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Monday, 22 September 2008
Page: 8065


Ms JULIE BISHOP (2:13 PM) —My question is to the Prime Minister. Is the Prime Minister aware that the recently enacted Commonwealth Securities and Investment Legislation Amendment Act 2008, which was supported by the opposition, enables the government to provide additional liquidity to the mortgage market? Why did the Prime Minister and his Treasurer ridicule any discussion of Commonwealth investment in mortgage backed securities, when only two months ago the government changed the law to make such an investment possible?


Mr RUDD (Prime Minister) —The position put forward by the Leader of the Opposition yesterday, as I understand it, was that now in other markets, particularly in the United States, the government is taking a role and proposing to buy back some of these securities. That relates specifically to the measures announced in the United States to which I referred in my answer before—an action taken by the United States Treasury to use $700 billion worth of US money to purchase bad debt from those who currently hold those mortgages on the part of US financial institutions.

Why have the US regulator and the US Treasury done that? Because, if you go to the actual state of the problem in the United States, it is that subprime mortgages began filtering their way through the real economy and across the breadth of financial institutions from August last year. Subprime mortgages, as the Deputy Leader of the Opposition would be aware, represent some 15 per cent of mortgages in the United States mortgage market. Subprime mortgages represent something like one per cent of mortgages in the Australian market. There is, therefore, a clear distinction between our set of circumstances and those of the United States. And there is a further distinction, which I draw the honourable member’s attention to as well: in the United States currently the arrears rate in terms of repayment on mortgages is something like six times that which currently exists within Australia. Again, our circumstances are significantly different. And I draw honourable members’ attention to the remarks made by others last week which sought to cast doubt on the statements by the Governor of the Reserve Bank about the state of Australia’s financial system relative to that which pertains in the United States and elsewhere.

Therefore, the point I would make to the honourable member putting her question is that this represents the distinction between our markets and those which exist in the United States. That is why the measures that we have adopted, we believe, are responsible: they follow complete and close collaboration with the advice provided to the government by the financial regulators over the course of this year—not just the injection of liquidity into the economy by the Reserve Bank but also actions in relation to other aspects of assistance to financial players within the Australian financial market.

I would say this to the Deputy Leader of the Opposition and to the Leader of the Opposition on this most sensitive question: it is far better to proceed cautiously, rationally and intelligently through this debate in Australia than it is to simply shoot from the lip with anything which happens to come to the mind of the Leader of the Opposition in a press interview. These are serious and substantial matters. The government have been acting in close and absolute concert with the advice provided by our financial regulators. For the alternative Prime Minister of the country, as he would describe himself, to stand up and say that the US$700 billion rescue package should be adopted here reflects, I think, an absence of understanding of what is occurring in the Australian financial market. I would say to him also that, in these difficult and volatile times, words amount to bullets. Therefore I would suggest to the Leader of the Opposition—and to the Liberal Party—that, rather than engaging in loose debate on these most serious matters, he becomes a constructive participant in them. The most constructive thing the Leader of the Opposition can do at the moment, apart from minding what he says publicly on these matters, is to head to the Senate and unblock the budget and deliver to the government an appropriate surplus for providing a buffer for the future—a buffer which Australia needs given the uncertainties we confront through global financial markets.