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Tuesday, 25 November 2008
Page: 11321


Mr CRAIG THOMSON (9:28 PM) —It is always interesting when you follow the member for Fadden. His grasp of reality and fantasy often gets confused. In fact, I recall a speech he made earlier in this place when he said that the Leader of the Opposition had predicted the global financial crisis some 12 months before it started. At that stage the now opposition was in government and of course the notion that that had happened was totally fanciful.

I speak in support of the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008. Over the past 18 months there has been significant upheaval in global financial markets. The government is acting responsibly, decisively and quickly to shelter the Australian economy from the full impact of the global financial crisis. The damage that the credit crisis has caused to the global financial system is considerable. Governments around the world have taken unprecedented steps to guarantee their banks and other financial institutions to ensure stability. Unlike the opposition, this government is about providing financial system stability, confidence in our banks, building societies and credit unions and helping to ensure the flow of credit to businesses and households.

On 12 October this year the government took action to stabilise and promote confidence in Australia’s financial system by instituting a broadly based deposit and wholesale funding guarantee. This guarantee is part of a coordinated global action. If the government had sat on its hands at this time and done nothing, the consequences for the Australian financial system on the global level could have been dire, and our banks could have been seen as below par compared to their international counterparts covered by government guarantees. This guarantee gave 13 million Australians certainty over their deposits. During an address to the Trans-Tasman Business Circle on 21 October 2008, the Governor of the Reserve Bank of Australia, Mr Stevens, supported the government’s decision and stated:

This will ensure that Australian institutions, some of which are among the highest rated of the world’s banks, are able to retain adequate access to term funding in an environment where banks of other countries are able, in effect, to use the rating of their governments when borrowing. Steps in these directions, in the context of what other countries were doing, were sensible and the Reserve Bank supported them.

This is something that the member for Fadden completely ignored in his—I hasten to say—contribution to this debate. Additionally, the governor stated that action like this:

… averted … potential systemic collapses that would have had massive repercussions throughout the world.

Over the month of October, the now opposition leader, who likes to portray himself as a man of authority on the economy, had no less than seven different positions on the government’s bank deposit guarantees. That is right—seven positions in that period of time. It is worth spending a little bit of time to look at his seven positions. Responding to the bank deposit guarantee at a media conference on 10 October, the member for Wentworth said:

Now there are very powerful reasons for having one in this climate and we believe that $20,000 is inadequate in this climate and … we recommend it be increased to not less than $100,000.

That was his first position. Two days later—it only took two days—he said, ‘We welcome this measure, we support it and we will give the Prime Minister every assistance.’ That was after the Prime Minister had announced our position. So there was a second position. Then on 22 October, on The 7.30 Report, he was apparently not personally in favour of the guarantee and said:

Well, plainly because I advocated a $100,000 limit, I obviously wasn’t personally in favour of an unlimited guarantee…

The position changed a little later on the same program—we did not actually even have to wait another day. On the same program he said:

But let me say this: the policy that was announced on the 12th of October was a failure…

This was position No. 4 from the Leader of the Opposition. Then, again, in the same interview, he took another position, No. 5, that he was not going to form a view until he had received advice from the Reserve Bank. He said:

What I want to see is the advice, unfiltered, from the Reserve Bank of Australia. I want to see what Glenn Stevens proposes, and then we will form our view in response.

In the space of that interview he had three separate positions. But it did not end there. Two days later on 24 October, the Leader of the Opposition said:

Our initial recommendation was that it should be at least $100,000 and if that recommendation had been taken up we would not be in the Rudd/Swan created mess we are today. But given where we are today the cap should be set at the level the Reserve Bank recommends;

This was position No. 6. Three days later the opposition leader criticised the government for following the RBA’s advice—position No. 7. Now the unlimited bank deposit guarantee was a very big policy blunder. So he had said, ‘Let’s wait for the Reserve Bank’s advice; let’s get it.’ Then when it came in, he said it was wrong. This was the seventh position from the so-called self-proclaimed expert on the Australian economy, the opposition leader.

Mr Turnbull’s actions have been a real threat to the stability of our banking system. This is one of the reasons we have acted responsibly again today. The Australian community and their banks could have been more comfortable if the opposition leader had stuck to his initial pledge of support. Unfortunately, the Leader of the Opposition’s growing attacks on the guarantee scheme sowed the seeds of doubt in the minds of the global investors. This shows again that the Leader of the Opposition fails to understand that the national interest is more important than his narrow political interests, and more important than his love of the sound of his own voice. We have, in the Leader of the Opposition, a person who likes to take credit for everything. You would expect him to take credit for the sun coming up in the morning. But one thing is clear: by the time the sun sets at night we know that his position will have changed again.

