Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Hansard source

I rise to oppose the Australian Business Investment Partnership Bill 2009 and the Australian Business Investment Partnership (Consequential Amendment) Bill 2009. This legislation is flawed both in policy and in fact. As a coalition, we oppose this legislation because, in many ways, having come from the real world of commercial banking or the financial services sector, we understand what it means for the government to enter into a market. We understand what it means when the government enters into the financial services industry.

I reflect on my own experiences in this regard as, in part, a guiding light to the position that we are taking today. I began my legal career as a banking and finance lawyer in the late eighties and early nineties. At that time, the law firm that I was working with, a major Australian law firm, was charged with mopping up the failed State Bank of Victoria and in particular was responsible for unwinding numerous transactions involving the finance arm of the State Bank of Victoria, Tricontinental. Some of the deals were extraordinary—deals being run through jurisdictions around the world to minimise tax and, in the end, in many cases, to avoid tax. Significantly, in the case of Tricontinental, they used the state government balance sheet to extend credit to people who should not have been lent that money.

I reflect on the State Bank of South Australia, which, like the State Bank of Victoria, had a long history, extending back to the 1800s. The State Bank of South Australia had liabilities that officially were on the record at over $3 billion but in fact were closer to $10 billion. The State Bank of South Australia was in the business of lending money to people who should not have been lent money. In the cases of both the State Bank of Victoria and the State Bank of South Australia, many of the loans were secured against commercial property—commercial property where the borrowers themselves had little or no exposure to the risk associated with the venture.

The experience of the Labor Party in Western Australia, WA Inc., is also well documented—a detailed record yet again of the reasons why governments should not get into the business of direct lending to individual companies on the scale that is proposed in the legislation that is currently before the House.

The Prime Minister has given the bill the title of ‘Australian Business Investment Partnership Bill’. What codswallop! It is a banking bill. Even the previous speaker from the Labor Party just referred to it as a bank. It quacks like a duck, it waddles like a duck, it is in water—it is a bank. The only thing that separates this from being something with the title of ‘bank’ is that it is not supervised by the Australian Prudential Regulation Authority as an authorised deposit-taking institution. Not only is it not properly supervised by APRA, as a bank would be, but it is specifically excluded from the Trade Practices Act because it allows the shareholders and directors to collude, which would normally be in breach of the Trade Practices Act. It goes further—whilst I am on the issue of corporate governance. There are no independent directors. There is only one director, who is the chairman, who is guardian of the interests of the most exposed shareholder to this entity, the Commonwealth government.

My leader, the member for Wentworth, earlier in this debate laid down all the very good reasons why we are opposing this legislation, relating to the detail of the bill. But I do want to specifically refer to some of the particular items in the legislation. If we separate out a lot of the guff associated with the interpretation of the legislation before the House, clause 7 of the legislation, which I recollect, refers specifically to two items which will be the objects of the legislation. The first item deals with commercial property. The commercial property aspect specifically says that the commercial property should be ‘financially viable’. There is no defined term associated with ‘financially viable’. What ‘financially viable’ may be is open to the interpretation of the shareholders and the board. The second is clause 7(2), which says:

A further object … is to provide financing in other areas of commercial lending through financing arrangements of a kind agreed to by the members …

Carte blanche—whatever you want! Here is $30 billion, of which $28 billion comes from the Australian taxpayer or is guaranteed by the Australian taxpayer. This single clause here, clause 7(2) of this bill, is the most damning indictment of the Rudd government that we have seen in the last 18 months when it comes to seeking the opportunity of this parliament, and the will of this parliament, to give them carte blanche to spend as they choose.

Clause 7(2) basically says, ‘Well, we want a blank cheque from the Australian taxpayers to go into the business of lending.’ There are no restrictions. That effectively means that, with the agreement of the banks—and we will get to the balance of the relationship between the banks and the Commonwealth government in a moment—and with the agreement of the entire entity, Ruddbank can lend money to anyone for any purpose, under any circumstances. That very broad definition allows this entity to go to places where, in all truth, the banks themselves do not want to go.

We asked the government during the briefings, ‘Isn’t this simply going to be a case of the four major banks in Australia abrogating their responsibilities to an existing borrower and instead substituting, through Ruddbank, the Commonwealth taxpayer?’ The response was: ‘Well, in the shareholder agreement, there is an agreement between the four major banks and the Australian government that, if the banks have an exposure in an existing syndicate, they will maintain their existing ratios in relation to those exposures.’ Let us take, for example, the situation where one of the major banks has an exposure, as part of a syndicate, to a major property developer. Let us say that the total syndicate exposure is $1 billion, and that bank has a $200 million exposure. If the syndicate says they are going to drop, they are going to halve, the amount of the loan they are prepared to provide to that commercial property developer to $500 million, the bank’s proportional exposure is halved. With Ruddbank stepping in with the remaining $500 million, their exposure is not that great if it is out of a total pool of $30 billion. So, proportionally, they have maintained an exposure, but on the other hand their total exposure to that institution is much smaller.

