Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document

Consideration resumed from 3 June 2009

Senators in attendance:

Senator Conroy, Minister representing the Treasurer, and Senator Sherry, Minister for Superannuation and Corporate Law

Dr David Gruen, Executive Director

Mr Mike Callaghan, Prime Minister’s Special Envoy

Mr Tony McDonald, General Manager, Macroeconomic Policy Division

Dr Steven Morling, General Manager, Domestic Economy Division

Mr Adam McKissack, Principal Adviser, Forecasting, Domestic Economy Division

Mr Kevin Playford, Manager, International Finance Division

Mr Mike Kooymans, Manager, International Finance Division

Mr Bill Brummitt, General Manager, International Economy Division

Mr Nigel Ray, Executive Director

Ms Peta Furnell, General Manager, Social Policy Division

Mr Paul McBride, Manager, Social Policy Division

Mr Peter Robinson, Principal Adviser, Social Policy Division

Mr Steve French, General Manager, Industry, Environment and Defence Division

Mr Geoff Francis, Principal Adviser, Industry, Environment and Defence Division

Ms Meghan Quinn, Manager, Industry, Environment and Defence Division

Mr Kurt Hockey, Manager, Industry, Environment and Defence Division

Ms Natalie Horvat, Manager, Industry, Environment and Defence Division

Ms Penny Sirault, Manager, Industry, Environment and Defence Division

Ms Jan Harris, General Manager, Budget Policy Division

Ms Luise McCullough, Principal Adviser, Budget Policy Division

Mr Jason Allford, Principal Adviser, Budget Policy Division

Ms Michelle Stone, Manager, Budget Policy Division

Ms Sue Vroombout, General Manager, Commonwealth-State Relations Division

Mr Tony Webster, Manager, Commonwealth-State Relations Division

Ms Deidre Gerathy, General Manager, Corporate Services Group

Mr Rob Donelly, General Manager, Financial and Facilities Management Division

Mr David Parker, Executive Director

Ms Christine Barron, General Manager, Indirect Tax Division

Mr Michael Willcock, General Manager, Personal and Retirement Income Division

Mr Mark O’Connor, Principal Adviser, Personal and Retirement Income Division

Mr Tony Coles, Manager, Personal and Retirement Income Division

Mr Chris Leggett, Senior Adviser, Personal and Retirement Income Division

Mr Nigel Murray, Manager, Personal and Retirement Income Division

Mr Paul McCullough, General Manager, Business Tax Division

Mr Rob Heferen, General Manager, Australia’s Future Tax System

Mr John Lonsdale, Adviser, Australia’s Future Tax System

Mr Jonathan Rollings, Acting General Manager, Tax Design Division

Mr Haydn Daw, Acting General Manager, Indirect Tax and Treaties Division

Mr Greg Wood, Indirect Tax and Treaties Division

Ms Maryanne Mrakovcic, General Manager, Tax Analysis Division

Mr Phil Gallagher, Manager, Tax Analysis Division

Mr Colin Brown, Manager, Tax Analysis Division

Mr Damien White, Manager, Tax Analysis Division

Mr Marty Robinson, Tax Analysis Division

Mr Jim Murphy, Executive Director

Mr Geoff Miller, General Manager, Corporations and Financial Services Division

Ms Marian Kljakovic, Manager, Corporations and Financial Services Division

Mr Mark Sewell, Manager, Corporations and Financial Services Division

Ms Alix Gallo, Manager, Corporations and Financial Services Division

Mr Bede Fraser, Manager, Corporations and Financial Services Division

Ms Kate Preston, Manager, Corporations and Financial Services Division

Mr Patrick Colmer, General Manager, Foreign Investment and Trade Policy Division

Mr Godwin Grech, Principal Adviser, Financial Systems Division

Mr David Martine, General Manager, Financial Systems Division

Ms Kerstin Wijeyewardene, Manager, Financial Systems Division

Ms Vicki Wilkinson, Manager, Financial Systems Division

Mr Roger Brake, Manager, Financial Systems Division

Mr Trevor King, Manager, Financial Systems Division

Ms Jacky Rowbotham, Senior Adviser, Financial Systems Division

Ms HK Holdaway, General Manager, Competition and Consumer Policy Division

Mr Brad Archer, Manager, Competition and Consumer Policy Division

Mr James Chisholm, Manager, Competition and Consumer Policy Division

Mr Paul Madden, Executive Director, Standard Business Reporting Management Group

Mr Peter Martin, Australian Government Actuary

Mr Peter Harper, Acting Australian Statistician

Mr Ian Ewing, Deputy Australian Statistician, Macroeconomics and Integration Division

Mr Garth Bode, First Assistant Statistician, Social Statistics Group

Mr Paul Lowe, Assistant Statistician, Population Census Branch

Ms Heather Jones, Acting Assistant Statistician, Human Resources Branch

Mr Debra Foggin, Chief Financial Officer

Mr Neil Hyden, Chief Executive Officer

Mr Michael Bath, Director, Financial Risk

Mr Pat Raccosta, Chief Financial Officer

Mr Gerald Dodgson, Head of Treasury Services

Dr John Laker, Chairman

Mr John Trowbridge, APRA Member

Mr Brandon Khoo, Executive General Manager, Specialised Institutions

Mr Charles Littrell, Executive General Manager, Policy, Research and Statistics

Mr Senthamangalam Venkatramani, General Manager, Central Region

Mr Michael D’Ascenzo, Commissioner of Taxation

Mr David Butler, Second Commissioner

Ms Jennie Granger, Second Commissioner

Mr Mark Konza, Deputy Commissioner, Small and Medium Enterprises

Ms Raelene Vivian, Chief Operating Officer

Mr Neil Olesen, Deputy Commissioner, Superannuation

Mr Greg Burgoyne, Chief Finance Officer

Sally Druhan, Assistant Commissioner, ATO Finance

Mr Gary Banks AO, Chairman

Mr Bernie Wonder, Head of Office

Dr Michael Kirby, First Assistant Commissioner

Mr Terry O’Brien, First Assistant Commissioner

Dr Ralph Lattimore, Assistant Commissioner

Mr Paul Gretton, Assistant Commissioner

Mr Tony D’Aloisio, Chairman

Ms Belinda Gibson, Commissioner

Mr Michael Dwyer, Commissioner

CHAIR (Senator Hurley) —I declare open this public hearing of the Senate Economics Legislation Committee. The Senate has referred to the committee the particulars of proposed expenditure for 2009-10 and related documents for the Innovation, Industry, Science and Research, Resources, Energy and Tourism and Treasury portfolios. The committee must report to the Senate on 25 June 2009 and has set 31 July 2009 as the date by which answers to questions on notice are to be returned.

Under standing order 26 the committee must take all evidence in public session. This includes answers to questions on notice. Officers and senators are familiar with the rules of the Senate governing estimates hearings. If you need assistance, the secretariat has copies of the rules. I particularly draw the attention of witnesses to an order of the Senate of 13 May 2009, specifying the process by which a claim of public interest immunity should be raised and which I now incorporate in Hansard.

The document read as follows—

Order of the Senate—Public interest immunity claims

That the Senate—

(a)   notes that ministers and officers have continued to refuse to provide information to Senate committees without properly raising claims of public interest immunity as required by past resolutions of the Senate;

(b)   reaffirms the principles of past resolutions of the Senate by this order, to provide ministers and officers with guidance as to the proper process for raising public interest immunity claims and to consolidate those past resolutions of the Senate;

(c)   orders that the following operate as an order of continuing effect:

(1)   If:

(a)   a Senate committee, or a senator in the course of proceedings of a committee, requests information or a document from a Commonwealth department or agency; and

(b)   an officer of the department or agency to whom the request is directed believes that it may not be in the public interest to disclose the information or document to the committee, the officer shall state to the committee the ground on which the officer believes that it may not be in the public interest to disclose the information or document to the committee, and specify the harm to the public interest that could result from the disclosure of the information or document.

(2)   If, after receiving the officer’s statement under paragraph (1), the committee or the senator requests the officer to refer the question of the disclosure of the information or document to a responsible minister, the officer shall refer that question to the minister.

(3)   If a minister, on a reference by an officer under paragraph (2), concludes that it would not be in the public interest to disclose the information or document to the committee, the minister shall provide to the committee a statement of the ground for that conclusion, specifying the harm to the public interest that could result from the disclosure of the information or document.

(4)   A minister, in a statement under paragraph (3), shall indicate whether the harm to the public interest that could result from the disclosure of the information or document to the committee could result only from the publication of the information or document by the committee, or could result, equally or in part, from the disclosure of the information or document to the committee as in camera evidence.

(5)   If, after considering a statement by a minister provided under paragraph (3), the committee concludes that the statement does not sufficiently justify the withholding of the information or document from the committee, the committee shall report the matter to the Senate.

(6)   A decision by a committee not to report a matter to the Senate under paragraph (5) does not prevent a senator from raising the matter in the Senate in accordance with other procedures of the Senate.

(7)   A statement that information or a document is not published, or is confidential, or consists of advice to, or internal deliberations of, government, in the absence of specification of the harm to the public interest that could result from the disclosure of the information or document, is not a statement that meets the requirements of paragraph (1) or (4).

(8)   If a minister concludes that a statement under paragraph (3) should more appropriately be made by the head of an agency, by reason of the independence of that agency from ministerial direction or control, the minister shall inform the committee of that conclusion and the reason for that conclusion, and shall refer the matter to the head of the agency, who shall then be required to provide a statement in accordance with paragraph (3).

(d)   requires the Procedure Committee to review the operation of this order and report to the Senate by 20 August 2009.

(Agreed to 13 May 2009.)

(Extract, Journals of the Senate, 13 May 2009, p.1941)

The committee will begin today’s proceedings with the markets group of Treasury and will then follow the order as set out in the circulated program. I welcome Senator Sherry, representing the Treasurer and officers of the department. Minister or officers, would you like to make an opening statement?

Senator Sherry —One issue I was going to raise, Chair, I notice you have got markets group for six hours on the indicative agenda. We are happy obviously for six hours if that is the committee’s wish but it would be a world record length of time for markets group. My office has spoken to both APRA and ASIC and put them on standby. If the committee does proceed for a shorter period than six hours, we will have APRA and ASIC on stand-by to bring them on a little earlier, if that is the committee’s will.

CHAIR —Thank you, Minister, that might be useful. We will see how we go.

Senator CAMERON —After last night you might be here for eight hours.

Senator JOYCE —Markets group, are we in a recession?

Mr Murphy —No.

Senator JOYCE —We are not in a recession?

Mr Murphy —That is what the national accounts demonstrate.

Senator JOYCE —Will we go into recession?

Mr Murphy —At the present time, from all the indicators, it seems that the stimulus packages which the government put in place and the other measures which the government has taken have steered Australia clear of a recession at the present time.

Senator JOYCE —So, the stimulus package is the key mechanism that we are not in a recession?

Mr Murphy —I think, yes, the stimulus packages—if you compare us with countries overseas—demonstrate that the actions that the government have taken have been effective.

Senator JOYCE —Can you just tell me what was the trade balance in the quarterly figures?

Mr Murphy —I have not got that with me. We can get that for you, Senator.

Senator Sherry —We can get the figure but this is not the area for the trade balance. That is a Treasury rather than a markets group area.

Senator JOYCE —Because it is the fact that the pre 31 March shipping figures, which deal with contractual obligations made at a time when there was a more robust payment for resources, are the absolutely overwhelming mechanism that has determined the current figures that have come out. I want to know what is the connection between a stimulus package and the capacity to get coal onto a ship and send it over to Asia?

Mr Murphy —I think I would be better off taking that on notice, Senator.

Senator JOYCE —Do you acknowledge that by a factor of 400 per cent the overwhelming figure in the quarterly figures was the turnaround in trade?

Mr Murphy —Right—so?

Senator JOYCE —So, how does the stimulus package, which you just told me is the mechanism—

Mr Murphy —The stimulus package is addressed to a whole economy response. With the interconnections and linkages within an economy, you cannot just drag out and say that the state of economy is determined by one particular factor. Australia’s exports have been significant. Yes, if you talk about coal, we have had a major boost to Australia in terms of trade through our mineral exports.

Senator JOYCE —You just told me the reason we are not in recession just before, and I quote you, is because of the stimulus package.

Mr Murphy —Well, it is. Before the global financial crisis, Australia was progressing with record turns of trade largely due to our mining and commodity exports. Subsequent to the global financial crisis, of course there has been a decline in demand from, for instance, China. The initial stimulus package, which was there to keep spending, keep the economy moving, especially at the retail area in the retail sector, is also going to have flow-on and spill over effects into the rest of the economy. To say that the stimulus packages do not have any effect on trade I think is not correct.

Senator JOYCE —Can you please explain to me how a $900 cheque in the mail puts one tonne of coal on a ship going to China?

Senator Sherry —Hang on, before we go any further. This is not a markets group responsibility, Senator Joyce, and these issues were canvassed extensively yesterday in front of the appropriate group, the macro policy group with Dr Henry, Dr Gruen and others. This is the markets area. If want to ask questions about markets matters, there is six hours available to do that minus 10 minutes, but it is not macro we are dealing with his this morning.

Senator JOYCE —Thank you, Minister. I asked the question whether we are in recession and I asked what is the mechanisms of why we are not in recession. I was given the answer that it was because of the stimulus package. I am now drilling down, because that is to do with the markets, into the details of the stimulus package. We have clearly defined it has got nothing to do with the stimulus package. It has got everything to do with exports which are not, in any way, shape or form, related to the stimulus package. I just want to clear the air of that because there seems to be some misconception out there that the trade figures have some relationship to a $900 cheque in the mail. It has got absolutely nothing to do with it.

Senator Sherry —Markets group have nothing to do with the $900 stimulus cheque. They have nothing to do with transport coal costs, nor do they deal with macroeconomic issues that were extensively canvassed yesterday. But in deference to yourself, we will take the question on notice.

Senator JOYCE —The minister has just told me that a $900 cheque has nothing to do with the markets group. Did the $900 cheque have nothing to do with any form of stimulus in the economy?

Senator Sherry —It is who is responsible for the area and markets group are not responsible for the area so we will take that question on notice.

Senator JOYCE —You will take it notice whether it had any effect?

Senator Sherry —We will take it on notice, yes.

Senator JOYCE —I imagine it will be very hard to determine whether it had any effect so I can understand why you would take it on notice.

Senator Sherry —Just so I can indicate, I am taking it on notice because you are asking the questions in the inappropriate area and you are starting to repeat questions yesterday which are the responsibility of the macro group. You might want to pad out estimates because you are not sufficiently prepared for the markets group to ask a range of questions, of which I could think of many.

Senator JOYCE —I have got some.

Senator Sherry —Good, as I say, matters that relate to macroeconomic issues were dealt with yesterday. I could just foreshadow that we will be taking on notice any further questions about that area.

Senator JOYCE —I understand absolutely why you would want to avoid the area. It is quite evident that with the lack of imports the Australian economy is actually factoring in a recession. If the stimulus package was working they would be purchasing capital imports but they are certainly not.

Senator CAMERON —Is that a question?

Senator Sherry —I am happy to respond to a relevant question, Senator.

Senator JOYCE —Can you explain why Australia has the highest level of food inflation in the western world?

Senator Sherry —Really, Senator. The markets group do not have oversight of inflation, particularly food inflation. We will have to take it on notice. The officers are not here for those particular issues because they do not deal with those issues.

Senator JOYCE —Outcome 1 is ‘Informed decisions on the development and implementation of policies to improve the wellbeing of the Australian people’. Do you think food inflation will have anything to do with the wellbeing of the Australia people?

Senator Sherry —We do not have officers here who can answer questions about food inflation in the markets division. I do understand that sometimes it is difficult at estimates to identify areas for questioning. There are difficulties, but we just do not have the personnel here. They are in the Macro and other areas of Treasury, so we will have to take it on notice.

Senator JOYCE —Do you believe the current retail environment is working effectively?

Senator Sherry —In a competitive sense?

Senator JOYCE —Yes.

Senator Sherry —There may be some response we can give you. When you say retail, what areas of retail do you mean?

Senator JOYCE —Retail of food—

Senator Sherry —Shopping?

Senator JOYCE —Shopping.

Senator Sherry —Do you have any comments on that?

Mr Murphy —Generally the economy seems to be holding up. Most people can purchase goods they wish to buy and suppliers are providing the goods that people wish to buy. You would have to say on general observation that the retail sector is progressing reasonably well at the moment, in a global financial crisis—I think that has got to be said. Obviously there are going to be strains on the economy given the downturns overseas.

Senator JOYCE —Do you believe the competitive pressures in the retail sector of the market are evident and working on behalf of consumers’ interests?

Senator Sherry —If you have issues around the operation of markets as distinct from outcomes, we may be able to help you, but, as to observations about the issues you are going to, we will take it on notice because it is not the appropriate area.

Senator JOYCE —Do you think a question to be asked on the retail sector would be inside the scope of outcome 1, ‘Informed decisions on the development and implementation of policies to improve the wellbeing of the Australian people, including by achieving strong, sustainable economic growth’? Do you see that as being within that scope or, if not, can you explain why it is not?

Senator Sherry —I have already explained, and we will take your question on notice. I am not going to repeat myself.

Senator JOYCE —You will take a question on notice on why the outcome is relevant is not.

Senator Sherry —Yes, we will take it on notice.

Senator JOYCE —You will take that on notice as well? Can you answer questions about fuel or are you going to take them on notice as well?

Senator Sherry —We are taking it on notice.

Senator JOYCE —You are taking questions on fuel on notice as well?

Senator Sherry —Yes.

Senator JOYCE —This is the Markets Group and you are going to take questions on the retail sector on notice because you cannot answer them; you are going to take questions on fuel on notice because you cannot answer them; you are going to take questions on the recession on notice because you cannot answer them.

Senator Sherry —Which particular area of fuel do you want to go to?

Senator JOYCE —Competitive stresses in the fuel market.

Senator Sherry —If you want responses to questions you have to be a little more specific than saying ‘fuel’.

Senator JOYCE —You just told me you will take it on notice before you had even heard the question.

Senator Sherry —No, you had ceased your question—if you would just stop for a moment and recall what you asked about. You concluded your question. I want to clarify this for the officers: what areas of fuel do you want to go to?

Senator JOYCE —I want to talk about the current competitive stresses in the market. Do you believe that they are evident? Do you feel the current Mobil-Caltex merger is going to exacerbate—

Senator Sherry —We can, I think, deal with those issues for you.

Senator JOYCE —You can deal with those issues?

Senator Sherry —Yes, I think we can.

Senator JOYCE —Hallelujah! We have got a question you can answer.

CHAIR —No, Senator.

Senator Sherry —It is a matter of asking the question in the appropriate area.

CHAIR —We have an appropriate question to answer, so please go ahead.

Mr Murphy —In the matter of fuel, as you know, we went through the government’s initiative in some length a little time ago. The Australian prices of unleaded petrol, diesel and LPG are largely following international benchmarks—we know that. Fuels are internationally traded commodities and the prices are determined by global supply and demand factors. In addition to the international prices, fuel prices in Australia also reflect changes in the exchange rate of the Australian dollar.

The ACCC, as part of its responsibilities for competition, monitors the retail prices of fuel. You noted that there is currently a question about a Caltex-Mobil merger. I think you could say that that is very much on the radar screen of the ACCC. There has been some question about whether consumers have benefited from the tie-up between the grocery retailers and the petrol companies. I think, from the analysis so far, consumers have benefited. That is basically where we are on fuel. It obviously was a major concern to people some time ago, but it seems that as fuel prices have moderated it is not at the moment an area where consumers feel under stress.

Senator JOYCE —In your knowledge of markets, do competitive pressures increase or decrease with the number of participants in the market?

Mr Murphy —In terms of competition, you only need two participants to have a competitive market to benefit consumers. It is not a given that the more competitors the more competitive outcome you will get. It may be; it would just depend on the market.

Senator JOYCE —Do you agree or disagree that with the centralisation of the market, if you get down to the position of two competitors, the capacity for cartel like arrangements increases or decreases or that implicit knowledge by each of the other’s operation increases or decreases in such a way that you can implicitly collude without explicitly colluding?

Mr Murphy —There are a couple of points on that. Provisions of the Trade Practices Act 1974 go into price fixing and into cartels. They have been strengthened by this government moving to actual criminal sanctions for cartels. As we have seen, there has been a lot of press about the Visy case. As you can see—

Senator JOYCE —In the Visy market, how many competitors were there?

Mr Murphy —Can I just answer the question? In terms of competition, as I said, it depends on the nature of the market. Also, the number of competitors can be one factor in determining a competitive market. Oftentimes I think people misunderstand competition by thinking that a trade practices act or competition policy is there to provide solely a support for market players. The competition policy is there primarily to ensure that there is a competitive market for consumers. A competitive market for consumers may come from a smaller number of competitors than a larger number of competitors. It all depends on the market.

Senator JOYCE —In the Visy case, how many major players were there in that market?

Mr Murphy —Principally there were just the two.

Senator JOYCE —Two?

Mr Murphy —There were other small ones, but principally there were two.

Senator JOYCE —I am going to get to the relevance of the Trade Practices Act in maintaining a competitive market. Did two players make it easier or harder for Visy and Amcor to come to an arrangement? Would it have been more difficult had there been multiple players?

Mr Murphy —You might be better off addressing that to Graeme Samuel and his experience, but I would not have said so. When you had clear prohibitions in terms of the conduct that was engaged in, I do not see how it makes it easier for two people to collude than for 100. There are clear prohibitions in the law against that activity. I do not see that that is the answer.

Senator JOYCE —Your statement there, Mr Murphy, is that you believe that it would be no harder for two people to collude in the market than for 100? Do you stand by that statement?

Mr Murphy —If you have it in an area where there is clear prohibition, where it is an illegal activity, one would have thought that just the same prohibition applies for two as it does for a multiple number of people.

Senator JOYCE —You do not honestly believe that, do you? It is far easier for two people to collude. They do not even have to do it explicitly. They do it implicitly through knowledge of each other’s business.

Senator Sherry —You implied that the witness was not giving a correct answer. He is giving the correct answer to—

Senator JOYCE —He stands by the answer then?

Senator Sherry —your question.

Senator JOYCE —He stands by the answer that it is as easy for a hundred people to collude as it is for a market of two to collude?

Mr Murphy —No. If they have the intention, they will collude. But I am saying this is such a strong prohibition and the consequences are so serious that it is not common conduct.

Senator JOYCE —So you are saying the competitive pressure in the market is brought about by the Trade Practices Act, and that ipso facto stands in spot for the other 98 competitors if there are only two in the market?