Today, we are introducing a standing appropriation to pay any possible claims made under the government’s guarantee scheme for large deposits and wholesale funding. We have stuck to our position—unlike those on the other side, who might have yet another position tonight or tomorrow, or next week. Who actually knows when they will next change their minds? This bill will provide international markets with the assurance that Australian institutions are supported by a government guarantee, and that any payments will be made in a timely way. This assurance is something that the opposition has been trying to erode with its willy-nilly changing of positions. The bill will guarantee financial system stability, confidence in our banks, building societies and credit unions and will help ensure the flow of credit to businesses and households.

The bill has two measures: a standing appropriation to enable claims to be paid in a timely way, in the unlikely event that claims are made of the scheme; and a borrowing power. The appropriation is not a legal necessity according to our legal advice, nor would it be a commercial necessity if international markets could be confident that there would be bipartisan support for an appropriation in the very unlikely event that one were needed.

The government response to the global financial situation is to strengthen our economy and protect Australians by guaranteeing Australian depositors and wholesale funding, ensuring that the Australian market remains globally competitive. Since the initial guarantee announcement, the government has been engaged on a daily basis in putting in place the detailed arrangements. We have consulted with regulators and the industry to manage new developments as they have arisen, providing a standing appropriation is a part of this process. It is part of our ongoing efforts to work quietly and methodically through the complex issues the nation confronts, and this will continue as global circumstances change. Obviously the consultative approach we have taken to these matters means information can leak out from time to time, including to the opposition. Our promise is that at all times we will keep consulting broadly, work collaboratively with regulators and with industry, and act in the national interest.

This government has introduced a number of strategies for tackling this difficult global financial environment, such as the $10.4 billion Economic Security Strategy, to strengthen the Australian economy and support Australian households during the global financial crisis. During a speech in November to the Australia-Japan Economic Outlook Conference 2008, Malcolm Edey, the RBA assistant governor, stated:

The fiscal package announced by the Government in October will provide a near-term stimulus of a bit under 1 per cent of GDP.

He said the package was one of the factors that would:

… help to cushion the effects of the much more difficult global environment in which we now find ourselves.

That is what the regulators are saying in relation to the government’s actions. Australia is not immune to these developments, but we are in a much better position to weather the storm than many other countries. The International Monetary Fund, in its October 2008 World Economic Outlook, commented:

… sound fiscal positions provide scope for allowing automatic stabilizers to operate in full and for judicious use of discretionary stimulus if the outlook deteriorates further.

It is crucial during these uncertain global economic times that monetary policy and fiscal policy work together to shelter the Australian economy from the full impact of the global economic crisis.

The economic stimulus package will have a positive impact in my electorate of Dobell on the New South Wales Central Coast this Christmas time. In Dobell alone, 43,000 people will benefit directly from the government’s package. On the Central Coast, more than $120 million will be injected into the local economy this December. I know this is partisan, but what I encourage locals on the Central Coast to do, if they are spending their money, is to spend it locally and support the local businesses on the Central Coast. This will help our area weather the storms, the financial typhoons, that have swept the world, bringing with them financial upheaval. This is very important for an electorate like Dobell where the biggest employer is the retail sector and unemployment is already at 7½ per cent. So money that is spent locally on the Central Coast is very important to keeping jobs there. That is what part of this Economic Security Strategy is about: making sure that we continue to have growth and making sure that we create jobs and keep jobs.

It is a global financial crisis that no-one foresaw the extent of. This is an unprecedented crisis which is still reverberating around the financial markets of the world. Governments around the world, including this government, responded with unparalleled steps to bolster financial stability both domestically and globally. Such responses followed the upheaval in the United States caused by the collapse in the subprime market in that country. In 2003 the US economy was doing very well: jobs were readily available, productivity grew steadily, inflation was low and interest rates dropped to record lows that had not been seen in 40 years. With an increased household income, consumers purchased houses which in turn stimulated the housing construction industry, and house prices increased in value. With low interest rates and a booming economy, mortgage brokers, believing that housing prices would always increase in value, provided housing loans on behalf of banks and other lenders to customers who would not normally be granted a home loan. The RBA noted in its March 2007 Financial stability review:

… sub-prime loans … are typically loans made to borrowers with impaired credit histories, which might include one or more payment defaults, a previous loan foreclosure, or bankruptcy. Because of their higher risk of default, sub-prime borrowers are charged higher interest rates than prime borrowers.

