid and credible reputation for hard work and commitment to the seat and to the residents of Cowan. We have always put the interests of our constituents first and we will continue to do that. We received strong, loyal backing from many local groups, associations and individuals who stuck with us, and I thank them for their loyalty. I also thank those members of my local branches who worked hard to keep the seat Labor. I thank my staff and my family for their continued support and I thank those many individuals—not members of the ALP, but individuals—who offered their support on the day and who helped to staff the many polling booths throughout the electorate.

I say to the many people who were taken in by this government and this Prime Minister over the interest rate fear campaign that we in opposition will now keep the Liberals to their word not to allow an increase in interest rates. That was their commitment to the people of Australia and we intend to hold them accountable. I can well understand young Australians being concerned for their future and wanting to secure their family homes and thereby falling prey to the Howard fear campaign. Many young people are committed to the hilt financially in an industrial environment where job security under this government is uncertain and, if the government gets its way, that uncertainty will increase. I say this to government members: let the Australian people down over this issue—let interest rates rise—and the electorate will ravage you at the next election. You gave your word that you would not allow interest rates to rise and you must now stand by that commitment.

Returning briefly to the issue of infighting amongst local Liberals in the northern suburbs of Perth, I will watch the forthcoming state election with interest. In the state seat of Kingsley, the wife of a former Liberal member for Cowan is contesting the seat as an Independent. A well-known, well-respected and highly regarded community worker, Judy Hughes, is contesting the seat for the ALP. The husband of the current Liberal state member and perhaps a host of other Independents will also be contesting the election. One of the questions which is intriguing a number of residents is how the Liberal candidate, who is employed by a Liberal senator, is able to spend so much time doorknocking. I call on Senator Campbell to explain whether this employee is on full-time or part-time employment. If he is on full-time employment, Senator Campbell should explain why this employee is given so much time to personally campaign for a Liberal Party state seat whilst being paid in a very lucrative job by the Australian taxpayer.

I want to return to the issue of interest rates and financial stability for Australian families. For some time, I have been very concerned about the spiralling level of domestic debt in Australia. Indeed, some years ago, whilst I was Minister for Consumer Affairs in the West Australian government, I initiated an inquiry into household debt and the ease of access of credit in that state. This inquiry was chaired by Dr Geoff Gallup, now the Premier of Western Australia, who was then a very active backbencher. The inquiry was funded in part by credit providers in Western Australia. They were none too happy about the inquiry but they were, for reasons of responsibility, forced to look at the issues. Unfortunately, I do not have with me the findings of the work carried out Dr Gallup, and I do not want to rely on my memory. However, the speech by Reserve Bank Governor Ian Macfarlane to the CEDA annual dinner in Melbourne last night gives further cause for concern about what is and has been an increasing problem in Australia for some time—that is, the ease of access for so many people to credit and exposure to the debt trap. Governor Macfarlane had this to say last night:

In financial markets, volatility is low, as are spreads on corporate debt over treasuries. It is not hard to see why many market participants would feel that things have never been safer.

But we should remember that it is in these circumstances where the biggest mistakes can be made. When everyone feels that risks are at their minimum, over-confidence can take over and elementary precautions start to get watered down. In addition, competitive pressures from those who under-estimate risk can push even the more prudent institutions into actions they will later regret.

Let me illustrate this point in relation to household borrowing. Following the more than halving of inflation and interest rates that occurred over the past decade or so, there was a surge in household borrowing and an accompanying rise in house prices. We have examined this process at length before, so I will not go over it again tonight. During this process, banks and other lenders were able to grow their balance sheets rapidly and, despite narrowing margins, were able to record rising profits year after year. At some point, however, the surge in household borrowing had to slow, and house prices stabilise, or fall. That is what has been happening over the past three quarters, and it is an entirely helpful development. Had the credit growth and house price growth of 2003 continued through 2004, the risks of future financial instability would have been much larger than is now the case.

It is important that this slowing in household credit be accepted by financial intermediaries as a fact of life, even though it probably means the heady growth of profits from mortgage lending they have become accustomed to may not continue. There is a risk, however, that in attempting to resist the slowing in credit demand, financial intermediaries may be tempted to further lower lending standards, and that would carry with it serious medium-term risks.

