Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008: Second Reading

We are very keen to see the back of it and we are keen for the opposition’s support so that the working people of Australia know that when they enter their workplace they are entitled to fair wages and conditions that will not be stripped away because of laws that are passed by this House.

I support this bill because it gives legislative force to the government’s guarantee scheme for large deposits and wholesale funding and provides a standing authorisation to pay any claims that are made under that scheme. As the Treasurer pointed out in his second reading speech, this legislation is not required to establish the wholesale guarantee. That is established by a deed of guarantee that was signed by the Treasurer last week. But the banking industry has asked for the standing authorisation to avoid the need to pass special legislation in the event that the guarantee is ever called upon. Our banks borrow a lot of money from overseas and the lenders want certainty that they can get access to their money quickly. Without this, they would presumably place a higher premium on the money that they lend to Australian banks. The government has opted for this approach to make sure that our banks are not disadvantaged in competing for credit in world financial markets.

It gives you a picture of just how interconnected the world now is. If there is one thing that the financial crisis has shown us it is how interconnected the world is. The seeds of this problem were sown on Wall Street in the United States. Toxic loans that were created by merchant bankers in the United States have poisoned world financial markets and economies all around the world. The world is now on the brink of a global recession, all because of the toxic loans that were originated by merchant bankers on Wall Street. Major economies around the world are now either in recession or on the brink of recession. Parts of Europe and Japan are already in recession. The US and the UK are about to plunge into recession.

Australia is better placed than most. A quick comparison between what is happening here in Australia and what you see in the United States: we are expecting our economy to continue to grow, in the order of about two per cent, whereas the United States economy is on the cusp of recession. We are expecting to stay in surplus; in the United States you now see a deficit in the order of about $1.4 trillion.

Another point that needs to be made about the American economy is that you will see unemployment there rise to around 7.5 per cent next year. We are in a better position than most for four good reasons: the first is our fiscal position; the second is our banks-and we will talk more about that in this debate, I am sure, but they are amongst the strongest in the world-the third is our prudential system, which is the envy of the world; and the fourth is the strength of our biggest trading partner, China, where the economy is expected to grow by about eight per cent this year.

First, the surplus. The surplus has come about because of a lot of hard work by governments of both political persuasions-Labor and Liberal-over the last 20 years. Credit has to go to the Howard government but it also goes to the Hawke and Keating governments. This is an important point to make. Things like floating the dollar and introducing compulsory superannuation and competition policy are all recognised by independent economists as being responsible for the last 15 years of economic growth. This all aids our ability to inject $10 billion into the economy to help fuel and stimulate the economy and help ensure that the economy continues to grow. Second, we have strong banks in good working order. It is a bit unusual in the current environment. It is a bit unusual when we hear about another bank hitting the wall every day. Thirty banks have hit the wall or have had to be bailed out by their governments in the last few months. Compare that to Australia where our big four banks are amongst only 20 banks worldwide that have a AA credit rating. They are well capitalised and well regulated. The legislation that we are talking about tonight is all about keeping it that way and keeping them strong.

The third point is about the regulatory framework in which we operate: the prudential system. We have one of the strongest regulatory frameworks in the world. Bodies like APRA, ASIC, Treasury and the RBA are responsible for the good position we find ourselves in. These are the people who have helped ensure that Australia is in a better position than most other economies to deal with this crisis. These are the same people that the opposition have been attacking-people like Ken Henry, Secretary of the Treasury, and Glenn Stevens, Governor of the Reserve Bank. The opposition have been alleging over the last few weeks that our financial regulators and our Treasury officials have done nothing less than cook the books. They have said that they fudged the figures in MYEFO. One backbencher said that the Reserve Bank increased interest rates for political reasons. They effectively said that these organisations-the Reserve Bank and the Treasury, our two great and important regulators-have allowed themselves to be manipulated by the government. Remember what the member for Goldstein said at the doors only a couple of weeks ago: he talked about the ‘smell of manipulation’. What he was effectively saying was that Treasury had allowed itself to be manipulated for political ends.

I think that when the history of this crisis is written it will applaud the actions of Treasury, the actions of the Reserve Bank and the actions of the other regulators that have held us in good stead. That is already what the banking industry is saying and that is what regulators around the world are saying about Australia’s regulators and regulatory system. It is their good work that has helped shield us from the full impact of the global financial crisis, by putting together the $10 billion Economic Security Strategy, the bank deposit guarantee scheme and the guarantees that we are discussing here tonight on wholesale term funding.

The fourth reason Australia finds itself in a better position than most is the strength of our biggest trading partner-China. China is a life jacket in choppy seas. It is a powerhouse economy. It is also our largest trading partner and our second largest export market. Against the backdrop of the greatest financial crisis since the Great Depression we are going to see the Chinese economy continue to grow. Like every country’s economy, China’s economy is expected to slow, but it will still grow at a rate of around eight per cent this year. That is what will help underpin our own growth. We should keep in mind that we trade more with Asia than with Europe and the United States combined.

