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Wednesday, 17 June 2009
Page: 6367


Mr TUCKEY (6:09 PM) —I take a great interest in this particular legislation for all the implications that it has as this government goes on with its socialist agenda, some of which even the minor parties in the Senate are not prepared to agree to. I will speak more about that later in this speech. The Guarantee of State and Territory Borrowing Appropriation Bill 2009 is an appropriation bill. It is before the House because a government cannot give a guarantee for a debt without the approval of the parliament to expend the funds to pay out in the case of default. The arrogance of this government was such that it had become so used to writing cheques with a fork that it just decided to save the states. I will come back to why it has had to do that, but the reality is that it took the Leader of the Opposition, with his huge past experience in the world of finance, to say: ‘Hang on. Who’s going to lend you, the government, money or lend on your guarantee when you have made no provision to pay if the debt is not repaid by the relevant entity?’ It just shows the misunderstanding.

As I think I have said in this place before, my mother’s favourite saying was, ‘Put a beggar on horseback and he’ll ride to the devil.’ Of course, a mob of beggars got themselves elected to this place and they are off on the road to the devil because they have never seen so much money in all their lives. Anyway, on the advice of the Leader of the Opposition, the government has come to the decision that it needs the approval of this parliament to back this guarantee with real money.

In his second reading speech, the minister went as far as to say, ‘If this dreadful and probably unlikely event occurs, we might also need the right to borrow the money to pay out on the debt.’ Of course, in commerce it is known as a contingent liability. I strongly endorse the press release of our shadow Treasurer, in which he said that, when this bill reaches the Senate, where justice does not reside in the numbers, the opposition will be seeking amendments to have better identified the source of these funds that are borrowed by state and federal governments so as to make sure that the Australian people know how much other nations throughout the world own of the Australian government—because we will be in debt to them. Were they to withdraw the support they presently provide, that would leave this government in grave difficulty because, as was exposed in question time these last few days, the government is spending the money already. I note that the shadow Treasurer commented that he believes that the government, through the sale of Treasury notes, is currently borrowing at about $3 billion a week—$3,000 million a week. It is beyond comprehension.

The background to this decision—and it flies in the face of other advice that was related to the parliament today—is that the Tasmanian government, our smallest state government, went confidently to the marketplace not that long ago with a $100 million bond tender, which is not a great deal of money in the context of parliament, and was only offered $80 million. Oops! Of course, our Treasurer had to rush out and say, ‘Oh, don’t you worry about that’—a common Queenslander’s phrase—‘I’ll guarantee your debt.’ The consequences were as I have already mentioned. The state government of Tasmania could not get the money. Don’t worry about its credit rating, which, of course, forces up the cost it had to incur for it; there was either not enough money around because of the rate at which the Australian government was soaking it up or the institutions, both domestic and international, were happier just taking the Australian government debt instruments anyway.

Money is a commodity. It will be priced according to demand. The reality is that the states could not get money and now we are virtually back to the old days when the Commonwealth borrowed all of the money for the states and the difficulties which arose under that system. It was called the Australian Loan Council.

It became patently obvious to me that there is now massive competition for money in the Australian savings industry and I felt I should have a look at what was happening to interest rates. So I went to a logical place on the internet—the Reserve Bank of Australia’s daily statistical release. Having got the advice, I had to consult the member for Higgins, with his huge understanding, to better explain to me how I was to read their indicative mid rates of selected Commonwealth government debt. And on his explanation, I am now an expert.

The table issued has three columns: ‘Coupon’, in other words, the price at which it was offered in the market and the interest rate; ‘Maturity’, the date at which the government had to buy back this piece of paper or recycle it in the present instance; and, ‘Yield’. When I look at the top line, I see a September 2009 security—imminent—for which the coupon value was 7.5 per cent, but now, in its dying days, it has a value of 2.95 per cent.

Then we look at how the market is assessing long-term loans for which banks also borrow for the purpose of lending to homeowners. You cannot lend someone who has bought a house money for a couple of years and then say, ‘If you haven’t paid it off, I’ll take the house back.’ You have to give those borrowers certainty of, say, a 20-year loan. It so happens and consequently this table tells me that the current yield for a coupon of 5.5 per cent is 5.67 per cent, for a bond with a maturity in 2020-21—a date which has other meaning because that is when this government thinks it might have the capacity to pay off its accumulated debt of $315-plus billion, particularly as it is now guaranteeing over $100 billion of state debt and that state debt is a contingent liability. Your bank manager would know all about that, if you went to borrow $100,000 when you had contingent liabilities of double that amount. The bank would probably say no.

