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Monday, 9 May 1994
Page: 460

Senator MacGIBBON (6.37 p.m.) —The Defence Force (Home Loans Assistance) Amendment Bill 1994 amends the act to enable the adjustment of interest rates applicable to the Defence Force home loans assistance scheme. The effect of the proposed amendments is as follows. First of all, clause 3 amends section 35 of the principal act by removing subclause 5.15 from its ambit, thereby removing the prohibition on amending that subclause. Once the prohibition has been removed, subclause 5.15 of the agreement, as contained in the schedule, can then be amended. That amendment remains subject to clause 20 of the agreement, which provides that any amendment to the agreement will have no effect unless it is confirmed in writing by the Commonwealth and the National Australia Bank.

  The background to this is that it was announced in the May 1985 economic statement that members of the Defence Force who joined after 14 May 1985 would not be eligible for the then home loan subsidy scheme and that the Defence Services Homes Corporation would be sold. The Defence service homes mortgage portfolio was sold and the Westpac Banking Corporation, which now operates the Defence service homes scheme under the Department of Veterans' Affairs, became the scheme's lender. The new scheme to cover those no longer eligible under the scheme which was sold was to operate from May 1991 and was to be run by the National Australia Bank, which was awarded a 15-year franchise.

  The new scheme simply provided a subsidy of 40 per cent of the interest charged on the loan provided. The scheme provided that the duration of the subsidy was to be related to the person's period of service. The scheme itself was administered by the Defence Housing Authority on behalf of the Department of Defence. The essential part of the scheme is the agreement between the Commonwealth and the National Australia Bank, which is contained in schedule 1 of the Defence Force (Home Loans Assistance) Act 1990.

  Clause 5 of the agreement covers subsidised loans. Subclause 5.15 makes provision for the cancellation of the benchmark rates of interest to be used for the purpose of calculating the subsidy. Under the agreement the benchmark rate of interest is the lower of the rate offered by the National Australia Bank and the average of the rates offered by the five largest Australian banks. When the agreement was drawn up, special introductory rates for new loans, with interest rates fixed for a period of 12 months or less, were not contemplated. The agreement as currently drafted would apply the special introductory rates to all borrowers under the scheme, irrespective of whether they are new borrowers, and for as long as those rates are offered.

  The Commonwealth and the National Australia Bank have agreed that subclause 5.15 of the agreement should be amended so that the special introductory rates would apply only for new borrowers and for the period that those rates are available to the public. The opposition supports the bill.