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Tuesday, 25 November 2008
Page: 11298

Ms JULIE BISHOP (7:49 PM) —I rise to speak on the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008. It is a long overdue bill. It has taken six weeks for this government to concede that the opposition had correctly called for legislation to be introduced into this parliament to support the government’s bank guarantee of large deposits and wholesale term funding.

It has been increasingly clear over those six weeks that the government’s bank guarantee policies were panicked and poorly thought through economic policy. When introducing this legislation the Treasurer resorted to the now familiar political spin to paper over the cracks of this poorly designed policy. The Treasurer is so insecure that he cannot simply admit that the government made a mistake, that they should have listened to the words of the Leader of the Opposition, taken his advice and just fixed the problems they had created.

In the second reading speech this afternoon the Treasurer made the extraordinary claim that the Leader of the Opposition was responsible for the ‘growing seeds of doubt in the minds of global investors’. What an absolute nonsense. That reveals the depth to which this incompetent government will stoop to blame anyone for their own problems. The Prime Minister’s inherent inability to admit to error—it is in his DNA—has started to infect others within this arrogant government. It is a sign of his inexperience that the Treasurer has been dragged kicking and screaming to introduce proper legislation to provide a standing appropriation for this policy. Yet when introducing the legislation to the House he maintained that his original policy design was flawless and somehow it was the Leader of the Opposition who was responsible for the growing seeds of doubt in the minds of global investors.

The Treasurer apparently wants us to believe that if no-one had raised any concerns about the shortcomings of his original position, the Australian financial and banking sector—indeed, the world financial markets—would have just turned a blind eye to the fact that the government was introducing a guarantee on wholesale term funding without having a standing appropriation to back it up. It would fail the fundamental test of an unconditional, irrevocable and timely guarantee. The Treasurer is living in a fool’s paradise if he thinks the highly skilled people working in large international banks and people working in the Australian banking sector would not have noticed the fact that the guarantee on wholesale term funding was not backed by legislation that provided a standing appropriation. He thought he would get away with it. So if the guarantee were ever called upon and, say, parliament were not sitting, there would be no standing appropriation and the guarantee could not be met. It was a fundamental error.

The Treasurer admitted in his second reading speech that, since the initial guarantee announcement, ‘the government has been engaged on a daily basis in putting in place all of the detailed arrangements’. I bet they have. They have certainly been engaged because they have been trying to play catch-up with the negative consequences of their initial hasty announcements. The Treasurer confirmed in his second reading speech:

During the government’s consultations banks raised concerns about doubts in international funding markets that government will be able to pass legislation with sufficient speed in the event of a claim on the guarantee.

Put simply, potential investors need to be confident that they can get their money quickly if a bank were to default on a loan.

This was basic. A guarantee that is not unconditional, irrevocable and timely is not worth the paper it is written on. The government should have known it. They did not need the international funding markets to tell them this. The Treasurer also said:

In one stroke, the guarantee provided support to banks, credit unions and building societies in the provision of credit to Australian businesses and households, and security and peace of mind to Australian depositors.

In reality, it did nothing of the kind. In reality, it was one stroke of hastily cobbled together and poorly considered policy with serious consequences.

When the Prime Minister was asked on 10 October what guarantee he would give Australians that their bank deposits would be protected, the Australian public was subjected to a roller-coaster ride of poor decision making that subsequently needed to be corrected and defined every step of the way. Now the government loves to claim that it was somehow acting ahead of the curve. The reality is that it was the opposition who was taking into account the global financial events and developing sound policy to provide stability and confidence. On 10 October the Leader of the Opposition and I held a press conference, and we called on the government to do a number of things including introducing a limited deposit guarantee of $100,000 or more. We also called on the government to delay its flawed ETS scheme and to put more funding into the residential mortgage-backed securities market. That press conference was reported upon, so the following morning the Prime Minister woke to headlines that the opposition had plans for the Australian public to help us weather the global financial storm. Indeed, the opposition had a plan for protecting the savings, the deposits, of Australians. So began the government’s political and media games. The resulting policy of this government was not driven by sound financial or economic considerations but by politics.

By 12 October, on the Sunday morning, Australians were treated to photographs of their Prime Minister sitting around the cabinet table on the weekend—

Mr Pearce —With rolled up sleeves.

