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Wednesday, 26 November 2008
Page: 11511


Mr TURNBULL (Leader of the Opposition) (2:25 PM) —Experience and history tell us that Labor deficits are never temporary. The last Labor deficit lasted for six years. It was not temporary. It went on for six long years, destroying jobs, and it only came to an end with the election of a coalition government determined to do the hard work to clean up the mess that Labor committed.

The Prime Minister has today in his 22-minute address—which he was kind enough to give us a copy of 45 minutes before he started—sought a leave pass to abandon fiscal discipline. Only two days ago on 24 November the Prime Minister was asked whether he was prepared to push the budget into deficit and he said twice, ‘We do not see the need to borrow.’ On the same day his finance minister was asked the same question and he said, ‘We’re committed to keeping the budget in surplus.’ Forty-eight hours on and that has been completely abandoned.

The key to managing difficult times is discipline and the willingness, the guts to take tough decisions. All through this year the Prime Minister has made no hard decisions. The Prime Minister has mismanaged our response to the global financial crisis. Right at the beginning of the year when the rest of the world was focused on the looming threat of the credit crisis coming out of the subprime crisis in the United States and fuelled by a collapse in housing prices, when the rest of the world was focused on that, our government in Australia declared a war on inflation, which it continued in its rhetoric right up until September and the collapse of Lehman Brothers.

The reality of the global financial crisis only dawned on the Prime Minister in mid-September. Until then he was still waging war on inflation. If honourable members on the government benches doubt me, let us look at what the Prime Minister said about the budget. Remember, the government is now claiming that the budget was designed to ward off the damage from the global financial crisis and they put it together with the global financial crisis in mind. There is no doubt that the opposition had the global financial crisis in mind. We said again and again that we should not be rushing into measures, be they monetary or fiscal, that could overdo the downward pressure on economic activity that is coming in from the rest of the world. That is what we were saying consistently from the very beginning of the year. The Prime Minister on 13 May said:

That is why as we embark upon this budget our first responsibility is to fight the fight against inflation…

And on 2 May the Prime Minister said:

… our job is to produce a responsible budget for the overall economy and that means fighting the fight against inflation. We are waging a war against inflation at present…

Of course, from the beginning of the year when inflation was three per cent and had moved outside of the target band of the Reserve Bank, it was the Treasurer who said inflation was out of control. He said the inflation genie was out of the bottle. He egged on the Reserve Bank to put up rates, and rates went up twice at the beginning of this year. As honourable members are aware, monetary policy has very long lags. It is not a quick fix. When you put interest rates up or down, it takes a long time for that to take effect. The government was the only government in the developed world that was ignoring the global financial crisis, ignoring the global impact of that crisis and declaring its own war on inflation, when much darker storm clouds were on the economic horizon. The impact of those rate rises is being felt in the economy right now, just when we need it least. That is the consequence of the government’s failure to take account of the reality of the global financial crisis—a terrible error of judgement.

Why did they make it? They made it because, throughout this whole year, the Prime Minister has not had an economic strategy; he has had a political strategy. His aim was to blacken the economic reputation of the Howard government. When he looked at the economic metrics, the numbers that he inherited—be it the money in the bank at the Treasury; be it the fact that all of Labor’s debt was paid off; be it the fact that the former Treasurer, the member for Higgins, had put aside money in the Future Fund to take care of the previously unfunded pension obligations to public servants and defence personnel—including record lows in unemployment and strong economic growth, he could only find one which was not ideal, and that was inflation, so he said, ‘This is what I will use to blacken the reputation of the Howard government.’ He went after that with a purely political strategy and, as a consequence, talked up inflation and interest rates and did so at precisely the wrong time.

Is there anybody in this House or in this country who believes it was in the national interest for us to feel the consequences of monetary tightening today? Of course not. Everybody should be focused on the three most important priorities of the government, this House and every member of the parliament: jobs, jobs, jobs. That is the focus. That is what the government should be focused on, and yet they put pressure on the economy, downward pressure on economic growth at the beginning of this year, and they did it purely for political purposes. Always politics, always spin.

