Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard    View Or Save XMLView/Save XML

Previous Fragment    Next Fragment
Wednesday, 3 December 2003
Page: 23714

Ms BURKE (10:54 AM) —I too welcome the report of the House of Representatives Standing Committee on Economics, Finance and Public Administration entitled Review of the Reserve Bank of Australia Annual Report 2002. The actual report that has been tabled is a culmination of two hearings: one in sunny Warrnambool, where we got to enjoy the delights of the member for Hawker's electorate, and one in Melbourne. An enormous amount of effort actually goes into these hearings—by the members of the committee, by the people who support us and by the Governor of the Reserve Bank and his staff. They take these hearings very seriously. It is a phenomenally open process. Over the five years now that I have been involved, we have seen the Governor of the Reserve Bank becoming more and more open in his statements and comments and more willing to engage in conversation and debate. Sometimes we feel a little frustrated that we are not getting all the answers we would like, but I think over time we have certainly seen a greater level of engagement in and acceptance of this process of exploration.

At the outset, I want to say a particular thanks to David Richardson from the Parliamentary Library, who does a huge amount of work in preparing us for these inquiries and giving us background information and questions. We will be honest: as busy parliamentarians, sometimes our preparation work for these things is not as good as we would like. We try hard, but the library offers us a phenomenal service. Due to David's support in particular, we will again quiz the Governor of the Reserve Bank in Brisbane on Monday, and I know David is busy preparing information for us at this time.

This will be a phenomenally interesting hearing, given that between June and now we have seen two interest rate rises, as reported by both the speakers before me in this debate. Thesecond edition of the Age today states:

The rise, the second in two months, will take the official cash rate to 5.25 per cent, its highest level in more than two-and-a-half years.

If passed on in full by lenders, standard mortgage rates will rise to just over seven per cent, adding $30 to monthly repayments on the average $189,100 home loan.

So we have seen a phenomenal turnaround in the last two months from where we were in June, when we were quizzing the governor extensively about where rates would go, about his concern regarding the boom in the housing market, particularly in the investment market, and about whether the Reserve Bank needed greater powers to curb investment in the property market, particularly where individuals are borrowing against their existing home to purchase an investment property. We asked what sort of pressure this will put on, particularly if interest rates rise. Now we have seen interest rate rises, so it will be interesting to see how people who have geared themselves beyond their capacity will be able to make their loan repayments.

A lot of the inquiries in the last two reports were about whether home owners have over-borrowed; whether they could actually meet the rate rises that would inevitably come, and now we have seen them come. It will be interesting in the next couple of months to see if families are able to meet their mortgage repayments. I certainly do not want to predict something bad, but we have seen this sort of cycle before—in the late eighties, where there had been low interest rates and then they went up when there had been an expansion in the market. So we could be in for some interesting times.

The governor was fairly open in Warrnambool about wanting to return to what he deemed as the normal rate, which was an interesting and very open remark from the Governor of the Reserve Bank. When we talk to him on Monday, it will be interesting to hear whether he has got to where he believes a more neutral setting is. The report covers many interesting areas of our inquiry before the governor—not just about monetary policy and interest rates, but the impact upon the whole economy.

I would also like to thank Russell Chafer, who conveniently is in the House at the moment, for all his work in putting this report together. Being secretary to two committees is a fair effort, so I would like to thank him for all his work to get this report together in such a timely manner, given the committee tabled a rather large report only last week as well.

The committee looked at the housing sector, which I would like to comment on in the last few minutes I have got. One of our concerns was this boom in the housing sector, with the growth in the investment market and the growth in speculation. In recent days, we have seen the property investor Henry Kaye go under. We did quiz the governor back in June about whether there needed to be greater powers through ASIC or APRA to ensure that property speculation could be curtailed and that there could be regulation of it. I think the governor was fairly forthcoming. We have quoted him in the report, and I would like to put that on the record. He stated:

... where people come along and get told how to get rich quickly by using the equity in their existing home to gear up and buy a couple more apartments. ASIC would love to stop that. The problem is they cannot demonstrate that these people are in fact financial advisers. If they were, they would have control over them. But the people who run the investment seminars say, `No, we're not. We are humble real estate agents and we're not subject to your laws—we're subject to state laws.'

... I think there is a regulatory gap there. It is clearly a problem if there is one group of people who are holding seminars on how to invest your money who are regulated—the financial planners—and there is another group who are doing almost exactly the same thing, although doing it within the one asset class, which is property, who are unregulated. So I think there is a need to extend the capacity for ASIC to do that.

So the Governor of the Reserve Bank is clearly on the record as stating that ASIC should be given extra powers to cover these people, because really they are offering financial advice, not property advice alone. There is a bit of interplay between state and federal jurisdictions, but I think this could be easily worked out and I believe the states would be willing to participate in that discussion. Indeed, the state of Queensland has written to the Treasurer asking for that to take place. So we will again be quizzing the Governor of the Reserve Bank on that on Monday, given that Henry Kaye has just gone under and taken with him a whole lot of small property investors who will now lose not only their investment properties but maybe their own homes, which may be needed to finance the mortgages they have taken out. We do need to see regulation in this area. These are some of the concerns that the Governor of the Reserve Bank has been raising now for many months.

We also asked him in June whether he thought there was a financial tool other than interest rates available to contain the housing sector. Again Macfarlane was fairly open. I would like to quote him:

We have another financial tool. It is called open-mouth policy, and I have been using it, but it may not be as effective as other tools you could conceive of. I am not putting in a plug for another instrument, although if in the longer run things turned out badly it would not surprise me if people started looking at other arms of policy—for example, tax policy. We have a tax regime in Australia which, compared to a number of other countries, is very favourable to property speculation. I am not saying `Change it', but I would not rule out the possibility that if things do turn out badly there may be a public desire to make some changes.

Again, the Governor of the Reserve Bank is recognising there are problems with this area and that greater regulation is needed. The Governor of the Reserve Bank has been using his open-mouth policy for some time. Some people, particularly in the real estate market, have been critical of that, but I think that his efforts have stemmed investment, particularly in the apartment market in Melbourne, and we will hopefully avoid the boom and bust cycle in the investment area.

I would also like to put on the record our concern about fees. If you look at the recent annual reports by all the major banks, it is quite startling to see the massive rise in profits generated by fees. They are actually outstripping interest rates at the moment as the biggest section of profits for banks. We need more regulation in this area. Again, I believe it is incumbent upon the Treasurer to provide to the ACCC a reference so that we can actually regulate the fees and charges and do more than just monitor them. Monitoring fees has not stopped the banks slugging everyone in this room and all our constituents with massive fees and charges. You get to the stage of wondering when their profits are enough. How much more money do these corporations need to generate?

One of the interesting areas that we have not seen a lot of discussion of—although we will in the future—is credit card fraud. There are areas of credit card fraud that are now coming to light that are very concerning, and I think we will see the sector looking more intently at this in the future. It is a worry. It is a worry when we go into the Christmas period and people are using their credit cards extensively. Credit card interest rates are also worrying. That is another area that is highly unregulated. We have seen massive increases in credit card interest rates that have had no boundaries and have no basis in the actual interest rate set by the Reserve Bank.

I highly recommend the report to the House and recommend that all people read it. It is a very concise document. I think it distils a very complex area of monetary policy and explains the economy really well. It provides people with a very good insight into how the Australian economy is travelling. I would like to thank all the other members of the committee for their time at the inquiries—and for their enthusiasm—and we look forward to Monday's inquiry.