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Monday, 8 February 2010
Page: 627

Mr HOCKEY (4:04 PM) —The introduction of the bank guarantees was a necessary step to preserve confidence in the Australian financial system during the global financial crisis. Let us be very clear: there were two bank guarantees: firstly, the guarantee of wholesale raisings was announced in October 2008 and took effect one month later. It was provided for a fee and was introduced primarily to preserve the ability of Australian deposit-taking institutions to raise funds in the international capital markets. About $166 billion of taxpayer guaranteed funds were raised by banks up to the end of December. Non-major Australian banks raised over $32 billion from international markets, as the Treasurer outlined in his press release. What the Treasurer did not tell you was that $134 billion was raised by the four major banks: ANZ, Commonwealth Bank, NAB and Westpac. The government has received $1.1 billion in fees and will receive a total of $5.5 billion over the full life of the guarantee.

The coalition does not as a general principle support government interference in markets unless there is clear evidence of market failure. It supported the introduction of the wholesale guarantee as a temporary measure to ensure Australian banks had a level playing field in competing with banks offshore for funds. The Treasurer constantly says in this place that we opposed it. In fact, the records show that we supported it. I seek leave to table the Votes and Proceedings, No. 63, of the House of Representatives of Tuesday, 25 November 2008, which states quite clearly that the question was put and passed and that the bill was read a second time.

Leave not granted.

Mr HOCKEY —That was a trivial response. The coalition notes that other key developed countries have withdrawn or announced a withdrawal of their wholesale funding guarantees. I also know that Australian banks are now able to readily access offshore markets for funds without the use of the guarantee. On these grounds the coalition supports the decision to terminate the wholesale bank guarantee, effective 31 March. However, I would ask the Treasurer to ensure that there is no last-minute rush by banks to gorge themselves on the government guarantee before the deadline. The use of the guarantee by the banks is a contingent liability of the Commonwealth. I expect the Treasurer will fully outline that in the upcoming budget. The Australian people should be very wary of any increase in liabilities, on balance sheet or contingent, beyond the bare minimum. I also note the comments today by David Liddy, the Chief Executive Officer of the Bank of Queensland, and by a number of other smaller institutions worried that they will not be able to raise money at an affordable rate, and those concerns need to be addressed by the Treasurer.

The second guarantee was a retail deposit guarantee, which was introduced in November 2008 for a period of three years. It has a natural end date, of course, of November 2011. The retail deposit guarantee was introduced to preserve retail depositor confidence in all regulated ADIs. The coalition did not support an uncapped scheme and suggested that it should be capped at $100,000. We remember the complete mess the government created with its introduction of an uncapped guarantee. Then it changed to the cap and created distortions for a number of other financial institutions, cash management trusts and mortgage trusts. It created confusion amongst the general public. We specifically said before it was introduced that it should introduce a cap of $100,000. The government introduced an unlimited cap, completely screwed the market and then pulled it back to a deposit for a million dollars. Even now there are some areas where people are completely confused about whether a deposit has an uncapped guarantee, a guarantee or whether part of the funds are guaranteed or not.

I want to come to responsibilities of the banks. It would have been fair and reasonable for the Australian government to have requested something in addition to a fee in return for the support granted by taxpayers to the authorised deposit-taking institutions. After all, the provision of the guarantee was one of the reasons, but obviously not the key reason, we were able to outperform many of our Northern Hemisphere counterparts. I ask the House to bear in mind that I was the minister that introduced a whole lot of financial reform, which the Treasurer naturally enough does not want to talk about but which helped to get us through the most difficult times in the financial services sector. I note that the Treasurer has called on the banks to behave as good corporate citizens. Every time the term ‘bank’ is mentioned, you can rest assured the Treasurer will say, ‘We’re giving them a warning not to act inappropriately.’ He tends to do that, to overplay, and he tends to have stern words that unfortunately fall on deaf ears.

Loan spreads have widened. In April 2009 the Reserve Bank cut the cash rate by 25 basis points, but banks reduced the standard interest rate on variable mortgages by only 10 basis points. And what did the Treasurer say? He noted in media interviews on 8 April and again on 21 April that he was ‘pretty disappointed’ with the banks’ actions and, ‘They do need a good kick up the bum occasionally.’ The Prime Minister is not happy with it. He asked them to reconsider and said that the government has made it very clear that it wants to see a full pass-through of cash rate decreases. Strike 1: the wrath of the Treasurer in April 2009 was meaningless.

In June 2009 there was no change in the RBA cash rate and yet banks, on average, lifted the standard variable rate by five basis points. The Treasurer said in the media at that time that the decision gets in the way of rate relief—‘Australians will be rightly furious; I think this is a very selfish decision,’ and, ‘It is so disappointing to see this decision. I think it is a very selfish decision.’ Strike 2: the Treasurer gave further interviews in October and November, saying that they would be no justification for banks to increase their mortgage rates over and above the increase in the cash rate, yet one month later, in December 2009, the Reserve Bank increased the cash rate by 25 basis points and the banks responded by lifting the standard variable mortgage rate by 35 basis points. Strike 3: the Treasurer says:

… there was no justification for—


to move their rates above the official interest rate rise.

