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Wednesday, 15 May 1985
Page: 1962

Senator LEWIS(10.59) —We are debating the Housing Loans Insurance Amendment Bill 1985. The Housing Loans Insurance Corporation established by Liberal-Country Party Government legislation in 1964 commenced operation in 1965. At the time it was most worthy legislation which established a marvellous organisation. I think that it was a great pity that at the time we did not put a sunset clause into the Bill. Of course, in those days sunset clauses were unheard of; they are an invention of modern politics. We were very proud of the establishment of this body in 1964-65, but it is a great pity that the legislation did not contain a sunset clause.

It is certainly acceptable and is a good thing for governments to establish business organisations in the community when there is a need which is not being fulfilled by private enterprise. In the early 1960s, many Liberals who were involved in real estate, legal games and mortgage financing could see a desperate need for assistance to private owners to enable them to raise money on the security of their homes far in excess of what was currently available on ordinary lending terms. I think that at that time solicitors were restricted from lending more than 60 per cent of the value of the property from their trust accounts and there were similar limitations on lending institutions. Such a high security was totally unnecessary because in Australia there are very few losses in regard to mortgages on residential properties. Clearly, a lender can lend up to 95 per cent of the security and not lose funds if the mortgagee fails to meet the payments because when the property goes back on the market it has maintained its monetary value and, therefore, the mortgage is adequately secured. The most important thing to do is to make sure that the mortgagee has the ability to meet the repayments.

That provision was contained in the original legislation to ensure two things: First, that the loans were made at relatively low interest rates; and secondly that the loans were for very high shares of the value of the property. Up to 95 per cent of the value of the property could be borrowed and the mortgage was insured. An investigation was carried out to make sure that the mortgagee had the ability to meet the commitments. At that time we not only introduced the legislation to establish this statutory authority to enter into this new field but we also encouraged the Mortgage Guaranty Insurance Corporation of America to establish a private enterprise body operating in the same field. In fact, the private enterprise body, MGIC, issued the first policy in Australia on 20 July 1965. I understand that there was some competition between MGIC Australia and the HLIC as to which would be the first body to issue a policy in 1965. In introducing this legislation on 12 November 1964, Mr Bury, who was the Minister for Housing at the time, said:

. . . aim to assist people to borrow, by means of a single loan secured by a first mortgage, the difference between available personal savings and the cost of a home suited to their requirements . . . It is our hope and intention that this scheme will progressively remove the present need for many creditworthy borrowers to obtain a second mortgage loan.

In those days I was a lawyer in private practice. I can remember the great difficulties we had in trying to arrange second mortgage loans to enable people who were clearly creditworthy to get enough finance to purchase a home. There was no difficulty at all in raising the first mortgage money. Up to 60 per cent-the figure was ultimately extended to 66 per cent-of the value of the property could be borrowed. Let us imagine being able to buy a property for, say, $60,000. The first mortgagor would lend, say, $40,000. The first mortgagor, lending only $40,000 on such a property, was in an enormously secure position with absolutely no risks at all. In those days a 7 per cent interest rate was in operation which was probably very close to a real interest rate of 7 per cent per annum. The first mortgagor was getting a good solid 7 per cent per annum on such a highly secured loan. The difficulty was in raising the balance. Taking an imaginary figure of $60,000-it would be much higher now than it was in the 1960s-a purchaser would have to raise an additional $20,000. Perhaps the purchaser had, say, $10,000. He would then have to raise another $10,000 on second mortgage. At that stage very high rates of interest were being imposed because of the added risk to the lender. Clearly, the borrower was being poorly treated in this area. The Housing Loans Insurance Corporation and the Mortgage Guaranty Insurance Corporation overcame those problems, as Mr Bury had predicted. I would say that the growth of credit unions and building societies that has occurred since those days is a clear indication of the success of the policy.

Having got this policy on the road, we need to look carefully at the role of government. The role of government is to govern. It is not to run businesses, even when those businesses are being operated successfully. Governments raise their revenue from taxes, not from profits. The Housing Loans Insurance Corporation is currently successful and is making substantial profits. Of course, the interesting question is: Why is it making substantial profits? Partly, it may be because it is very well managed. I am not attempting in any way to criticise its management. It is also profitable because it is seen to be government backed, because it is the government's body. That fact may put it into a position in which it is able to compete unfairly with private enterprise. I am not referring to MGIC when I say I 'compete unfairly with private enterprise'. I am referring to the possibility that other insurance bodies could enter into this field but which are not prepared to do so because of the difficulty which they would have in competing against the HLIC.

The reason for the establishment of the Housing Loans Insurance Corporation has well passed. As I said, it is a pity that there was not a sunset clause in our original Bill. Indeed, the growth of the whole industry suggests that private enterprise could run this body equally as well, that there may even be wider diversity and that competition may very well lead to lower interest rates. As I have said, the reason for the sort of two-airline policy which we adopted in 1965 in relation to this matter has now passed. I say 'the two-airline policy' because it was a bit like the situation with Trans Australia Airlines and what was probably then Australian National Airways. In those days the Government could see the merit of having a government body and a private enterprise body and so when it moved into housing loans insurance it adopted that sort of policy and established a government authority in competition with private enterprise.