On a 5.5 per cent coupon maturing in May 2021, the current yield is 5.67 per cent. That is how money is being priced; it is where the market expects the cost of money to go. That is the sort of money that banks are having to borrow and on-lend to homeowners. And we have squeals and rants because banks are starting to put up interest rates. We have lived under a farce in this place for so long that somehow or other the Reserve Bank sets interest rates. It was the Hawke-Keating government which deregulated the financial market. That circumstance did exist when the government said how much banks could charge in interest and the government said what the Aussie dollar was worth. A few of us could not convince Malcolm Fraser that that was a bad idea. Circumstances prevailed over the Hawke government—it was not all their economic brilliance or anything else. The hedge funds of the world, which actually had a bigger turnover than Australia, started to play ball with our currency. The only solution was to say, ‘You take it away and play with it,’ because every time the government tried to adjust rates in one direction, hedge funds took them in the other direction. Anyhow, it was a silly idea and it is to the credit of the Hawke-Keating government that they deregulated the financial sector and the currency.

Consequently, it is a farce to suggest that the Reserve Bank sets interest rates. It sets the overnight cash rate, which does have an influence on what banks are doing. But when they have to back a business for the construction of a 20-year mining venture or a householder in the ownership of a house, banks are borrowing on the basis of federal bonds maturing in 2021. Of course that is affecting interest rates within Australia.

I have never been an admirer of Gittins, but he suggested that there is some relevance in the very small amount of money Australia collectively borrows. We are told one day that our international overseas debts are a tragedy. Until the election of this government, all overseas debts happened to be owed by the private sector, who just happened to borrow to build a liquefied natural gas plant or something of that nature. That is not a disaster because the private sector borrow against income-producing assets. It is when governments borrow overseas that you start worrying about foreign debt.

The reality of it is that in this instance we had every reason to know that we might be a flea bite but the effect is the same. Foreign lenders are starting to say, ‘We want a risk premium in lending money within Australia.’ They might have bucketfuls of it, but I read the other day that industry and commerce, our banks and our big business, are also unable to borrow money out of these bucketloads that apparently exist, according to Gittens and the Treasurer today. In fact, they can only borrow within the Asian market because the other markets do not have any money either, or certainly do not want to lend it to Australian business. So anybody who thinks that a government going out into the marketplace and borrowing huge amounts of money for its own purposes is not affecting the interest rate on somebody’s home should not be managing the economy of Australia or, in fact, even sitting in their party room.

Reference was made in the second reading debate, by the shadow Treasurer and by the member for Makin, about the demise of Ruddbank. It was the Labor government who initiated the sale of the Commonwealth Bank; we were in government when the final sale was completed. There was good reason for governments to no longer own banks. There are a thousand examples of those sorts of banks, state banks particularly, going broke because governments told them to lend money.

I stood in this House when the Holmes a Court empire collapsed, simply because of their negative pledge arrangements with the banks. In other words, if the value of their assets fell below 80 per cent of their debt then there was a margin call. The Holmes a Court empire at the time owned about half—somewhere near that—of all the shares in BHP. The Western Australian government told one of its financial institutions—whose business was providing third-party insurance to motorists throughout WA, a state government insurance commission—to buy all of Holmes a Court’s shares and property at St Georges Terrace. I think it cost them about $800 million. They previously had reserves of 64. I made a suggestion that the Western Australian public would have to pay for that, just as they will have to pay off this borrowing—be it that it is guaranteed for state governments or the federal government. I predicted that there would be a huge cost. Two things came out of that. The payment and the purchase which saved the Holmes a Court empire was of course approved under the old WA Inc. principles and the Brian Burke Labor government. But of course that commission was still $800 million in debt when the Richard Court government was elected. They had to impose a $50 per vehicle licence surcharge to put enough money back into the commission so it could meet its commitments and gradually pay off the debt. Yes, it sold the shares and it sold other things for about half of what they had paid for them.

When one looked at my electorate and saw farmers with 10, 15 or 20 licensed vehicles having to pay 50 bucks each on all of them—as well as hardworking people and everyone else—to pay off the debts of someone who was previously Australia’s wealthiest man, I was pretty angry about it. I raised it before all those circumstances, and what was the result? A little peanut called Norm Marlborough—a man who has had to resign a frontbench position in parliament due to his own corrupt activities since then; my wife always says, ‘What goes around comes around’—stood up in state parliament and attacked my son in retaliation for me raising appropriate issues in this place about one of Australia’s richest people. This bloke had a safe Labor seat and was supposed to look after the workers. He destroyed my son’s business with his allegations, which were all untrue. My son was not standing here, my son had nothing to do with what I was doing, but Norm Marlborough was prepared to do it and, as we know, he was a little crook.

What I am saying is: these are the risks that government take the further they intrude into lending money to business. It should be honest and it should work, but there are always instructions being given by politicians to the managers of those banks. Let me say, and I have said it before: I am not overly impressed with the interference of the Future Fund and its one-time Commonwealth Bank manager in the decision making for the new board of Telstra. I do not think the shareholders will be the beneficiaries of that. I thought the previous management had it right: let government go and play with the telecommunications system; we will run our business; we will provide services that will be self-supporting for the shareholders. They would have been better off. We are talking today about a guarantee that the government did not think they needed—an appropriation—and they have got it, but it is time that they accepted that their borrowing program is costing homeowners and small business and it will cost them more.