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Wednesday, 12 October 2011
Page: 11597


Mr CIOBO (Moncrieff) (13:19): I am pleased to rise to speak on the Banking Amendment (Covered Bonds) Bill 2011. In particular, when we review this bill it is important to consider how we got here. Recently the Treasurer was given the international Euromoney magazine finance minister of the year award. Those on this side of the chamber scratched their heads more than a little at the notion that of all people Wayne Swan, the member for Lilley, received the award and yet Peter Costello, the former member for Higgins, did not receive the award. The current Treasurer took this country from a net surplus of $60 or $70 billion in assets and a budget surplus of around $22 billion to a country encumbered with $107 billion worth of debt and running a budget deficit of approximately $47 billion. The notion that the Treasurer who presided over that turnaround in Australia's fortunes was the international finance minister of the year while the Treasurer who brought about 10 surplus budgets, built up $70 billion in assets and built a budget surplus of $22 billion was not entitled to receive that award had many of us scratching our heads.

But there are other policy aspects that this Treasurer has looked at and reforms that this government has made which have led a number of us to query the policy focus and, indeed, the lack of savvy of the government. When it comes to banking policy, one of the most crucial reforms, which in my view was made in error, was the decision to initially provide an unlimited bank deposits guarantee. I am aware, Mr Deputy Speaker, that you have an itchy trigger finger when it comes to dealing with the substance of this matter.

The DEPUTY SPEAKER ( Mr S Sidebottom ): Indeed.

Mr CIOBO: But I would make the point, Mr Deputy Speaker Sidebottom, mindful of that, that this policy in terms of Labor's approach to depositors goes to the very core of the covered bond issue. The reason it goes to the core of the covered bond issue is that, at the height of market uncertainty about where depositors would find sanctuary, it was the Labor government's decision to introduce an unlimited guarantee that effectively completely denuded market linked investment funds, the third-party smaller tier lenders out there in the marketplace. As a direct consequence of Labor's completely botched policy in this regard, we saw the mass migration of depositors' funds from market linked investment funds to, predominantly, the four major banks. We saw ADIs and, in particular, the four major banks gorging themselves on depositors' funds as depositors sought sanctuary, racing from market linked investments to the four major banks.

As a direct result of that botched Labor Party policy, we saw competition in the banking sector effectively collapse. The four major banks now have the highest market share percentage when it comes to loans that Australia has seen for decades. We have seen massive blow-outs in the differential between the official cash rate and bank mortgage rates for, for example, a standard variable mortgage. These are the consequences of a failed approach to policy that the so-called finance minister of the year brought to the table. Now, in an attempt to try to deal with the issue of banking competition, the finance minister of the year has once again had to go to the opposition to look for policy initiatives—because it was in fact the shadow Treasurer, who is at the table, who first raised the issue of implementing a covered bond market in the Australian economy. It was the member for North Sydney who, two months prior to the announcement by this Labor government, raised the importance of introducing covered bonds. I do not want to sound bitter, so I want to throw a bouquet to the international finance minister of the year and highlight the fact that I welcome the Labor Party's decision to embrace coalition policy in this respect. I welcome the fact that they have taken this decision, because otherwise the Labor Party, short of adopting coalition policy, would continue their merry flirt with bad policy that would make a bad situation even worse.

So the covered bonds bill that is before the House today implements, in many respects, a central tenet of the nine-point plan that was introduced on 25 October last year by the shadow Treasurer. Covered bonds—

Mr Gibbons: Why didn't you do it 12 years ago?

Mr CIOBO: Mr Deputy Speaker Sidebottom, I am forced to take the interjection, because it highlights—

The DEPUTY SPEAKER: No, you are not forced to do anything except discuss the legislation before you.

Mr CIOBO: I am dealing with the legislation—

The DEPUTY SPEAKER: I am asking you to deal with the legislation, so please do so.

Mr CIOBO: I am very directly—

Mr Hockey interjecting

The DEPUTY SPEAKER: No; the member for North Sydney has nothing to do with the debate at the moment. Please continue.

Mr CIOBO: I am very directly dealing with the legislation, Mr Deputy Speaker, because the question that was put forward, almost comically, by the member for Bendigo was: why didn't we do it 12 years ago?

The DEPUTY SPEAKER: The member for Moncrieff will address his remarks to the bill and not to any other member in this House. Thank you. I am asking you again to be relevant to the bill—

Mr CIOBO: And I will be directly relevant to the bill—

The DEPUTY SPEAKER: and I want to hear it now. Thank you.

Mr CIOBO: Why this bill was not introduced 12 years ago is directly relevant. The reason why is that there was no need to implement a bill like this 12 years ago because, at that time, coalition policy drove competition in the banking sector. The core focus of this bill is to drive competition. That is the focus of this bill. Let me explain it in Economics 101 terms for the members of the government, who are apparently implementing this policy without any understanding of what it actually does. If you want proof, look at the market share of lending. It was the coalition that, for 12 years, increased the smaller players' share of the market when it came to credit, as opposed to the complete reversal of that situation under this Labor government. This Labor government has driven the single biggest increase in the concentration of market share in the four major banks that this country has seen for decades. So, Mr Deputy Speaker Sidebottom, that goes to the very core of why this bill, and indeed a covered bond market, was not previously needed in this country but is now required as a consequence of Labor's ill-informed policy changes.

Many speakers in this debate have outlined what covered bonds are and what they do. There are safeguards that have been put in place, including an eight per cent limit on the pool of assets and a requirement for there to be 103 per cent effective coverage on the bonds that have been issued—and of course we welcome both of those things. There could be arguments that it should be 10 per cent, 12 per cent or five per cent, but eight per cent seems reasonable, and I note that a large number of marketplace operators welcome that eight per cent figure. The need for there to be a 103 per cent overall level of coverage is also a prudent step.

I am very mindful, though, of the change as a direct consequence of this bill that will see deposit holders effectively relegated to a secondary position, if I can put it in lay terms. Naturally, to some extent this could increase the degree of angst in the community. But I think it is important to recognise that that degree of angst is largely unfounded because of where deposit makers currently already exist with respect to secured and unsecured creditors. The issuance of covered bonds does change that position somewhat, but not to such a significant extent that it warrants, I believe, any level of anxiety. Furthermore, the fact that it is limited to eight per cent of the asset base does provide a very high level of assurance that they need not be concerned.

I sum up by saying again that I welcome being able to throw a bouquet in the direction of the international finance minister of the year because I think it is good that he has adopted coalition policy. I note that the Assistant Treasurer, who has carriage of this particular piece of legislation, is at the table. I have no doubt that he is of the view that, if he had the opportunity to be Treasurer, which I doubt he is attempting to engineer, he would seek to introduce the same bill. I think it is good that the Assistant Treasurer has adopted coalition policy as well in that respect. There are many aspects of this bill that the coalition endorse, and we hope—certainly, I sincerely hope—that we see an increased competitive tempo in the marketplace as a direct result of the passage of this bill.