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Wholesale term funding guarantee.

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The Rudd Government must immediately present legislation to authorise the provision of wholesale term funding guarantees to Australian banks. Without legislation the guarantees will not be effective commercially or practically.

The Opposition will facilitate the speedy passage of the necessary legislation. But the Government should circulate the legislation for the consideration of all parties this week and enable the Opposition to discuss it fully with the Government.

The legislation should include provisions that deal with a sunset date and a commitment to the guarantee being provided on commercial terms. It should take into account any further or additional prudential supervision that may be required; the role of the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) in this process should be explicit.

There should be a provision in the legislation to require the immediate tabling in Parliament of any guarantees given by the Government indicating the amount guaranteed and the institution involved; transparency is paramount given the potential size of the guarantees.

This would have been much easier to resolve had the Government acted in the bipartisan manner we proposed several months ago and sat down with us to discuss these measures collaboratively. They instead urged us, in the Deputy Prime Minister’s words, “to just get out of the way” because we were, as the Treasurer said, “completely irrelevant.”

So much for bipartisanship.

Despite this the Opposition is prepared to work cooperatively with the Government and urges it to present any proposed legislation to the Opposition this week.

For nearly a month now, the Opposition has urged the Government to make its wholesale term funding guarantee arrangements the subject of legislation. The Government has rejected this suggestion and affirmed, as recently as last Thursday in Question Time, that it proposed to implement the wholesale term funding guarantee without any legislation.

Two facts are acknowledged by both the Government and the Opposition.

First, the wholesale term funding guarantee involves the Commonwealth taking on very substantial contingent liabilities. Indeed MYEFO describes them as “unquantifiable”.


Second, while the Commonwealth can grant the guarantee administratively (without legislation), it cannot pay any moneys pursuant to such a guarantee without the Parliament passing an appropriation bill; in short, the Government might be able to write a cheque but without the approval of the Parliament, it cannot be cashed.

The Government’s position, therefore, seems to be that Parliament should be ignored when the decision to assume “unquantifiably” large liabilities is taken.

So much for democracy.

But this is very much in the style of a Government that has refused to debate its response to the global financial crisis in the Parliament and is yet to deliver a coherent answer to any question asked of it about its response.

But if arguments about democracy and accountability to the Parliament are of no importance to Mr Rudd, there is another reason why legislation is vital - a reason the Government has either wilfully, or incompetently, ignored.

For a Government guarantee to be given a AAA credit rating, the Government’s obligation to pay on the guarantee must be, in the words of Standard & Poors, “unconditional, irrevocable and timely”. This is no more than common sense - the beneficiary of a guarantee wants to know that if a default occurs he will get his money quick smart.

Without legislation, any payment on the proposed Government guarantee will be conditional on an appropriation bill being passed. It will not be timely - who is to say how long Parliament may take to pass the appropriation bill; for example, the Parliament may be in recess.

The consequence of the Government’s bungling of yet another aspect of its response to the global financial crisis is that the wholesale term funding guarantee, which is designed to facilitate Australian banks borrowing in global wholesale markets, will not effectively achieve its purpose. Australian banks will lose out, as will the millions of Australians who depend on them for finance. It is worth noting that other countries are dealing with this matter by legislation, notably the United Kingdom.

There are only two sitting weeks left this year.

The Government has wasted a lot of time getting this matter wrong, now it must move swiftly to get it right.

It is time for Labor to put party politics aside and work cooperatively with the Coalition in the nation’s interest.

17 November 2008