Ms JULIE BISHOP —No, they were not rolled up; they were pushed up. He was fighting what he has termed the ‘rolling national security crisis’. Later that day, the Prime Minister emerged from his bunker to announce an unlimited deposit guarantee. In doing so, he went further than any comparable country. If you take into account the United States and the United Kingdom, where there were serious problems and serious flaws in their banking sector, where their governments were recapitalising and purchasing troubled assets and where nationalisation plans were afoot in their banking sector, the United States had a deposit guarantee of about $100,000 and they were thinking of putting it to $250,000, and the United Kingdom were thinking of introducing a deposit scheme of about ₤50,000. But, oh, no, we would not do what comparable countries were doing, because that is what the opposition had suggested. So the government went further than any other comparable government and announced an unlimited bank guarantee for deposits. In doing so—and this is a very important point—he told the Australian public and the opposition that he was acting on the advice of the regulators and specifically acting on the advice of the Reserve Bank governor. We soon found out about that porky, didn’t we?

That afternoon the opposition provided its support, given that the Prime Minister had stated that the regulators had advised on, indeed had recommended, this specific proposal. We of course had called for a more considered scheme on the Friday and took it as read that the Reserve Bank governor had given direct and explicit advice to the government to extend our proposal into an unlimited deposit guarantee scheme. After all, this was one of the most significant monetary policy decisions made by an Australian government in a generation. The Reserve Bank governor is the person in this country responsible for monetary policy. He is the person responsible for the stability of the financial markets. He is the person to whom the government should have turned for explicit and direct advice on this deposit scheme. The next day the Leader of the Opposition wrote to the Prime Minister proposing a bipartisan approach to maintaining business and consumer confidence in response to the global financial crisis. This expression of bipartisanship was rebuffed by the Prime Minister, and it should be clear that bipartisanship—of course, always rebuffed by the government—does not mean that the opposition forgoes its obligation to the Australian people to provide critical assessment of government policies, particularly when there is so little detail provided surrounding this hastily put together policy.

It was therefore vital that the coalition ask questions in parliament about what the obligations of the taxpayer were going to be and what obligations, if any, the banks would have in exchange for the guarantee. What has been most disturbing about this is that the government has been unable, or perhaps unwilling, to answer even the most basic questions on this guarantee. The opposition was alarmed to find very little detail available from the government—just a press release, and that had scant detail.

On 14 October—and this was very revealing—the finance minister told ABC’s Lateline that the government had been working on the detail of its bank guarantee policy for over a week and that the weekend meeting was merely to finalise the details. I will come back to that porky in a moment. Despite this, little information had been made publicly available. So it was that the bill came to parliament on 15 October, and I made it clear in my speech then that the three bills providing for the guarantee had not been subject to normal scrutiny. There was no regulatory impact statement of the cost, benefits and risks of the policy. This is the government that said it would adhere to best practice, but there was no regulatory impact statement of the cost, benefits and risks of the policy to the government, to the financial sector, to business and to the Australian public.

In particular, I noted that the bills might have effects on those financial institutions that were excluded from their coverage. I raised that in my second reading contribution. The coalition supported the bill but, as I noted at the time, we were doing so while having to trust the government. I had assumed that the Prime Minister was telling the truth when he said he had acted on the express advice and specific recommendation of the Reserve Bank governor. On 21 October we found how that trust had been abused. We learned that within a few days the Reserve Bank governor was so concerned that he put his concerns in writing and said that there should be a cap—‘the lower, the better’. That is what the Reserve Bank governor said and the Prime Minister wants us to believe that he changed his mind overnight. No, they never asked the Reserve Bank governor for his views.

When we finally saw the Reserve Bank governor’s letter—only because it turned up on the front page of the Australian, not because the government produced it—we read that he said he wanted a cap on this unlimited guarantee, ‘the lower, the better’. We finally discovered that the Reserve Bank governor was not directly consulted. He was not even invited to the cabinet meeting—he was not there in person and he was not at the end of the telephone. They could ring up the Treasurer in Washington—they could get him on the phone—fat lot of good that would have done. But they could not get the Reserve Bank governor on the phone, let alone in person. He was not directly consulted. As the Leader of the Opposition has said, ‘It was akin to the Prime Minister declaring war and not consulting the generals.’

On 22 October, during the Senate estimates process, Australia learned that the decision to increase the deposit guarantee to an unlimited amount was entirely a political decision in response to the opposition’s call for a $100,000 scheme. I quote from the Senate estimates Hansard:

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

The Secretary of the Treasury, Dr Henry, said:

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

So there it is. This was not a response to the global financial crisis; this was a response to the fact that the Leader of the Opposition had suggested a higher figure than the government, and the government was being outsmarted. That is what this was all about.

