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Wednesday, 26 November 2008
Page: 7399

Senator COONAN (4:53 PM) —On behalf of the coalition, I am contributing to the second reading debate on the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008. As I indicated a little earlier to the Senate, the opposition supports the bill. But I want to place on record the history of how this bill has come to be considered by the Senate without being referred to a Senate committee and also place in context some of the quite unfortunate and untrue remarks about Mr Turnbull and the shadow Treasurer, Ms Bishop, in terms of their statements made on these guarantees and the guarantee scheme.

This bill will provide for a standing appropriation from the Consolidated Revenue Fund to pay claims under the large deposit and wholesale funding guarantee scheme. The bill allows for the repayment of borrowing, and the payment of interest on borrowing, made in accordance with the scheme. It therefore provides greater certainty to the guarantee scheme by allowing an appropriation to occur without the requirement for parliament to be recalled to pass a specific bill should a claim be made.

There is a background to this. On 10 October the Leader of the Opposition and the shadow Treasurer called on the Rudd Labor government to take three immediate decisions to further strengthen the Australian economy in response to the international financial crisis. Those calls included: to increase the proposed government backed deposit guarantee scheme to cover deposits up to a minimum of $100,000; to increase the investment into AAA rated residential mortgage backed securities, RMBSs, through the AOFM; and to announce that it will not implement the emissions trading scheme, the ETS, prior to 2011. The coalition committed to working cooperatively with the government to expedite the passage through parliament of any legislation that they would bring forward to responsibly implement the deposit guarantee.

On 12 October the Prime Minister announced an unlimited deposit guarantee scheme to operate for a period of three years and a guarantee of wholesale term funding by authorised deposit-taking institutions in return for a fee which was unspecified at the time of the announcement. The Prime Minister told Australians that he was acting on the advice of the regulators. In a press release on 12 October this year, he said:

My officials have done considerable work on the design of these arrangements and, in developing these measures, I have received advice from the Governor of the Reserve Bank of Australia …

The opposition supported the policy. In a press conference on 12 October 2008 the Leader of the Opposition, Mr Turnbull, said:

The Opposition welcomes the decisions taken by the Prime Minister today to provide a guarantee for all deposits for Australian deposit taking institutions, banks, credit unions, building societies and so forth.

In the parliament, the opposition asked questions regarding the detail and design of the scheme, and the government was unable to answer even the most basic questions. On 21 October, it was confirmed that the Prime Minister had not directly consulted the Governor of the Reserve Bank prior to announcing the unlimited guarantee. On 22 October, during the Senate estimates process, we learnt that the decision to increase the deposit guarantee, unlimited in amount as it was, was an entirely political decision in response to the Leader of the Oposition calling for a $100,000 scheme. During the Senate estimates process, I asked Dr Henry:

When did you first have a conversation with any senior member of the government about the possibility of extending the proposal for a $20,000 capped guarantee to one that is unlimited in amount?

His response was:

It is hard to say. I suspect it would have been the day the Leader of the Opposition first suggested that the $20,000 capped figure may not be adequate.

The government had initially claimed that it had been working on the detail of its bank guarantee policy for over a week and that the weekend meeting was merely to finalise the details. But, of course, the lack of policy detail underpinning the announced policy immediately caused confusion for account holders, business and financial markets. Account holders were unable to find out for certain whether their savings were even covered by the guarantee and, if not, whether they could move their funds. The government was unable to release a comprehensive list of institutions and accounts covered. To this day, the list of accounts covered is only a sample list.

So, with the savings of thousands of Australians frozen, the Treasurer said, ‘Go to Centrelink.’ He said:

So I say to the people who are adversely affected by some of these decisions that have been taken in these managed investment funds, do fully investigate your eligibility for income support through Centrelink, that’s what I say to them.

That was a quote from the Treasurer from a press conference on 23 October 2008. This week, the Treasurer denied ever making what I think could only be regarded as careless, and perhaps even disrespectful, remarks. Yesterday—I believe it was—he said:

I did not say that all people in managed investment funds who were experiencing problems should go to Centrelink.