Mr Murphy —I am sorry—

Senator JOYCE —You are saying that the Trade Practices Act is basically the only inhibitor for collusion?

Mr Murphy —There is competition in itself. We would only be minded to collude if we thought we were going to do better out of it by colluding than we would be if we did not. Realistically the competition rules as set out in the Trade Practices Act are the principal regulatory tool to ensure competition in the economy. There will be competition just by its nature. People wish to compete and to do the best they can.

Senator Sherry —Can I just make an observation as well. Different markets have different numbers of participants and there are a range of characteristics that will influence the number of participants in a market. For example, if you look at the airline sector, there are two dominant airlines in Australia—Virgin and Qantas, and their subsidiaries. The argument would be: could you have 100 airlines? I doubt very much you could because there is a series of factors around capital investment, I suspect, and other factors that mean the economy of scale required to operate an airline means you do not get 100 airlines in the Australian market. We have got two; we have always seemed to have had two, certainly for the last 70 to 80 years. From market to market you are going to have different factors that will impact on the number of participants in a particular market.

Senator JOYCE —There obviously are also factors there, Minister, with the extent of capital itself being an inhibitor to entry and exit.

Senator Sherry —Sure.

Senator JOYCE —Not everyone can run out and buy a 747.

Senator Sherry —Yes, exactly.

Senator JOYCE —Do you believe the ACCC is currently effective in its capacity to deal with collusion and distorting effects in the marketplace?

Mr Murphy —Yes.

Senator JOYCE —You think they are?

Mr Murphy —Yes.

Senator JOYCE —Do you acknowledge that Australia has the highest form of food inflation in the Western world and the most centralised retail market in the Western world? Doesn’t this run counter to what you—

Senator Sherry —The issue of food inflation is not an issue for these witnesses. We can take the question on notice to get the detail. You assert things, Senator.

Senator JOYCE —That is not—

Senator Sherry —You asked, ‘Do you acknowledge that Australia has the highest level of food inflation?’

Senator JOYCE —Do they?

Senator Sherry —I do not know that there would be an officer here who can provide us with that factual information.

Senator JOYCE —You can take it on notice. I will close with: does Australia have the highest form of food inflation in the Western world?

Mr Holdaway —Unfortunately, as the minister suggested, we cannot actually provide that as a fact. But certainly there was an extensive report done by the ACCC on food inflation within Australia as part of the grocery inquiry. The report suggested that huge components of the inflation in food prices could be attributed to the drought that Australia has experienced. In fact, a lot of other things, such as international factors, prices of fuel and prices of input actually contributed to that as well.

Senator JOYCE —That would suggest that the farm gate price of food has also gone up, but has the farm gate price of food gone up in any way, shape or form to the margin that the shelf price of food has gone up?

Mr Holdaway —I would have to take that particular question on notice. I do not know the exact detail about that.

Senator JOYCE —You can check the assertion I am making here: that the farm gate price of food has not gone up, even marginally, to the extent that the shelf price has gone up, which means there is a capacity in the market to gouge, which is brought about by the overcentralisation of the retail market. Is the ACCC able to deal with this issue?

Mr Holdaway —Once again, I will have to take you back to the conclusions of the report, which clearly showed that the contribution to the food price inflation, which was attributable to the profit increase of retailers, was marginal. Once again, I am happy to put in writing what that proportion was, but it clearly showed that the food price inflation was as a result of a lot of external factors.

Senator JOYCE —If it is not the farm gate, where are the external factors that push up the price of food or are we now in a position where we are importing food?

Senator Sherry —There may be some information that the officers can give you, but you are mixing issues. I do not know whether or not you read earlier the overview of the outcome, but in this—

Senator JOYCE —I have the outcome right here.

Senator Sherry —Have you read the output?

Senator JOYCE —No. Do you want me to read it out to you? I read it out before.

Senator Sherry —You read it out but you did not read out the output. The first one is Output 4.1.1: ‘Foreign investment, trade policy and administration’. The second one is Output 4.1.2: ‘Financial system and corporate governance policy advice’. The third one is Output 4.1.3: ‘Competition and consumer policy’.

Senator JOYCE —Sorry, can you read that one out again?

Senator Sherry —Competition and consumer policy.

Senator JOYCE —What are we talking about at the moment?

Senator Sherry —I just want to clarify: are we going to jump right through this? We are still limited in what we can give you on some of the data you are seeking. The fourth one is Output 4.1.4: ‘Actuarial services’. The administered items are the HIH Claims Support Scheme, the Housing Loan Insurance Company, payments in respect of insurance claims, and standard business reporting.

Senator JOYCE —We have six hours to deal with it. I am dealing with competition policy.

Senator Sherry —Can I just get some clarification here. Are we going to proceed in some order here or are we jumping from one area to another?

Senator JOYCE —What is the issue with that? What is the problem? Are you not prepared for it?

Senator Sherry —We are well prepared for what is appropriate for this area.

Senator JOYCE —This is appropriate. It is an outcome. I am asking the questions; I need the answers.

CHAIR —Senator Joyce, I think we do tend to jump in the economic committee generally. Certainly I understand there are more senators due later. I would like to proceed in an orderly fashion but I am just unsure where we are going at the moment. I understand Senator Ludlam has questions on the foreign investment area. I think Senator Joyce has had nearly half an hour. I will just ask him to wind up.

Senator JOYCE —Sorry, can I continue on?

CHAIR —Just for a short time on a couple of questions and then I will go to Senator Ludlam.

Senator JOYCE —We will go to foreign investment, but I will come back to the ACCC. I will help you out.

Senator Sherry —Can I just remind you, Senator, this is not the ACCC. The ACCC was scheduled for questions—

Senator JOYCE —I am asking you questions about—

Senator Sherry —of competition policy.

Senator JOYCE —It is an output; it is an outcome. I am allowed to ask questions of you, Minister, and you are supposed to answer.

CHAIR —Senator Joyce, would you like to ask your questions. You have got a couple of minutes.

Senator JOYCE —Regarding foreign investment, is the market group comfortable with the advent of foreign wealth funds? What are your views on it?

Mr Colmer —The experience that we have had with sovereign wealth funds goes back many years. There has been some very recent attention on sovereign wealth funds. Our experience over quite a few years has been that, generally speaking, we have not identified any problems with sovereign wealth funds in the way that they operate in Australia.

Senator JOYCE —What is the capacity for dispute resolution mechanisms to operate when we start dealing with the government of another country as the intrinsic owner, especially of an asset in situ in Australia? Does this go to another level than would otherwise be able to be dealt with dealing with a corporate entity in Australia?

Mr Colmer —Senator, I think that is to a very large extent a hypothetical question, because, frankly, we have no experience in—

Senator JOYCE —We have no experience in it?

Mr Colmer —needing to pursue such a dispute that I am aware of. Generally speaking, the sovereign wealth funds have their own corporate identity. Generally speaking, they have a variety of structures through which they may make their investments. It varies quite significantly between funds, between countries and between types of investments, but generally speaking there is a legal entity interspersed between a foreign government and an investment, and those legal entities are subject to the law in the same way as other legal entities.

Senator JOYCE —What capacity does Australia have to create disaggregation of vertical integration in sovereign wealth funds when it becomes apparent that their capacity to deal across our nation’s borders is an inhibitor on competition, an inhibitor on price and an inhibitor on the return that is sought by the Australian people?

Mr Colmer —I am not sure that I actually understand your question, Senator. It seems to be throwing a lot of—

Senator JOYCE —What do you mean you do not understand it?

Senator Sherry —Should that be a surprise to you that he does not understand it—

Senator JOYCE —No, it is not a surprise to me that he cannot answer it.

Senator Sherry —given the gobbledegook in your question—

Senator JOYCE —It surprises me greatly that he does not understand it.

Senator Sherry —which was a range of assertions, answers, bundled up and claimed to be a question. It was just gobbledegook, Senator.

Senator JOYCE —No.

Senator Sherry —It should come as no surprise to you given the lack of preparation that—

Senator JOYCE —What is so confusing about the words ‘vertical integration’?

Senator Sherry —That was not the only reference you made in the question. It was the broadest range of gobbledegook I have heard at a Senate estimates for a long time, Senator Joyce.

CHAIR —Senator Joyce, this is your last question, so would you like to rephrase it for Mr Colmer?

Senator JOYCE —I will make it really simple for the minister: do you have the capacity within Australian domestic policy to break up a vertically integrated company if it is in a sovereign wealth fund? Are you still with me, Minister, on this one or is it getting too complicated for you?

CHAIR —Senator Joyce, that is not necessary.

Senator JOYCE —Do you have the capacity to break up a vertically integrated company that goes across our nation’s borders as would be seen in a sovereign wealth fund where the purchaser of the minerals is also the seller of the minerals and the owner of the minerals in the ground in Australia?

Mr Colmer —Senator, I think you are confusing a number of different issues. Vertical integration in the resources area is something that we see; it is something that is not—

Senator JOYCE —Do you have the capacity to break them up?

Senator Sherry —Hang on. Look, Chair; he has asked a question, a gobbledegook question, and—

Senator JOYCE —No, you are just using that as a mechanism to avoid an answer.

Senator Sherry —as the officer attempts to answer, the senator cuts him off as he is trying to give an answer. He has only given one line so far to a ten line—

Senator JOYCE —You are the one doing the talking.

Senator Sherry —gobbledegook question from Senator Joyce. I just ask that there is a bit more tolerance, Chair, for the witness to give as comprehensive an answer as he is able to.

CHAIR —I agree, Minister. Mr Colmer, would you like to continue?

Mr Colmer —Yes. The issues around vertical integration are not something that are a specific issue for sovereign wealth funds; there are a number of private companies that have vertically integrated operations. In answer to your question I would make the observation that the Australian foreign investment system is a pre-establishment system. The only capacity that the foreign investment system has is to deal with a proposal prior to the investment, because we afford full national treatment to foreign investors once they are established in Australia. The answer to your question is that we have exactly the same law applying to sovereign wealth funds operating in Australia as we have to any other companies operating in Australia.

Senator JOYCE —The question is very succinct. Do you have the capacity to break them up—

CHAIR —Senator Joyce, it is Senator Ludlam’s call.

Senator JOYCE —yes or no?


Senator JOYCE —Is that the answer—’no’? Thank you.

CHAIR —Senator Ludlam.

Senator LUDLAM —I have a couple of questions for the Foreign Investment Review Board and I gather they are not here this morning, but is somebody able to take some questions on their behalf?

Mr Colmer —I can probably handle those, Senator.

Senator LUDLAM —I am really after, I suppose, just some principles and then I would like to go to one specific case about proposed investments by entities that are wholly owned by foreign governments in Australian resources.

Mr Colmer —Yes.

Senator LUDLAM —I gather there are six guidelines, including an investor’s operations being independent from the relevant foreign government. Can you just tell us how the FIRB assesses independence in the case of an entity that is wholly owned by a foreign government?

Mr Colmer —Senator, before answering that specific question, it needs to be borne in mind that those principles that were announced by the Treasurer last February are guidelines, they are not a check list whereby every item needs to be ticked off. The reality is that any government-owned entity will not be totally independent from the government. The questions that we look at are: what is the governance of the entity, how does it operate, and can we see that it is operating independently and without direct and continuing government control, because any government entity will have a relationship with its government.

Senator LUDLAM —Did you actually send people to these countries? The ones that I am interested in that I am going to ask you about in a second are Chinese. Does FIRB actually send investigators? How do you ascertain the degree of independence in these sorts of structures?

Mr Colmer —The degree of independence is a difficult question. In significant cases we do meet with companies, we do meet with other parties. We do not go to China to investigate every Chinese investment. We would never be in the country if we had to go all around the world. We have 700 applications from a variety of countries. At the end of the day, the principles are essentially a balancing act and we need to look at the materiality of any problems that emerge. I guess the easiest way to answer your question is that bearing in mind that government entities are related to governments, we have not to date taken the view that any particular company has such overriding government control that it has been a problem.

Senator LUDLAM —An application has never been knocked back on the grounds that it was too close to the parent government. Is that what you mean?

Mr Colmer —Yes.

Senator Sherry —Can I just mention, Senator, in this context of sovereign wealth funds, arguably Australia’s Future Fund is a sovereign wealth fund. It is there for the purpose of providing investments. When the Future Fund and its Board of Guardians choose to invest overseas, as I am sure they do, the degree to which Australia’s Future Fund is examined by foreign governments for investments they may choose to make, acquisitions they may choose to make, is a not dissimilar issue.

Senator LUDLAM —Would the Future Fund be permitted to buy 51 per cent or a greater than half share of a mining company in China?

Senator Sherry —That is an issue you would have to put to the Future Fund.

Senator LUDLAM —I guess so. It is a little bit tangential to where I was going, but thank you.

Senator Sherry —I accept it is tangential, but it is relevant.

Senator LUDLAM —Sure.

Senator Sherry —Because we are invariably dealing around the world with a range of government created instrumentalities for various purposes but that are effectively owned by the government. There are many such entities. China is not alone in having such an entity. For example, the Norwegian government has one of the world’s largest sovereign wealth funds based on their oil investments. There would certainly be at least 10 to 15 major classified wealth funds for a range of purposes that I can think of around the world that are very substantial in size.

Senator LUDLAM —I am just trying to get a sense of the way in which these things are assessed by the Foreign Investment Review Board. Your second guideline, as you put it, is that the investor should be subject to and adhere to the law and observe common standards of business behaviour. In terms of adhering to the law, is that domestic law or the law everywhere in which that entity operates?

Mr Colmer —It is both, Senator. Clearly we seek to discover whether there is any evidence of illegal activity but actually that criterion is much more about how does the foreign investor operate in Australia, what are the arrangements for governance and do they actually understand and operate within the Australian system? That is, of course, the key issue that we are looking at.

Senator LUDLAM —We have come to the specific one that I am interested in and I realise you probably will not be able to disclose too much of the actual thinking of the board at this time. Can you confirm for us whether the board is assessing the case of Lynas Corporation Limited, which has proposed mining operations at Mt Weld in WA, and China Nonferrous Metal Mining Group—CNMC—which has proposed to take a 51 per cent stake in Lynas? Are you familiar with that, for example?

Mr Colmer —I am a little familiar with it. At this stage, I am not sure that it is even a formal case. I could be wrong there, but we are aware of the proposal.

Senator LUDLAM —Could you take on notice for us, if that is something that you are aware of at the moment, whether the board is assessing that proposed investment?

Mr Colmer —The board itself has not had a look at that case as yet.

Senator LUDLAM —Can you just step me through your process? When a proposed investment like this is on the table, at what point does the board get involved and how is its advice rendered to government?

Mr Colmer —The way that the system works is that applications for foreign investment approval are, in the first instance, assessed by Treasury in my division. My division provides secretariat services to the board as well as advice to the minister. Under the legislation, the Foreign Acquisitions and Takeovers Act, the Treasurer is the minister who is required to make a decision on each case. The Treasurer does that with a combination of advice from the Foreign Investment Review Board and the Treasury as his department. It varies depending on the nature of the case and the size and similar sorts of things, but typically we consult confidentially with other relevant government departments, we do our own analysis of the particular issues that might arise in a particular case, and then depending on the significance of the case and what sort of issues might appear, the Foreign Investment Review Board will have a varying degree of involvement. The Foreign Investment Review Board itself does not look at the routine cases; it only looks at the more significant cases and that provides advice to the minister via the department.

Senator LUDLAM —Is the board able to call in particular cases? Who is choosing the significant ones that they will assess or do you refer them along to them?

Mr Colmer —The board is informed of all cases and is perfectly able to ask to look at any of the cases if it wishes to.

Senator LUDLAM —Or you can refer them?

Mr Colmer —Generally we refer them and the board will certainly tell us if there are particular cases in which they have an interest.

Senator LUDLAM —What happens then? What sort of process of consultation or examination do they go through?

Mr Colmer —The board generally meets monthly but the individual members have a weekly phone conversation with officers of the division, usually myself. In those meetings and phone discussions we will talk through the details of particular cases, we will provide draft advice that the board will consider and make comment on, and, if there are particularly significant cases, we have teleconferences. It is really a consultation process I guess between the department and the board to some extent and then the board can provide its advice to the minister.

Senator LUDLAM —When you said draft advice before, you meant draft advice to the Treasurer.

Mr Colmer —That is right. The department provides the advice at a formal level.

Senator LUDLAM —What happens then? When there is advice and it has been through that process for the more significant cases, the board has had a role and the advice is drafted and sent to the Treasurer?

Mr Colmer —That is right.

Senator LUDLAM —Is the Treasurer then free to entirely disregard that advice or is he bound by the advice coming from the department?

Mr Colmer —It is advice, Senator; the Treasurer can take his own view based on that advice if he chooses.

Senator LUDLAM —In past practice, how reliably does the Treasurer follow the guidance of your department or the board in the cases when it is involved?

Mr Colmer —I cannot really say, Senator. Firstly, that is a question which goes very much to the relationship between the department, the board and the minister, but, secondly, we do not actually keep data on that.

Senator LUDLAM —Is that not something you would be interested to know, whether your advice is being routinely disregarded? It would be a bit of a waste of time—

Mr Colmer —I think that is a fairly large leap to suggest that the advice is routinely disregarded.

Senator LUDLAM —But you do not know if you are not keeping the data.

Mr Colmer —I think we would know if it was routinely disregarded, Senator.

Senator LUDLAM —It is kind of curious to me that you would not be tracking how often your advice is being accepted. Maybe routinely is strong language but do you have any idea at all how often your advice is disregarded?

Mr Colmer —Yes, I do.

Senator LUDLAM —Is the advice that you produce disclosed to the public, or is it confidential?

Mr Colmer —No, it is kept in confidence. You need to understand, Senator, that we deal with a lot of things which are very market sensitive, so, we need to deal with them in the strictest confidence.

Senator LUDLAM —Sure. In terms of the six guidelines, do they just apply to the FIRB’s deliberations or are they right through the department in all of your thinking around foreign investment?

Mr Colmer —Those six guidelines are specifically designed for the assessment of proposals under the Foreign Acquisitions and Takeovers Act.

Senator LUDLAM —So, everybody would have regard to those. I have referred this one myself in a letter a week or two ago, the case of Lynas and the CNMC, to the Foreign Investment Review Board. Is that case under active consideration by your department? You said before you do not think it has been referred to the board yet.

Mr Colmer —I am not entirely sure where its status is in the system but we are aware of it. It has been in the press and we are aware of your letter.

Senator LUDLAM —One of the reasons that I have referred that and that I am interested in it and that it has picked up some press is that CNMC, the Chinese group, operates the largest nickel in Burma in active partnership with the Burmese military government and is seeking more acquisitions in Burma. I am just wondering whether that would set a red flashing light, at least on the second of your criteria of observing common standards of business behaviour. Would investments under one of the world’s worst military regimes qualify as breaching that second criteria?

Mr Colmer —The relationship between Burma and Australia is primarily one for the Department of Foreign Affairs and Trade and we are discussing that issue with the department. We have sought advice from them. My understanding is that Australia has no sanctions on investment to and from Burma.

Senator LUDLAM —That is correct.

Mr Colmer —The position, as I understand it from the basis of the information that we have, is that the Chinese company is operating in Burma. That in itself does not tell us anything except that it is operating in Burma. The fact that a company may be operating in Burma—I believe we have an embassy in Burma.

Senator LUDLAM —Yes we do.

Mr Colmer —It does not seem, of itself, to be a relevant consideration. If there is information about its operations in Burma or anywhere else that are relevant to the way that it operates in Australia, then that would be something that we may be interested in.

Senator LUDLAM —I have no further questions. Thanks.

Senator CAMERON —Could Treasury outline how the planned changes announced by government will cover excessive executive termination payments?

Mr Miller —In regard to termination benefits, the government announced on 18 March 2009 that it is going to amend the Corporations Act to strengthen the regime around that. Essentially two main things are going to happen. Firstly, the threshold will drop from what could be up to seven times the director’s annual salary down to one times the director’s annual salary before the point at which the company needs to take that termination payment to the shareholders for a vote. The other thing that is going to happen is that it will not be just the directors of the company; this will apply to all the members of the company who are reported in the directors report, which is a wider group. It includes directors and, I think, the top five or a number of executives in the company. So it is a broader group that this will apply to.

Senator CAMERON —Is this the first time that senior executive termination payments and not just directors’ payments will be subject to a binding vote by shareholders?

Mr Miller —I will just get someone who has more of the technical detail for you.

Mr Fraser —Yes, this will be the first time, although the current provisions would also pick up the chief executive officer if they were also a director of the company.

Senator CAMERON —Golden handshakes are often seen as payments for failure. Can Treasury explain how the proposed changes can prevent large termination payments going to failed executives?

Mr Miller —I think the issue is that it will now be up to the shareholders to decide whether those executives deserve that excessive golden handshake. That is the method that this provision will apply. If the shareholders believe that that executive has done everything he or she should have done and is deserving of that excessive benefit, they can vote for that.

Senator CAMERON —What is the penalty if directors ignore these new laws?

Mr Fraser —As part of the draft provisions, the penalty regimes have been substantially increased. They have actually been increased by a factor of six. For natural persons, the penalties have been increased from 25 penalty units to 180 penalty units and for body corporates they have increased from 150 penalty units to 900 penalty units. The existing criminal sanctions have remained in place, so there is also an option for six months imprisonment.

Senator CAMERON —What is the quantum of a penalty unit?

Mr Fraser —It is $110 per penalty unit.

Senator CAMERON —Could Treasury outline the new planned consumer protection and redress mechanisms being introduced through the Consumer Credit Regulation 1995?

Mr Miller —Yes. That is a fairly broad question. The Uniform Consumer Credit Code provisions that are currently sitting in the states and territories are going to be brought up into the federal sphere. This is going to be done in two phases. The first phase is to actually bring all those provisions up into the federal sphere, with some minor amendments that were already contemplated by the states and territories at the time that we were negotiating to bring up. Adding to that, we are also putting in, in that first phase, a licensing arrangement over the new arrangements that will be in the Commonwealth sphere. Those licensing arrangements, in particular, have an additional responsible lending test that has not been in the previous law. That is essentially the first phase—that is, bring up all the uniform consumer credit code from the states and territories, put on a licensing system and put on responsible lending. That is pretty much the first phase of this.

The second phase, which is about 12 months later, is to have a look at a broader set of improvements to that system. There are questions of what to do about business lending. At the moment it is more about individual lending than business lending; we have to have that consideration about business lending. There are a number of other matters that have been announced by government that we will look at in that second phase. In other words, we are trying to take the basic package from the states and territories, trying to not put in too many extra changes so that the transition to the federal sphere is not too burdensome on business. But we do need to put at least a registration system over the top of that and put in some responsible lending tests. The rest of the improvements to the new uniform code will come in that second phase.