Once the government had announced this guarantee, and with the lack of policy detail underpinning it, there was immediate confusion and distortion in the markets. The government was on the back foot. The Treasurer was unable to answer my questions about the fee structure in question time and he was unable to say whether the triple B rated banks would have access at the same rate and on the same conditions as double A and triple A rated institutions. We saw the extraordinary dislocation in the financial markets—extraordinary not because it was unforeseeable; it was foreseeable all right—where money in cash management trusts and debentures issued by finance companies moved to institutions that were covered by the bank guarantee. One sector of the financial markets was covered and another sector was not. In other words, the Prime Minster was saying, ‘These institutions are guaranteed and therefore they are protected and safe,’ and, by implication, ‘Those institutions are not guaranteed and so not protected and safe.’

There was so much confusion—for example, about whether superannuation was covered. The government was unable to release a comprehensive list of institutions and accounts covered. I am sure members opposite received, as did members on our side, many calls and communications from constituents asking what institutions and accounts were covered. To this day, the list is only a sample list. Australians who want to know whether their funds are guaranteed or not remain unable to obtain in writing an assurance that their funds are covered. The lack of detail is appalling and this added to the uncertainty in the market.

By 24 October came the first of a series of changes by the government to the guarantee scheme, as they desperately tried to patch up the inconsistencies and mistakes that were becoming increasingly evident. The government announced some details of the deposit and wholesale funding guarantees. At first the Treasurer indicated that the government would impose a cap with a compulsory fee, and there was a very comical question time where the Treasurer announced a compulsory fee on deposits and then realised that he had announced a new tax. The next day they scrambled around and decided that a threshold of perhaps $1 million would be introduced on deposit guarantees and that a fee would be charged for guarantees on deposits over $1 million. They tried to cover up the fact that he said it was a compulsory fee, and therefore a tax, and tried to suggest it was voluntary. Then the government introduced a graduated fee structure for wholesale funding guarantees. The government finally sorted out the anomaly with foreign bank branches. The foreign bank branches, as the shadow minister at the table would know, are authorised deposit-taking institutions—

Mr Pearce —That is right; they are indeed.

Ms JULIE BISHOP —that are regulated by APRA. Yet they were excluded from the guarantee, which was extended to authorised deposit-taking institutions regulated by APRA. That was an appalling mistake, an appalling oversight, and funds flowed out of foreign bank branches into those banks covered by the guarantee. Then of course there was hardship caused to depositors in non-guaranteed institutions and funds, as those institutions froze them to maintain the integrity of their funds in case of a run on the funds. The Treasurer told the Australian public, who had their funds frozen, that if they had a problem getting access to their savings they should go to Centrelink. They were his words. He tried to weasel out of them today in question time—

Mr Perrett —By quoting accurately.

Ms JULIE BISHOP —That is what he said. We have got a copy of the transcript. They did not want the transcript tabled, because of course that transcript does not appear on his website.

The government then came up with another madcap idea and decided that they would tell those institutions that were not guaranteed that they should inquire of APRA how to become a bank—how to become a bank, a building society or a credit union. What kind of public policy is that? And then, finally, the government requested that ASIC provide advice on how to assist hardship cases where redemptions from funds had been frozen. There were so many adverse consequences of that hasty announcement made on 12 October.

Consistently, the Leader of the Opposition called on the government to implement a cap on the unlimited bank deposit guarantee. Our recommendation on 10 October was that it should be at least $100,000. If that advice had been followed, the government would not have found itself in the mess that it has, people would not have had their funds frozen and the dislocation in the markets would not have occurred. We said the cap should be set at a level that the Reserve Bank recommended. We know that the Reserve Bank says ‘the lower, the better’ and we know that the senior executives in the major banks have suggested $100,000—the CEO of Westpac has suggested around $100,000. The Leader of the Opposition also pointed out that the Treasurer’s plans to establish this compulsory guarantee fee for deposits over the cap—in other words, the tax—should be abandoned, and we pointed out that a tax would impose additional, heavy and unnecessary costs on banks.

The Leader of the Opposition also pointed out that guarantees of any deposits over the cap should be optional but subject to a fee. Eventually, the government came around to that thinking and made it voluntary. Specifically, the Leader of the Opposition informed the government, as he has on so many occasions over the last six weeks, that the wholesale term funding guarantee should be the subject of legislation, because the government was putting the Commonwealth and thus taxpayers on the hook for, potentially, hundreds of billions of dollars of contingent liabilities—without any legislation. That is an affront to our parliamentary democracy.

Senator Sherry, I believe, said in a speech on 30 October that the deposits covered by the unlimited guarantee amounted to about $800 billion and that the wholesale fundraising amounted to about $1.2 trillion—in total, about $2 trillion. Yet, in the Mid-Year Economic and Fiscal Outlook, the Treasurer was not able to put any figure at all on that. He was not able to quantify, in any form whatsoever, the contingent liability of these guarantees. Senator Sherry was able to do it; he said it was about $2 trillion. Now, couldn’t the government have worked out a contingent liability, to put a figure into the Mid-Year Economic and Fiscal Outlook?

