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- Start of Business
- EMPLOYMENT SECURITY BILL 1999
- PRIVATE MEMBERS BUSINESS
STATEMENTS BY MEMBERS
- Wingfield Landfill
- Customer Service
- Aris, Dr Michael
- Mount Morgan
- New South Wales Election: Gosford
- Dunkley Federation Community Projects Committee
- Baxter, Miss Alycia
- National Rugby League
- Romania: Orphans
- Wildlife Rescue and Information Service
QUESTIONS WITHOUT NOTICE
New South Wales Election
(Beazley, Kim, MP, Howard, John, MP)
(Haase, Barry, MP, Howard, John, MP)
(Beazley, Kim, MP, Fahey, John, MP)
Taxation Reform: Opposition Policy
(Neville, Paul, MP, Costello, Peter, MP)
New South Wales Election
(Beazley, Kim, MP, Fischer, Tim, MP)
- New South Wales Election
- DISTINGUISHED VISITORS
QUESTIONS WITHOUT NOTICE
Trade: Lamb Exports
(Hawker, David, MP, Fischer, Tim, MP)
(Smith, Stephen, MP, McGauran, Peter, MP)
Royal Australian Navy: Gulf Deployment
(Lindsay, Peter, MP, Moore, John, MP)
Education: Independent Schools' Funding
(Andren, Peter, MP, Kemp, Dr David, MP)
Federal Republic of Yugoslavia: Refugees
(Jull, David, MP, Downer, Alexander, MP)
(Lee, Michael, MP, Anderson, John, MP)
International Financial System: Manila Framework Group
(Somlyay, Alex, MP, Costello, Peter, MP)
Veterans: Disability Pensions
(Swan, Wayne, MP, Scott, Bruce, MP)
Nursing Homes: Residential Care
(Forrest, John, MP, Bishop, Bronwyn, MP)
Goods and Services Tax: Veterans' Pensions
(Crean, Simon, MP, Scott, Bruce, MP)
Trade: United States and European Union Disputes
(Billson, Bruce, MP, Fischer, Tim, MP)
Vietnam Veterans: Bravery Awards
(Edwards, Graham, MP, Scott, Bruce, MP)
Education: University Exchanges
(Thompson, Cameron, MP, Kemp, Dr David, MP)
Vietnam Veterans: Bravery Awards
(Edwards, Graham, MP, Scott, Bruce, MP)
Goods and Services Tax: Food Industry
(Secker, Patrick, MP, Vaile, Mark, MP)
- Trade: Lamb Exports
- MEMBER FOR MONCRIEFF
- PERSONAL EXPLANATIONS
- QUESTIONS TO MR SPEAKER
- PRIVATE MEMBERS BUSINESS
- Food Labelling
Company Tax Rate
- Media Ownership
- Regional Issues
- Health Services: Regional Australia
- Aris, Dr Michael
- Citrus Industry: Fruit Fly
- MAIN COMMITTEE
- MATTERS REFERRED TO MAIN COMMITTEE
- MAIN COMMITTEE
- HEALTH LEGISLATION AMENDMENT BILL (No. 2) 1999
FINANCIAL SECTOR REFORM (AMENDMENTS AND TRANSITIONAL PROVISIONS) BILL (No. 1) 1999
FINANCIAL SECTOR (TRANSFERS OF BUSINESS) BILL 1999
INCOME TAX RATES AMENDMENT (RSAS PROVIDED BY REGISTERED ORGANIZATIONS) BILL 1999
FINANCIAL SECTOR (TRANSFERS OF BUSINESS) BILL 1999
INCOME TAX RATES AMENDMENT (RSAs PROVIDED BY REGISTERED ORGANIZATIONS) BILL 1999
- FINANCIAL SECTOR (TRANSFERS OF BUSINESS) BILL 1999
- INCOME TAX RATES AMENDMENT (RSAS PROVIDED BY REGISTERED ORGANIZATIONS) BILL 1999
- SUPERANNUATION LEGISLATION AMENDMENT (CHOICE OF SUPERANNUATION FUNDS) LEGISLATION
- CIVIL AVIATION AMENDMENT BILL 1998
Monday, 29 March 1999
Mr CREAN (8:00 PM) —The three bills being debated this evening propose further reform of the financial sector in Australia. The first bill brings the regulation of credit unions and building societies into line with other authorised deposit taking institutions, or ADIs, and establishes a single regulatory framework for life insurance companies and friendly societies. The second bill permits transfers of businesses amongst authorised deposit taking institutions or life insurance companies. `Transfers' is really a cute term for de facto mergers. The third bill deals with the treatment of retirement savings accounts for friendly societies.