Senator CAMERON —Could Treasury outline how Australia is implementing a world-leading responsible lending obligation?

Mr Miller —There are two basic elements to the responsible lending that we are introducing. The first is to ensure that the consumer’s capacity to repay is tested and the second is to ensure that, when they are provided with a credit product to get into, it is not unsuitable for them. There are these two elements: firstly, the product cannot be unsuitable for the consumer and, secondly, they have to have a capacity to repay that. This will be a requirement placed on not just the lenders but also other people in the chain who provide advice on consumer credit.

Senator CAMERON —Can I move to the regulation of trustee companies. Is it true there are currently 10 private licensed trustee companies operating in Australia?

Mr Miller —Sorry, could you—

Senator CAMERON —There are 10 private licensed trustee companies?

Mr Miller —Yes, that is correct.

Senator CAMERON —Is it true that the members of the Trustee Corporations Association of Australia—that is the sector’s peak body—have approximately $510 billion of assets under management?

Mr Miller —I believe so.

Senator CAMERON —With companies that have $510 billion in assets, is it true that to date they have not been nationally regulated and in fact they are currently regulated at the state and territory level?

Mr Miller —That is correct.

Senator CAMERON —Surely state regulation could result in multiple, often contradictory state based regulations and these companies then facing significant red tape?

Mr Miller —Indeed that is correct, and that is why the federal government has sought now to bring them into the federal sphere. Like most of these measures, it is about getting rid of red tape and overlapping requirements in multiple states and territories and having just one national system. Generally this will be far better for those various companies and corporations that it affects.

Senator CAMERON —Who currently monitors these trustee companies?

Mr Miller —The states and territories monitor these through their state and territory provisions.

Senator CAMERON —Are these companies required to be licensed under the current arrangements?

Mr Sewell —The system is that the so-called traditional activities of the trustee companies—that is wills, probate, that sort of thing—are regulated through the states. Where they manage broader trust assets, that is done through the Commonwealth, through ASIC.

Senator CAMERON —Under the new regime will licensing be required?

Mr Sewell —Yes, for the traditional activities.

Senator CAMERON —Who will have oversight of the newly licensed trustee companies and what enforcement powers will they have to ensure compliance?

Mr Sewell —These will be regulated under ASIC where they will be required to have an Australian financial services licence, and the normal ASIC regulatory powers would apply to the financial products.

Senator CAMERON —Is it the view that this will provide great protection to consumers?

Mr Sewell —Yes.

Senator CAMERON —Will the trustee companies under the new laws be subject to new obligations?

Mr Sewell —There will be different obligations arising from the uniform national regulation.

Senator CAMERON —What about dispute resolution mechanisms and the like?

Mr Sewell —Yes, in that case, under the Australian financial services licence arrangements, the trustee companies will be required to have both an internal and an external dispute resolution process which is the standard requirement under the Australian financial services licence. If a client has a complaint about a decision of the trustee company, in the first instance they can take it to the established process internally within the trustee company. If they have further concerns beyond that then they can go to an established external dispute resolution mechanism.

Senator CAMERON —So, court action could be a last resort?

Mr Sewell —That would remain open, yes, in a separate sort of avenue.

Senator CAMERON —Are you aware of what consultation has taken place in the lead-up to this legislation?

Mr Sewell —In the recent phase the government put the exposure draft out to the public for about a four-week period of consultation. There were discussions held with the trustee companies and with the states and territories and also with Philanthropy Australia. Meetings were held the week before last. There was also extensive discussion with the Trustee Corporations Association of Australia in the preparation of the draft legislation.

Senator CAMERON —Can I move on to promissory notes. Why was there a need for a change to the regulation on promissory notes? Could you just outline that?

Mr Miller —Essentially there were two regimes within the Corporations Act that applied to these promissory notes or debentures. There was one regime depending that applied for under $50,000 and another regime that applied for over $50,000. The purpose of what we are doing here is harmonising the two regimes so there is only one regime that will apply to promissory notes.

Senator CAMERON —What is the linkage of this in the Westpoint collapse; was that a factor in relation to moving down this line?

Mr Miller —The fact that it was not harmonised I do not believe was a problem. Certainly the misuse of promissory notes was an issue. Some have said that it was because there was not any regulation over that. That is not quite true because, as I mentioned, there is a regime for promissory notes even now. Even before we harmonise it, there is a regime for under $50,000 and another one for over $50,000. So, there was a regime applying. I suppose the argument is that by harmonising it, it makes it perhaps easier for the regulator to ensure that those regimes are being followed.

Senator CAMERON —Thank you.

Senator Sherry —Chair, could I just add one other point. Obviously the issue of single standard national regulation I think is important in the context of efficiency of markets. The other point I would make about these areas is they have been subject to examination and reviews; I can think of about three of them over the last decade or so. The government felt that, given the recommendations of the various reviews of the last decade, it was time to move to a single national standard in financial services for these areas. The government decided it was an appropriate time to do so, particularly given some of the lessons or observations about what occurred in the US market around subprime. One of the issues in the US market was the state regulation supervision of mortgage brokers who distributed mortgages and I think those issues have become well known. In the case of the areas you have touched on, mortgage broking is an area that for the first time in Australia will be properly licensed and done so nationally. In addition to the need for national single standards, some of the events in the US have, I think, taught or indicated important lessons in a number of areas about supervision of some areas of market to address some areas of possible weakness; not that we have experienced anything like the sort of events of the US.

CHAIR —Minister, I think there is starting to be some criticism in some of the press about perhaps the dangers of over-regulation and the costs of doing that. Will this add much cost to doing business in this area?

Senator Sherry —I think there are two issues here. I would make the observation that currently in this area they are dealing with six states, two territories and in some cases they are also partly supervised, licensed or regulated by the federal jurisdiction as well, so you are dealing with nine sets of rules, conceivably, depending on the area. If you are a national provider operating in a particular area and you are subject to nine different sets of rules, it does impose a cost. The total number of pages of regulation currently contained in the states is approximately 4,200, certainly over 4,000 pages of regulation. As a consequence of the new national regulation, we will be seeing 300 to 350 pages of regulation. To that extent you have got significant reduction but also a significant simplification. I think that is important. I noticed there have been some claimed issues around, for example, responsible lending. Certainly in this area there have been the draft bills released, a consultation period occurring, and where there are legitimate concerns we will certainly be taking them into account when we finalise the final bill for presentation to the parliament.

Senator CAMERON —We are talking about harmonising state to federal, but G20 is talking about global harmonisation and more regulation to avoid another global financial crisis. Quite frankly, I would like more regulation if it stops a global financial crisis, if it stops throwing people out of work. Would there be a potential for more legislation for us to meet our international obligations arising from the G20, for instance?

Mr Murphy —There have been a number of proposals put the G20. The G20 countries are primarily looking at existing regulatory regimes and potentially new regulatory measures to largely go to manage systemic risk in the financial system and also towards trying to ensure stability of financial institutions. At the present time I would say that the Australian regulatory financial system if very well regulated and we have largely the tools and the measures that are needed to ensure that. I think the Prime Minister and the Treasurer made it very clear that they want Australia to play a major role in the development of new measures. The G20 has put out a list of recommendations, they are reporting back to the Financial Stability Board and that is work in progress. The measures that we are taking on a domestic front in Australia I see as largely completing the picture of a national regulatory regime: you have got national markets; you want national regulation. There are significant benefits for business would come through having a national consumer law and national credit laws.

Senator Sherry —Just to add to that, in this context of international regulation and supervision, realistically, and it is not a criticism of the states, but frankly these international catastrophes—I was going to say difficulties—that have occurred in the US, Europe and the UK do impact on Australia. You would have to ask the question: what capacity and abilities do state governments have to exercise supervision in their areas of current jurisdiction, where they are affected by international events? As I say, it is not a criticism of states; the reality for states is that it is very difficult, if not impossible, for state governments to deal with these issues. It is still difficult for national governments, but I think national governments have a greater ability to deal with these issues than state governments. As I say, it is not a criticism of state governments; the world has changed in the last 100 years and the government has taken the view that it is time to complete the move to single standard national regulation. Increasingly, there will be a need, as has been highlighted by G20 in the agenda they have set, for international coordination as well as improved national regulation.

Senator CAMERON —One thing I am always a bit concerned about is us saying, ‘We have got good financial regulations here and maybe we are international best practice.’ I am always worried that we may be getting a bit complacent in terms of our regulation because we had a better system than other countries, but a lot of these unforeseen circumstances that are coming through could mean that we may still need to address regulation. I do not know if all of the implications of the global financial crisis have actually been effectively analysed and we really know what is happening.

Mr Murphy —Yes, there is still analysis going on. The G20 moved quickly to recommend ways to improve national regulation of markets. As well as that, there are international standards and codes which apply to the various banking, insurance and securities markets, which Australia adheres to and meets. A few years back the IMF had the Financial Sector Assessment Program. They assessed us against those standards and codes and we had a clean bill of health on that. You are right, Senator: the global financial crisis is breathtaking in its impact. It has brought into question a lot of the current regulatory tools that are used, whether they need to be enhanced and whether there need to be possibly new measures taken, and that is what we are working on internationally and domestically. I do not think our regulators or Treasury as a policy department are sitting on our hands congratulating ourselves on how we have weathered this financial crisis.

Senator CAMERON —I am not saying that.

Mr Murphy —I think it does bring into focus the need to continually be assessing whether you have got the right regulatory arrangements. The market develops in different ways. You could say to us, ‘Why haven’t we had some of these measures earlier?’ You would say, ‘Well, sometimes the market develops in a certain way which was not predicted or forecast when regulation was developed in a previous time.’ Costs of regulation are also another issue. It is little benefit to the consumer or to the community if you impose such costs that they are disproportionate to the risk that is actually involved in the system. I think in this area there will be continual work over the next few years to try to place the international financial system in a better position so it does not fall prey to another financial crisis of this magnitude.

Senator CAMERON —It is a question of balance, really; it is about the operation in the market being balanced by appropriate regulation, proper regulation and modern regulation?

Mr Murphy —Yes.

Senator CAMERON —We can be confident that there is no complacency in Treasury on these issues?

Mr Murphy —Yes, and the regulators. Other people have said that we have first-class regulators. They stand tall in comparison with their international peers.

Senator Sherry —I might say, because I am sure the officers are too modest to mention it themselves, that everyone has been working extraordinarily hard—frankly working their guts out—on these issues over the last year, given the events.

Senator ABETZ —Like they did with Fuelwatch!

Senator Sherry —That is another good example. It is a pity that it did not happen, Senator Abetz.

Senator CAMERON —Like they did with HIH.

Senator Sherry —But you are right, Senator Abetz: there are officers, certainly in the areas that I deal with, who are putting in very long hours.

Senator ABETZ —They do.

Senator Sherry —Yes, they do, and we have dealt with that issue before, but it should not go unacknowledged.

Senator CAMERON —I thought we were on a serious issue here. I thought you would be interested.

Senator ABETZ —When the union official becomes the boss, 37 hours straight is nothing abnormal. That is what happens.

CHAIR —We have a point of order.

Senator CAMERON —Happy being a union official, mate—

CHAIR —Senator Cameron, we have a point of order. Senator Sterle.

Senator STERLE —Madam Chair, I think this is a very important issue. I was listening to the minister’s answer before the rude and smart interjections coming from across the table. I would ask that the minister be able to give his answer in peace.

Senator CAMERON —From the economic incompetents over there.

CHAIR —Senator Cameron!

Senator ABETZ —He is such an intellectual giant.

CHAIR —This has deteriorated.

Members of the committee interjecting—

CHAIR —We are not making any progress. From the chair I am quite happy—

Members of the committee interjecting—

CHAIR —Senator Sterle and Senator Bushby, we are making no progress here whatsoever. We are about to go to morning tea, I am quite happy to go early if we have no more questions or if we are not prepared to allow the minister—

Senator Sherry —I was just going to conclude my remark, Chair—

CHAIR —Thank you, Minister.

Senator Sherry —and make a further remark that might be of interest to opposition senators. I do want to put on the record that this period of the last year to 18 months has been extraordinarily difficult. There have been a massive range of issues that, frankly, just about no-one in the world had been able to foreshadow. I want to put on the record the very hard work and diligence of the officers in having to deal with advice to government and grapple with these issues. It has not been an easy time. I just want to put on the record the extraordinarily hard work and dedication of all the officers in whatever policy area, whether we agree with the policy outcomes or not.

The only other issue I will mention because Senator Coonan and opposition senators were not here earlier. We scheduled six hours for this program, which would be an Australian record if we went for that long, but we have put APRA and ASIC on notice. We are in your hands, but if we finish earlier we can bring APRA and ASIC on early.

Senator COONAN —Thank you for that, Minister Sherry. When I looked at the program this morning I must say I did think it was a bit ambitious.

Senator BUSHBY —And the Productivity Commission? They are in between.

Senator Sherry —On the PC, I will have to check. In your hands we can juggle it.

CHAIR —Thank you. Senator Eggleston.

Senator EGGLESTON —I would just like to ask some questions about ABIP, or Ruddbank.

Senator Sherry —Sorry, I did not hear that.

Senator EGGLESTON —ABIP, or Ruddbank, as it is more commonly known. First of all, what modelling, analysis or advice did you provide to the government regarding ABIP in its structure?

Mr Martine —We engaged in quite detailed discussions with both the major banks and the foreign banks in the development of ABIP. In the course of that we also provided a series of advice to government. As we have discussed previously, I think, in the Senate inquiry committee in its deliberations, Treasury undertook some modelling on the employment effects of the whole commercial property sector, and that formed part of the advice that we provided to government.

Senator EGGLESTON —Why did you construct the agency in such a way that it was exempt from the Trade Practices Act and apparently not have a great deal of consultation with the ACCC about this?

Mr Martine —The issue around the Trade Practices Act exemption is really to provide certainty for all the shareholders participating in ABIP that, in particular, in ABIP providing lending, third parties would not consider that the four banks and the Commonwealth government as joint shareholders were acting in an inappropriate way. The important thing to keep in mind is that ABIP is filling a market gap. If one thinks through the competition aspects of ABIP’s operations, it will fill a market gap pricing above market. It is not as if ABIP will be in the market trying to undercut any other lenders. The exemption provides an exemption only if the directors of ABIP are acting in accordance with the objectives of ABIP. For example, it does not allow banks to collude on setting prices or anything like that. In fact, the directors of ABIP, while they come from the four major banks, are required under Corporations Law to act solely in the best interests of ABIP, not in the best interests of Westpac, NAB, Commonwealth Bank or ANZ.

Senator EGGLESTON —That is all very well, but, in the course of the inquiry you referred to, we heard that the four major banks who are on the board of ABIP actually control or are responsible for 63 per cent of the Australian commercial property market. There does seem to be potential for a conflict of interest there. It is very hard to understand why, as a precautionary measure if nothing else, the decisions of the ABIP board should not be subject to the Trade Practices Act so that there is certainty that there is no improper use of market power or collusion between the banks.

Mr Martine —Senator, just thinking through the operations of ABIP, it is hard to envisage a situation where in fact the shareholders of ABIP are acting in collusion. If a major bank is already in a syndicate, that major bank’s exposure needs to be maintained. The situation where ABIP will look to provide lending is where a non-major-bank participant may be withdrawing from that syndicate. It could be a foreign bank or it could be a second tier bank such as one of the regional banks. The purpose of ABIP is then to provide that lending to fill that gap. It is in no way colluding jointly between the majors.

Senator EGGLESTON —Are you are saying that if a major bank had an interest in a particular property then ABIP would not consider providing refinancing to that property?

—No, actually the reverse, Senator. Let us take this example. If the National Australia Bank are the lead bank in a syndicate and there are two foreign banks in the syndicate as well, the syndicate comes up for refinancing, one of the foreign banks withdraws and the borrower seeks to find alternative sources of financing but is unable to do that, that syndicate would be potentially eligible for ABIP lending subject to the board’s consideration. The point I was making is that the National Australia Bank, because they are in the syndicate, must maintain at least their current exposure to the syndicate. That is an important feature of the ABIP legislation because it provides a safeguard to ensure that if the National Australia Bank are quite prepared, in this example, to continue their exposure to that particular loan then that particular loan is on fully commercial terms. The National Australia Bank, in that example, cannot cut back their lending in proportional terms to that syndicate.

Senator EGGLESTON —Some people might regard that as a half full, half empty sort of situation because it could be interpreted equally, I suppose, so that the investment of the National Australia Bank, in that example, is being protected by ABIP. That is where questions about conflict of interest have arisen.

Mr Martine —The other important feature of ABIP is the unanimous decision making of the board. The other three major banks in that situation, if they felt that ABIP was simply being asked to prop up the bank that was already in there—in this example, the National Australia Bank—would not want to be exposing their money which they have put into ABIP to the risk of a loss in that syndicate. Because all decisions have to be unanimous, then in that sort of situation you would quite understandably see the other shareholders, which could include the Commonwealth representative as well, saying no. Because all decisions have to be unanimous, that is the other key feature of the important safeguards in the legislation.

Senator EGGLESTON —Again, some people are of the view that the banks might see it as in their own interests to ensure that, in this case, the National Bank’s investment was protected because they might find themselves in the same situation. Again, that raises the issue of exemption from the Trade Practices Act, ACCC, section 16 and so on.

Mr Martine —Senator, I do not think the situation you are describing is really a Trade Practices Act issue. What it really relates to is the lending criteria that the board will use to make decisions. ABIP will, as I indicated, price slightly above market. The lending criteria will be quite conservative. As I outlined, one would expect that the other banks would not be willing to risk their contributions to ABIP, and they are all contributing $500 million; likewise the Commonwealth chair of ABIP, based on the recommendations of the ABIP management on loan applications. The chair will get some independent advice as well and they will form their own view. All it needs is one director or the chair to reject a loan and the loan does not proceed. It will not actually be the major bank that is in the syndicate making the recommendation to the board; it will be the independent ABIP staff who will assess the application and make a recommendation. If they feel that the major bank that is involved is really just trying to protect their interests and it is not fully commercial, then they would not be recommending to the board to approve the loan.

Senator EGGLESTON —It sounds fine in theory, but there has been that criticism made to this committee during its hearings. You talked about advice, and I noticed that there was a plan to appoint an advisory panel to advise the chairman. How much progress have you made on that?

Mr R Murray —I think it was two Fridays ago that we finalised our arrangements for a request for tender and that went out in a public advertisement in the Financial Review. I think that closes on the third week of this month. We have already had quite a few inquiries. It is quite a detailed process. We would hope that once we get those tenders in we could set up a panel and that would be operational, hopefully, by about the beginning of August. It may take a little longer than that because these are quite convoluted processes under the government’s procurement guidelines, but we are hoping that that panel will be fully operational by early August or some time around then.

We are not sure how many would be on that panel—it could be three or four—and we are not quite sure what sort of composition, because we are getting interest from some big investment-advising companies, both consultancy companies and investment banking companies. We are also getting some interest from boutiques as well and from quite specialist outfits such as insurance. This is a panel similar to the Treasury’s legal panel. It will not be just about ABIP. There have been various other operations in relation to financial markets and foreign investment issues where we need advice. We want to have this as a more general panel that will be able to advise us on a whole range of issues, and that is how we have set it out in the request for tender.

CHAIR —The committee will suspend for a short break and continue this line of questioning after the break.

Proceedings suspended from 10.31 am to 10.46 am

CHAIR —The committee will recommence with questions from Senator Eggleston.

Senator EGGLESTON —We were talking about the proposed advisory panel to ABIP and you mentioned interested parties. Do you envisage the advisory panel being composed of Australian entities or might there be non-Australian entities on it?

Mr R Murray —Senator, you asked me this question before. We do not know yet. This will be a panel that we can call on determined on merit. They have been asked as part of the request for tender to address various criteria and attributes that we are looking for, and we will need to make an assessment on that on merit. Some of these may be Australian, some of them may be foreign or some of them may be Australian partnerships of worldwide consultancies. So the answer is that we do not know yet but there will not be an Australian/foreign criteria; it is a merit based process.

Senator EGGLESTON —I understand Credit Suisse, as a specific example, gave advice about the setting up of ABIP; is that not the case?

Mr R Murray —That is correct.

Senator EGGLESTON —Might they be considered for the advisory panel?

Mr R Murray —If they put in a tender, yes, they will be.

Senator EGGLESTON —Thank you very much. I just want to ask you a question about the scope of ABIP. The wording of the bill in proposed section 7(2), dealing with the objects of ABIP, says:

… provide financing in other areas of commercial lending through financing arrangements of a kind agreed to by the members of ABIP Limited …

What we were led to understand when this was set up was that this agency was being established to refinance commercial property which was in jeopardy because of the withdrawal of foreign banks but that money or financing would only be provided to commercially viable propositions. I just wondered whether the breadth of clause 7(2) is not such that other kinds of ventures could be considered to be within the ambit of ABIP.

Mr Martine —Senator, in the debate in the senate several weeks ago, Senator Fielding tabled an amendment which the government has agreed to which effectively requires that decision to be a disallowable instrument for parliament to consider.

Senator EGGLESTON —Thank you. What has happened with the foreign banks that were the object of this agency being set up? Have more foreign banks left Australia or have in fact no more left or withdrawn from the commercial property market in Australia? It is a bit misleading to say ‘left’; I think it is all about activity in the commercial property market.

Mr Martine —That is correct, Senator, and that is a very important point that when one uses language around foreign banks withdrawing, it is withdrawing from syndicated loans. It is not a discussion about a foreign bank’s presence, that is there on a Friday and come the Monday they have left; it is all about syndicated loans and their withdrawing of finance. The key issue to note, and as the government has outlined in its statements about ABIP, is that ABIP is a temporary contingency measure in the event that foreign banks withdraw financing from syndicated loans in the commercial property sector. The purpose of ABIP is therefore to guard against that eventuality. Commercial property is a highly leveraged sector and the foreign banks have quite a large exposure to that. If you look at the aggregate data up to this point—recognising that data is only backward looking; it does not really tell you anything forward looking—then it is correct to say that the aggregate date for foreign bank lending in total, because we do not have a lot of disaggregation, is probably best described as reasonably flat. That is probably the best way to describe it. In our consideration of the rationale for ABIP—and there has been some commentary since the announcement as well—there have been a range of independent market analysts such as the Merrill Lynchs and Goldman Sachs of the world et cetera that have made a very similar point to the one the government has made and that is that there is a serious risk that during the course of 2009 and 2010, as the syndicated loans come up for refinancing, foreign banks will seek to reduce their exposures. We have actually seen it a little bit in some of our second-tier banks. Here in Australia, Suncorp has come out recently, and it was reported in the press, saying that they are treating their commercial property exposures as non-core activity, with a view to winding it down over time. It is that sort of similar issue. The risk and the concern that we have, and as emphasised by the market analysts, is for during the course of 2009 and 2010, which is one the reasons why ABIP was established for that two-year period.