So we have rampant confusion and contradiction. It was revealed on 21 October that the Reserve Bank governor had written to the Treasury secretary, Dr Henry, on 12 October informing him that there should be a cap on the guarantee and ‘the lower the better’. On 24 October the Treasurer announced that a $1 million cap would now apply. The exclusion of foreign bank branches from the guarantee resulted, as you would expect, in a rush of transfers from foreign bank branches to banks covered by the guarantee. On 28 October the government finally got around to sorting out the anomaly of foreign bank branches being excluded from the guarantee while foreign subsidiary banks had been included. This had caused considerable problems for foreign bank branches. On 31 October, in a response to the hardship caused to depositors in non-guaranteed institutions and funds, the government requested ASIC to provide advice on how to assist hardship cases where redemptions from funds had been frozen.

As we can see, the lack of detail on how the wholesale term funding guarantee would operate immediately caused confusion for the financial sector. On 13 October the Leader of the Opposition asked the Prime Minister how the government would ensure that the wholesale term funding guarantee did not have the result of bank losses being borne by the taxpayer. The Prime Minister failed to answer the question. On 14 October the Leader of the Opposition asked the Prime Minister whether the government would undertake to make public the amount, and terms, of wholesale term funding guarantees provided by the Commonwealth to Australian banks and other institutions, and the Prime Minister failed to answer the question. On 20 October, the Leader of the Opposition asked the Prime Minister if he would introduce legislation for the wholesale term funding guarantee. The Prime Minister failed to answer the question. On 21 October, the opposition asked the Treasurer how the fee structure for the wholesale term funding guarantee would operate. The Treasurer failed to answer the question. The details of the fee structure for the wholesale term funding guarantee were finally provided on 24 October.

On 24 October the Leader of the Opposition called on the government to make the wholesale term funding guarantee the subject of legislation. On 13 November the Leader of the Opposition asked the government whether it was aware that Standard & Poor’s, the ratings agency, had ruled that it would not give the government guarantee a AAA credit rating unless the payment on the guarantee ‘is unconditional, irrevocable and timely’. He also asked:

Why won’t the government act to fix this flawed guarantee and allow banks to receive its full benefits, which must then be passed on to the millions of Australian customers through lower interest charges and fees?

The Acting Treasurer, Mr Tanner—yes, you guessed it—failed to answer the question. On 17 November the Leader of the Opposition called on the government to immediately present legislation to authorise the provision of wholesale term funding guarantees to Australian banks. He said:

Without legislation the guarantees will not be effective commercially or practically.

By 21 November the major banks were calling on the government to fix the wholesale term funding and bank deposit guarantees. Again, the Leader of the Opposition called on the government to present legislation to provide for an appropriation to give effect to the wholesale term funding guarantee for Australian deposit-taking institutions.

From that history, of course, we are no doubt going to hear Senator Sherry repeat the comments made by the Treasurer, Mr Swan, in his second reading speech in the House yesterday. Somehow or other, from this unfortunate history with the government being incapable of clearing up this mess and of making clear statements for the benefit of consumers and financial institutions, this becomes Mr Turnbull’s fault. But it has taken six weeks for the government to concede, and finally get around to the fact, that legislation should be introduced to the parliament to support the government’s bank guarantee of large deposits and wholesale term funding. It was immediately clear that the government’s bank guarantee policy was panicked and poorly implemented economic policy that was simply not thought through.

Confronted with the real impact of its panicked and poorly thought through decision, the government has steadfastly refused to acknowledge, or to immediately rectify, its mistakes. The Rudd government bank guarantee has been all about a political strategy with no focus on sound economic decision making. Over one weekend, in a series of long distance phone calls, Prime Minister Rudd and Treasurer Swan produced their flawed bank guarantee. They did not even bother talking directly to the Reserve Bank governor before unveiling their bank guarantee policy. Since the announcement of the bank guarantee policy, the government has been forced to announce a series of changes to try to paper over the cracks of what was poorly conceived from the outset. If the government had simply adopted the policy of the coalition—announced on 10 October—ordinary Australian investors and our financial markets would have been spared six weeks of uncertainty and instability caused by the government’s poorly designed policy and, what is more, the opposition would have provided that advice for free.