The RBA also noted:

There has been rapid growth in US sub-prime lending since 2003, with these loans accounting for around one fifth of mortgage originations in 2006 and an estimated 15 per cent of all outstanding mortgages.

It is reassuring to know that this government has taken the steps to buffer the impacts of the global financial crisis. Our May budget forecast that problems abroad would slow the Australian economy and have an impact on employment. The government took the tough decisions in the budget to build a strong surplus to act as a buffer in an economic slowdown. This is now providing the flexibility to respond to deterioration in the Australian economy. Additional liquidity has been injected into the Australian economy by the Australian government through the Australian Office of Financial Management. The AOFM will be investing $8 billion worth of residential mortgage backed securities over the next three years.

Some speakers from the opposition have claimed, again, that the Leader of the Opposition came up with this idea, but he did not. In fact, what the Leader of the Opposition suggested in his interview with Laurie Oakes was that we adopt the position that the US government did and buy bad mortgages. That is a very, very different proposition from what this government did, and it is something that I do not think anyone with any economic credibility would suggest should happen—that we take on bad mortgages. What this government has done is inject $8 billion worth of liquidity into the market, and that is something that all parties have been supporting.

In such extraordinary times, decisive action is essential, and that is what this government has done. Now monetary and fiscal policies are working in tandem to help Australia confront the uncertain economic conditions. Both Australia’s financial system and mortgage market are relatively strong and healthy in comparison with other countries. The International Monetary Fund noted:

… house prices fell in the first half of 2008 at an annual rate of 5 percent to 12 percent in Canada, Denmark, Spain, New Zealand, and the United Kingdom …

Australia is one of the few countries that have continued to see a modest increase in house prices.

The International Monetary Fund’s country report on Australia highlighted the strength of this country’s banking system, stating:

Australian banks have weathered the global financial turmoil reasonably well. The four large banks that account for two thirds of bank assets continued to report strong profits through early 2008, together with adequate capital.

In addition, Australia’s four largest banks have been given a credit rating of AA by credit rating agency Standard and Poor’s. Those four banks are four of only 18 such banks in the world, and the Reserve Bank of Australia noted that ‘of the world’s largest 100 banks, only a handful have higher ratings’; and that ‘no Australian owned bank has had its rating downgraded since the onset of the credit turmoil’. The strong credit rating has enabled the banks to access both domestic and international capital markets.

Compared with the US and UK, Australia’s mortgage market continues to function. The market is also relatively concentrated in comparison with some other countries. The Treasury noted that, ‘Australia’s five largest banks account for the majority of market share.’ The entire banking sector has consolidated to some extent since 2000 with ‘the number of building societies falling from 19 to 13 between March 2000 and March 2007, and the number of credit unions from 218 to 137 over the same period’. Both the banking and non-banking sectors have made prudent decisions about international investments and home loans. Both sectors have had a relatively small exposure to US subprime assets and were therefore not as vulnerable as other countries to the credit crisis, particularly in Europe. The RBA noted in its September 2008 Financial stability review:

US exposures account for less than 10 per cent of the total foreign claims of Australian-owned banks, and typically do not arise through lending to the US household sector. While some banks have reported that they have exposures to the US sub-prime market through holdings of financial instruments, these remain small when compared to the size of these banks’ balance sheets.

The guarantee scheme will apply from 28 November 2008. In the unlikely event that claims must be met under the guarantee scheme, those claims can only be paid out of funds appropriated by the parliament. This bill provides a standing appropriation for the guarantee scheme, which the government proposes to have in place by 28 November 2008. This will ensure the timely payment of claims, providing certainty for Australian and international investors in wholesale funding instruments provided by authorised deposit-taking institutions, including banks, building societies and credit unions, and providing certainty in relation to large deposits with ADIs. In addition, the bill provides a borrowing power to enable funds to be borrowed to pay claims under the guarantee scheme if there are insufficient funds in the Consolidated Revenue Fund at the time those claims are to be paid. On 12 October 2008, the government announced a guarantee for deposits with all Australian-incorporated ADIs for a period of three years. The government also announced a guarantee on wholesale funding for all Australian-incorporated ADIs, on application, for a fee.

This government has taken swift and decisive action to ensure that Australian financial institutions are protected. It has taken decisive action to ensure that our economy remains as strong as it possibly can. The Rudd government has taken decisive action to provide a stimulus to the economy to make sure that jobs will continue to be there and that we can continue to have growth. The bill before us today is part of that scheme. This is an important bill and I commend it to the House.