Senator EGGLESTON —Thank you. There is a view, of course, that by establishing ABIP you might in fact encourage the very thing that you are seeking to prevent—that is, the withdrawal of these banks from activity in the commercial property market. I suppose we will have to wait and see what happens there.

Mr Martine —Senator, just on that point, because I think it is an important one, there are a couple of key factors—and I think we had this discussion at our Senate inquiry in Sydney—that we would consider as quite important and that counter that view. Firstly, measure like ABIP, and there are other measures that have been announced as well, very much go to the heart of stability and stabilising the financial system. One of the key factors for financial institutions in making decisions on where they operate is a very stable financial system. In a sense, ABIP itself, which will provide some confidence and stability in the financial system, will actually, if anything, encourage those participants to stay.

The other important point to note is that ABIP will have very conservative lending criteria. It will only make commercial loans. Banks are in the business of lending; they lend to make money. For a foreign bank to be withdrawing from a syndicate in the expectation that ABIP will step in, must mean that if ABIP ultimately does step in because it is fully commercial that they are withdrawing their financing for reasons that have absolutely nothing to do with the commerciality of operations in Australia. That could very well be because their head operations offshore have been semi-nationalised and they are under pressure from foreign governments to say, ‘We want you to concentrate on your home market, not the other side of the world.’ There are a series of banks in the UK and Europe to which their governments have contributed significant amounts of capital.

Mr R Murray —Senator, if I could just add one or two points to that. We have also made a couple of other points in relation to this sort of moral hazard type question, both in our submission and in our evidence to the committee’s hearing in Sydney. Because ABIP is a lender of last recourse and will be pricing slightly above the market, there are clear incentives here for the property owners to try to keep their syndicates together. Also, because the four major banks will be taking on more exposure—and given the situation they are in at the moment, they do not really want to take on more commercial property exposure—again, there will be major incentives there for them to keep the syndicates together. Do we have any evidence that they are the incentives that are actually working?

We are already, behind the scenes, seeing one or two projects—I think at least one of them was a redevelopment project so it was an existing property and they were undertaking some redevelopment—where they have had some problems. Certainly there were frantic efforts by both the owners and the Australian bank partners in that syndicate to keep the syndicates together.

I would like to make another point about market stability. As the financial crisis unfolded, particularly through October and November last year, people were fairly cautious about what would be the flow-on from the industrial countries to the emerging markets in developing countries and to the commodity countries like Australia and Canada. It became pretty clear that it meant a significant flow of capital out of those countries, out of their equity markets and out of their debt markets, back to the home countries—like back to the US and back to Europe—back into safe havens and safe securities like US treasuries and back to the home headquarters of the financial institutions. How did that manifest itself in Australia? We had a precipitous fall in the Australian dollar from 95c to 65c in a matter of about two or three months and, of course, the equity market fell quite dramatically. A lot of that is now stabilising and that is good, but the clear risks are still there and that is what we are concerned about. We were concerned about that in November in relation to the commercial property market. We were concerned about that in January when the Prime Minister announced the initiative, and we continue to be concerned about those risks.

Senator EGGLESTON —Thank you. Have you had any approaches from members of Austcorp, who are developing the Vision tower in Brisbane?

Mr Martine —Senator, are you talking about approaches to Treasury?

Senator EGGLESTON —Treasury, with a view to—

Mr Martine —Senator, we have not had direct approaches to us. The other thing to note is ABIP itself, which will be a company governed by corporations law, has not yet been established.

Senator EGGLESTON —Yes, but the developers of Vision tower have not approached Treasury officials or the government about support?

Mr Martine —Not that I am aware of.

Senator EGGLESTON —Has anyone from Treasury met a Mr Lee Bermingham, Mr Warwick Powell or a Ms Catherine Bermingham?

Mr Richard Murray —No. I have never heard of them, Senator.

Mr Martine —If there were any meetings with them then it would be one of the three of us who would have met with them and the names certainly do not ring a bell.

Senator EGGLESTON —Thank you.

CHAIR —Thank you. Senator Coonan.

Senator COONAN —I do not want to spend much time on Ruddbank because it has been the subject of quite an exhaustive inquiry, as I understand it. Can anyone tell me what the amount of risk premium there would be in the pricing for Ruddbank? I have seen reports that it could be about three per cent. I am not sure about it and that is why I am asking. I asked AOFM the other night and they did not know.

Mr Brake —These things obviously vary over time but that order of magnitude is what we understand would broadly be the current market spread between, say, the bank bill swap rate and lending to the commercial property sector. Obviously, it depends a bit on the particular type and quality of the asset but it is in that order of magnitude.

Senator COONAN —That accords with what I thought I would get from you. Secondly, without talking about the model of Ruddbank or any criticisms of it, what happens in other jurisdictions? Are there in place vehicles of last resort for particular purposes of which you are aware?

Mr Richard Murray —Senator, I—

Senator COONAN —I am thinking of the UK because I think—

Mr Richard Murray —I am not across the UK but some of my colleagues might be. In the United States—and I was on the board of the International Monetary Fund, as Australia’s representative, until the end of October—it was a pretty nasty situation. It illustrated to us back here the pivotal link between the real economy and the financial sector of the commercial property market. The housing market was in freefall and that was impacting on the banks, as you know. As that then manifested itself it started to raise issues about the commercial property market and, importantly, the commercial mortgage backed security market, which is huge in the United States. That is where the Federal Reserve stepped in. I cannot tell you exactly what the Fed instrument is, but certainly the Fed stepped in in a demonstrative way in the commercial mortgage backed security market. It was not only in the residential mortgaged backed security notes but the commercial mortgaged backed security market. On top of that, they then also intervened in the commercial paper market. Commercial paper is short-term debt, sometimes by the banks but also by industrials, commercial property developers and commercial property owners. Again, that was a pretty important instrument. It was not so much about monetary policy liquidity, if you like—sort of demand management in the economy—but it was really trying to prop up markets that were totally dislocated and almost frozen, if not frozen.

Senator COONAN —Yes. This is just a comment and I am not expecting you to really answer this—there might be a question in it somewhere and then I will get onto a different topic—but it seems to me that the debate about the value of having such a facility really has got derailed in this country by the particular model and perhaps the scope and the way it was defined rather than whether there may not be some reason, particularly in this kind of market, to have one. I am just very interested in how it has been approached elsewhere.

Mr Richard Murray —I am not an expert in monetary policy; that is for the macro group.

Senator COONAN —Yes, I understand that.

Mr Richard Murray —Certainly the Reserve Bank, prior to this crisis, did have a wider suite of securities that they would take into their repurchase arrangements, and they widened those and they linked them to the maturities of those. The details of that I cannot tell you off the top of my head, but certainly our central bank took similar action but not to the same extent as the Fed in terms of trying to make sure that dislocating markets in fact had adequate liquidity.

Senator COONAN —I want to leave that. As it is expressed in the budget papers under the statement of risks, I just want to go to the guarantee of deposits in ADIs and wholesale guarantees. You probably will not need the page but it is on page 8-27. That is all reasonably straightforward. Do you have a current figure for the total contingent liabilities as a result of the two types of guarantees or is the most recent figure in the papers?

Mr Martine —Senator, as outlined in the statement of risks, and perhaps if we treat each in turn—

Senator COONAN —Take it separately, page 8-27.

—If we look at the Financial Claims Scheme on page 8-27 it says:

As at 31 March 2009, deposits eligible for coverage under the Financial Claims Scheme were estimated to be approximately $650 billion.

Senator COONAN —Yes.

Mr Martine —That is not the potential contingent liability that may eventuate. As noted in the text, the contingent liability is unquantifiable.

Senator COONAN —It is a coverage issue.

Mr Martine —In a sense, they are the deposits that are covered but one needs to then think through the probability of a collapse of a financial institution. Then, even if you consider that that may eventuate—and we would argue that the likelihood of that is very, very small given our strong financial system and our very robust prudential framework—you then need to think through some other important safeguards. One in particular I will mention is the fact that all ADIs are required under the Banking Act to hold sufficient assets to cover their deposit liabilities.

So if, for example, there was a collapse of a bank and the appropriate action was that the institution be wound up then while amounts might be paid out under the Financial Claims Scheme upfront, because the whole purpose of that is to ensure that depositors can get their money quickly, the assets, as required under the Banking Act, will more than offset the deposit liability. So if that was the course of action that was decided, APRA would step in—and the institution would be wound up and over time the assets would be extinguished. They would all come back to the government. In that situation I would argue that the actual contingent liability if it eventuated, whilst it is unquantifiable, if you had to try to quantify it, would be incredibly small.

Senator COONAN —Because of the capital adequacy and liquidity requirements?

Mr Martine —That is right. And the other important feature announced by the government at the time was that if there is a shortfall then the government of the day has the option to introduce a levy on the rest of the industry to make up that difference. So while $650 million looks like a large number, that is essentially just the deposits that are covered. If you then think through the probability of it happening and these other safeguards, et cetera, the actual exposure to the Commonwealth if all of that panned out would be very small.

Senator COONAN —The very unfortunate HIH collapse I think meant that we thought through fairly carefully what was necessary to improve that. So I understand that.

Mr Martine —What we just talked about was the free guarantee up to a $1 million. Perhaps I can give you some numbers here, Senator, to assist about the guarantee about $1 million and for wholesale funding. As at 28 May 2009, the guaranteed liabilities amount to $133 million.

Senator COONAN —That is on the deposits?

Mr Martine —That is made up of deposits above $1 million of $24.7 million, short-term wholesale funding of $15.9 million and long-term wholesale funding of $93 million. If I have got my maths right, that all adds up to $133.7 million.

Senator COONAN —What are you doing about actually unwinding these and returning to a situation where there are not these guarantees being called on?

Mr Martine —As part of the announcement, the government indicated that the large deposit guarantee would be in place for three years and the wholesale funding guarantee would be in place until market conditions normalise. It also gave a role to the Council of Financial Regulators, which is chaired by the Governor of the Reserve Bank and has the head of Treasury, ASIC and APRA on it, to monitor the operations of the guarantee. So it is something we are keeping a close eye on. There have been a very limited number of issuances outside of the guarantee. They have been reported in the press over the past few weeks. They have mostly been domestically. I think each of the four major banks has issued one domestic issuance without the guarantee, and I think one did an offshore one recently.

Senator COONAN —There were some comments attributed to Mr Mike Smith from ANZ that six months on his view of the scheme was not as positive. He said:

“This is a drug we have to get off,” he told the Australian Financial Review recently.

After almost $90 billion of issuance since the insurance policy came into effect last December, banks are itching to wean themselves off the guarantee and stand on their own feet.

Is that a view that accords with Treasury’s?

Mr Murphy —I think the guarantees for depositors gave security to people and stability to the system. The wholesale funding guarantees have proved successful in enabling Australian financial institutions to get access to much needed funds offshore. As Mr Martine has mentioned, that government said in terms of wholesale funding that when markets normalise it would look at when it should remove the wholesale funding guarantee. Mr Smith, as the head of the ANZ, is very well regarded. I think he was thinking out loud to some extent saying, ‘Well, it would be a good day when we could remove ourselves from the guarantee.’ By accessing fundraising through the wholesale guarantee, Mr Smith’s institution pays a fee of 70 basis points on its fundraising. Obviously when he can get to a situation where he can raise funds without the guarantee, it will be cheaper for him. At the moment we would say that the banks are not in a position where they could operate without the government guarantee.

The other issue is that virtually every other sophisticated economy has also got a guarantee in place. It may be that we will need to have a synchronised removal of the guarantees worldwide. That is something that is on the G20 agenda and will be discussed. I think the sentiments are correct but at the same time it has been very successful. We are at a point in time now where we can look back and say, ‘Yes, having the guarantee in place for the financial institutions has done the job it needed to do,’ but I think it is a little premature to be thinking about exiting at this time.

Senator COONAN —The sense of what you say is, of course, that while there are signs of stability it is probably not quite there. The second part of what you have said is that there is some consciousness that goes beyond a domestic market, and that impacts, of course, on the global financial market, where it has to be integrated in some way.

Mr Murphy —That is right. I suppose a third limb to that is that there is no prohibition on Mr Smith or his institution raising funds without the government guarantee.

Senator COONAN —No. In fact, the spread seems to be a bit wider now with unguaranteed funds.

Mr Murphy —A number of institutions have tested the water and raised small non-guaranteed amounts, and I think that is a very good thing because they continually go out and test the market. When they find that prices are dropping, there is an inducement to say, ‘We no longer need the guarantee.’ The government’s thinking back in October was that there would not be a dramatic removal; it would just fall out of use—it would no longer be needed. The other point to raise is that Mr Smith is talking from the point of view of his institution, which you would expect to see of a major bank. It may be that the second-tier banks will need the guarantee longer than, say, the majors. The government has to take account of these other issues.

Senator COONAN —Yes. I am not suggesting in this line of questioning that there are not some very positive features of this. I am also interested, and you would have addressed this, in knowing from your experience the downsides of it—the issues with crowding out and the impact on raising funds?

Mr Murphy —I do not think there is any particular downside to it. In terms of the wholesale guarantee, Australian banks raise substantial funding from overseas markets. That is the way it has developed over the past decade. Without the guarantee, foreign markets would largely have been closed. I think it has been a very successful policy intervention.

Senator COONAN —Are there any anticompetitive issues?

Mr Murphy —The competitive issues which have arisen are that by pricing the guarantee it is more expensive for the second tier under the government’s regime. We have to take account of the actual risks that the government assumes by having a guarantee, but I think, more importantly, the second-tier banks, as well as raising their funds through deposits, also had access to the securitisation markets, and that has largely been closed. For instance, for one of the second-tier banks, 25 per cent of their funding was coming from the securitisation markets, which are now closed. So they now either have to get more deposits in or they have to get wholesale funds. Even the second-tier banks, which in some public statements have criticised the guarantee arrangements, have largely financed themselves well from the guarantee. It has been a success for them as well. I do not think that the guarantee has caused competitive issues to arise. Competition issues have arisen because of the global financial crisis. It is just much harder—

Senator COONAN —Of access to capital more broadly, I think.

Mr Murphy —Yes, access to capital. If you think about it in terms of risk, the major banks could always access the capital. It is when they have accessed what they need that the second-tier banks come along. The mortgagor originators, what we call fringe players, were providing great competition—RAMS of the world. Given that the money is a lot less available and is much more costly, there is a cascading down and it will be more difficult to provide a competitive stimulus from those smaller entities. I do not think it is the guarantee that has caused competition issues, which we are very sensitive to and looking at; it is more the global financial crisis and the drying up of liquidity.

Senator COONAN —Right.

Mr Martine —Just following on from Mr Murphy, we certainly should not underestimate the importance of the free guarantee up to $1 million for some of these smaller institutions. Some of them over the period have experienced incredibly large deposit growth, which has traditionally been a major source of their financing. Looking back pre-GFC, quite a number of those institutions did not source much in the way of their funding offshore in the wholesale markets. They had a little bit but not a significant amount.

Senator COONAN —It was mainly access to domestic deposits.

Mr Martine —Yes, it was mostly domestic deposits, and for them it was mostly deposits less than $1 million. The guarantee and the way it works in the Financial Claims Scheme is that that has actually been provided free.

Senator COONAN —What has happened to the so-called frozen funds—the disaffected investors who have not been able to access—

Mr Murphy —To some extent there has been a winding down of some of those funds. Hardship provisions have been introduced so people can get access to their money. Some of the mortgage funds are now talking to their investors about how they can manage the funds and return the capital to the investors or, alternatively, restructure businesses to make them more viable in what could be the new world in terms of financing. I think sometimes everyone is looking back and thinking, ‘We’ll get through this global financial crisis and then we can return to the way our financial system was two or three years ago when we had various competitive pressures and various entities.’ We are not certain that it will return to that. There may be a new norm.

Senator COONAN —As they call it, the new normal.

Mr Murphy —It could be, yes.

Senator COONAN —Do you have a figure of the total amount still frozen in non-guaranteed ADIs?

Mr Murphy —We used to have one.

Senator COONAN —I know it moves around a bit.

Mr Murphy —We will have to take it on notice. We do not have the figures here. I think what has been extremely important is that none of the mortgage funds have collapsed, and that was the policy concern. Even City Pacific Ltd is still being managed and the principals of the fund are talking to their investors. I do not want to say it is remarkable but it is a very, very good result that there has not been a collapse of any of these institutions with the effect of the investors losing their funds.

Senator COONAN —It is never good to have an institution collapsing. Are there any new mortgage products or any new funding arrangements coming on the market that you are aware of? I heard the other day about a no-commissions product for funding.

Mr Murphy —I have just got some figures. At the moment we have more than 120 mortgage providers with more than 2,000 mortgage products. That is a good thing, but you will always have competitiveness coming forward. If there are new products that can be developed by the institutions it is always a good thing.

Senator COONAN —This one was a model where they stripped a lot of the fees out.

Mr Murphy —That may be the competitive edge that comes. I do not subscribe to the view that the big four move together all the time. I think there will be a break-out in competition. There is some, but one would hope that when things stabilise a bit better and there are sure sources of funds for the majors then you might find some more competition emerging.

Senator BARNETT —I have some questions regarding GROCERYchoice. Ms Holdaway, can you advise how many hits there have been on the website per month since its inception? I am happy for you to table a document if you have that available.

Ms Holdaway —I do have some basic information available, if you would just bear with me. These are counts of what we call page views. Since the inception in the period leading up to 25 August—

Senator BARNETT —From when to when?

Ms Holdaway —This was when it was first launched by the ACCC.

Senator BARNETT —We will find that date. You can confirm that on notice, if you like.

Ms Holdaway —Sure, will do. At the initial stage there were around 3.15 million page views.

Senator BARNETT —Per month?

Ms Holdaway —For that whole period, from start till the end of August. In November 2008 there were—

Senator BARNETT —Sorry, let us get this clear. There were 3.15 million page views were from when to when? From inception to?

Ms Holdaway —To 25 August 2008.

Senator BARNETT —Do you have a monthly breakdown, please?

Ms Holdaway —I do not have that on me, Senator. I can take that on notice.

Senator BARNETT —Thank you.

Ms Holdaway —We do have some gaps, therefore, I will provide monthly hits to you. We have some figures for November, December, January and onwards.

Senator BARNETT —November, December and January. Okay. Let’s go from November.

Ms Holdaway —For November it was 113,030, December was 105,872, January 2009 was 104,757, February was 63,993, March was 54,366, April was 60,698 and May was 697,466. But may I just add—

Senator BARNETT —That does not make sense for May, does it?

Ms Holdaway —There are issues with the actual methodology of counting the page views. This is probably the best methodology we can come up with.

Senator BARNETT —But you have 10 times the number in May compared to the previous three months.

Ms Holdaway —Yes, that is right. That was as a result of some work that was being done through the website, and that may have affected the high page views for that month.

Senator BARNETT —Going back to October, I have 104,000 hits in October 2008. Does that correlate with your figures?

Ms Holdaway —For some reason I do not have figures for that particular month.

Senator BARNETT —You can get them on notice. These are page views rather than hits on the website?

Ms Holdaway —That is correct.

Senator BARNETT —What we need to break that down into is entry to the website and then page views. Page views is one thing; hits on the website is another.

Ms Holdaway —The hits are actually greater in number because it will count the number of file loads that you have as a page is entered. I have been informed that the page views is actually a better representation of how many users you might have of the site.

Senator BARNETT —Can you on notice let us know those figures?

Ms Holdaway —I can.

Senator BARNETT —What about downloads, can you advise on notice the downloads?

Ms Holdaway —We will try our best. I do understand there are some complications but we will try our best to provide those figures.

Senator BARNETT —Your reason for the ten times higher figure in May is that there was special work being done on the website at the time?

Ms Holdaway —Yes.

Senator BARNETT —Presumably that was by CHOICE?

Ms Holdaway —That is correct. Once again, we will take it on notice to provide the closest figure possible around the actual visitors, but we have been informed that the number of visitors has remained consistent throughout the period.

Senator BARNETT —There has been a considerable drop obviously this year from January, February, March and April. A huge drop—

Ms Holdaway —It has been consistent—

Senator BARNETT —from November, December and January. Nevertheless, that is fine. Can you tell us about the funds expended to date? We know it is a $13 million website but, for the funds expended to date, can you provide that figure to us and give us a breakdown as to where those funds have been expended?

Ms Holdaway —Yes, of course. I will try my best. There was $12.9 million allocated to the GROCERYchoice website over four years in the 2008-09 budget. Of that amount, approximately just over $9 million was actually transferred from the ACCC to Treasury when the functions were transferred from the ACCC and Treasury for the website, at which point—

Senator BARNETT —Do you have a date for that?

Ms Holdaway —The approval took place on 5 November 2008 and the transfer took place on 5 January 2009.

Senator BARNETT —That is when the ACCC said that they did not wish to pursue it further and they transferred it back to Treasury?

Ms Holdaway —It was actually obviously the decision by the government to explore different options that would provide better value for money services for the consumer for the same amount. It was at the time that the decision was made by the government; 5 November was really the critical date at which the decision was made by the government for that function to be transferred from the ACCC to Treasury in order for us to be able to explore the outsourcing option.

Senator BARNETT —Which ultimately went to CHOICE?

Ms Holdaway —Yes.

Senator BARNETT —So $9 million was transferred. Before that, can you advise the costs incurred since inception?

Ms Holdaway —I will have to take that on notice. I will have to seek that information from the ACCC, which was responsible for administering the funds. I do recall that we had extensive information available on that about exactly how it was expended. Most of it was really through IT, and the ACCC also used outsourcing, as well as through collection of data for the purpose of providing that data from the website.

Senator BARNETT —That is exactly right. In regard to the data collection company, there would have been an outsource arrangement agreement with that company to provide the data to the ACCC. I would like to know the cost incurred for that agreement. Do you have that with you?

Ms Holdaway —The figures I have here are not what the ACCC has actually incurred. I think it is probably best to take that on notice.

Senator BARNETT —You are Treasury; you provide your figures to us that you have in front of you and then we can take on notice further information vis-a-vis the ACCC. What information do you have regarding costs incurred?