I was in Beijing a couple of weeks ago as part of a parliamentary delegation and I saw firsthand the Chinese steely determination to make sure that their economy continues to grow by seven or eight per cent per annum. That sort of growth will mean that the Chinese economy will double in the next 10 years and quadruple in the next 20. The proof of this determination is the massive stimulus package that the Chinese government announced only a few weeks ago-four trillion yuan or A$857 billion. That is about 15 per cent of Chinese GDP. It just goes to show the determination of the Chinese government to make sure its economy continues to grow over the next year, the next decade and the next two decades. It will create the largest economy in the world and it will ensure that the Australian economy remains strong in these difficult and turbulent times. It is good news for Australia and it is good news for the world.

All of these factors-the surplus, our banks, our regulatory system and the strength of our major trading partner, China-are very important. They give us the capacity to weather this storm. None of these mean we will get off scot-free. Things are about to get a lot tougher. The global financial crisis has already stripped $40 billion from the forward estimates. Treasury forecasts, Reserve Bank forecasts and IMF forecasts all show that the economy is going to slow next year and unemployment will rise. That is why the Reserve Bank has cut interest rates for the third time in succession, now totalling two per cent in the last three months. The total impact of that is significant. A two per cent cut in interest rates means a lot of money in the wallets and purses of mums and dads. For a $250,000 home loan, in the order of an extra $300 a month will no longer be in the hands of the banks. All of that money counts.

These forecasts are also the reason the government is using the surplus to inject an extra $10 billion into the economy. It is stimulating demand to make sure that the economy continues to grow and that we protect Australian jobs. I am glad to see that that package was passed by the Senate last night. In a little over two weeks it will start arriving in the pockets, the wallets and the purses of the people who need it most-pensioners, young families and first home buyers. It will benefit some 60,000 people in the electorate of Blaxland. It will have a big impact in Blaxland. It is integral to the role that this government plays-that any responsible government must play-in making sure the economy continues to grow and Australian jobs are protected.

When governments around the world began guaranteeing deposits and wholesale lending it became necessary for this government to give similar guarantees. That is why the government announced the deposit and the wholesale guarantee schemes on 12 October. Our banks, unlike others around the world, are not about to go under. These guarantees provide certainty and confidence to those who are going to rely on them. That is what this debate and this crisis are really all about-confidence. That is what explains the plunge in share prices and the paralysis in financial markets. Confidence is now what we have to restore.

Our banks are among the strongest in the world but they do rely on foreign lenders for a lot of their credit. When markets went into meltdown and countries around the world announced similar guarantees, it became important to act quickly to make sure that our banks were not placed at a disadvantage, to make sure that our banks remain competitive. If we did not guarantee the bank deposits and wholesale funding, our banks would find it more difficult to borrow than banks which had these guarantees. This helps them borrow and get access to cheaper capital, and this means lower interest rates. I will give you an example of the benefit we have already seen.

Soon after the deposit guarantee was announced, the ANZ and other banks cut interest rates by a further 0.2 per cent. A cut in interest rates by banks of 0.2 per cent has another big effect: it means more money in the purses and the wallets of the people we represent-something like an extra $40 a month. They were able to do that only because of the guarantee we provided on deposits. The ANZ and other banks said that they were able to do this because of policy measures here and overseas. We legislated for the Financial Claims Scheme six weeks ago-long after it was recommended to the former government by the HIH commission.

This bill gives legislative backing to the guarantee scheme for larger deposits and wholesale funding. It also establishes a standing appropriation in the unlikely event that this scheme would ever need to be called upon. As I mentioned earlier, this is what the banks were asking for. This is what they said was necessary to make sure that potential lenders do not charge a premium for the risk of any claim on the guarantee being subject to a special appropriation bill. That is why this bill has been introduced and why it should receive quick passage-to restore confidence in financial markets and to give our banks access to credit at competitive rates.

I note in passing that page 1 of today’s Australian Financial Review talks about this legislation: the need for it and the need for the quick passage of it. The article also quoted the Leader of the Opposition, saying:

Mr Turnbull argued yesterday that the wholesale funding guarantee should be legislated partly because “if the commonwealth is to take on contingent liabilities running into hundreds of billions of dollars there should be a parliamentary debate…

Well, fair enough, but where is he? If this debate is so important, if the Leader of the Opposition believes that this is the most important bill to come before the parliament this year and it is worthy of a parliamentary debate, I would expect to see the Leader of the Opposition participate in this debate. Instead, what we find is that the shadow Treasurer is leading for the opposition on what is supposed to be a very important bill. I think it shines an important light on what the Leader of the Opposition is all about here. It is about politics rather than the policy. Judge the man not by what he says but by what he does. Whilst he says that the legislation is important, he has not come in here to make the point. If this legislation were as important to him as he says it is then he would have participated in this debate. But he has chosen not to. He has chosen to use this issue for political point scoring-to send a press release out, to give a quote to the Australian Financial Review, but not to come in here and do what he is telling everybody else it is important to do, and that is to debate this in the parliament.

The government has taken bold and deliberate action on a number of fronts: the $10 billion economic security strategy, the $6 billion car plan, the $300 million to local government for community infrastructure that was announced last week, the deposit guarantee and now the wholesale guarantee. Taken together they represent coordinated action by government and by our regulators to protect the Australian economy and to make sure that we can do what we need to do to get through this financial storm, to keep the economy growing at a time when other economies around the world are going into recession, to protect deposits, to keep banks working and to make it easier for them to borrow, to get money into the hands of people who need it and to protect Australian jobs at a time when people are losing their jobs all around the world. That is our responsibility and that is what this bill is all about. I commend the bill to the House.