When I said earlier that lenders may be tempted to further lower lending standards, the use of the word further was deliberate. The incentives in the mortgage distribution system have changed in such a way that there has been a step-by-step reduction in credit standards over recent years. A significant proportion of mortgages are now sold by brokers who are paid by commissions on volumes sold. The growth of low-doc home loans means that intermediaries are now lending to individuals whose income is not substantiated. There has also been an upward drift in the maximum permissible debt-servicing ratio. When once a maximum of 30 per cent of gross income was the norm, now it is possible for borrowers on above-average income to go as high as 50 per cent of gross income (and a much higher percentage of net income). The new lending models used by the banks (and provided on their websites to potential borrowers) seem to regard the bulk of income above subsistence as being available for debt-servicing.

It is not hard to see how a situation like this develops. Once a few lenders adopt an aggressive approach, others must match them or lose market share. They are then re-assured by standard risk-management models, which are based on Australia's history of extraordinarily low mortgage defaults. Even those lenders who have reservations find it difficult to follow a different path, especially as the lenders taking on more risk may well be rewarded by higher profits (and higher share prices) in the short run.

There have been a few occasions recently where banks have taken the decision to tighten up on lending to particular sectors, e.g. inner city apartments. Despite this causing some pain to developers, it is a good thing overall for the economy. But these have been small steps compared to the much bigger drift to lower credit standards, and it may be more difficult to expect future instances of such prudence in an environment of slowing overall credit growth.

We highlighted some of these concerns in our recent Financial Stability Review, and I am taking the opportunity tonight to repeat them. They were also made last week by Dr Laker, the Chairman of APRA, in a speech which sadly went unreported. I am not suggesting we have an urgent problem on our hands—

to worry about the future—

but if present trends continue we could well have one in a few years. More importantly, I think the time to air these concerns is when confidence is at its highest and people are least likely to worry about the future.

That is the end of the quote that I want to use from the Governor of the Reserve Bank. Indeed, this is a speech which I would have sought to have tabled when I had finished speaking, such is the import of what he had to say last night. Unfortunately, I cannot now do that under the current Speaker's ruling. I hope he will have a think about that, because this is indeed an incredibly important speech—one which has now pricked the interest of many people in Australia and one which I think must be directed to the attention of members opposite, particularly those on the front bench.

In his speech, the Governor raises some serious concerns. In my view, a long hard look needs to be taken at the practices of some banks and credit providers in the country. I say this at a time when families are coming under increased financial pressure as we head into Christmas—the peak spending time of the year. In the lead up to Christmas, families are exposed to incredible pressures to spend and are subjected to clever and unrelenting advertising campaigns designed to attract consumers. Peer and advertising pressure and the desire to provide the best one can for one's family at Christmas time creates additional temptation to spend at this time of the year. Freely available credit and the temptation to spend now and worry about it in the new year is the cause for much post Christmas financial hardship for many families. Often these bills have to be paid at the same time families face the added burden of back-to-school expenses.

I urge credit providers to accept their responsibilities as outlined by the Governor's speech and their need to be responsible in the provision of credit. I also urge families to most carefully measure their capacity to handle the debt they get into during the Christmas period. Charitable groups such as St Vincent de Paul, the Salvos and other worthy organisations are already under considerable pressure. The Governor's speech is timely for both credit providers and credit users. If we ignore his warning, those charitable groups I just mentioned will come under greater pressure and so too will many battling Australian families.

In conclusion, I want to thank the electors of Cowan once again for their continued support, and I assure them that I will not let them down. I am a product of the northern suburbs of Perth. As a kid I ran around in areas of bush that are now housing and suburban development. As an adult I have lived, studied, worked and, with my wife, raised a family in the northern suburbs. I know what it is like to be unemployed. I lived for three years, post Vietnam, in a rehabilitation program without a job. I know what it is like to measure every penny and to live on a pension. I know what it is like to go without. I have never forgotten that, and I never will.

I am a product of an environment that treated credit with extreme distrust, and it concerns me greatly to see families exposed today in the manner that so many are. The Reserve Bank of Australia does indeed have an extreme responsibility to all Australians. So, too, do banks and other credit providers. So, too, do governments, none more than this Howard government because it has done most to fuel the fires of inflation, and it has presided over the decline in credit regulation in recent years. This government must heed the warning by the Governor of the Reserve Bank of Australia. I and others on this side of the House intend to keep this government to its responsibilities and ensure its accountability to the people of Australia.