Ms Holdaway —In terms of Retail Facts the arrangements were that, as the GROCERYchoice website is actually being managed by CHOICE, Treasury would continue with the subcontract with Retail Facts, as you have stated. The cost for the January 2009 survey was $208,019. Did you want the whole breakdown or did you want the total? With Retail Facts, we are looking at a total of about $900,000.

Senator BARNETT —To date?

Ms Holdaway —Yes, to date, since Treasury has taken on the responsibility.

Senator BARNETT —So from 5 January Treasury has taken on that responsibility. They have continued to outsource this work to Retail Facts, the data collection company, and the first survey—for January was it—was $208,019?

Ms Holdaway —That is right.

Senator BARNETT —And was there then a further survey in February?

Ms Holdaway —There was.

Senator BARNETT —And what was that?

Ms Holdaway —It was substantially cut down to $169,390 and that figure remained right up until May 2009.

Senator BARNETT —And that is a monthly figure?

Ms Holdaway —That is correct.

Senator BARNETT —$169,319 or 90?

Ms Holdaway —390.

Senator BARNETT —So that is per month in February, March, April and May. That is how much they are receiving and that total amount is about $900,000 to date?

Ms Holdaway —That is correct.

Senator BARNETT —What were the figures before Treasury took it over? You do not have those?

Ms Holdaway —No, I do not, but it would have been somewhere along those lines. It may have been slightly higher to begin with. I will have to get that for you.

Senator BARNETT —Fine. Let us just go back. What costs were incurred prior to Treasury taking it over? You said there was $9 million transferred from ACCC to Treasury on 5 January. How much—

Ms Holdaway —The rest. From the $12—

Senator BARNETT —So $3.9 million has been expended to date and effectively that money has gone to Treasury and they have expended it as they have seen appropriate. Is that correct?

Ms Holdaway —No, around $9 million was transferred to Treasury and it is within that bucket of funds that these costs have been incurred, and obviously there has been a contract with CHOICE. Prior to that, the ACCC have expended the difference between $12.9 million and $9.3 million.

Senator BARNETT —So the difference between $12.9 million and $9.3 million which is $3.6 million. Is that right?

Ms Holdaway —Yes.

Senator BARNETT —So that is how much has been expended to date. That money has gone to ACCC; they have done their work.

Ms Holdaway —That has been expended.

Senator BARNETT —And they have transferred it back.

Ms Holdaway —That is correct.

Senator BARNETT —And you do not have a breakdown of that $3.6 million but you could take that on notice?

Ms Holdaway —Yes.

Senator BARNETT —Are there any other costs since Treasury took over in January, and in particular the costs to CHOICE?

Ms Holdaway —Yes.

Senator BARNETT —Can we go through those please?

Ms Holdaway —Sure. As announced by the government, the government has entered into a contract with CHOICE for CHOICE to manage the GROCERYchoice website. The cost of that contract is $8 million.

Senator BARNETT —Give us a breakdown, if you could?

Ms Holdaway —This $8 million has an extensive contract supporting it. It is not paid out in total up front. It is linked to specific milestones. On top of that, it is also linked to key performance indicators. As CHOICE goes through and delivers on those milestones and can also provide a full report on how the key performance indicators are achieved, then specific payments will be released for that, and for that payment to be received CHOICE is required to provide full financial reports of how the money has been spent in order to achieve—

Senator BARNETT —I am sure they would. How much has been expended to date—transferred to CHOICE?

Ms Holdaway —Yes. So far $3 million has been paid.

Senator BARNETT —In one lump sum?

Ms Holdaway —No, in stages.

Senator BARNETT —Can you break it down please?

Ms Holdaway —There was an amount paid for the execution of the contract, and in coming up with this payment schedule we looked at where the front load of the costs will be for CHOICE to be able to—

Senator BARNETT —Understood.

Ms Holdaway —So there was a payment made of $1 million at the execution of the contract.

Senator BARNETT —Which was which date?

Ms Holdaway —The actual specific date? I might have to take that on notice. Actually, it was execution, so that should be quite easy enough. That was 19 December 2008. It was shortly after that. The payment was not made exactly on the date when the contract was signed but it was shortly after that.

Then when the website was reskinned as a part of this contract, with CHOICE actually taking over, $1 million was actually paid then, which was invoiced on 30 January, so the payment would have actually been made around there, perhaps some time in February. Then there was also a $1 million payment made in April as part of the contract’s requirement that CHOICE put in place specification documents and actually issues for tender. Part of this requirement was that there will be a revamped website with more useful information for consumers and a more user-friendly website whereby consumers can interact. That has been achieved and the payment has been made.

Senator BARNETT —When are the next payments due? You have got an $8 million contract.

Ms Holdaway —The payments will be due some time in June. There will then be other payments—

Senator BARNETT —That is another $1 million payment in June?

Ms Holdaway —Yes, that is correct, and there will be payments due in July.

Senator BARNETT —Another million?

Ms Holdaway —That is right. Then October, $500,000; on 10 January, another $500,000; on 10 May, another $500,000. These are the current schedules that are subject to change.

Senator BARNETT —Absolutely.

Ms Holdaway —10 August, $500,000; 10 November, $750,000; and the final payment—the contract ends in March 2011—of $250,000.

Senator BARNETT —All that information is very much appreciated. Do you have the contract?

Ms Holdaway —Yes.

Senator BARNETT —Do you have a copy?

Ms Holdaway —Yes, I do.

Senator BARNETT —Can you please table a copy?

Mr Murphy —I think, Senator, I could take that on notice. I am not sure whether the contract with CHOICE has confidential requirements in it.

Senator BARNETT —Mr Murphy, excuse me, I have asked for the agreement to be tabled and you need a reason which is in the public interest for that to be denied.

Senator Sherry —We have given the reason.

Senator BARNETT —There is no reason that is legitimate, Minister, and I would ask for the agreement to be tabled, taking it on notice.

CHAIR —Take it on notice.

Senator JOYCE —It is always the same: either take it on notice or gobbledegook. That is generally what the minister does.

Senator Sherry —If I can be of further assistance, Senator, I just indicate: you may not be aware, the ACCC are not appearing today, and Monday week I think, whatever the date is—

Senator BARNETT —I am aware of that, yes.

Senator Sherry —If we can provide the contract we will, but we need to determine whether there are confidential clauses in it, so we will take it on notice.

Mr Murphy —I am quite happy to provide it but not—

Senator BARNETT —Minister and Mr Murphy, there may be KPIs in it, there may be benchmarks in it, there may be financial figures in it. I put it to you that none of those points that you are referring to are legitimate reasons to deny this committee that document.

Mr Murphy —We will take this on notice. We will review the document and, as I say—

Senator BARNETT —We would like it today. Can we get it?

Senator Sherry —No.

Senator BARNETT —The agreement is here, is it not, in this room?

Ms Holdaway —Sorry, Senator, I do not have it on me. I thought I did but I do not have it on me.

Senator BARNETT —There are officers here who can review that—

Senator Sherry —No, Senator Barnett. We will take it on notice and check the information. I am not going to give any misleading undertaking.

Senator BARNETT —You knew this was a topic today and you would be prepared for this topic. You would be well aware that this question would be asked and that we would require it.

Senator Sherry —We are taking it on notice.

Senator JOYCE —This is democracy in action!

Senator BARNETT —I consider that obfuscation of the first order. Can we go to any other agreements that you had with other third parties outside of GROCERYchoice?

Ms Holdaway —There are also subcontracts with an IT provider, which the ACCC had originally used as part of the GROCERYchoice website. That was to allow for transition from the ACCC running the website to CHOICE being able to run it through their own system.

Senator BARNETT —What is the name of the provider and what was the cost of that service?

Ms Holdaway —The name of the provider is Getronics.

Senator BARNETT —And the cost?

Ms Holdaway —In total it is around $440,000.

Senator BARNETT —$440,000 to transfer—

Ms Holdaway —This is to actually host the website, Senator, and also to assist CHOICE with the actual reskinning of the website. It is not just for transfer; it is actually to host for a period of time.

Senator BARNETT —For what period of time?

Ms Holdaway —This was actually leading up to the July period. The actual website is currently being hosted by Getronics on their hardware and in the meantime CHOICE has been developing their IT system and their website in order to then physically move, if you like, the hosting of the website to ensure that there is absolutely no—

Senator BARNETT —The $440,000 is for the hosting by Getronics on their hard drive?

Ms Holdaway —That is right, but with full access for CHOICE. It is just really a space.

Senator BARNETT —But it is funding to Getronics?

Ms Holdaway —It was a payment to Getronics but under instructions by CHOICE and with us monitoring.

Senator BARNETT —And that is to July 2009?

Ms Holdaway —Yes, that is right.

Senator BARNETT —And then there is an understanding that CHOICE would then take it over?

Ms Holdaway —It has already taken over.

Senator BARNETT —They would then host it?

Ms Holdaway —This is the IT component of the actual hard space.

Senator BARNETT —That is right, but CHOICE would then on its website host it post July 2009. Is that the understanding?

Ms Holdaway —I do not know the exact details, but CHOICE will be responsible for the space and how they actually determine that will be up to them.

Senator BARNETT —Likewise, with regard to IT and that agreement, I assume there is an agreement between Getronics and the government?

Ms Holdaway —Yes.

Senator BARNETT —If you could please provide that as well and I presume your answer will be to take it on notice.


Senator BARNETT —Let us go back to the agreement with the CHOICE organisation and could you, to start with, advise the committee of the KPIs?

Ms Holdaway —The KPIs are built around the objectives of the website to ensure that consumers are well informed of the grocery prices and to ensure that it provides the ability for consumers to make their own choices about their purchasing behaviour. Therefore, it is built around the reliability of the website. Reliability includes providing up-to-date information but also ensures that the website does not falter where it is not accessible for an extensive period. It has got a number of KPIs built around it.

Senator BARNETT —We will have a look at those. You mentioned milestones as well. We will get those, all being well, when you table that document. Is it correct that Minister Bowen or his chief of staff are soon to host and chair a meeting of key stakeholders to try and broker or force a deal with the key stakeholders and the government?

Ms Holdaway —I think that is a question Mr Bowen would need to answer.

Senator Sherry —I would have to take that on notice.

Senator BARNETT —If an agreement is not made with the key stakeholders, as in the major chains and the independents, will the government close the website?

Senator Sherry —Again, I will have to take that on notice.

Senator BARNETT —If one of those three, and specifically the independents, do not deal, will the government close the website?

Senator Sherry —Again, I would have to take that on notice.

Senator BARNETT —Finally, can you advise specifically the reasons for the transfer from the ACCC to CHOICE?

Ms Holdaway —Yes, of course. I think I mentioned just previously that this was really an opportunity for government to be able to provide more for the same. There were some issues around whether the ACCC, as the regulator of the TPA, could actually enter into space of, for example, providing special prices, given that there are obviously consumer protection issues and, as the regulator of those, would there be actual conflict of interest in pursuing that type of information. Yet I think we were getting a lot of feedback from consumers that it is exactly that kind of information that would be useful and that there is a lot of interest in finding out more about the specials and a smarter way of shopping, if you like, to get the best value for money.

Senator BARNETT —I am happy for you to take on notice to provide further and better particulars regarding those reasons, if you are happy to do that.

Ms Holdaway —Of course.

Senator BARNETT —Thank you very much. Did the ACCC ask the government to be relieved of its responsibility in terms of operating the website?

Ms Holdaway —The answer is no. I have to obviously think about that—

Senator BARNETT —Are you sure?

Ms Holdaway —because there were a number of discussions being held, particularly with this opportunity presenting itself at the time. The sequence of events was not such that the ACCC had formally—

Senator BARNETT —All right, I accept your answer there. Why was CHOICE chosen as the operator of the website rather than another operator?

Ms Holdaway —Obviously, with the contract amount being above $80,000, all departments are subject to the Commonwealth procurement guidelines. Under that, there is actually a clause whereby if there is an advantageous opportunity that is unsolicited that has been presented to the government, that direct sourcing is actually an allowable option. It was done on that basis. CHOICE had approached the government with a proposal, which at the time represented much better value for money than what the ACCC had been able to do. Not just that, it was able to do a lot of other services the ACCC had limitations on.

Senator BARNETT —Some people would say that is a breach of the protocol regarding the AusTender approach.

Ms Holdaway —As I said, it was in line with the procurement guidelines and we had followed all the requirements under that. This is actually under condition 8.65(c) of the mandatory procurement procedures and it was within those conditions that the contract was actually awarded to CHOICE.

Senator BARNETT —Thank you for that. We will pursue this in other avenues. I know the ACCC is coming up shortly, and I thank the indulgence of the committee.

CHAIR —Thank you. Senator Abetz.

Senator ABETZ —Thank you, Chair. I have got a few questions on OzCar and can I start by thanking Minister Bowen and his staff for providing a private briefing to me, which I think will somewhat curtail estimates hearings. Can I put on record my appreciation for that. Can I also ask whether all questions on notice in this area of OzCar have been responded to?

Mr Grech —The questions that I took on notice—and there were not many—from the last committee hearing on this issue of OzCar, I have responded to, yes.

Senator ABETZ —Then chances are the problem is in my office rather than in Mr Bowen’s office. That is why I did not seek to make an allegation about lateness and that is why I in fact asked a neutral question as to where they were. Thank you for that.

Senator Sherry —Do you want to us follow up specifically?

Senator ABETZ —No, I will go through the secretariat of the committee. That is fine, thank you. For what it is worth, my staff have just emailed saying there are some on costs that we have not got yet, but rather than delay the committee here, we will try and sort it out with the secretariat. Just as a mistake can happen in my office. I accept that something may have happened elsewhere.

Mr Grech —For the record, Senator, I definitely prepared the responses to the questions. Whether they are stuck in a particular minister’s office or your office, I do not know.

Senator ABETZ —That is fine, thanks for that. As I understand it, OzCar, or the structure, was initially set up as a $2 billion mechanism, if I can call it that, and now it is going to be considerably less, about a third, a quarter of the size?

Mr Grech —You are correct, Senator. When the scheme was initially launched and announced on 5 December last year by both the Prime Minister and the Treasurer, the expectation at that time was that the facility would need to be in the order of A$2 billion. Over the last six months there has been a reduction in, if you like, the degree of market failure and we are now looking at a facility which at most will be $850 million but I suspect will be somewhat less than $850 million.

Senator ABETZ —As I understand it, we had private sector involvement in relation to this with Credit Suisse et cetera, who were going to bear the costs of running the show and the trust, as I understand it. I dare say costings would have been undertaken initially on a vehicle or mechanism dealing with $2 billion. Did we do any analysis as to where the break-even point would be? Either yes or no on that one? If the size is now going to be below that break-even point, will there be any costs that might be borne by the Australian taxpayer?

Mr Grech —Senator, the original fee arrangements, which related or which will relate to not only Credit Suisse but there are a number—

Senator ABETZ —We went through them last year.

Mr Grech —That is right. To get to the guts of your question, because the facility will be considerably smaller than the original estimate there will be, if you like, a fixed pool of costs that will need to be covered by what will be a smaller pool of income-generating securities over the 12 months in which the facility is intended to operate. That may be a convoluted response, but basically what it means is that the risk of loss from the facility is obviously higher the smaller the facility is, compared to where we were even in February.

Senator ABETZ —What is the break-even point?

Mr Grech —That is a fair point. Based on the latest information I have been given by Credit Suisse, who are acting for the Commonwealth as project managers, there are a lot of ifs and assumptions, but they believe that if the facility is anywhere south of $350 to $400 million and if the facility operates for 12 months the probability of loss will exceed 50 per cent.

Senator ABETZ —So, there is a chance of a loss, and without going into all the detail, if Ford Credit were not in the marketplace at the moment for this vehicle, we would clearly be in a loss situation. Would that loss situation be borne solely or partially by the Australian taxpayer?

Mr Grech —Again, it is a fair question, Senator. You are correct in that if the recent decision to allow Ford Credit to participate in the facility had not been taken, I would go as far as to say that there will not be a need to activate OzCar at all, because the market has actually had a much more positive effect.

The market has worked a lot more effectively than we had anticipated. If you believe in the positive power of the market, as I do, I think that is a good development. In terms of who will incur the losses, the way this arrangement works is that the trustee will basically issue securities to the four major banks, because they agreed to buy these securities, in equal instalments. Those securities will be issued in a guaranteed order—that is, the first $400 million of securities that will be issued will be Commonwealth guaranteed. So basically if there are any losses on those exposures, the losses will be incurred by the taxpayer.

Senator ABETZ —From the losses of the underwriting?

Mr Grech —The bottom line response to your question, Senator, is that any losses that the facility makes, any losses that OzCar as an SPV makes will be incurred by the taxpayer.

Senator ABETZ —At this stage I suppose everything is crossed fingers, legs—everything is crossed—that it will not make a loss?

Mr Grech —It is a paradoxical thing: the longer the facility operates, the greater the scope to generate income, hence the greater the scope to cover your fixed costs, particularly the initial establishment costs, not necessarily the operating costs. Based on the information from Credit Suisse—and I have no reason to question the accuracy of what they are telling me—if the facility is no smaller than $350 to $400 million and if it runs for at least 12 months then we should get to a break-even point, but there are a lot of ifs there.

Senator ABETZ —What are the initial fixed costs? I think you have indicated those to us but for Ford coming onto the horizon, the chances are we would not have ‘started the vehicle,’ but you still would have had all the initial upfront costs. What were they?

Mr Grech —The way the arrangement has been constructed and, again, it is a trust, and the way we—when I say ‘we’ I mean Treasury—negotiated with Credit Suisse and the third party service providers back in November-December was that in the event that the facility had never been activated, we—the taxpayer/government—would not have incurred one cent in costs. So the risk was all on them.

Senator ABETZ —The exposure of the taxpayer is solely in the moneys—

Mr Grech —Through the activation of the facility.

Senator ABETZ —Not the actual bureaucratic administrative costs of setting it up?

Mr Grech —Correct, but once the thing is activated we become liable, in effect, or at least the trust becomes liable for meeting the costs. Through any subsequent losses that the trust makes in terms of its day-to-day activities, we—the government/the taxpayer—become liable for the losses, courtesy of the guarantee.

Senator ABETZ —You are right, but still no exposure for the initial set-up costs?

Mr Grech —Only to the extent that the initial set-up costs, which basically total just under $7 million—they are not insignificant—will need to be financed from the income generated by the trust.

Senator ABETZ —Does Credit Suisse have first call on the income to cover those costs?

Mr Grech —Yes, it does.

Senator ABETZ —In a circuitous way—and I think I now understand where we are getting to, Mr Grech—there is exposure to the Australian taxpayer. Rather than hypothesising about it now, we will undoubtedly revisit that particular aspect at another estimates hearing. You indicated that you expected the funds required to be less than $850 million?

Mr Grech —Yes.

Senator ABETZ —Zero is also less than $850 million. Can I ask for your best professional judgment—I will not hold you to it—on what you think the figure might be?

Mr Grech —It is a fair question. I must qualify what I am going to say, as I am not in the business of Treasury forecasting.

Senator ABETZ —Very wise. It raises a lot of questions, I can assure you.

Mr Grech —Yes, that is right. First of all, perhaps I should explain where the $850 million came from and then we can unwind from that. It will not take me very long. The $850 million, which is actually what is in the budget papers and which is what the Treasurer publicly stated when the OzCar guarantee bill was introduced a couple of weeks ago, represents $550 million for Ford Credit, $250 million for Capital Finance, because they were telling us they were going to roll their book into the OzCar facility, and another $50 million for another industry-captured finance company, whose name I prefer not to publicly disclose because they are still going through their internal processes, but who I am happy to inform the committee about privately. There is no issue from—

Senator ABETZ —There is no need to know on my part.

Mr Grech —Basically three components make up the $850 million. Since the budget, which obviously was not that long ago, we have been informed by Capital Finance that they are no longer seeking to participate in the SPV. If you are a dealer, a former GE and GMAC dealer that has been financed by Capital Finance, that is actually a good development, because it means that you have now potentially got a long-term relationship with an alternative financier in Capital Finance. What it means is that is $250 million roughly of business, if you like, that will not be coming through the SPV, which means the SPV will have $250 million less of securities on which to generate income. The income generating base is smaller. From the $850 million, you can take $250 million off now.

Senator ABETZ —$600 million?

Mr Grech —That is right. The $550 million for Ford Credit is its maximum credit line. At the moment the Ford Credit book is significantly below $550 million, but, again, given commercial sensitivities, I prefer not to disclose the full figure. I think it is safer to assume, based on the information that we have available, that the facility will be no more than $450 million in aggregate.

Senator ABETZ —We will revisit that next estimates and see how that prognostication works out. We are getting, I dare say, dangerously close to that tipping point, but let us wait and see. Is OzCar up and running?

Mr Grech —The answer is no; OzCar has not been activated.

Senator ABETZ —As a result, nobody has yet received any assistance from OzCar, although undoubtedly the argument will be made out that the fact that this facility was talked about may have been of benefit in the marketplace.

Mr Grech —That is right.

Senator ABETZ —And have a secondary type effect.

Senator Sherry —This is a government that believes in preparation. In a whole range of areas we have had to act decisively.

Senator ABETZ —Minister, we were going really well, because I could say you acted decisively—

Senator Sherry —The evidence was there for all to see yesterday—

Senator ABETZ —with $2 billion and it has now shrunk. I did not see Chris Bowen issuing a press release, saying, ‘Mum, I’ve shrunk OzCar by three-quarters.’ Anyway, we were making good progress, so let us continue, Mr Grech. My next question is how many financiers need to sign up, and we have been through that and the amounts involved. So no financiers have signed up. We have been through how large we expect OzCar to be.

Did Treasury do any of this modelling that you do not want to get into, Mr Grech, very wisely, but this figure of $2 billion was announced—I will be careful—as a sizeable sum, and it was all part of taking decisive action to look good, it was a big figure and all the rest. I think it was at the last estimates hearing I found out that it was going to be about $850 million, and now we know it will be even less than that. Do we say that it was an economic miracle that occurred? How come such a big sum was announced, and now it looks as though about only one-third will be required?

Mr Grech —I entirely understand your question and it is a reasonable question. There was no actual rocket science behind the original $2 billion estimate. The original $2 billion estimate was based on the assumption, given the announced departures by both GE and GMAC, and given what we had been told up to that point by the remaining market players who are not that large in number—I am mainly talking about Esanda, St George, Capital Finance, Nissan Finance, BMW, Volkswagen, Toyota Finance, these small industry capture finance companies—that they did not have the scope nor the time to do the due diligence necessary to grow their loan books to accommodate GE and GMAC dealerships. Also noting that, at that time, late November, early December, GE and GMAC were telling the world that, come the end of January, they were out of here. The $2 billion was basically an aggregation of the outstanding loan book at that time of GE, GMAC and Ford Credit.