The financial sector industry essentially supports these bills. From our point of view, we consider them to be important in establishing regulatory and prudential arrangements, and we welcome and support that direction. But it is what the bills do not say that concerns us. Effectively, the bills could operate to take away the Treasurer's consent to mergers. That consent is critical to the four pillars policy preventing further unfettered bank mergers. The erosion of the four pillars policy by stealth is at issue here. It is that erosion that we want to stop. It is not the empty rhetoric from the Treasurer or assurances from the Minister for Financial Services and Regulation which may well be made in good faith; it is protection in legislation which we are after.
The bills before the House are part of the long awaited second round legislative response to the Wallis financial system inquiry. And what a wait it has been! This government received the Wallis report in March 1997—two years ago. It took nearly six months for the government to even respond to the report, and the first round of legislation was not introduced to the House until March 1998. But there is suddenly a huge urgency about this round of reforms. The government introduced the bills under consideration on 11 March 1999—nearly two years to the day after the Wallis report was completed—and now it wants to rush the bills under consideration today through parliament in time for a 1 July 1999 start-up date.
I want to make it perfectly clear that Labor will not be delaying the passage of these reforms unnecessarily, but we will be seeking to refer the bills to the Senate Economics Legislation Committee to examine them in detail. We need to examine the reforms closely to ensure that they take Australia's financial sector in the right direction, because our detailed inquiries of the minister have not produced satisfactory explanations in response. We have sought answers to address our concerns, but they have not been completely forthcoming. I will detail these concerns shortly. We will cooperate in ensuring that scrutiny occurs in sufficient time for a start-up date of 1 July 1999.
We worked to open the Australian financial system to foreign banks. All of these reforms contributed to a fundamental shift in the way the Australian financial sector operates and the way financial services are provided in Australia. The Wallis report recommendations have continued that reform, and the prudential and regulatory framework Labor put in place has paid dividends during the Asian region's financial crisis. Against this backdrop we should be leading more effectively the debate on sensible financial system reforms in the development of a modern international financial architecture.
Labor has been generally supportive of the Wallis recommendations. As the recent crises in Asian economies stand testament to, sound financial management and prudential regulation are important protections for every national economy. Many of the recommendations implemented from the Wallis report have contributed to the establishment of a sound prudential system that has served Australia well to date. Whilst reserving Labor's position on the detailed reforms contained in the Financial Sector Reform (Amendments and Transitional Provisions) Bill (No. 1) 1999 , generally the transfer of regulatory responsibility for building societies, credit unions and friendly societies from the states and territories to the Commonwealth is a sensible move.
A single prudential regulator promotes consistency in regulation across the sector, adding certainty to the industry and encouraging development. The financial sector needs that certainty. The government has certainly ensured that the current tax debate raging on the two fronts of the GST and the Ralph review is not providing any certainty at all for investment in Australia, but the debate also provides a real opportunity for the financial sector to put a case for reform that benefits its growth as, if you like, an industry sector in its own right. On the detail of the bill, we will be asking the Senate committee to look in detail at its amendments of the Corporations Law and the corporations agreement, and we want to take a look at the impact on the terms and conditions of employment of the people transferring to APRA.
The impact of the changes in prudential regulation for life insurance companies will also need detailed consideration. The facility the bill sets up for APRA to provide, under state and territory laws and on a cost recovery basis, prudential regulation and advisory services for cooperative housing societies and trustee companies is a significant extension of APRA's federal prudential role.
Labor acknowledges the widespread support for the bill throughout the financial sector, including credit unions and banking groups. The government and industry are planning for the transfer of regulation to occur on 1 July 1999. While Labor will insist that the bill be examined by a Senate committee because of the significance and extent of the reforms, we will seek to ensure that the committee's deliberations leave sufficient time for the bill to be passed with any necessary amendments in time for that regulatory transfer to occur on 1 July.
But we do have concerns with this bill and the related bills which are being debated in a cognate form tonight. It is my intention to move a second reading amendment dealing with those concerns, and I do so in the following terms.
That all words after "That" be omitted with a view to substituting the following words:
"the House, while supportive of continuing reform of the financial sector:
(1) condemns the Government for seeking to push this complex bill through the House so rapidly, given that it has taken the Government two years to introduce it in response to the recommendations of the Wallis Inquiry into the Financial Sector;
(2) rejects the Government's attempts to water down the requirement for the Treasurer to consent to institutional changes within the financial sector;
(3) calls on the Government to confirm that it will not use the provisions of this bill to relax its `four pillars' policy; and
(4) condemns the failure of the Government's attempted reliance on `red-hot' competition and of the Wallis reforms to date to prevent exorbitant rises in bank fees and charges".