Mr Bradbury —It’s remote and unquantifiable.

Ms JULIE BISHOP —Well, Senator Sherry was able to put a figure on it. As the Leader of the Opposition noted, even if the government believed it had a legal argument to enable it to give a guarantee without legislation, it knows it could never honour that guarantee without an appropriation bill being passed by the parliament, and yet week after week we had every excuse as to why the government did not have to put in an appropriation bill. We set out what the legislation should include. More information was provided on the administration of the guarantee scheme, but there is still very little to give the markets, to give the financial sector, to give the banking sector and, more importantly, to give the Australian public any confidence in this government’s policies.

As for acting ahead of the curve, again, on 13 November, the government said they would not introduce legislation. The government indicated through the acting Treasurer and the Attorney-General, in response to specific questions from the Leader of the Opposition, that the government did not intend to introduce legislation. That is what the government said on 13 November. On 17 November, the Leader of the Opposition again called on the government to immediately present legislation to authorise the provision of wholesale term funding guarantees to Australian banks. He warned, quite properly, that without legislation the guarantees would not be effective commercially or practically and he asked that the legislation be circulated so that the opposition could comment on it. On 21 November, the Leader of the Opposition again repeated his call for the government to present legislation to provide for an appropriation to give effect to the wholesale term funding guarantee and to wind back the unlimited bank deposit guarantee. By that time the banks were sending the clearest message to the government that it must fix its bungled wholesale term funding and bank deposit guarantees. It was six weeks ago that the coalition called on the government to introduce this legislation.

Confronted with the real impact of its panicked and poorly thought through decisions, the government refused to acknowledge or immediately rectify its mistakes. What is wrong with the government just saying, ‘The Leader of the Opposition is right, actually; we do need an appropriation bill—otherwise the guarantee will not be “unconditional, irrevocable and timely”, in the words of Standard and Poor’s’? Why could the government not bring itself to admit that it got it wrong and that in fact what the opposition, through the Leader of the Opposition, had been calling for was appropriate and responsible advice? Because the Labor government’s bank guarantee has been all about politics. There was no focus on sound economic management and no focus on appropriate public policy. Over one weekend, in a series of long-distance calls between the Prime Minister and the Treasurer—calls that did not include the Reserve Bank governor—this government produced a flawed bank guarantee policy. They did not bother talking directly to the Reserve Bank governor before unveiling it. They did not bother to take account of the Reserve Bank governor’s advice before it was put in writing and made public.

Since the announcement of the bank guarantee policy, the government has been forced to announce a series of changes to paper over the cracks of this ill-considered policy. If the government had simply adopted the policies of the coalition and announced that, in accordance with other comparable countries, there would be a limit on the government guarantee, and if the government had just accepted the coalition’s advice that they needed an appropriation bill to give effect to the wholesale term funding policy, ordinary Australian investors and our financial markets would have been spared the six weeks of uncertainty and instability caused by the government’s ill-considered policy.

We support this long-overdue bill. We called for it six weeks ago. We cannot help but point out that, had the government accepted the opposition’s offer to work in a bipartisan manner in response to the challenges presented by the global financial crisis, the problems the government has experienced and the hardship and dislocation that has been caused to the Australian public, the banking sector and the financial markets in this country would not have occurred. We would not have seen funds frozen in these accounts to the extent that they have been. We would not have seen the massive dislocation in the financial sector as depositors moved money from one umbrella to another, not sure whether their institution was covered by the guarantee, not sure whether their account was covered by the guarantee, and all the time hearing the Prime Minister’s words: ‘These funds are guaranteed; therefore these funds are protected; therefore these funds are safe.’ By implication, the rest were not.

Had the government just taken up our offer to work with them in a bipartisan fashion, had the government listened to the suggestion that an appropriations bill was needed six weeks ago, none of this would have been necessary. But what is becoming a hallmark of this government is that it refuses to acknowledge its errors. It refuses to acknowledge that the opposition has a legitimate role in good public policy development in this country. The Deputy Prime Minister told us that we should get out of the way. The Treasurer said that we were completely irrelevant—the same Treasurer who has been resisting for six weeks the call to introduce an appropriations bill to give effect to the wholesale term funding guarantee. Today the Treasurer eventually caved in to the common sense being put forward by the opposition and introduced this bill. What a waste of time, all because of the arrogance and the incapacity of this government to admit its mistakes.