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Tuesday, 29 May 1984
Page: 2058

Senator GARETH EVANS (Attorney-General)(8.49) —I move:

That the Bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows-

The main purpose of the Bill is to amend the Commonwealth Banks Act 1959 to modernise the structure of the constituent banks of the Commonwealth Banking Corporation and to substantially improve the capital position of the Commonwealth Trading Bank.

These amendments were decided upon following a major review of the financial structure and organisation of the Commonwealth Banking Corporation which was conducted by the corporation board and management and the Treasury.

The structure of the Australian financial system has changed markedly since the corporation banks were established under the Commonwealth Banks legislation passed in 1959. The proposed changes are designed to place the corporation banks in a position where they will be able to compete on a fully comparable basis with the major private banking and non-banking institutions.

The main provisions of the Bill were foreshadowed in the Treasurer's Press release of 2 April 1984.

A major aspect of the Bill provides for the Commonwealth Savings Bank to become a wholly owned subsidiary of the Commonwealth Trading Bank. At present, the Commonwealth Savings Bank and Commonwealth Trading Bank are separate public statutory bodies. Reorganisation on this basis will establish a structure similar to that of the private banking groups and will allow a more effective organisation of the resources of the two banks. This reorganisation will not change the basic functions of the Commonwealth Savings Bank. However, it should allow for an improvement in the range of the services offered by both the trading and savings banks.

Following from this reorganisation, the Bill also provides for the name of the restructured Commonwealth Trading Bank to be changed to the 'Commonwealth Bank of Australia'. This re-establishes the original name of the Commonwealth Bank when it commenced operations in 1912. The name of the Commonwealth Savings Bank will not be changed.

The Bill also allows for the capital position of the Commonwealth Bank to be bolstered in order to strengthen its competitive ability and profitability.

In the 1983-84 Budget, the Treasurer announced that there would be an injection of $15m in additional capital into the Commonwealth Bank. This will be effected through the Bill. The Bill also provides for the transfer of $75m from the reserves of the Commonwealth Development Bank to the Commonwealth Bank. The transfer of reserves from the Commonwealth Development Bank will still leave the Development Bank with a level of capital and reserves equivalent to the very high ratio of about one quarter of its liabilities. I would emphasise that this transfer of reserves will not affect the current or prospective operations of the Development Bank.

In addition to these measures, I would mention that the board of the Corporation has also decided that the Corporation and its constitutent banks will revalue premises to reflect current market valuations. This will have a substantial positive impact on the capital position of the Commonwealth Bank.

The Bill also provides for the Government to increase the scope available to it in future to add to the capital of the Commonwealth Bank and the Savings Bank through allowing higher retained earnings. The existing statutory provisions require that half of the after-tax profits of the Commonwealth Trading Bank and half of the net profits of the Savings Bank be paid to the Commonwealth. The new provisions will introduce flexibility into the profit sharing arrangements and allow for dividend arrangements more broadly in line with the private banking groups. They provide for the proportion of net profits to be paid by the Commonwealth Bank to be determined by the Treasurer, with a maximum payment of 45 per cent of the net profits of the Commonwealth Bank and its savings bank subsidiary, the Commonwealth Savings Bank. The Savings Bank will pay a dividend to the Commonwealth Bank, and the amount of that dividend in any year will be determined by the corporation board. There will continue to be no dividend requirement on the Commonwealth Development Bank.

The Bill also includes specific provisions relating to the present financial year, that is, prior to the main provisions of the Bill coming into effect. Those provisions provide that for the year ending 30 June 1984, the dividend payable to the Commonwealth by the Commonwealth Trading Bank and Commonwealth Savings Bank shall be determined by the Treasurer but shall not represent more than 45 per cent of net profits.

Under the present Act, the Commonwealth Savings Bank, the Commonwealth Development Bank and the Commonwealth Banking Corporation, but not the Commonwealth Trading Bank, have been exempt from Commonwealth company income tax . The Bill removes the exemption enjoyed by those banks. However, the Bill does provide for a rebate to be given for any profit sharing payments made by the Commonwealth Savings Bank under the State Savings Bank amalgamation agreements. Those payments are made on a pre-tax basis and to not provide a rebate would impose an unfair burden on the Bank relative to its competitors.

The Bill also provides for a more flexible management and board structure for the corporation banks by removing the statutory general manager positions for the Trading Bank, the Savings Bank and the Development Bank and also the statutory executive committees of those banks. The statutory positions of managing director and deputy managing director will however remain. The present Act imposes certain restrictions on the Corporation's employment of graduates. The Bill removes the present age limit and the restriction on numbers of graduates, and allows the Corporation to include graduates of colleges of advanced education and other tertiary institutions.

I commend the Commonwealth Banks Amendment Bill 1984 to honourable senators.

Debate (on motion by Senator Kilgariff) adjourned.