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Govt urged to act on funds -

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The World Today - Tuesday, 28 October , 2008 12:10:00

Reporter: Kirrin McKechnie

ELEANOR HALL: Treasury officials are again meeting representatives of the funds management industry
as the federal government comes under more pressure to help investors whose money is locked up.

The government is not wavering on its refusal to extend its guarantee to market linked investments.

But the head of the nation's Future Fund has another idea. He says the Federal Government should
consider buying into the mortgage and cash management funds to help free up billions of dollars
worth of frozen deposits.

In Canberra Kirrin McKechnie reports.

KIRRIN MCKECHNIE: At least 15 investment funds have now frozen billions of dollars worth of
redemptions.

The National Seniors Australia group warns older Australians are feeling the pinch most. It wants
market-linked funds to unlock smaller deposits to help out struggling investors.

The Finance Minister Lindsay Tanner says it is do-able.

LINDSAY TANNER: There are powers that are available potentially to deal with these kind of
circumstances but it is a very complex situation and it's very important to ensure that if any
further initiative are taken that they are done in a very considered way.

But there's a number of factors bearing down on sector that are having an effect, in particular the
international circumstances, generally the fall in share markets, the squeez in credit markets and
the influence of the bank guarantee as well. So we're continuing to work with the key regulators to
improve the situation.

KIRRIN MCKECHNIE: While the government waits for advice from ASIC and the Treasury Secretary on how
to help free up redemptions, Centrelink is re-assessing the part pensions of hundreds of thousands
of seniors who are now likely to be eligible for some extra cash.

Mr Tanner is reluctant to put a price tag on the move but warns it will place significant pressure
on the budget bottom line.

LINDSAY TANNER: It's very difficult to estimate because of course it's related to changes in the
valuations of people's share portfolios and shares go up as well as down. So it is quite possible
that you'll see a period of relatively brief time where people are eligible for higher pension
payments, but that they then return broadly to where they were previously and therefore their
pension eligibility goes back to where it was previously.

No-body can predict where share markets will head but there's no doubt there'll be a significant
amount of part pensioners who will be eligible for higher pension payments for a period of time.
How long that will last is very very difficult to predict because you're making predictions about
where the stock market is going to head.

KIRRIN MCKECHNIE: The Prime Minister and Treasurer are meeting in Melbourne today as they face
renewed pressure over their bank deposits guarantee which has forced the investment fund freeze.

Now the Chairman of the Future Fund has weighed into the debate, saying the guarantee is necessary,
although he's not sold on the fee for deposits over a million dollars.

DAVID MURRAY: In my view, this guarantee should be viewed as a public good because there was no
bank insolvency problem. The taxpayer here is not coming to the rescue of any individual bank in
difficulty, for that reason there is no there is no argument for a fee at all on this guarantee but
what the government must do is get out of the guarantee in that three year period.

KIRRIN MCKECHNIE: And David Murray believes the government should buy into market-linked funds to
help free up redemptions.

DAVID MURRAY: There is a market distortion caused by the guarantee and what the government and the
banks should do with the support of the Reserve Bank is to get in and find a way of providing some
liquidity into these funds by buying their securities at market prices and not necessarily up to
the value of the whole fund but provide some liquidity.

ELEANOR HALL: The Chairman of the Future Fund David Murray.