Senator ABETZ —Yes, but asking them to be somewhat more orderly in their departure seems to have worked?

Mr Grech —There is no doubt that that definitely helped. You are correct. I and a few others were certainly encouraging relevant people at GE and GMAC to adopt a bit more of an orderly approach, and when they saw that there was this OzCar facility acting as a bit of a backstop which, frankly, would have made their exit cleaner at the appropriate time, they were more responsive to representations to act in an orderly manner.

Mr Murphy —There were also a few pressures coming from other industry players. We met with the industry associations and that sort of made people think a bit more collectively than they would have. The other thing that came into play, especially with GMAC and GE, is that directions were coming from the US, and the local presence was seeking to probably stay here.

Senator ABETZ —Yes, so I understand.

Mr Murphy —So, I thought at the time, with Godwin’s work, having a bit of government action or government listening to the industry assisted everyone to step back and work out a solution.

Senator ABETZ —Yes. As I understand it, the special purpose vehicle was originally set up and mooted to be for car dealers. Is that right?

Mr Murphy —Correct.

Senator ABETZ —It now seems its major, overwhelming majority of business will not be for individual car dealers per se but for one credit company, namely, Ford Credit, which sort of changes the basis on which it was set up.

Mr Murphy —The parameters, correct.

Senator ABETZ —One wonders if it were made known to GE and GMAC that OzCar might be able to be used for GE and GMAC like it now appears—and good luck to Ford Credit, and I do not criticise them for this—whether they may have changed their decision making, given what I perceive, possibly incorrectly, as the changed nature of this vehicle?

Mr Grech —To begin with, you are correct. The original intent of OzCar was to support the individual car dealers of departing financiers. With the decision to accommodate Ford Credit, the parameters have indeed changed a little, so that you are effectively now supporting a financier that would otherwise leave leaving stranded dealerships.

Senator ABETZ —Yes.

Mr Grech —In terms of the retrospective—that is, if we had made a similar offer to GE and GMAC, all I can say on that—and I went back to Treasury from PM&C just as this started so I do not know what happened prior to my arrival in Treasury—is that certainly at no point whilst I have been involved with this did either GE or GMAC make any representations to government seeking this type of vehicle. Frankly, even since the decision on Ford Credit, and I have had extensive often daily contact with GMAC at least, they have not told me that, ‘Hey, if we have access to this type of arrangement, we would have hung around.’

Senator ABETZ —Reading between the lines, did Ford Credit approach to see if they could, as a body, get into OzCar as opposed to individual dealers?

Mr Grech —The answer to that is yes.

Senator ABETZ —Would that offer be open to GE, GMAC or whomever else in the event they were to change their mind?

Mr Grech —That would then be a policy decision of government, and you can go through the normal processes.

Senator ABETZ —All right, and I accept at this stage, Minister, that that is a hypothetical, but potentially open under the vehicle that has been constructed, given that Ford Credit has the opportunity, but whether it would—I accept that. What is going to happen, then, without saying too much as to what commercial dealings are happening with Ford Credit. As I understand it, OzCar was for a 12-month period?

Mr Grech —That is correct.

Senator ABETZ —So an exit strategy—for individuals you might be able to work with those individual dealerships, but when you have a huge Ford Credit with $350 million or whatever—

Mr Grech —It is a fair and reasonable question. To begin with, there is nothing under this arrangement that will stop or prevent, preclude any Ford Credit Finance car dealer from trying to get a better deal over the next 12 months from another provider. So there is that competitive tension there. I used this example at the last hearings, so indulge me: if Eric Abetz Motors from Central Tasmania is financed by Ford Credit—

Senator ABETZ —Some people listening into this might actually think I do run a car yard.

Mr Grech —And I am sure it will be a very good car yard, too, Senator. There is nothing to prevent a Ford Credit Finance car dealer, for the period in which Ford Credit has access to OzCar, to shop around and try to get a better deal from Esanda, St George or whomever. At the end of the 12 months—and you are correct that it is a 12-month arrangement—the expectation is that either the debt securitisation market will have improved sufficiently to allow Ford Credit to finance its own activities, or, alternatively, Ford Credit will need to explore other options. What those other options may or may not be, here we are on 4 June; where we may be on 30 June 2010, that is a long way to go, so I will not even bother to speculate.

Senator ABETZ —The 12-month period for which OzCar was set up was not, of course, from the date of the announcement but from, what, the day the legislation gets passed or the day the OzCar vehicle mechanism sends out the first dollar—what is the starting date for the 12 months?

Mr Grech —Clearly the legislation is very important, but in the contractual deeds that have been drafted by an army of lawyers—

Senator ABETZ —So something good has come out of it!

Senator Sherry —I was just going to say, Senator: you know about legal business, not car business.

Mr Grech —The end point is specified as 30 June 2010. So, frankly, for argument’s sake, if it were to be activated on 1 August, we effectively do not have a 12-month facility at all. The end point is definite; the start point is not.

Senator ABETZ —Minister, from a policy point of view, has government given any consideration to extending it?

Senator Sherry —I will have to take that on notice.

Senator ABETZ —Thank you. OzCar is a new facility. Suppose I am a car dealer and look up OzCar in the telephone book. There is no such thing. I scratch my head and quite possibly go to my local accountant or lawyer and say, ‘How can I get into the OzCar facility? Whom do I ring? Whom do I contact?’ Would that be the department at this stage?

Mr Grech —At this stage, yes. The bottom line is, as you referred to earlier, financiers. The way we wanted this arrangement to work is that, once it is activated, we would prefer to have car dealers not to have to interact with the trustee but rather to continue to deal with participating finance companies.

Senator ABETZ —Who would then pass them on to OzCar?

Mr Grech —Exactly. So they would act effectively as an agent. I will use a little hypothetical example—it is much easier.

Senator ABETZ —If I may, I think I understand.

Mr Grech —Okay.

Senator ABETZ —In fact, I did not think of the finance companies in that, so chances are that first contact would have been through their credit company and possibly accountants and lawyers—MPs as well, I suppose?

Mr Grech —I have received a lot of representations from MPs of both sides.

Senator ABETZ —For particular car dealerships in their electorates, no doubt?

Mr Grech —Correct, yes.

Senator ABETZ —Can you give us a brief indication as to how many approaches you have received from finance companies on behalf of car dealers, accountants and, out of interest, MPs?

Mr Grech —Sure. I have received a large number of representations—

Senator ABETZ —When you say ‘I’, is that you personally?

Mr Grech —Me personally.

Senator ABETZ —Because you are ‘OzCar’ for the time being?

Mr Grech —Unfortunately, yes. I have received a large number of representations for a small number of dealerships, if that makes any sense.

Senator ABETZ —Right.

Mr Grech —You need to understand, and this goes back to the simple fact, that, of the 450-odd GE and GMAC dealers that were vulnerable when the facility was announced back in December, as of today there are only about a maximum of 30, mostly GMAC financed, car dealers that have effectively yet to find a home, for want of a better term.

Senator ABETZ —And GMAC were mainly Holden dealers?

Mr Grech —Correct. What I am saying is that an overwhelming majority of affected car dealers have been accommodated by the remaining finance providers.

Senator ABETZ —Right. Have representations been made by members of parliament for individual dealerships?

Mr Grech —I have had some local MPs from both the government and the opposition personally ring me up making representations on behalf of their constituents who happen to be a car dealer who is obviously having difficulty securing alternative finance from GE and GMAC.

Senator ABETZ —I said at the very beginning that, without being too provocative, when OzCar was initially announced, it was done with some fanfare by the Prime Minister and, as I understand it, the industry minister and the Treasurer. Have there been representations from either or all of those three ministerial offices to you?

Senator Sherry —About what?

Senator ABETZ —About dealerships.

Senator Sherry —On behalf of dealers?

Senator ABETZ —Yes. Not finding OzCar in the phone book, you hear the Prime Minister or Treasurer’s office making an announcement and you say, ‘I will ring up the Prime Minister’s office or the Treasurer’s office, or Senator Carr’s office, to see if they can assist.’

Mr Grech —As you would appreciate, in the normal conduct of my work, I would have a lot of interaction with the Treasurer’s office. More specifically, the answer is, yes, I have had representations from the Prime Minister’s office and from the Treasurer’s office, who have simply been seeking to refer dealership cases that they have become aware of. They have simply referred those people to me to try to help them.

Senator ABETZ —What about Senator Carr’s office?

Mr Grech —I have had some engagements with Carr’s office, but they have been more seeking information as to how this thing works—

Senator ABETZ —Rather than individual representations?

Mr Grech —Exactly.

Senator ABETZ —When you say ‘approaches’, were they by phone calls, emails, letters—how were those approaches made?

Mr Grech —Phone calls and the occasional email, when it comes to the Treasurer’s office, which is part of the normal way we do business anyway.

Senator ABETZ —And the Prime Minister’s office?

Mr Grech —I am going from memory: it was mostly emails.

Senator ABETZ —Are you able to disclose to us who from? Was it the Prime Minister himself, his chief of staff or—

Senator Sherry —We will take that on notice.

Mr Grech —The Prime Minister himself has not made any representations to me on particular car dealers. He is aware that I am the key officer, I suppose, handling this particular issue and he has never made representations for particular car dealers directly to me.

Senator ABETZ —That is the Prime Minister personally, but his office has?

Mr Grech —The Prime Minister’s office have certainly made representations which have basically involved their alerting me to a situation confronting particular car dealers.

Senator ABETZ —What about Treasurer Swan? Has he personally made contact with you?

Mr Grech —No. The Treasurer’s office will get called up by various dealers and stakeholders, whatever term you want to use, and their instinct, which is quite normal, is to say, ‘Godwin is the guy handling this, so talk to him.’ And they have given me a heads-up that dealer X is going to call me or that I should call dealer X. That has happened.

Senator ABETZ —Were the dealers on behalf of whom representations were made involved with GMAC?

Mr Grech —Some were. Representations were made on behalf of both GE and GMAC.

Senator ABETZ —How many representations have been made by the Prime Minister’s office for dealerships and how many by the Treasurer’s office?

Mr Grech —I think there has only been the one case from the PMO.

Senator ABETZ —Just the one case?

Mr Grech —The one case. As to the Treasurer’s office, given, as I said earlier, the very large number of GE and GMAC dealers that have found a home—so there is not a very large pool of stressed car dealers out there with respect to wholesale floor plan finance; some may not be happy at the higher interest rate they are being charged, but that is a different issue—from memory, there were two dealerships that the Treasurer’s office referred to me for some action.

Senator ABETZ —Was one of those two dealerships the same one as came from the PMO?

Mr Grech —Yes.

Senator ABETZ —How strong were these representations?

Senator Sherry —We will take this on notice. These are correspondences between the office and the officers.

Senator ABETZ —Yes, but we have not identified anybody.

Senator Sherry —We are taking it on notice. You are asking how strong. That can be a whole range of things—

CHAIR —That is a matter of opinion for the public servant.

Senator Sherry —We are taking it on notice.

Senator ABETZ —All right. Did the Treasurer make representations on behalf of Bartons City Holden and John Grant Motors from Ipswich?

Senator Sherry —Again we will take that on notice. There is no response to individuals in that way. There is a possible confidentiality issue, so we will take it on notice.

Senator ABETZ —In that case, Chair, why do we not break for lunch now, and I might revisit this little area after lunch for a brief time.

CHAIR —The committee will adjourn until 1.30 pm.

Proceedings suspended from 12.30 pm to 1.31 pm

CHAIR —The committee will reconvene. Senator Abetz is continuing.

Senator ABETZ —Before lunch we had acknowledged that the Prime Minister’s office had made a representation for one dealership and the Treasurer’s office had made representations for two dealerships, one of which was the dealership on behalf of which the Prime Minister’s office had made a representation. Is that correct?

Mr Grech —That is correct.

Senator ABETZ —I then asked in relation to those representations the strength or otherwise of those representations and the minister intervened.

Senator Sherry —I said we would take it on notice.

Senator ABETZ —You intervened to take it on notice.

CHAIR —The chair intervened on the basis that it asked an opinion of the officer rather than—

Senator ABETZ —Were the representations in the form of seeking information about the special purpose vehicle generally or about assisting a particular car dealership?

Mr Grech —The representations that were made by both the Prime Minister’s office and the Treasurer’s office were professional and consistent with what I would expect from a relationship between a ministerial staffer and a public servant.

Senator ABETZ —You did not answer the question, which was: was the nature of the inquiry professional and so on, as it may have been in dealing with the issue of how this special purpose vehicle operates or can you assist a particular dealer?

Mr Grech —It is more in the case of the latter, but let me qualify. Essentially what happened is that both offices became aware of a situation facing a particular car dealer. I do not know exactly how the offices became aware of the situation confronting the dealer; that is for them. As you would expect a normal ministerial office to do, they referred it to the relevant part of the bureaucracy to help the particular, in this case, car dealer. Given that I am the public servant dealing with this particular issue—

Senator ABETZ —You had the misfortune of it coming to you.

Mr Grech —I do not know about the first bit, but it came to me.

Senator ABETZ —It came to you. The representations were in the form of providing assistance to a particular car dealer. Did the request from the Prime Minister’s office pre-date the request of the Treasurer’s office?

Mr Grech —I cannot remember. This goes back two or three months. I would have to take it on notice. Honestly, I cannot remember.

Senator ABETZ —You can take that on notice and let us know when the Prime Minister’s office and the Treasurer’s office made its representations, particularly with reference to that one car dealership that was in common between the two. You have indicated to us that these representations were to assist a particular car dealership. Were the representations from the Prime Minister’s office only a one-off or were there a number of follow up representations?

Mr Grech —Very much a one-off.

Senator ABETZ —The Treasurer’s office?

Mr Grech —Similar vein.

Senator ABETZ —Do you know on whose behalf those representations were made?

Mr Grech —Yes, but I am not going to disclose a particular car dealership by name to this committee. I have got to respect the confidences of that particular small business.

Senator ABETZ —Yes, I understand that. Possibly, Minister, you could ask the Prime Minister and the Treasurer whether they made representations on behalf of John Grant Motors to avail themselves of this taxpayer funded OzCar mechanism. Just for the record, it is interesting that there is a company called Miremani Alvi Pty Ltd that has a registered business name of John Grant Motors and also Ipswich Central Motors. I just put that on the record. I also note that in the Prime Minister’s declaration of interests, he has a provision of an electorate vehicle supplied by, you guessed it, John Grant of John Grant Motors which includes registration, insurance and RACQ membership. Mr Grech, in those professional representations to which you have referred by the Prime Minister’s office was there a declaration that there was at least the possibility of a perception of conflict of interest?

Mr Grech —I am not going to comment on that.

Senator Sherry —I will take it on notice, as you requested.

Senator ABETZ —We all know that the answer is no.

CHAIR —I do not think that is an inference you can make.

Senator Sherry —I do not know how you can draw any conclusion, but I will take that on notice.

Senator ABETZ —I am sure you will. It is your entitlement to take this on notice.

CHAIR —Mr Grech, did opposition members make individual representations on behalf of their electorate businesses?

Senator ABETZ —Yes, they did and he has already said that.

CHAIR —Individual representation?

Mr Grech —There were representations made by government and opposition backbench MPs, particularly since early February, in relation to some car dealerships who had been clearly struggling in securing independent forms of wholesale floor plan finance. Those representations were made by MPs from Victoria, New South Wales and Queensland, and I am not going to disclose who they are.

Senator ABETZ —Minister, can you also take on notice for us whether the standards of ministerial ethics include in paragraph 2.17:

Ministers shall ensure that they do not come under any financial or other obligation to individuals or organisations to the extent that they may appear to be influenced improperly in the performance of their official duties as Minister.

I would have thought that might apply even more so to the Prime Minister. Given that Mr Joel Fitzgibbon has just done the right thing and resigned his ministerial commission—

CHAIR —Can I ask you to get to the question, please?

Senator ABETZ —can I ask whether the same standard is going to be applied by the Prime Minister to himself?

Senator Sherry —There is a distinct difference when a letter—correspondence or communication—is sent to a backbencher’s office and a minister’s office, including the Prime Minister’s office, and then that request is passed on to the appropriate public servant. That is very different.

Senator ABETZ —Other than it has the status of the Prime Minister’s office attached to it.

Senator Sherry —I am sure the Prime Minister receives thousands of letters on a whole range of things, including—

Senator ABETZ —He only responds to some, like people that give him a private car.

Senator Sherry —There are a whole range of references that are referred to me.

CHAIR —Senator Abetz, I think that kind of allegation should be withdrawn.

Senator Sherry —You should withdraw that. You have no basis to make any such claim.

Senator ABETZ —He has a private car.

Senator Sherry —You have no basis to make any such claim.

Senator ABETZ —He has a private car from John Grant Motors. That is undisputed because I have got it in the—

CHAIR —Senator Abetz, I have asked you to withdraw the previous statement.

Senator ABETZ —Sorry. It is undisputed. I have a document for the committee if they want it.

CHAIR —I do not ask you to withdraw the facts. I am asking you to withdraw your allegations.

Senator ABETZ —I do not have to withdraw the facts. What is the allegation?

Senator Sherry —I believe your allegation is wrong and it does not stand the test.

Senator ABETZ —That he made representations on behalf—

CHAIR —Senator Abetz, I have asked you to withdraw.

Senator ABETZ —I asked a question whether the Prime Minister’s office made representations for John Grant Motors.

Senator Sherry —And we are taking it on notice.

Senator ABETZ —The official at the table I am sure must know the answer. You are hiding behind taking it on notice, then asserting there is no evidence to support my allegations. Ring the Prime Minister’s office now and deny it.

Senator Sherry —Can I respond? The reason was outlined why the identification of a small business that has made a request and information as to how to go about requesting access to the fund. That is confidential. You have named a particular business that may or may not be under some sort of commercial pressure. I do not know the facts, but you have named a particular business. I will take it on notice, but a good reason has been given as to why businesses are not being named.

Senator ABETZ —All I know is that the Prime Minister does not respond to literally thousands and thousands of his fellow Australians who write to him. If it transpires that the Prime Minister’s office did not make representations on behalf of John Grant Motors or a company associated with that business empire, then I am willing to come in, correct the record and apologise, but until the Prime Minister, through the minister at the table, who refuses to answer—

Senator Sherry —You have come to the wrong and inaccurate conclusion. A good reason has been given as to why the officer has not responded. He has given the reason in terms of the name of any car dealer. There will be no car dealer that will be named. I also make the point that the requests go to an independent company for assessment.

Senator ABETZ —To allow us to continue, this is a very serious allegation that I have made and I therefore withdraw it. If the allegation is right, will the Prime Minister resign?

Senator Sherry —Don’t be stupid, Senator Abetz.

Senator ABETZ —Will the Prime Minister resign? If the allegation is unparliamentary it must be so gross that it would require a resignation. You cannot have it both ways.

CHAIR —I believe Senator Pratt has a question. Senator Pratt now has the call.

Senator BARNETT —Point of order! It is very difficult to hear.

Senator PRATT —Yes, it is.

Senator BARNETT —We have Senator Pratt interrupting Senator Abetz. We have got the minister talking over Senator Abetz and then we have you in there as well.

CHAIR —Senator Pratt has the call.

Senator ABETZ —Oh—

CHAIR —I will come back to you.

Senator ABETZ —Thank you very much. This is Operation Sunlight at its best.

CHAIR —Senator Pratt has a question on this issue.

Senator PRATT —My question is brief. I note that Mr Grech has confirmed that we have had both opposition and government members of the parliament make contact on behalf of local car dealers. I note that, at this stage, he has declined to name them, but I would like to place that request on notice.

Senator Sherry —I will go further. I will ask the officer to name all those members of parliament who have put in requests or referred correspondence.

Senator PRATT —Thank you.

Mr Grech —I am happy to take it on notice. Do you want me to answer it now?

CHAIR —Mr Grech.

Mr Grech —Kay Hull, the member for Riverina, has made representations on behalf of one of her dealers who contacts me almost every week. There was also the member for Dunkley, Mr Billson, who rang me on a couple of occasions in relation to one of his dealers. There was a government back bench MP from Queensland, whose name I do not recall, because he is a new member and I had never heard of him before. That is no disrespect to him in any way, but the other two I remember because they have been around for a while. I think this one was from the class of 2007 and I cannot remember who he was.

Senator ABETZ —There was an unfortunate changeover of members in 2007.

Senator Sherry —Just to complete the response, what the witness has indicated is that there are two Liberal-National Party members—opposition members—who have made a number of contacts on behalf of car dealers, presumably in their electorates—they may or may not be in their electorates—and have made a number of contacts with the officer about how to go about the accessing of assistance under this particular program.

Mr Grech —I would like to make very clear that the representations that have been made have been made to me, so with respect to everyone I think I am best placed to answer for myself. From my perspective, I have regarded all of the representations that have been made, be they from a political office, a MP and on one occasion from the local Catholic priest, as all normal behaviour. It is basically what I would expect from people acting on behalf of, in this case, small businesses that are clearly under stress; they are simply following up with the relevant public servants seeking information or, in some cases, basically putting the car dealer in contact with the public servant, that is myself, to try to facilitate an outcome which is positive for the particular car dealer in a way which does not cut across, from my perspective, any of the professional standards and conduct expected of a professional public servant.

CHAIR —Thank you.

Senator Sherry —Further to that, in taking it on notice we will provide a list of all individuals and organisations who have made requests on behalf of any car dealer in the land, including the Catholic priest, and we will release publicly the names of those individuals and organisations, including all MPs.

Senator ABETZ —Could you include in that list which of those MPs that have made representations have been provided with an electorate vehicle, including registration, insurance and RACQ or similar membership, by the company on whose behalf they have made those representations? That is where the line of professionalism and conflict of interest is clearly overstepped, unless there was a complete disclosure of that conflict of interest. It will be very interesting to see how many car dealerships had representations made by two members of parliament who just happen to have been the two that announced the OzCar facility, namely the Prime Minister and the Treasurer. Put that on your list as well and I would be much obliged.

Senator Sherry —I reject your claim and assertions.

Senator ABETZ —Are you taking it on notice or not?

Senator Sherry —I am taking that element of it on notice. It would be perfectly natural that any member of the public, including the car dealers who saw the Treasurer and Prime Minister, particularly as the Treasurer and Prime Minister have announced that particular facility, to contact those particular officers no matter where they are from in the country.

