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Thursday, 5 May 1994
Page: 294

Senator KERNOT (Leader of the Australian Democrats) (10.36 a.m.) —The Banking (State Bank of South Australia and Other Matters) Bill 1994 will, as has been said, facilitate the corporatisation process of the State Bank of South Australia. The bank, following what we regard as its disastrous credit binge in the 1980s, has been split into two entities—the Bank of South Australia, its customer bank arm, the so-called `good bank'; and, with its $3 billion debt, the `bad bank' which has been taken over by the government. How we can call banks `good' and `bad' is a bit beyond me. Under the restructuring, the SBSA will cease to exist, and the BSA will take over the assets of the former bank. The new bank will then be established as a corporate entity and, under the conditions of the pre-election Keating-Arnold deal, the bank will be sold.

  This bill provides bulk notification of the change in the entity of the bank required by federal tax, privacy, financial reporting, crimes and company legislation. The bill also goes on to legislate conditions of the February deal in relation to tax losses. The amendments distributed by the government have a similar purpose, and the Democrats will be supporting them.

  We are reluctantly supporting this bill. I know the privatisation debate is one which is waning, as governments seek to sell off assets in the short term. We all wonder where the money will come from in the long term. However, the likely losers of the sale are often overlooked, and the people of South Australia will in fact lose something. I want to put some of this on the record.

Senator Ian Macdonald —They will lose the $3 billion debt—a huge debt.

Senator KERNOT —Let us just go on and have a look. There is short term and long term—Senator Macdonald can only think of the short term. The bank is very likely to be sold to another bank or an insurance company and subsumed into its operations. This will mean that South Australia will lose the corporate headquarters of its only bank. Senior bank management is concerned that the employment numbers in the bank could be reduced from 3,500 to 1,500 as a result of such a takeover. The state government will lose up to $100 million in operating profits. The bank itself will lose its primary asset, which is its government guarantee for small investors. The bank will be less able to influence the cost of finance in the housing and rural finance markets. These are costs which are borne in the long term.

  I am also concerned that, given the glut of state and federal privatisations flooding the equity market, expectations of a $1 billion price tag may not be met. I remember my state colleagues in South Australia suggesting that perhaps as little as $600 million will be the fire sale price. I think it is galling that it is the good bank—the still profitable consumer and housing credit arm of the bank—that will be sold. The necessity for it to be sold is because of the conditions attached to the $600 million federal assistance package between Prime Minister Keating and former Premier Arnold still sought by the Brown government.

  The government tells us this is an excessively generous deal. We have to remember that it will net South Australia the equivalent of just six years of operating profits from the bank. The strings attached to the deal will cost South Australia more than that. It worries me that the Commonwealth in this bill is trying to redefine this, and it will be at some expense to the people of South Australia.

  The four conditions of the deal were that the bank be sold as quickly as possible; that the bank be brought into the Commonwealth tax net free of tax losses from 1 July 1994; that the bank become subject to the prudential supervision of the Reserve Bank from 1 July 1994; and that the South Australian government implement a debt management strategy. It is the second of those conditions which this bill deals with.

  Clause 52 of the bill seeks to ensure that the new owner will be denied tax deductions for the $45 million of unfunded superannuation liabilities from the State Bank of South Australia. This is the sort of redefinition that the Democrats are worried about—redefining conditions of the offer. Future superannuation deductions do not represent a current tax loss; they represent a future deduction. The effect of denying the bank a future deduction will be to reduce the asset value of the bank by $45 million. That is $45 million owned by the people of South Australia, who are already denied the difference between the expected price and the fire sale price.

  My second concern with this section is that the change to the tax deductibility of superannuation contributions will make it more likely that the new owners will seek to change superannuation arrangements. Superannuation arrangements of the new bank were a topic of long negotiations at the state level. My state colleague Mike Elliott reluctantly supported the corporatisation bill when the superannuation matters were finally sorted out.

  The Democrats seek two assurances from the government. The first is that the South Australian government was well aware that the $600 million compensation deal would include this $45 million loss of future deductions in the definition of tax loss. The second assurance we are seeking is that there is sufficient legislative protection at state and federal levels to ensure that the pressure on the new owners to reduce these unfunded liabilities by restricting the scheme to the detriment of existing employees cannot occur. I think the opposition should take this aspect very seriously. We are talking about people's superannuation.

  I know that Senator Watson feels very strongly about fiddling with and redefining what people are entitled to when they enter into a superannuation scheme. I need those assurances, or I may ask Senator Watson, in particular, to join in supporting an amendment to oppose clause 52. I am not persuaded that the $600 million compensation is such a generous offer that it cannot be interfered with. The government has argued that such an offer may act as a precedent for future generous deals. The Democrats believe that bank bailouts can and should be distinguished from other privatisation compensation deals.

  The opposition has said that the only reason state banks need to be sold off is the mismanagement of state Labor governments across Australia, but I wonder whether that is the only reason. I think it can also be argued that bank bailouts have been necessary because of the lax credit supervision regime created by the financial deregulation reforms of this federal government. As the royal commission report pointed out, the banking environment created by the federal government in the 1980s was so lax and so gung-ho that outrageous banking practices were encouraged. In fact, they were eulogised rather than stomped on. They were allowed to continue. Hence, the Australian banking sector has sailed so close to the wind and to collapse.

  The Australian government continues, in the aftermath, to allow banks to charge interest rate margins more than twice the OECD average to help them limp back into the black. So it is not just Labor governments' mismanagement but also the regime that was created under which those state governments felt confident to operate. In our view, the federal government is as culpable as—possibly more culpable than—the South Australian government for the collapse of the State Bank. It should not now be able to redefine the deal to make the people of South Australia pay more for the policy excesses of its failure.