If the government want to claim that they have had a coherent economic strategy, let me ask this: how could they claim to be coherent if waging war on inflation was the No. 1 priority—if the overwhelming and overriding mission was the war on inflation because it was out of control at a little over three per cent? Now that it is five per cent, that war seems to have been abandoned. Obviously the campaign was not going very well, so new wars have been declared across the board.

We now come to the question of how we should address the global financial crisis. In the here and now, from the time Lehman Brothers collapsed and the crisis reached a new level of intensity in September, we have made the offer to work with the government on a bipartisan basis. We have invited the government to sit down with us; we have invited them to collaborate. We have not had the courtesy of any response to that other than contempt.

Government members interjecting—


Mr TURNBULL —Government members are mocking and sneering but they should be reserving their mockery for their own frontbench. Let’s not forget it was the opposition who said—privately, in briefings, directly to ministers and then publicly—that the wholesale term funding guarantee would not be effective unless there was an appropriation law passed by this parliament. That was so blindingly obvious to everybody familiar with financial markets but apparently not to the Treasurer. He had to be begged by the banks to provide that simple piece of legislation—in effect a boilerplate—to ensure that the government guarantee could be described by credit rating agencies and others as irrevocable, unconditional and timely in terms of payment, and he was pressured by the opposition. Then, when he stood up in parliament last night, he had the audacity to blame the opposition for drawing this defect in his own plans to his attention. What a joke! That is like somebody complaining that a helpful passer-by has drawn attention to a hole in his boat before he puts it in the water.

The reality is: if the Treasurer had not finally woken up to the consequences of his own mismanagement and if we had not proceeded to pass this appropriation bill, the wholesale term funding guarantees upon which our banks, big and small, are relying to get the money they need to lend to Australians, to keep people in jobs and to keep the wheels of industry turning, would not have been able to be used and they would not have been effective. The government admit this now, because they have proceeded to bring the appropriation bill into the parliament, and yet they complain that we are lacking in bipartisanship. We have consistently made constructive proposals throughout this year. We were right about inflation at the beginning of the year—so much is very plain. We were right about the need to appropriate.

We recommended that the retail deposit guarantee be set at $100,000. That was not a particularly original number. That is where it is in most countries around the world, and there is a reason for that. When you guarantee deposits, you obviously have a distorting effect on the market regardless of where the guaranteed level is set, because you plainly benefit those institutions and funds which have the guarantee versus those that do not, and that is why historically governments that have provided deposit insurance or deposit guarantees have set them at levels that are high enough to provide comfort to households and small businesses in terms of their deposits but not so large as to distort financial markets. That is essentially the global norm.

What did the Prime Minister do? When this matter came up for decision he did not sit down with the Reserve Bank governor. He did not sit down with the one regulatory agency that not only has the greatest expertise in this area but is actively involved in the financial markets. He did not sit down with the Reserve Bank. He did not call the Reserve Bank governor. No, he went for the big, grand gesture. He went for an unlimited deposit guarantee—in other words, the maximum possible distortion. You could not distort markets more than by having an unlimited guarantee. And what have we seen? We have seen adverse consequences around the country.

Let us just walk through some of the things the Prime Minister has done by taking that step. Two hundred and seventy thousand Australians have had their savings, mortgage funds, cash management trusts and similar investment institution funds frozen to redemptions. That is because of the distortion that has been created by the government. Finance companies who provide the money to fund motor vehicle and equipment dealers’ floor plans—in other words, to finance the sale of cars and equipment—have not been able to raise money in order to continue funding their operations. Why is that? The cash management trusts that were the largest investors in the short-term debt obligations of these finance companies and in what is called commercial paper are investing overwhelmingly, if not entirely, in guaranteed bank deposits. The largest cash management trust, which is run by Macquarie Bank, has announced that it is only investing in guaranteed deposits with banks and other guaranteed institutions. So what this step did was dry up sources of finance for important parts of our economy, important parts of our financial system. We are seeing real hardship every day—jobs at risk, jobs being lost. Jobs, jobs, jobs—those are the three top priorities. The Prime Minister’s response has been costing us jobs already.