Senator ABETZ —In all of Australia the only car dealership is the one that has given the Prime Minister a personal car.

Senator Sherry —Be reasonable, Senator Abetz. Can I finish my answer without interruption?


Senator Sherry —Just as it is perfectly reasonable for people to write to the Prime Minister about many things that are then referred on, including in my own area where people write to the Prime Minister about executive pay, short selling, which is a government area where we have direct policy responsibility, it is perfectly reasonable for people to write to the Treasurer of the day and the Prime Minister about particular policy issues and for them to refer them on. It is perfectly reasonable. I reject your claims and your assertions about a conflict of interest. I totally reject them.

CHAIR —You will take it on notice?

Senator Sherry —I will take on notice the specific question.

Senator ABETZ —Thank you very much, and I think you have made a very good point that undoubtedly the Prime Minister who announced this facility may well have received a huge number of representations. Can you then take on notice how many representations the Prime Minister received and which one—because we know it is only one—did he deem appropriate to make representations for? I think you will find surprisingly it might just be John Grant Motors, the same one that gave the Prime Minister a car—

Senator Sherry —The officer has already indicated—

Senator ABETZ —Everybody else who did not give the Prime Minister a car did not have representations made on their behalf—

Senator Sherry —Can I now answer? The officer has indicated there was only one reference from the Prime Minister’s office—one. I have taken on notice as to who that is from and we have explained the reasons. The officer has explained the perfectly valid and reasonable commercial considerations as to why no request or reference has been made public, but I will take it on notice.

Senator ABETZ —I think you took on notice the issue as to how many car dealers had two representations made on their behalf and especially how many had representations made on their behalf by both the Prime Minister and the Treasurer, the two top people, or possibly within the top three people of the government’s—

CHAIR —We have dealt with that.

Senator ABETZ —I think it is a very important point—

Senator Sherry —I can answer. In terms of the reference to the particular car dealer, John Grant, whom I think you referred to, that issue in terms of the electric car has been declared by the Prime Minister.

Senator ABETZ —I have already disclosed that.

Senator Sherry —Yes. It has been declared in case—

Senator ABETZ —But it was not declared in your representations—

Senator Sherry —Can I finish? I am providing an answer and you keep interrupting in your usual—

Senator ABETZ —I am not sure that is fully correct.

CHAIR —If we could have a short answer I would like to move on, please.

Senator Sherry —The Prime Minister has declared in terms of the electric vehicle provided by John Grant; it has been declared, so there is no issue here at all.

Senator ABETZ —I will move on to another area where I think the Assistant Treasurer hopefully is doing good work. That is in the area of car dealership franchise codes. Is there somebody who is up to date on that? If I can briefly paint the scenario, what we have is car dealers being given a situation of a maximum two- or three-year contract to represent a particular make of vehicle and being required by the manufacturers to engage in providing literally millions of dollars worth of showrooms and upgrades which take sometimes 10-plus or 20 years to actually pay off. If they build these flash showrooms but then only have a two- or three-year contract with the motor vehicle manufacturer, I think that causes them some difficulties. When I say ‘I think’, I should indicate that it is not my thought, it is the view of the Motor Traders Association of New South Wales, who have written to the Assistant Treasurer, Chris Bowen, about that and—

Senator Sherry —Could I just indicate that franchising comes under the responsibility of Minister Emerson and there are Trade Practices Act issues that would come under the Assistant Treasurer, Mr Bowen, so there may in fact be two ministers who have responsibility.

Senator ABETZ —I think that is right, but in this media story from AAP it appears that the Assistant Treasurer, Chris Bowen, has been written to as the person who oversees competition policy in relation to this matter. I thought we were dealing with competition policy, so it would be an appropriate area to—

Senator Sherry —I just wanted to make it clear that there are two ministers with whom this area could fall. For your information, it is Senator Carr who represents Minister Emerson.

Senator ABETZ —I am more than aware of that as the shadow minister for industry with responsibility for the auto sector, so thank you very much for that—

Senator Sherry —I did not know whether or not you were aware, however, in respect of the issue of franchising. I thought I would provide assistance in that regard.

Senator ABETZ —If all those ministers were to be involved that would be great because, if I might suggest, this is a whole-of-government matter that should be pursued. I understand that Bernie Ripoll, a federal member from Queensland, has chaired a parliamentary inquiry into this. This is very much, unlike the last line of questioning, a very soft line of questioning to ascertain where is the government at in relation to this issue, which if I might say is a very real issue especially in an environment where car sales are shrinking. We know car dealers are doing it tough. To face the extra pressure of some of these manufacturers in the way that I just outlined is a matter I would have thought of concern, irrespective of one’s political persuasion. Where are we at with it? Is it under active consideration? What is the answer?

Mr Chisholm —The inquiry to which you are referring was by the Parliamentary Joint Committee on Corporations and Financial Services into franchising. The response to that inquiry is being led by Minister Emerson and the Department of Innovation, Industry, Science and Research because, as Minister Sherry has indicated, Minister Emerson has responsibility for franchising issues. However, there are aspects of the inquiry—

Senator ABETZ —Competition—

Mr Chisholm —that also relate to Minister Bowen’s responsibilities, including the enforcement of franchising codes as they fall under the Trade Practices Act. The recommendations from that inquiry are being actively considered by the government at the moment. However, the time frame for response to that inquiry is something that should be directed to Minister Emerson’s portfolio.

Senator ABETZ —Could the minister at the table or the secretary be as kind as to take it on notice, and flick it through also to Minister Emerson’s office that I was interested from the competition point of view. It looks as though you are on top of it and are working on it, as I am sure Minister Emerson is as well. I wish you well in pursuing an outcome which will assist, so thank you.

Senator Sherry —We will pass it on.

Senator BUSHBY —Firstly, I will deal with GROCERYchoice. Following on from questions of Senator Barnett this morning, at any stage has CHOICE provided a business plan, a project plan or similar documents to the government as to how it intends to approach setting up the GROCERYchoice website and other related matters?

Ms Holdaway —Yes, of course, there have been iterations of documents and discussions.

Senator BUSHBY —They have actually provided submissions to you?

Ms Holdaway —Yes.

Senator BUSHBY —Are they able to be made public?

Ms Holdaway —Once again, we will have to take that on notice.

Senator BUSHBY —What market testing of opportunities for other organisations to provide the service were conducted by the department prior to offering the opportunity to CHOICE?

Ms Holdaway —We certainly carried out and put on file some of the possible options that might be out there in terms of desktop research, but, as I pointed out before, when this proposal was put forward by CHOICE we had to go straight to the procurement guidelines to see what the requirements are in entering into a contract. It was clearly stated there that when you are faced with an unsolicited proposal which is innovative in nature—

Senator BUSHBY —So CHOICE came to you offering—

Ms Holdaway —Yes, that is right. We checked, and it represents good value for money and there is a short time frame within which government can take advantage of that, and it was actually a situation where direct sourcing should be used. Having said that, despite that, as I stated to you, within a very short time frame we did quite a bit of research to look at what other possible organisations might be out there that are in the same stands as CHOICE, who is completely independent and who understands very well Australia’s consumers as well as the grocery market which this website was targeting.

Senator BUSHBY —How did you assess the value for money aspect in terms of that unsolicited approach?

Ms Holdaway —Obviously there were already amounts set aside for the ACCC to run this website. We knew what the ACCC was going to be able to deliver for that amount. That was $12.9 million over four years. The proposal by CHOICE was actually covering a lot more functionalities than what the ACCC could do and also had space for further innovation. While the amount of $8 million, as I stated, was for the contract after negotiations, the amount represented less than what was being allocated in the budget.

Senator BUSHBY —Potentially the government was going to get more for—

Ms Holdaway —That is right. It was getting more for—

Senator BUSHBY —In that respect what has CHOICE undertaken to provide in respect of the $8 million that it is being paid?

Ms Holdaway —It is currently running the website. It is now investigating a revamped website that will provide extra information. It will also use the knowledge that it has about consumers, its current membership and engage in dialogue with consumers about what sort of information is needed, what kind of mechanisms are useful for them when they are looking for how to shop and how to get the best out of their shopping. It was really using that tacit knowledge that CHOICE already has because of the role it plays in the Australian market. There were advantages for the GROCERYchoice website in being able to tap into that.

Senator BUSHBY —What you are saying is that it offered over and above what the ACCC offered, that is an understanding of the market and the ability to offer some innovative approaches as a result?

Ms Holdaway —Yes, and consumer confidence. I think we also highlighted before that providing special prices was something that the ACCC felt that they were constrained to do. That was an area that CHOICE was quite active in, could actually provide more information around special prices and provide a mechanism by which there can be some sort of meaningful comparison of these prices for the benefit of the consumer.

Senator BUSHBY —Which was of course the intention under the ACCC as well. I take your point about the special prices and the ACCC, but one would have hoped that the ACCC also had a pretty good understanding of the market as well. You indicated early on in your answers to Senator Barnett that there were a number of KPIs and milestones that needed to be achieved and that payment will be made on the basis of achievement of those milestones.

Ms Holdaway —That is correct.

Senator BUSHBY —Subsequently you outlined a payment schedule which was based around dates. Presumably, though, for CHOICE to qualify for payment on those dates they must have achieved those milestones?

Ms Holdaway —That is correct.

Senator BUSHBY —Can you outline what those milestones are?

Ms Holdaway —I will have to take that on notice. The detail I do not currently have on me, but they are along the lines—

Senator BUSHBY —That is surprising.

Ms Holdaway —Pardon?

Senator BUSHBY —That is surprising that you do not have that detail with you. I would have thought that in budget estimates where we are discussing issues around payment of government monies that is the kind of detail you would have with you.

Ms Holdaway —I can provide you with a very, very high level detail of those milestones and the KPIs, but I think we have already taken on notice the descriptions of KPIs and milestones previously when Senator Barnett asked those questions.

Senator BUSHBY —I would like you to specifically take on notice what needs to be met and what milestones need to be reached in order for them to qualify for the progress payments.

Senator Sherry —We will take that on notice.

Senator BUSHBY —What quality assurance processes are in place to verify the accuracy of the prices that CHOICE uploads to the site and on the usefulness of the information?

Ms Holdaway —These are done in a number of ways. One way that CHOICE actually achieves that is through ad hoc auditing themselves—testing. Once again, another advantage with CHOICE running the website is that they have an extensive membership and network around Australia where consumers are readily providing that information where they feel that the price provided does not match with what they have actually found. There are those mechanisms. But there are also specific audit mechanisms built in so that the prices provided are actually the prices according to the conditions—

Senator BUSHBY —I acknowledge CHOICE would have a range of options and maybe, as you suggest, even have additional options in terms of finding out the prices around the country. From Treasury’s perspective, in return for the money that the taxpayers are paying to CHOICE, how does Treasury ensure that the prices that CHOICE put up on their website are actually accurate prices?

Ms Holdaway —One of the requirements is around the KPI that CHOICE has to provide us with a full report and an independent quality assurance report that goes with that.

Senator BUSHBY —Who has responsibility for that quality assurance process? Where is the bonus? Do they have to regularly report to you?

Ms Holdaway —Yes, that is correct.

Senator BUSHBY —Will the Auditor-General have any involvement in verifying figures and ensuring that the quality assurance process is above board?

Ms Holdaway —Not as part of the standard process of managing this particular contract.

Senator BUSHBY —But presumably an organisation like the JCPAA could ask him to have a look at it. What degree of instruction or direction does Treasury retain over the way that the site operates?

Ms Holdaway —Extensive. The contract is designed in such a way that Treasury remains the manager of the contract and key activities carried out by CHOICE cannot be done without our prior agreement or without notification.

Senator BUSHBY —If you do not like the new website that they come up with, they have to go back and start again? If they design something and come to you and say, ‘This is what we propose as the new website’, Treasury has the power of veto and to say, ‘That is not up to scratch; it does not meet our requirements.’

Ms Holdaway —Yes, we do but the current working arrangement is such that we work very closely together and there is ongoing discussion between CHOICE and us—

Senator BUSHBY —You mean that you are not likely to be surprised by what they present to you—

Ms Holdaway —You would hope so, yes.

Senator BUSHBY —Who actually retains ownership of the website at the end, or during the course of the contract—

Ms Holdaway —It remains as the property of the government.

Senator BUSHBY —In the process of negotiating the contract did Treasury raise any concerns about the potential for conflicts of interest given that CHOICE is essentially a media business; it has a significant media arm in its business, anyway? Were there discussions about conflict of interest?

Senator Sherry —I do not know that I would accept your description of CHOICE as a media organisation. Predominantly it is a consumer research entity. I actually have visited their headquarters in Sydney—not on this matter, I might say—and they have extensive testing laboratories and they do their own in-house testing in many cases and then publish the results. I would see them as a lot more than just a media organisation.

Senator BUSHBY —They certainly are, but they are very active in the media. They have a media arm in that they publish a regular magazine. I would suggest that they have a significant potential for conflict. I am not saying that that would actually be realised, but I am just interested in, as part of the process that you have gone through in developing the contract, the degree to which the potential for conflict or the appearance of conflict—and we had a discussion about that earlier—has been considered.

Ms Holdaway —Certainly at the level of risk management there were risk management strategies and papers prepared on that. The thinking done behind that was that legal advice was engaged to ensure that the key risks were identified and appropriate strategies put in place in case those risks become a reality.

Senator BUSHBY —Is Treasury aware of any plans by CHOICE to cross-sell their business products and services via the GROCERYchoice website?

Ms Holdaway —I did not catch that.

Senator BUSHBY —Does the contract contain any limitations on CHOICE being able to cross-sell their other products or business services via the GROCERYchoice website?

Ms Holdaway —Yes, it does. The contract makes it very clear that the GROCERYchoice website and information available on that website obviously has to be free of charge for the Australian people, that there cannot be any links that allow CHOICE to sell some of their other products.

Senator BUSHBY —That is really what I was asking. Has Treasury undertaken any analysis to assess the cost impact of the CHOICE proposals for gathering information for weekly price reporting and so on at the store level for literally thousands of products?

Ms Holdaway —We certainly have not done our own calculations, if that is what you are asking.

Senator BUSHBY —You have not done any assessment or consideration of what it is going to cost at a store level to provide the information that CHOICE will require to be able to provide the website?

Ms Holdaway —There are different ways that store price can be collected. We are aware of the pricing through retail effects and what that costing will look like if the number of products, for example, was increased. There are other mechanisms via which some of those price data can be purchased as well. All of those things are being explored and Treasury is kept informed of that.

Senator BUSHBY —So, it is not yet settled as to the process that CHOICE will use to obtain its official prices from supermarkets that it uses? Is that still being worked through?

Ms Holdaway —Yes.

Senator BUSHBY —Would Treasury accept that, if there are costs imposed at a store level, in terms of providing data, that would inevitably be passed on to consumers?

Ms Holdaway —I do not think we can really accept that on face value. You really have to think about what sorts of costs you are talking about here, in terms of what the retailers might have to incur to provide that data and whether it is actually already part of their normal business process whereby that data is available.

Senator BUSHBY —Let me ask it slightly differently. If an additional cost which a supermarket store does not currently have was imposed through government regulation on to a supermarket store, would you accept that where they could—and competition obviously comes into it—they would pass that cost on to consumers or they would seek to?

Ms Holdaway —Firstly, this is not regulation. It is basically an information website that is going to be made available to consumers. There are no mandatory requirements on anyone.

Senator BUSHBY —If CHOICE approaches a supermarket to obtain prices the supermarket can say no?

Ms Holdaway —Absolutely, because there is no mandatory requirement. This is not a regulation by the government.

Senator BUSHBY —I will move on from there. I think most of these other questions have actually been answered. That is all of my questions for GROCERYchoice. Thank you.

Ms Holdaway —Thank you.

Senator BUSHBY —I want to move on to a couple of quick questions on ABIP. In questioning earlier today I believe Senator Eggleston asked whether Treasury officials had met with a number of individuals. I think there were three individuals named?

Mr Martine —That is correct.

Senator BUSHBY —The answer was ‘no’?

Mr Martine —That is correct.

Senator BUSHBY —The minister has just moved behind. I was going to ask whether the minister had met with those individuals.

CHAIR —I think the minister will take that on notice. I am sure the officers will bring it to his attention.

Senator BUSHBY —Have Treasury officials or any government official met with members from Austcorp, who are the developers of Vision tower in Brisbane?

Mr Martine —No, we have not.

Senator BUSHBY —You have not met with the developers, either?

Mr Martine —No.

Senator BUSHBY —Has the minister met with the developers?

CHAIR —Again, we will take that on notice.

Senator BUSHBY —Have Treasury officials met with, or been in contact with, Urban Analytics Australia Property Advisory Pty Ltd or any of their representatives?

Mr Martine —No.

Senator BUSHBY —Has the minister?

CHAIR —On notice.

Senator BUSHBY —Have officials from ABIP met with, or been in contact with, Urban Analytics Australia Property Advisory Pty Ltd?

Mr Martine —ABIP, as I indicated earlier, does not actually exist yet. Mr Fahour is under contract to Treasury and has been appointed as interim CEO.

Senator BUSHBY —Has Mr Fahour—

Mr Martine —Not that I am aware of, but I can take that on notice.

Senator BUSHBY —Has Mr Fahour met with that company, any of its representatives or any of the three individuals that were mentioned in Senator Eggleston’s questioning earlier?

Mr Martine —I can take that on notice.

Senator BUSHBY —Has the Treasurer or his office requested ABIP to meet with Austcorp, Urban Analytics Australia Property Advisory Pty Ltd or anyone else involved with the Vision tower property development?

Mr Martine —No.

Senator BUSHBY —What other projects, if any, are Treasury officials or ABIP personnel considering for funding support from ABIP?

Mr Martine —The consideration of projects or proposals for lending will be a matter for the board of ABIP once ABIP is established. Treasury, in a sense, will not have any role whatsoever and we do not have any role now in assessing proposals for loans.

Senator BUSHBY —My next question is regarding the banking system. I was looking through the Economist a couple of weeks ago and I note that there is a report there that there are encouraging signs that the worst of the credit crisis may be over. This is obviously speaking about the US market. They refer to the TED spread, which shows the difference between what banks and the US Treasury pay to borrow money for three months and noted that it continued its steady narrowing, standing at less than 0.6 percentage points on Monday, 18 May. This is its lowest level since August 2007. Is this reflective of the situation facing banks in Australia? Is the cost of borrowing falling here?

Mr Murphy —We can give you some stats on that. The TED is what the fed would use and then there is a Libor rate in the UK.

Senator BUSHBY —Which is also falling steadily.

Mr Murphy —Yes. Credit markets have improved, but it is nowhere near back to where it was pre-GFC. It is still quite expensive for fundraising. If you would like some statistics, we can take that on notice.

Senator BUSHBY —You can take that on notice and provide some statistics.

Mr Murphy —Certainly.

Senator BUSHBY —I am interested to hear how things are going here and the extent to which we are recovering in that respect.

Mr Murphy —You hear them talk about green shoots of recovery. The question with that metaphor is whether it is going to grow into a tree.

Senator BUSHBY —An awful lot of green shoots do not make it.

Mr Murphy —That is right. That is the real thing that people are talking about. There are positive signs, but there is still a long way to go.

Mr Martine —There is this question that was discussed this morning as to whether, in fact, we will ever get back to the spreads that we had pre-GFC. It actually started increasing during the course of 2007 and then they were peaking towards the end of 2008. It is certainly questionable whether we will ever get back to those pre-2007 levels.

Senator BUSHBY —Are you saying it is questionable that we ever will or that we will in the near term?

Mr Martine —One of the explanations of the whole global financial crisis has been this issue of an underpricing of risk. It is an open question, but in that sense there is a debateable point as to whether we will ever get back to those spreads and those really cheap cost of funds.

Senator BUSHBY —For the record, what is the practical impact of that for most Australians?

Mr Murphy —You may pay more for finance. It will have a number of impacts. Firstly, on clear straight through figures you may pay more and, secondly, as we talked about earlier in terms of the market, there might be less competition or less diversity of products offered because there may be fewer players. It is very hard to predict on this. Alternatively, institutions may decide that they can have smaller margins and competition will come that way.

Senator BUSHBY —Hopefully that will eventuate. Moving on from there, but still on banks, the bank switching package announced in February was due to be fully implemented by November 2008. Is that all in place?

Ms Wijeyewardene —The bank switching package has commenced.

Senator BUSHBY —I assume it would have been, given that it was announced over a year ago. That is all in place. I am interested in a couple of things regarding the listing and switching service. Are all banks complying with their requirements under that?

Ms Wijeyewardene —My understanding is that they are.

Senator BUSHBY —Have you had any reports of banks that are not complying with the requirement?

Ms Wijeyewardene —Not that I am aware of, no.

Senator BUSHBY —A single consumer complaints hotline was set up for consumer complaints about all banking products.

Ms Wijeyewardene —That is right.

Senator BUSHBY —How many calls has that received?

Ms Wijeyewardene —I do not have those figures on me. That is something that has gone through ASIC. We can take that on notice.

Senator BUSHBY —I might ask them tonight. You can perhaps take it on notice as well. I guess you probably would not have any idea of the types of issues that are being raised on that hotline?

Ms Wijeyewardene —No, I do not.

Senator BUSHBY —I will pursue that with ASIC. Do you know how many hits the website has had or is that a question for ASIC as well?

Ms Wijeyewardene —That is a question for ASIC. It is administered by ASIC.

Senator BUSHBY —I will go through that with them. Has the ASIC-led review been completed?

Ms Wijeyewardene —The ASIC-led review of?

Senator BUSHBY —Entry and exit fees.

Ms Wijeyewardene —I would have to take that on notice. I am not sure.

Senator BUSHBY —I will have an opportunity with ASIC tonight, but if you can take them on notice as well and see what else you may have to add.

Ms Wijeyewardene —Yes.

Senator BUSHBY —What is Treasury’s assessment of the success of the package in terms of improving the ease of consumers switching banks? Is there more required?

Ms Wijeyewardene —It is fair to say that this has put in place a formal mechanism and formal requirements on the banks to assist consumers to switch transaction accounts. We have discussed in the past the difficulties of switching accounts due to direct debit and credit arrangements. This basically puts in a more seamless way for those direct debits and credits to be identified and transferred from a losing bank to a receiving bank. It significantly improves the switching environment. As to the amount of usage, I cannot tell you that.

Senator BUSHBY —From my perspective and from submissions that have been made to me in my capacity as a senator I do not argue that giving more information or making it easier for people to make sure that their direct debits and things are transferred across makes it easier, but obviously the biggest stumbling block to this is fees. That is what the review was about. Can you tell me anything about it?