As highlighted in the second reading amendment, we do have serious concerns over aspects of this bill, but I want to focus tonight on one issue in particular. As it currently stands, section 63 of the Banking Act 1959 requires the Treasurer's consent before an authorised deposit taking institution can amalgamate or enter into a partnership with another authorised deposit taking institution, or enter into a reconstruction. This requirement for the Treasurer's consent is an important legislative aspect of the four pillars policy because it gives the Treasurer the right to approve or refuse a merger between the big four banks. But schedule 2, item 53 of the Financial Sector Reform (Amendments and Transitional Provisions) Bill (No. 1) 1999 makes it clear that the Treasurer's consent is not required where the business of an authorised deposit taking institution is transferred under the Financial Sector (Transfers of Business) Bill 1999, another bill now before the House.
Labor absolutely rejects the government's attempt to remove the requirement for the Treasurer to consent under the Banking Act 1959. As I will discuss in the context of the transfers of business bill, removing this consent may mean there is no role whatsoever for the Treasurer where a transfer application is made. In other words, the Treasurer could stand by and watch the four pillars tumble, having no power to prevent two of the major four banks effectively merging.
The removal of the requirement for the Treasurer's consent may have been done in an attempt to streamline the transfer process. But its effect, intended or not, is potentially to weaken the four pillars policy, and that is entirely unacceptable. If the government does not stand by the four pillars policy, it must say so clearly; and if it does, it must state that categorically and reinforce it with legislation; it must amend the bill to ensure that the Treasurer has to consent under the Banking Act to a transfer.
I said before that Labor has generally been supportive of the Wallis recommendations. However, as has been made clear, we consider that not all of the Wallis recommendations serve the financial sector or the wider Australian community well. The recommendation to remove the four pillars policy is one such recommendation, and that came out in Wallis.
Labor takes the view that, in the current Australian market, mergers between the major four banks are not in the national interest. The government appears to have been—to put it as kindly as possible—`confused' on its stance. The Treasurer has said that it will not happen until the margins for small business lending improve and new entrants appear in the financial sector. But what details the Treasurer has attached to these criteria are unknown. They smack of the wriggle room of conveniently vague tests that he will be able to announce as having been satisfied when he decides to announce that he has consented to a merger that collapses the four pillars policy.
The Financial Sector (Transfers of Business) Bill, the second bill in this package tonight, does not provide any reassurance that the four pillars policy is set in concrete. As with the first of the bills, the Financial Sector Reform (Amendments and Transitional Provisions) Bill, Labor will not oppose this second bill in the House. But we do reserve our position in the Senate, pending the outcome of the Senate committee inquiry.
The bill allows authorised deposit taking institutions or life insurance companies to transfer their business amongst themselves so long as they get the approval of APRA. Two types of transfer are available, one voluntary and one compulsory. This power has been available under state and territory laws for building societies, credit unions and friendly societies. The bill is intended to ensure that they retain access to those provisions. However, the bill also extends the power to other authorised deposit taking institutions and life insurance companies. It is extending what has been transferred. Hence, the bill opens the way for transfers of business—in other words, mergers—between the four major banks and between major life insurers.
Currently, a stringent process is to be followed before mergers can occur between the four major banks. This point was set out very clearly in an article in the Australian Financial Review on 15 March this year, on page 26, under the by-line of Hans van Leeuwen:
At present, banks can only merge through one bank buying all the shares in another, or through a scheme of arrangement worked out in the courts.
Transferring assets and liabilities between banks is virtually impossible, because many bank assets cannot be handed over without borrower consent.
"It's not really practical at the moment because banks have such complex assets and liabilities," said Clayton Utz partner Mr Brian Salter. "You'd need the consent of all the counterparties. But now the banks—
that is, under the current bill—
can fast-track that."
Currently, you need the consent of the counterparties. But this bill provides a new mechanism, with which it may be easier to comply, where you will not need to get the counterparties to agree.
Whilst the bill requires APRA approval for a voluntary transfer to be satisfied that the proposed transfer has been `adequately adopted' by both the transferring body and the receiving body, there is absolutely no guidance in the bill as to what `adequately adopted' means. Treasury provided written advice to my office when we sought further clarification of the point. They said:
APRA will set out transfer rules which need to be met for APRA to be able to accept that a body has agreed to a proposed transfer.
This is quite extraordinary. Legislative safeguards have been built up over years to protect shareholders and creditors during mergers, takeovers and acquisitions and yet this bill says that for transfers all that will be worked out by regulation. It will not be contained in the legislation but done through regulation.
Who knows what adequate adoption means. Maybe it is as simple as a signed form from one director. That would be, again, quite extraordinary. Who knows, though, because there is nothing in the bill. It is all being left to the regulations. In other words, `Trust us, we're the government' is essentially the theme of this new bill.
The bill contains a section that has the effect of exempting anything done under the bill from the operation of any other act unless that other act is prescribed in regulation. That means—understand this point, Mr Deputy Speaker—that, even if the transfer breached the merger provisions of section 50 of the Trade Practices Act, it would not matter. What sort of nonsense is this? Here is a situation where Treasury has assured us that the Trade Practices Act will effectively be prescribed in regulations. But there is nothing to compel the government to do it in the bill. Again, `Trust us, we're the government.'
