Senator FEENEY (7:35 PM) —This evening I want to talk about Australia’s debt levels. This is a subject which those opposite usually do most of the talking about in the Senate, but I want to make it clear that this is a subject that government senators are not embarrassed about or keen to avoid. In fact, I am very happy to talk about debt because it is a subject on which the Rudd Labor government has a very strong story to tell. It is the story of how the Rudd government, faced with the greatest financial crisis in any of our lifetimes, took prompt and effective action to stop us sliding into a deep and prolonged recession.

Part of that prompt and effective action was the guarantee given to Australia’s banks, and I decided to speak on this subject tonight after reading this morning’s opinion piece in the Melbourne Age by Tim Colebatch, a piece which is critical of the bank guarantee. Tim Colebatch has, unfortunately, penned some words today with which I have to disagree. In particular, I disagree with the dire picture he sought to paint in his article. He suggested that the debt levels of Australia’s banks are now so high that we are in danger of falling into the same situation as Iceland, which, as he says, has indeed been plunged into a deep depression, in fact to the brink of national bankruptcy, which has happened because of the need for Iceland to repay the unsustainable debts that were run up by its private banking sector. That would indeed be an alarming scenario if it were true in Australia, but Tim Colebatch ignores some very significant differences that exist between Iceland’s situation and our own.

According to the Central Bank of Iceland, at the time of the bank crash in Iceland, Icelandic banks owed the equivalent of more than A$80 billion to foreign lenders, or about $250,000 per head of the Icelandic population. An equivalent level of debt in Australia would be about $5.5 trillion. According to Tim Colebatch, Australia’s banks in fact owe $634 billion, or about $28,000 per head. So we can see immediately that the debts owed by Australia’s banks are, in per capita terms, only about 11 per cent of the debts owed by Icelandic banks.

Secondly, and more importantly, is the difference in the regulatory regimes of Australia and Iceland. In 2001 Iceland’s former Liberal government, inspired by the Reagan-Thatcher model of neoliberalism just at the moment in time when it was going out of fashion, completely deregulated its banking sector, with the result that the three private banks, as banks tend to do when they are not properly regulated, engaged in a variety of highly risky practices, incurring debts that they could not support, and that Iceland, a country with only 320,000 people, was not in a position to sustain. The result was the 2008 crisis of confidence in Iceland’s banks, including a run on their British retail banking arms, which in due course sent them all into insolvency. This forced the Icelandic government to nationalise the banks and take over their debts, which Iceland will be paying off for decades to come.

Now, with due respect to Tim Colebatch, nothing like this could be remotely possible in Australia. We have one of the safest and best regulated banking systems in the world. Our banking system has stood the test of the recent global financial crisis better than virtually any other banking sector in the world. According to Global Finance, Australia’s big four banks all rank in the world’s top 20 safest banks, based on their total assets and long-term credit ratings as assessed by Moody’s and Standard and Poor’s. There is simply no possibility that there will be a run on any one of our banks or that they will be allowed to take on unsustainable levels of debt.

Tim Colebatch’s fear that the government guarantee issued to Australian banks as a result of the global financial crisis will create the danger that the taxpayer will at some point become responsible for the total foreign debts of these banks is far-fetched. Even at the depth of the crisis at the end of last year, there was no danger of Australian banks getting into difficulties. The guarantee was a necessary boost to confidence, but the very fact that it succeeded in boosting confidence made it extremely unlikely that the guarantee would ever be required.

So I disagree with Tim Colebatch’s criticism of the Treasury Secretary, Dr Ken Henry, who gave an optimistic assessment of Australia’s economic position in his speech in Brisbane last week. Let me repeat what Dr Henry said:

Tim Colebatch quotes those lines disapprovingly, but I quote them with approval. They are correct and they should be a great source of pride for us all. I hope senators opposite would also approve of Dr Henry’s sentiments, because, of course, as Dr Henry was careful to say, Australia’s good fortune in having a well-governed, flexible and resilient economy has existed ‘for some time now’. It did not begin in November 2007. It began with the economic reforms of the Hawke and Keating governments, which received bipartisan support. It has continued since, and it continues today in the policies and the economic management credentials of the Rudd Labor government.

I hope that senators opposite would share in the pleasure that we on this side feel in knowing that Australia has been spared the worst of the global recession—a recession that has gripped most of the world since the end of last year. We have had only one quarter of negative growth, we have had lower than expected unemployment and we have not had a crisis in our financial system that wiped out the value of the Australian people’s investments and homes. Having said that, it is important to note that we did not escape the worst effects of the global recession merely by relying on the inherent strength of our economy. We did it by virtue of the bold, prompt and appropriate response of the Rudd government, the main elements of which were initially supported by Mr Turnbull and the opposition, although he later lost his nerve and reverted to knee-jerk opposition to everything the government was doing, which has so characterised his leadership. It was the Rudd government’s rapid response—the bank guarantees, the first and second stimulus packages, and the infrastructure projects through which we are now supporting jobs all over Australia—that stopped us following the US, Japan, Europe and others into a grave recession.

It is a pity that senators opposite have chosen to run a cheap and opportunistic scare campaign on deficit spending rather than comprehend and debate rationally the successful economic policies of this government. That way those opposite could have shared in the credit for Australia’s good fortune and current outstanding success. As it is, they have chosen to play the role of spoilers, and the Australian people will make their judgment on that at the appropriate time.