Ms Wijeyewardene —In terms of the fees and switching, my understanding is that most of the banks do not charge for the switching service. I think ANZ could have been charging a small fee, but as far as I am aware they were not charging any fees. In terms of the entry and exit fees, my understanding is that that was not relevant to the transaction accounts.

Senator BUSHBY —That is transaction accounts. I am thinking of home loans and paying those out early. There are often fees for doing so. It is probably not as hot an issue now as it was 12 months ago when interest rates were higher. It is not in the forefront of consumers’ minds to the same extent, but interest rates will not stay low forever and at some point they will be high again, at which point if the issue was solved it would be much better for consumers. I am interested in how we better enable consumers to take advantage of interest rate competition when it does exist so that they can move around, which ultimately helps keep interest rates down and keep that margin that we were talking about as small as possible. I am interested in Treasury’s views of whether there is more that can be done in order to increase the ease with which consumers can hold banks to account basically?

Ms Wijeyewardene —One of the things the whole switching and bank fee debate has done is put the spotlight on bank fees. There has been a whole series of different fees that have come under the spotlight. The ABA has done work on particular types of fees. CHOICE has been very active in relation to particular types of fees as well. I think the increase in consumer awareness of fees is one thing that has put pressure on the banks to either reduce fees or remove fees. To the extent that you can make consumers proactive and remove that consumer inertia it has competitive effects. It produces competitive pressures, which in itself does lead to banks either removing or reducing fees in particular areas.

Senator BUSHBY —I will follow that up with ASIC tonight. I will move on from there. The last thing I wanted to ask some questions about was short selling. What stage have the negotiations and consultations with industry reached over the regulations for short selling?

Senator Sherry —All of the formal consultations for the short-selling regulations have been concluded. The policy decisions have been determined. You may be aware that there were a number of strong and divergent views about implementation issues. For example, the declaration of timing and some issues around who would provide the information. There were some issues of very strongly contested views. That is no secret; it has been in the media. They have been concluded.

Senator BUSHBY —To the satisfaction of all parties?

Senator Sherry —We will see when we announce—

Senator BUSHBY —Ultimately government has made a policy decision.

Senator Sherry —The government has made a decision. It goes to the drafters and then they will be publicly released. Whether it is to the satisfaction of all parties, I would hope so, but at the end of the day the government makes the decision. In the meantime, now that the temporary short-selling ban on financials has been lifted by ASIC, ASIC’s existing disclosure regime remains in place, of course.

Senator BUSHBY —You may take this on notice. We have gone from a position where there has been a ban to a position where there is no longer a ban but ASIC’s disclosure regime applies, which would require an adjustment of those people participating in the market and how they approach to make sure they comply. I do not know whether you are able to give me any indication of when, but new regulations will most likely come into play, and people participating in the market will have to adjust again. Is there going to be a massive shift in what they need to do to comply on each of those occasions?

Senator Sherry —Suffice to say we have borne that issue in mind as part of the development of the final regulations. One of the primary issues that is being considered is the issue around regulation cost, regulatory adjustment. That has been an important consideration.

The other issue that I would indicate, which is relevant in the context that you raise it, is that it has been important because government wants to make sure that we get it absolutely right. Bearing in mind the issues of market cost regulatory supervision—there is a set of other issues in that space at the moment, not necessarily as a consequence of government—we have consulted as extensively as could reasonably be expected.

Senator BUSHBY —It would seem to have made a lot of sense to have had the regulations in place prior to lifting the ban, in terms of that regulatory adjustment cost. Obviously I understand, as you have said, it has been played out in the media in terms of the difficulties you have had in reaching agreement on some of the terms of those regulations, and obviously there was a desirability in terms of lifting the ban. You are at odds in that sense.

Senator Sherry —ASIC can speak about the lifting of the ban and their reasons. They issued reasons and so on. There is that issue. I accept the regulations going forward are important, but they are very important to get right. There is an existing disclosure regime that ASIC has put in place. Importantly, the passing of the legislation last year, to which you referred, prohibited naked short selling, so it is illegal in Australia.

Senator BUSHBY —That remains so.

Senator Sherry —And will remain so. Secondly—and I think this is often missed—it put beyond any doubt ASIC’s powers to regulate and supervise in this area. There was some doubt. The passing of that legislation gave without doubt the power to impose a disclosure regime, which ASIC obviously had done. As I have said, I have outlined the reasons why there has been a very intensive and extensive consultation as to any final regulations that will be put in place, which will obviously have some differences from the temporary regime.

Senator BUSHBY —Let me ask that slightly differently. You just mentioned that the legislation needed to be put in place when it was for two primary reasons. One was so that you could enable the development of the regulations, which has taken a lot longer than was anticipated at the time the legislation went through. The other reason you have put forward in the past, and we discussed in the hearing that we had on the bill itself, was to validate ASIC’s power to make rules about this. I doubt this is the reason, but it almost seems that the lifting of the ban was timed to enable ASIC to actually put in place a disclosure regime before the regulations came in just so that you could justify that second limb of your argument as to why the legislation needed to be in place when it was.

Senator Sherry —As I have indicated to you, they have done this publicly and it is very clear in the press release why they lifted the ban. ASIC can outline the reasons for their decision. They are here later on this evening. You can ask them then.

Senator BUSHBY —Australia was one of the last Western jurisdictions to actually lift the ban on Choice—

Senator Sherry —We were not the last, actually. ASIC can clarify this, but I understand, because I actually asked about this, that the Netherlands and Italy—significant, advanced economies—have temporary bans in their systems. As to whether or not they have lifted them yet, they certainly had not lifted them when Australia lifted its temporary ban. What their status is now I do not know. But then again, if there is an implied criticism, just look at the relative strength of the overall Australian economy and financial system compared to every other comparable country in the world.

Senator BUSHBY —Over past estimates we have actually asked questions of Treasury as to their reasoning for that. I recall Dr Gruen going through a number of things, some of which started under the Hawke-Keating years—

Senator Sherry —I am not going to go back that far or even before the last election. Just look at the circumstances of the last 18 months.

Senator BUSHBY —As I say, Dr Gruen gave us a number of reasons. But you have raised it and—

Senator JOYCE —Cabinet strength came from the last 18 months.

Senator Sherry —No, I do not suggest that. What I am suggesting is that you look at the circumstances of the last 18 months with the world financial crisis and its impact on every other comparable economy. This was one important decision. I have absolutely no doubt in my mind that this was one of a number of important decisions that needed to be made in order to cushion and underpin the Australian financial system. I have no doubt about it. And why would you? I have said this publicly on a number of occasions that, when we have seen the carnage that has occurred in many other comparable economies in their financial systems—let alone what is happening now with their economies in deep recessions—why would you take the risk of short selling in these circumstances?

Senator BUSHBY —I do not think I asked that question. Unless you are saying that the risk was that ASIC’s powers were going to be challenged by somebody and—

Senator Sherry —There was doubt about ASIC’s powers, and we said that at the time. Yes, someone could have challenged ASIC. Someone could have challenged ASIC in the courts.

Senator BUSHBY —In your assessment, is that a reasonably likely thing to happen?

Senator Sherry —It was an issue that was considered. I would suggest to you if ASIC’s powers were not clear in those circumstances and someone had challenged it would have created significant uncertainty at a time of general market uncertainty, if not chaos.

Senator BUSHBY —There are a lot of ‘ifs’ around, and I think the likelihood of somebody challenging a decision of ASIC at that point would probably have been fairly slim. In terms of the delay—

Senator Sherry —Nothing surprises me, frankly, in the financial system anymore given the behaviour of some entities—not in Australia particularly. But nothing surprises me as to some of the approaches of entities, particularly some of those that have been based overseas, given what we have seen in the last 18 months. But I would just say very strongly that we were not prepared to take the risk.

Senator BUSHBY —Coming back to the timing of the lifting of the ban, I note your comments that there were other major Western economies that had not at the time that we had, but most had, including the US and the UK and others.

Senator Sherry —That is correct.

Senator BUSHBY —I understand that ASIC has put out reasons for why they have lifted it, but why the delay to that point? Were you waiting for the regulations and hoping that they would actually be developed before you lifted it?

Senator Sherry —No. ASIC had indicated that the end of May would be the decision point. But as to ASIC’s timing, from everything I have seen they have been widely applauded for the timing in terms of the week—

Senator BUSHBY —Bringing it forward a week?

Senator Sherry —Yes, bringing it forward a week. They have been widely applauded for that. But that is an issue for ASIC.

Senator BUSHBY —I may well explore that with ASIC. I recall Mr Murphy sitting before us when we had the hearing into the bill and stating that the intention—and I am not criticising Treasury on this—was to develop regulations over the summer and have them in place by the time we came back to parliament in February. Quite clearly, despite the fact that ASIC may have put down a timetable of when they were likely to do it, when they did that they probably fully anticipated the regulations would be ready to take over at that point. I will leave it at that.

Senator Sherry —We do have a regulatory and a disclosure regime in place. ASIC has put that in place. It remains in place until such time as the new regulations come into force.

Senator BUSHBY —We could argue about this to detail that is probably not relevant to estimates. You could have put an act through as well at the end of last year that clarified the powers of ASIC to undertake what they were doing without leaving the uncertainty about what regulations might be coming as well. We will leave it there. That was a choice of government and this is how it has all ended up.

Senator ABETZ —The Treasurer, Mr Wayne Swan, has just acknowledged to the House of Representatives in question time that he made representations on behalf of John Grant Motors. The Treasurer does not seem to have any compunction about naming this company publicly. Given that the Treasurer has done so, and with that foundation, I now seek to ask Mr Grech: can you confirm that one of the two companies on behalf of whom the Treasurer made representations was John Grant Motors or an associated entity of John Grant Motors, Ipswich Motors?

Mr Grech —No, we will continue to take it on notice.

Senator ABETZ —Why do you need to take that on notice?

Senator Sherry —I have already outlined the reasons.

Senator ABETZ —You outlined a reason of privacy and commercial-in-confidence for a small business. The Treasurer, whom I understand you actually represent here, has already told the world, courtesy of Sky News and question time, that he has made representations on behalf of this company and was willing to name the company. Therefore, that reason of confidentiality for your senior minister seems, with due respect, to have been overridden.

Senator Sherry —I am taking it on notice.

Senator ABETZ —Can we be told the reason? Given that the Treasurer has overruled the reasoning and rationale that you initially provided, do you have another reason that you would seek to offer as to why it is being taken on notice?

Senator Sherry —As I have indicated, I have taken it on notice and I do not have anything further to add.

Senator ABETZ —This is quite bizarre. It is similar to when the Prime Minister was asked about this matter. He had to take on notice whether he had made a representation on behalf of somebody who gave him a car to use for free. It is very unlikely that that is not within the personal knowledge—

Senator Sherry —That is your spin. That is your assertion. That is your editorial.

Senator ABETZ —It is interesting—

Senator Sherry —Can I finish? I do not interrupt you.

Senator ABETZ —Please.

Senator Sherry —You put a question in the form of a range of assertions or an editorial. I do not accept, as I have already said, the basis of your assertions, claims or editorialising. We have taken it on notice and if we can provide further information I am more than happy, as I am always am, to assist you. But we are taking it on notice.

Senator ABETZ —Thank you for that. These are very serious allegations, as you would—

Senator Sherry —Oh—

Senator ABETZ —You demanded that I withdraw before because these were serious allegations. The Hansard record will disclose that. These are serious and sensitive allegations. Mr Grech, can I ask you whether the company on whose behalf the Prime Minister made representations was the same one that the Treasurer has just voluntarily named in the House of Representatives—namely, John Grant Motors, associated with Ipswich City Motors?

Mr Grech —We have already indicated we are taking it on notice.

Senator ABETZ —Can you then also take on notice for us the time gap between the Prime Minister’s representations for this one motor car dealership that he made and the Treasurer’s representations on behalf of both dealerships that he made representations for, but importantly John Grant Motors?

Senator Sherry —I think you asked the witness that earlier. I think my recollection is that we did agree to take it on notice, but if we did not we will take it on notice.

Senator ABETZ —It defies belief that the Treasurer—and this is the minister you are representing here, the head of Treasury—acknowledges that he made representations to his own department on behalf of somebody who could become a beneficiary. And of course—

CHAIR —The minister has indicated—

Senator ABETZ —with money being made available.

Senator Sherry —You continue to make these assertions and claims and to editorialise, but I just do not accept your conclusions. I do not accept them. You have said it a number of times. You have attempted to make your point. We can keep going over the same issues again, but you have made your point. I just do not accept it.

Senator ABETZ —Before, in particular after lunch, you indicated this was a serious allegation that should be withdrawn. I named a company, which you said was highly inappropriate for me to do, or words to that effect. The Treasurer has now volunteered. The cat is out of the bag. Why don’t you just fess up, tell us what it is all about rather than obfuscate by taking these things on notice?

CHAIR —I think we are going around in circles on this one.

Senator ABETZ —Fair enough.

Senator JOYCE —How many deals have actually been rejected on FIRB guidelines or under the discretion of the Treasurer in this term of government?

Mr Colmer —None.

Senator JOYCE —How many were rejected in the last term of government?

Mr Colmer —Let me just clarify that I am talking only about business case deals rather than real estate. There were a number of residential real estate ones.

Senator JOYCE —I am not talking about real estate.

Mr Colmer —There have been none rejected under the current government. There was one rejected under the previous government.

Senator JOYCE —Woodside.

Mr Colmer —Woodside. When we provided an answer to your question on notice last time around there were 16 in total that we had identified as being rejected since 1990.

Senator JOYCE —Mr Costello said that even the Woodside deal was recommended by FIRB to be approved.

Mr Colmer —That is before my time, and I really could not comment on the exact—

Senator Sherry —That was advice to government. Mr Costello is at perfect liberty to say—

Senator JOYCE —I am just saying—

Senator Sherry —But the Public Service are actually precluded and prevented from indicating what the advice is to former ministers.

Senator JOYCE —I did not ask the question. You are answering to what?

Senator Sherry —I am answering your question.

Senator JOYCE —I did not ask one.

Senator Sherry —You said that was advice to government.

Senator JOYCE —I made a statement: Peter Costello has stated that the advice he received—

Senator Sherry —I am not sure you put it in those terms, but anyway.

Senator JOYCE —I did. You can check the Hansard. It would seem apparent that the guidelines are not very stringent in regard to deals that are blocked. Are the guidelines that FIRB used public knowledge?

Mr Colmer —I am not entirely sure what you are referring to. The foreign investment regime is defined in the Foreign Acquisitions and Takeovers Act. There is only one criterion for action under that piece of legislation and that is that the Treasurer, as the responsible minister, believes that a particular transaction is contrary to the national interest.

Senator JOYCE —It would seem apparent that no deals were rejected during this government, no deals were rejected during the last government, except one, and in that one deal the person involved, Peter Costello, said the recommendation he got from FIRB was to approve it. I am just curious as to what the guidelines are that FIRB uses in the assessment of a deal. Do they assess, for instance, vertical integration of entities?

Mr Colmer —I think the best statement around the national interest would be the Treasurer’s principles that were released in February last year. There are also statements in the FIRB annual report.

Mr Murphy —There are a couple of fundamental points. Most countries, especially modern governments, welcome foreign investment. That is a starting point. The second point would be that, in determination of the national interest, factored into that as well—and lots of proposals come forward—are the views of the ACCC on competition issues. That gets factored in to government’s decision making on what is in the national interest. A lot of proposals are put forward and through discussions with either the Foreign Investment Review Board or discussions with the government they are withdrawn and resubmitted to make them more acceptable in terms of the national interest for the government. The ‘national interest’ prior to this government has been a term which, to some extent, has been criticised because it was not clear what a government would take into account in terms of the national interest. This government put forward those principles or guidelines to give some guidance to people who are making foreign investment proposals as to the types of things the government would take account of. They do not limit the government in terms of what it can take account of as to what is in the national interest.

Senator JOYCE —Did Treasurer Swan make comments in regard to the Chinalco foray into the Rio-BHP bid, where they attained a blocking interest? Were there any statements made by Treasurer Swan in regard to what his aspiration is as to how much further Chinalco could go?

Mr Colmer —No, I am not aware of any statements.

Senator JOYCE —Mr Murphy, are you aware of any statements?

Mr Murphy —In relation to certain investments, at the moment there are the national interest guidelines and the Treasurer’s speech that he gave in July last year where he expressed certain views of the types of things he would take into account in foreign investments of the type he was talking about.

Senator JOYCE —Was one of the concerns he had the purchaser of an asset being also the seller of the asset and the owner of the asset in Australia?

Mr Murphy —That is something that we would take account of, yes.

Senator JOYCE —That was one of the issues?

Mr Murphy —Yes.

Senator JOYCE —Was one of the other issues potential confusions that could arise from diplomatic issues from substantial ownership by a foreign government?

Mr Colmer —I do not think he expressed it in those terms. The basis of the February statement on the principles was that there can be additional concerns that may arise when foreign governments are investing.

Senator JOYCE —In regard to his July speech, do they become guiding principles of FIRB in how they assess current deals?

Mr Colmer —You will find that ministerial speeches generally are an insight into the thinking of the minister. The Treasurer, as the responsible minister, is the one who needs to decide whether or not a proposal is contrary to the national interest.

Mr Murphy —The FIRB makes recommendations. They are the determining body. At the end of the day the government as represented by the Treasurer decides the national interest.

Senator JOYCE —Has FIRB approved the Minmetals bid for OzMinerals?

Mr Colmer —As to the revised Minmetals bid for OzMinerals, it is probably worth noting that we actually do not approve foreign investment proposals.

Senator JOYCE —The deal has been approved by the Treasurer?

Mr Colmer —No, the Treasurer does not actually approve deals either.

Senator JOYCE —The deal has been approved?

Mr Colmer —No. The Treasurer has not raised objections, which is the formulation under the legislation.

Senator JOYCE —And neither have you raised objections?

Mr Colmer —My objections would not really matter. It is the Treasurer’s objections that are important.

Senator JOYCE —There is nothing precluding the process?

Mr Colmer —The Minmetals deal is free to proceed.

Senator JOYCE —Who gave that freedom?

Mr Colmer —The Treasurer raised no objections and in doing so the deal is free to proceed.

Senator EGGLESTON —I would like to ask a point of clarification. Does that mean that the mechanism for referral of an issue is the Treasurer objecting to it?

Mr Colmer —If you look at the legislation you will see—

Senator EGGLESTON —I have not seen the legislation.

Mr Colmer —The way the legislation is set up all that it requires at its simplest level is for people who are proposing an investment to make a notification. Under the legislation there is then a statutory period, which is usually 30 days but can be extended, during which the Treasurer may raise objections. If the Treasurer does not raise objections, at the conclusion of that statutory period there is no further capacity for the government to intervene. It is an important distinction. I am not trying to be precious, but the government does not approve foreign investment proposals. If they are concerned about a foreign investment proposal the minister needs to take a positive step to raise an objection. That is what the legislation does. The minister can object outright or apply conditions to mitigate the national interest in each case.

Senator EGGLESTON —There must be a reporting mechanism. With real estate investment, for example, if somebody from Singapore wants to buy a $3 million house in Peppermint Grove, that comes to this body, does it not?

Mr Colmer —It comes to us. Real estate cases are overwhelmingly dealt with in the department and we write a letter saying we have no objections. We do not write a letter saying we approve.

Senator EGGLESTON —Who reports that transaction? Is it the real estate agent?

Mr Colmer —We write back to the applicant.

Mr Murphy —How is it coming to our attention?

Mr Colmer —In real estate cases it is usually the real estate agent or the conveyancing lawyer who will fill out the paperwork and send it to us, but it can be the actual individual.

Senator EGGLESTON —What happens in a minerals transaction, which Senator Joyce referred to?

Mr Colmer —That was referred to us by their lawyers.

Senator EGGLESTON —So it is an auto referral. Thank you.

Senator JOYCE —That allows 100 per cent ownership by Minmetals of strategic OzMinerals assets such as the former Century Zinc mine?

Mr Colmer —It allowed Minmetals to purchase the balance of the OzMinerals holdings, with the exception of Prominent Hill.

Senator JOYCE —Is that 100 per cent?

Mr Colmer —That is correct.

Senator JOYCE —Obviously there were no substantial objections that allowed them to go to 100 per cent?

Mr Colmer —That is correct.

Senator JOYCE —I noticed that they did not buy a mine in Indonesia. Was that the Martabe mine?

Mr Colmer —That is correct.

Senator JOYCE —Do you know why?

Mr Colmer —Prior to the Minmetals arrangement, OzMinerals had already embarked on a series of asset sales for individual mines. The negotiations for the sale of that mine in Martabe were already well advanced before the Minmetals proposal surfaced. I believe that is the basic situation.

Senator JOYCE —Are you still processing the Rio-Chinalco decision?

Mr Colmer —The Rio-Chinalco decision is still in train, yes.

Senator JOYCE —How long do you anticipate that will go on for?

Mr Colmer —The statutory deadline for that is 15 June, so that is Monday week.

Senator JOYCE —Generally, after that period how long does the Treasurer have, or is it an unlimited time? Is there a process or is it just that the Treasurer stops it? Is there any statutory guideline of a time for him to object?

Mr Colmer —If the Treasurer is objecting to something he needs to provide that advice to the applicant within 10 days. It also needs to be gazetted.

Senator JOYCE —Is that 10 days from Monday week?

Mr Colmer —That is right; 10 days from Monday week. Usually they are notified much quicker than that. In fact, I cannot recall any that it would have taken 10 days to notify.

Senator JOYCE —You would not recall any at all, because there have hardly been any. Is this the biggest deal that FIRB has ever looked at?

Mr Colmer —It probably is, but I could be wrong. No, it is not. The biggest one was the Rio-Alcan deal of 2007.

Senator JOYCE —With the recommendations on Rio, at the time they were supposed to base their offices in Australia, which they basically reneged on and took them over to St James Square. Do you have any recourse against a company once they are out the door?

Mr Colmer —In actual fact Rio never did undertake to base its offices in Australia. It was BHP that had that condition applied for its dual listed company. The Rio dual listed company merger never had formal conditions applied to it. Rio made a series of undertakings to the government in 1995, rather than formal conditions under the act, and they did not include having their headquarters in Australia.

CHAIR —As it is 3.00 pm the committee will adjourn. That will see the end of Treasury’s evidence to the estimates committee. I thank Treasury officers for being flexible over the last few days in answering questions. We will resume at 3.15 pm with APRA.

Proceedings suspended from 3.00 pm to 3.16 pm