The unlimited bank deposit guarantee has been a financial blunder of epic proportions. As a direct consequence, 270,000 Australians with investments in unguaranteed mortgage funds and cash management trusts have had their savings frozen. This has affected finance companies which support, for example, the purchase of motor vehicles. They have been unable to roll over their short-term borrowings. The cash management trusts and superannuation funds that used to buy their commercial paper are now only investing in guaranteed deposits. This has dire consequences for jobs, and the impact on jobs is something of enormous consequence to Australians. As the Leader of the Opposition has said, what this government must be responsible for is jobs, jobs and jobs. And this is certainly not the way to go about creating jobs and preserving jobs at risk for the thousands of people in just the motor vehicle industry alone.

The leading banks are now begging the government to roll back the guarantee to a cap in the order of the amount that we originally proposed. The banks’ representatives have been told by officials that the Prime Minister will never agree to a cap at or even approaching that recommended by the opposition. This problem is still not fixed and it shows the folly of the government’s approach to this. But, not content to bungle the retail deposit guarantee, the Rudd government has also bungled the wholesale term funding guarantee. We supported the wholesale guarantee. All other countries have done the same. Australian banks should not be disadvantaged, which is why we are ultimately supporting this legislation today.

It was the opposition that saw the problem and urged the government to legislate for it. There are two reasons for that. I will place them very briefly on the record. The first is that, while the government can give a guarantee administratively, it cannot pay out on it without an appropriation law being passed by the parliament. It is obvious that, without that law being passed, credit rating agencies and potential investors around the world will not regard the government’s guarantee as being unconditional, irrevocable and timely in terms of payment. That is what Standard and Poor’s have indicated will be required for a AAA rating. As the opposition leader has said so presciently, it is self-evident, it is common sense, it is belt and braces law and indeed economics. The second reason is—and this comes to Senator Brown’s earlier point—that the wholesale term funding guarantee involves the government potentially taking on hundreds of millions of dollars of contingent liabilities. Why shouldn’t that be the subject of legislation and proper scrutiny? Certainly we have also been calling for legislation that would require fees to be charged on commercial terms and would require the extended guarantees to be disclosed to parliament.

The government has finally admitted that we called it right, we called it early and we called on them to fix it when they could have done so six weeks ago. The government’s reaction to our proposal has been, I am sorry to say, characteristically—and this seems to be part of a pattern that is emerging—abusive, firstly, and then dismissive. Finally, there was a backflip with pike by them in admitting that we had it right all along. The finance minister was very recently adamant that no legislation would be introduced. I think as recently as last Thursday he brushed aside the report from Standard and Poor’s. Of course he might have then had a look at what was happening in the UK, where the banks had been raising funds and the government had stated that it would legislate. That legislation is proceeding in the UK parliament.

Once again the Australian banks have been begging the government to fix this up. Mr Rudd’s ineptitude is simply shutting off the cashflow that the banks need to lend to their customers. So bank officials are saying that the Prime Minister has been reluctant to do anything that may appear to concede a win to the opposition. How petulant and childish is that! The Prime Minister is so vain and so concerned about his reputation as an economic manager that he cannot bear to admit that he got it wrong and cannot bear to admit that the opposition spotted it, called it and he has had to play catch-up.

The opposition has made constructive and, as it turns out, completely correct proposals as to this important area of economic policy. It may be embarrassing for Mr Rudd and Mr Swan to admit this. It is farcical to suggest that any uncertainty is due to the opposition. In fact, we were trying to save the government from the error of its ways that was causing such uncertainty and still is for the economy and certainly for investors. I think it clearly shows the government is struggling when faced with an economic challenge whereby one has to actually think carefully about what you do because of the unintended consequences.

The government’s handling of the guarantee scheme has been both amateurish and oafish. It is a situation where—and I say this through Senator Sherry, who is occasionally given to making some thoughtful contributions of his own—occasionally it will do the government good to listen to some advice from the opposition and to take it. We got it right on this occasion. Not everybody has all the answers written on tablets of stone. The government certainly does not in this case, and we have seen the consequences of the government’s folly. Although we are supporting the bill, it is entirely reasonable that the fact be placed on the record that the government got this badly wrong and it is certainly time that it be fixed up.