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Monday, 2 May 2016
Page: 4025

Mr CRAIG KELLY (Hughes) (17:32): It is pleasing to speak this afternoon on the Financial System Legislation Amendment (Resilience and Collateral Protection) Bill 2016. Why is this bill needed? From September 2016, regulators in many key jurisdictions will phase in margining requirements for trading in over-the-counter derivatives. Without legislative change, entities subject to Australian law might not be able to fully comply with margin requirements that are imposed upon them or their counterparties by domestic or foreign regulation. This could significantly restrict the ability of Australian entities to participate in certain financial markets or to trade with particular counterparties. The bill creates a facilitative regime that will allow financial institutions in Australia to meet margining requirements and deliver on the government's commitment, set out in its response to the financial system inquiry:

… to clarify domestic regulation to support globally coordinated policy efforts and facilitate the ongoing participation of Australian entities in international capital markets.

The bill also resolves a number of inconsistencies in Australian law to provide legal certainty about the operation of termination rights, often referred to as close out rights, under certain financial market transactions and of real time gross settlement payment systems, approved netting contracts and netting markets in all market conditions.

Specifically, the bill will do three things. First, it will:

enable entities subject to Australian law to give, and enforce rights in respect of, margin provided by way of security in connection with certain financial market transactions in a manner consistent with international requirements —

and therefore let them meet international margin requirements due to be introduced from September this year. Second, it will:

clarify domestic legislation to support globally coordinated policy efforts and provide certainty about the operation of Australian law in relation to the exercise of termination rights (also known as close out rights) under certain financial market transactions.

And, third, it will:

enhance financial system stability by ensuring legal certainty for the operation of approved Real Time Gross Settlement … systems, approved netting arrangements and netting markets (more specifically, market netting contracts) in all market conditions.

The bill amends six pieces of existing legislation—namely, the Payment Systems and Netting Act 1998, the Banking Act 1959, the Financial System (Business Transfer and Group Restructure) Act 1999, the Insurance Act 1973, the Life Insurance Act 1995 and the Private Health Insurance (Prudential Supervision) Act 2015.

Although this legislation is important and is in reaction to the GFC, we must make sure that in the international response to the GFC—where we are trying to get, or governments around the world are putting in additional legislation to try to create, greater stability—we do not tell the legislative pendulum too far on the side of stability. Business transactions involve risk. We do not know what the future holds. Things are uncertain. We need entities taking risks and experimenting with new ideas if we are going to get the innovation to continue to drive our prosperity. So we must be very careful that we do not implement too many of these regulations that tie people's hands in red tape and deter some of that risk taking.

The member for Rankin said that Australians should be very proud about our response to the GFC. Anyone who thinks that Australia was saved from recession because the previous government spent money installing pink batts in people's roofs and then pulling them out, building overpriced school halls or wasting billions on failed border protection simply needs to wake up.

What saved Australia from the GFC was the demand and the buying from China, but we are still paying the penalty for that Labor government's reckless spending. That spending during the GFC ran up a debt; all those pink batts, all those school halls they paid two and three times the price they should have, and those failed border protection policies they tried to fix—all of this was done with billions of dollars of borrowed money. When we borrow money, we have an ongoing obligation to pay the interest until such time as we pay it back. Someone who earns $80,000, which I think is around average male full-time earnings, this year will pay $628 in tax on the interest that has been run up on all those things. The supposed response to the GFC of putting the country deep in debt has a cost, and that cost for the person on $80,000 is $628 in interest this year. And guess what? That goes on, year after year after year after year, until we eventually get the budget balanced. We have the long, hard haul to pay that borrowed money back.

The irresponsible response to the GFC, the reckless and wasteful spending of the previous Labor government, is costing this country now and it will cost this country for decades to come. They were the mistakes that we made in the past. All governments have to learn from those mistakes made with that reckless and wasteful spending. This is one of the small steps that we are taking so that another financial crisis has less chance of happening in the future. With that, I commend this bill to the House.