Let us go to what was one of the main reasons for the establishment of Ruddbank. The Prime Minister said that they were concerned about foreign banks leaving Australia. There is no foreign bank restriction in this legislation. It does not say that Ruddbank will only step in where a foreign bank withdraws from a syndicate. It says ‘any bank’. In fact, it goes beyond ‘any bank’. The legislation actually states that the entity can step in, relating to commercial property assets in situations where finance relating to the assets is not available from commercial providers other than Ruddbank. So a ‘commercial provider’ could be any number of different entities. They go on to say the assets would be otherwise financially viable. But that is only in relation to property, mind you. There are no such restrictions in relation to what could be a pool of money for a whole range of different initiatives—initiatives similar to those that were undertaken by the State Bank of Victoria, the State Bank of South Australia and Western Australia Inc.

Mr Deputy Speaker Schultz, as you as the member for Hume will recall, I was involved in the privatisation of the State Bank of New South Wales. At that time, even though we had had the financial collapses in South Australia and in Victoria, when I was engaged as one of the project managers on the privatisation of the State Bank, we—the New South Wales Treasury—as a shareholder had to do a due diligence on the State Bank of New South Wales, even though as a shareholder we were meant to be fully informed of what they were up to. But, because we were not fully informed, we had to do our own due diligence before we let anyone else have a look. And what did we discover? Nick Whitlam, as the former Chief Executive of the State Bank of New South Wales, had taken them on balance sheet risk that never would be undertaken by a private sector bank. He was able to do that because it was a government guaranteed entity. It was a government funded, government guaranteed entity.

Let us be very clear about it because, again, I come back to my own personal experience with the privatisation of GIO. They had a minority interest in a state insurance office which was deemed to be a Crown entity because of that minority interest. Do not be under any illusion about this: this will be a Crown entity; it is a part of the Crown. It is borrowing money on the Crown against the Crown guarantee. It will be treated by the markets as a Crown entity in the very same way that Fannie Mae and Freddie Mac, even though ‘privately owned’, were treated by the markets as part of the US government, and that is where much of the subprime crisis actually started. Let us be very clear about that. This is a Crown entity without the normal corporate governance provisions and without the normal prudential supervision. It is a Crown entity that is venturing into an area where governments have feared to tread since the spectacular failure of Labor state government banks, and now Labor—true to their nature, true to their tune—are coming back to the pit, going to taxpayers and, on this occasion, raising up to $28 billion to go into the commercial property sector. Lord help us! As if one lesson was not learned, as if two lessons were not learned, as if three lessons were not learned—and now it is all happening again. It is like Groundhog Day. If you let Labor have a go at the Treasury, they have to be involved in banking and commercial property to boot.

The justification for the bill is foreign banks pulling out. Let us be fair dinkum about this: Treasury could not even state the name of the bank that had pulled out of Australia. That is very important. We asked them straight to their faces: which foreign bank has pulled out of Australia? They did not want to say, but in the Australian today there is a reference to RBS, the Royal Bank of Scotland, now owned by the British taxpayers, saying that they have reduced their exposure in Australia. Okay, that will happen from time to time—of course it will happen from time to time—but the latest lending figures clearly indicate that Australian banks are expanding their lending operations in Australia at this point in time.

The latest information clearly states that Australian financial institutions are financially viable. In fact, the four major banks who are tipping in $500 million each to this initiative are amongst the 12 best capitalised and largest banks in the world today. I would like to think that whilst that may have something to do with their good management over time—there has not always been good management in those banks—it also directly relates to the fact that Australian banks have the very best prudential supervision in the world and the very best regulation in the world. That came about, overwhelmingly, as a result of the reforms of the Wallis inquiry under the previous coalition government, initiated by the then Treasurer Peter Costello, the member for Higgins, and followed up with the Financial Services Reform Act, which significantly changed the way that financial products can be sold to the retail sector. That was a bill that I introduced as Minister for Financial Services and Regulation. They were hard bills. Labor were amending those bills extravagantly, one might say, in the Senate. They were simply moving ridiculous—even spurious—amendments, because they felt the need to be relevant at that time, rather than moving amendments that would improve the bills.

Let us be very clear: the government said that they would be entering into a so-called partnership—it seems like a very skewed partnership—so that they could fill the vacuum when foreign banks pulled out of Australia. Far from filling the vacuum when foreign banks pull out of Australia, this bill will encourage them to pull out of Australia. It will encourage them to pull out of syndicates at the first available opportunity, knowing that they can look for better assets than commercial property to invest in in Australia and that, at the same time, the government will stand behind them with Ruddbank ready, at taxpayers’ expense, to fill the vacuum.

This is bad legislation. It backs bad policy—because this is what the Labor Party does. The Labor Party goes into a deep, dark abyss of debt and deficit in a search to be all things to all people. Sometimes you have to take a stand against people who want free money and against people who seek to gain commercial advantage from taxpayers. But, most significantly, you have to take a stand for the taxpayers who are going to be burdened by this very significant exposure to the Australian commercial property market at a time when there are a large range of areas of the Australian economy that could do with liquidity. This is not the answer; this is a bad answer and it is bad policy. I am very pleased that we are opposing it.

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