When the problem with this deposit guarantee became apparent—and that was within a few days; I think the Treasurer has made that clear—what did the government do? Nothing. They did not lift a finger. They were terrified to admit they had made a mistake. Too gutless to admit that they got it wrong, the government did not make a move until a letter from the Reserve Bank to the Secretary of the Treasury found its way into the media, and there we learnt that the Reserve Bank governor himself, within a few days of this unlimited deposit guarantee having been announced, was so concerned about the adverse impacts it was having, of the kind that I have just described, that he urged the government to set a cap, and he said ‘the lower the better’. We have seen bank chief executives, leaders in the financial community, saying, ‘The government must lower the retail deposit guarantee, with a cap of around $100,000.’ We know the government will not do that, because that would result in the Prime Minister having to concede that he was wrong and that maybe the opposition has a point.

We know what the government really think about bipartisanship and collaboration. They have no interest in that. Despite our frequent efforts to sit down and work constructively with the government, which are always rebuffed, with scorn, we are told in this House by the Deputy Prime Minister that the opposition should, and I quote her, ‘Just get out of the way.’ What a commentary on parliament, what a commentary on the way government feels about parliament: ‘Just get out of the way.’ The Treasurer’s comment was that the opposition is completely irrelevant. Apparently we have nothing to add to his enormous sum of economic wisdom, the amplitude of which he demonstrates every time he rises to answer a question!

We have continued and will continue to offer constructive proposals for the management of the response to the global financial crisis. Earlier this week, I raised the very important issue of insolvency laws. The Prime Minister read part of a letter from a business owner in Queensland who is fearing the prospect of bankruptcy. There are many Australians who are concerned about these difficult times, and we receive the same letters and emails and calls and we are aware of that concern in our own communities. Over the years, one of the major criticisms of Australia’s corporate or business insolvency laws has been the fact that secured creditors have so much say—secured creditors almost invariably being the major banks—that they drive companies and businesses into a speedy fire sale liquidation receivership, destroying jobs, jobs, jobs, the three top priorities, and at the same time destroying businesses and indeed paying scant regard to the claims of other creditors, not least of which are trade creditors and so forth. So that has been a matter of concern for many years. I have seen that happen in my own experience over the years with many receiverships, which have resulted in the destruction of considerable value.

One of the great strengths of the economy of the United States, which I think we all admire, is its extraordinary resilience. The Americans have a capacity to take terrible blows and then bounce back and dust themselves off, and the great engine of the US economy gets going again. We look forward to that happening in the wake of this particular crisis. One of the reasons for that is that their insolvency laws are very much focused on restructuring, reorganisation and rehabilitation of the businesses that have found themselves in difficulties, in bankruptcy in fact.

There is an opportunity right here, right now, to look again at our insolvency laws to see what we can learn from the US experience. There has been plenty of work done on it and there are plenty of people in the insolvency industry who are very familiar with both jurisdictions. We could pull together some changes which I believe would preserve jobs. Those jobs need to be protected; we need to do everything we can to protect jobs. We call on the Prime Minister—if he has an ounce of bipartisanship in him and an ounce of genuineness in his commitment to bipartisanship—to sit down with us and look at how we can take reforms of that kind forward quickly. That will have a very material impact on how we respond to this crisis and how we ensure that, above all, we protect the jobs of Australians. This is the greatest priority of this parliament and it should be the greatest priority of this government to preserve the jobs of Australians.

We recognise there are challenges there. The government has made mistakes in its handling of the global financial crisis to date. From the very beginning of the year it has made a number of wrong calls, and we cannot afford to have any more wrong calls. We cannot afford to have any more decisions which are supposedly swift and decisive but which turn out to be rushed and bungled.

The Prime Minister gave us a tour of the global economic horizon, and there are many things he said which I think commentators and writers will find rather surprising. But the one objective of the speech he gave was the deficit he is planning to deliver. He wants a leave pass for economic laziness; he wants to be able to drop any pretence of fiscal discipline. He wants to be able to spend and he wants to be able to take whatever action he can—as long as it is not hard and as long as it is not tough. He is not interested in taking hard decisions. He is determined only to take the easy decisions and in doing so—with that lack of courage and discipline and with that political strategy—we are going to see not a temporary deficit but one that goes on for as long as we have the Rudd government leading this country. (Time expired)

Debate (on motion by Mr Albanese) adjourned.