It is my belief that the time has come for that type of policy to pass by and that this organisation should be privatised. How should it be privatised? It is one of those bodies which could well have been included in last night's mini-Budget announcements. Clearly, the body could be sold. I understand that the MGIC company currently is two-thirds owned by the AMP Society. I do not doubt that some bodies, such as the AMP Society, would see the merits in purchasing an organisation and structure as the HLIC which would maintain, and perhaps improve, its current enterprise. HLIC could be sold to such a company.

I make a plea for the public float of such a body. The small shareholders of Australia should be given the opportunity to take up shares in bodies such as this. I make a genuine plea to the Government to do something to encourage small investors to invest in Australian corporations. I have been trying to achieve this result ever since I became a senator over 8 1/2 years ago. In the last Budget introduced by the Liberal-National Party we succeeded because it contained a provision that the first $1,000 of income from dividends be tax free in the hands of the recipients. Let me explain that. Two lots of taxes are paid on dividends from a public or private company. The company pays tax on the profits that it has earnt. It then distributes its surplus profits to its shareholders and when the shareholders get that income they pay tax on it.

What has been the result to this community? The result has been that the small investor has gone out of holding shares in this country as if they were too hot to handle. Large institutions have invested in Australian public companies and taken over the role of the small investor. Those large institutions have been instrumental in affecting the direction of the policy of the public companies. So instead of declaring taxable dividends they are involved in distributing their profits to the shareholders in some tax free form, some capital gains form. Instead of the Government rushing around trying to impose some capital gains tax on people in order to cope with the problem, why does it not see where the problem rests in the first place and say: 'The Liberal-National Party did have a good idea when it introduced this provision in its 1982 Budget'? This Government had a knee-jerk reaction and said: 'We have got to cut out this because it is terrible to think that small investors should get the first $1,000 of their dividend income free of income tax'. The Government adopted the knee-jerk reaction and chopped it out in its first Budget.

If the Government, or some members of the Government, could see that the privatisation that it started last night was a good idea, it may very well be that it could see that this was a good idea. Enormous gains can be made by encouraging small Australian investors to move back into the share market. If they got the first part of their dividends tax free, even if the Government limited it to only the first $500, at least it would encourage some people to say: 'I can earn $500 tax free from dividends because company tax has already been paid on them'. That would encourage some small Australian investors to go back into the share market and would also encourage our Australian companies to start declaring dividends to investors instead of giving them their profits by way of some capital gain. If the Government were to take that step-that is what I hope my Party will do when it gets back into government-there could be a public float of the Housing Loans Insurance Corporation and its shares could be bought by small shareholders, not just large shareholders. Thus we would not end up with the shareholders in our public companies in Australia getting bigger and bigger. We would not have all the insurance companies and banks being the investors, and the small shareholders having to get out of that area because of this taxation policy. In my view, the way to privatise the Housing Loans Insurance Corporation would be by a public float.

What is the Government proposing? Contrary to what I have put, the Government is proposing a four directional expansion of the Housing Loans Insurance Corporation which might-I do not say it will-ultimately result in the only private enterprise organisation in this field getting out because the competition from the Government backed statutory authority would become such that it might very well be that private enterprise would not be able to cope. That is what the Government is proposing. The measure was introduced by the Minister for Housing and Construction (Mr West), who everyone knows is a left wing member of the Government's Cabinet. Clearly, he is a dedicated socialist who sees that the only future in Australia is in government bodies, not private enterprise. Clearly the whole object of this legislation is to expand government enterprise and, where possible, to destroy private enterprise. That is why the Liberal and National parties will oppose the second reading of this Bill. We have a firm and unequivocal commitment to smaller government and lower taxation, and that is what should happen here. This body should be sold off to private enterprise and private enterprise should be encouraged to develop competition.

Senator Grimes —Because it is successful.

Senator LEWIS —The Minister is calling out: 'Because it is successful'. I have already explained that that is not so. The HLIC may very well be successful because it is government backed; it may very well be successful because people invest in it because the Government will step in to aid that body. It may very well be that the reason it is so successful-I am not arguing against its management; the management may be excellent-is that it is government owned and that is keeping away any competition.

If our opposition to this proposal is not carried by the Senate-in other words, if the Australian Democrats join with the Government to reject our proposal on this Bill-two other matters will come up for consideration. The first is in relation to clause 8. What has happened is that the Chairman, Mr J. M. B. Fitzpatrick, is not only the Chairman but also the General Manager. My information is that he has been very successful. He is to be highly praised for his actions on behalf of the Housing Loans Insurance Corporation. His term of office is about to expire. It is due to expire on 18 June this year and I understand that he will retire and not be reappointed. It seems to those of us on this side of the chamber who have given consideration to this matter that this will provide an excellent opportunity to apply the general principles which are applied in regard to statutory authorities, that is, that the chairman of the board and the executive officer should not be one and the same person. I shall move an amendment to that effect in due course. The other matter is in relation to clause 9 which thoroughly expands the activities of this institution. The Opposition will oppose that clause.