If the government is so certain that it is going to incorporate the Trade Practices Act by regulation, why not just put it in the bill itself and enshrine it in the legislation? While it is about it, why not include the Financial Sector (Shareholdings) Act 1998, the Insurance Acquisitions and Takeover Act 1991 and the Foreign Acquisitions and Takeovers Act 1975 as well?
The more you dig, the dirtier the bill gets. In deciding whether to permit transfers, the bill provides that APRA may consult with the ACCC but is not compelled to do so. This, again, is entirely unacceptable. The ACCC is the competition watchdog of the economy. It must be involved in monitoring institutional changes within the financial sector. Even the Treasurer said in September 1997, in the government's response to the Wallis report, that the government agreed with the general approach that:
Prudential arrangements should . . . minimise adverse effects on competition, competitive neutrality and efficiency.
Yet here is a government saying that APRA does not need to consult with the ACCC, the national competition watchdog, on whether transfers, which may well result in massive institutional change in the sector, will affect competition. Where does the Treasurer get off in relation to this?
Mr Hawker —It's wrong.
Mr CREAN —It is not wrong. If it is wrong, get the minister to come before this House and explain where this analysis is wrong. Written advice from Treasury says that the reason the bill says APRA `may' rather than `must' consult with the ACCC is `due to matters of scale and urgency'. That is a great detailed response; it is due to matters of scale and urgency. It may instead of must. It is a pretty significant distinction, which even the member for Wannon might start to acknowledge once he listens to this argument. There is nothing in the legislation to compel APRA to consult. If the member for Wannon believes that there is, he should get up in this House and show where it is.
Under the scale test, APRA sets the competition threshold, throwing the ACCC's merger guidelines out the window. What a strange state of affairs—with APRA, the prudential regulator, becoming the competition regulator on assessments of whether or not the anticompetitive aspects of a proposed transfer warrant the ACCC's involvement. The ACCC must be consulted. On the urgency front, the ACCC is able to turn around approvals for merger proposals where they are not anticompetitive, often in less than a day. That is the truth of it. So we reinforce the point that the ACCC must be consulted.
Unlike the current requirements under the Banking Act, this bill provides that the minister does not have to consent to the transfer. At the moment under the Banking Act, the minister must consent. This bill reverses that. Again, when we have sought advice on this point, Treasury's advice is that the minister `will not waive the requirement for his consent for large financial institutions such as the four major banks'. The statement is, at best, an indication of how the minister will exercise his complete discretion under the act. But there is nothing in the act to prevent him from abandoning that indication. After all, what we are talking about here is the man who, as Treasurer, said he would never, ever introduce a GST, and then did.
The minister, the Treasurer, must be compelled to consent or refuse to consent to a proposed transfer. The Minister for Financial Services and Regulation, in a letter to the Australian Financial Review on 22 March, said that the Treasurer would have to consent to mergers anyway under the Financial Sector (Shareholdings) Act 1998. But that would only occur where a person sought to hold a stake above 15 per cent in a financial sector company. We asked the Treasury to advise of the possibility of avoiding the need to seek the Treasurer's consent under the act by not actually changing ownership of shares in a transfer. We have not received a response to that specific request.
So we have concerns that, technically, a transfer may occur without the need to seek the Treasurer's consent and without the ACCC's involvement. That is the nub of our concern, and that is the issue that the government has to address. We have many concerns with this bill, and I have moved a second reading amendment which outlines those concerns. It is a second reading amendment that I understand has been circulated. We do understand the need for flexibility in the prudential mechanisms available in the financial sector, but that flexibility must be balanced against the other interests of shareholders and deposit holders and also the interests of the wider community in the provision of and access to financial services.
I want to turn, finally and briefly, to the last bill in this package, because it specifies rates of tax that apply to the retirement savings accounts business of friendly societies. On the superannuation front, the government has a very ordinary record indeed. It has gutted national savings, breaking its promise to deliver Labor's co-contribution scheme and replacing it with a half-baked savings rebate that lasted all of six weeks. The only savings policy introduced by this government—now into its fourth year of government—is something that lasted six weeks, and its retirement savings accounts will do little to advance the interests of savings and retirement incomes.
Although Labor believes the retirement savings accounts are second-class retirement savings vehicles when compared to superannuation accounts, the reality is that they do exist in the marketplace and this bill ensures that friendly societies that offer these RSAs will be able to compete with other institutions. As this bill is cognate with the other two financial sector reform bills, Labor reserves its position until after the Senate inquiry. I commend the second reading amendment to the House.
Mr DEPUTY SPEAKER (Hon. I.R. Causley) —Is the amendment seconded?
Mr Kelvin Thomson —I second the amendment and reserve my right to speak.