Again, stern words from the Treasurer. He echoed them again in late January as a result of the banks’ actions. Despite the Treasurer’s rhetoric, since March 2009, the spread or difference between the cash rate and the banks’ standard variable mortgage rate has widened by 30 basis points. I note the Treasurer’s statement today:

…there will be absolutely no justification … for any bank to raise interest rates beyond any Reserve Bank movements.

I refer to his stern, decisive comments yesterday that the banks would ‘incur the wrath not just of the Australian people but’—oh, my God—‘of the Australian government’, the same wrath that the banks had received over all those months. They completely defied the Treasurer and $135 billion later the banks are saying to this government, ‘Stick it in your purse and run away.’ And what effect is that having on the Australian people? The Reserve Bank stated in its last statement that one of the key reasons it was not moving on the cash rate was that the banks had already increased the flow-through to mortgage holders. In effect, the Reserve Bank was saying, ‘It doesn’t matter what we do, the banks themselves are charging more for mortgages.’ Somehow, in this place, the Treasurer came in and claimed that it was a great win for Australians with mortgages—such a great win for Australian mortgages that the Reserve Bank did not increase the cash rate. In fact, with $134 billion of taxpayer guaranteed money over the last few months, the banks themselves had increased interest rates by nearly one per cent when the Reserve Bank had only gone with 0.75 per cent. So it seems that the banks have thanked the Australian public for their support by lifting interest rates by more than the Reserve Bank and by tightening access to credit. That seems hardly a fair deal.

The Treasurer also announced that the guarantee of state and territory borrowings will be withdrawn on 31 December 2010. This guarantee was introduced on 24 July 2009 and provided the states with the right to use the federal government AAA rating to enhance the quality of their bond offerings and to facilitate their ability to raise funds in the capital market. I note that there are some states already with a AAA rating. To be fair to the Treasurer, bond markets do price AAAs differently. Obviously some of the states were struggling to get their bond issuance away. But the coalition overall has supported the introduction of a guarantee of state debt, provided that an appropriate fee is charged. Also, significantly, given that a difference in credit ratings results in a different charge applied to each state, it is important to note that there should be no financial incentive for the states to use the AAA rating to engage in some form of arbitrage that will work to the disadvantage of taxpayers overall. I note there is a long lead time until the withdrawal of the government guarantee of state government debt until December this year. Again, I would ask the Treasurer to explain in detail why he gave an undertaking to the states to provide that guarantee until December whereas the banks themselves have until March. It might have something to do with election timing, but that would be a little cynical. Forgive me for being a little cynical about it.

I want to touch on the issue of the register of government debt. Legislation was passed on 18 June 2009 for the creation of a register of holders of government debt. This was to include Commonwealth government debt and state government debt guaranteed by the Commonwealth. This was an amendment moved by the coalition. It is amazing how the government say we have no policy and yet they are actually taking our policy and accepting it as part of the legislation that goes through this place, if you can you believe that. This was an amendment moved by the coalition because we believe it is important for Australians to know the identity of our creditors. It is now eight months since it became law and the register has still not been put in place. The Australian public still do not know from whom the government is borrowing money. They still do not know to which countries they are indebted. I call on the government to deliver this. We will be pursuing this in estimates and we want some answers. Why hasn’t the register of government debt been delivered? Why aren’t the agencies complying with the law as it stands to set up a register so that we the Australian people and the Australian taxpayers know exactly who we are borrowing money from every day and every week of the year?

I just want to touch on the economy for a moment because it is all linked, as the Treasurer quite rightly says. With the winding back now of the government guarantee on wholesale funding, together with the Reserve Bank increasing interest rates and the banks themselves increasing interest rates, it is patently clear that Australia has come through what will be the worst impact of the global financial crisis. The Reserve Bank said that as well in its statements on monetary policy only last week. The fundamental point is that this government is continuing to spend money as if Australia has an unemployment rate of 8½ per cent. Yet Australia’s unemployment rate seems to have stabilised well under six per cent. We welcome the fact that Australia has an unemployment rate of less than six per cent. I was the Minister for Employment and Workplace Relations who saw it at 4.1 per cent, but do not let that get in the way of a good story.

I want to point out that the government said that it needed to spend so much money in the budget to address Australia’s problems, but that was all based on the fact that Australia was going to have an unemployment rate of 8½ per cent. Australia now clearly has an unemployment rate of less than six per cent, but the government is still spending the same amount of money. In fact, it is spending half a billion dollars on school halls in 2012 to address an economic downturn of 2008. The spending by this government is putting upward pressure on interest rates, it is putting ‘crowding out’ pressure on financial institutions and others that need to borrow money, it is making credit harder to get and it is making it more expensive for small business. We support good initiatives that are based on good policy but we will not go down the path of not criticising bad policy and bad initiatives, which this government has a habit of foisting on the Australian people.