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

Yes, crocodile tears—not a surprise from this government.

In order to facilitate a deep and liquid corporate bond market, there needs to be a sufficient volume of bonds on issue. In the wake of what we have just discussed, I want to issue a warning to this government that facilitating a greater pool of investors and a bigger supply of potential capital through the opening of the Commonwealth market to retail investors should not be used as an excuse to increase the overall level of government debt. This government is already at modern-time record levels of debt. If there were a debt Olympics, these guys would have just won gold. Since coming to power in 2007, they have increased the debt ceiling limit from $75 billion in 2008 to $200 billion in 2009 to $250 billion in 2011, and this year they say, 'We are going to run surpluses and start paying off the debt, but we need to increase our card limit to $300 billion.' How many of us would love to be able to go to the bank and say, 'We are going to increase our own credit card'? They are going to pay $12 billion a year in interest. That is 1½ national disability insurance schemes each year, or, to put it another way, that is the carbon tax and the mining tax and more each year just to pay the interest on the Labor Party debt. Well done, Labor!

In only 4½ short years the government has turned around the good ship of state from $70 billion of net assets to $143 billion of net debt. It is quite an achievement. I suspect people like Alan Bond would have gone to jail for that, but not these guys: they pat themselves on the back and tell each other they are doing a great job and how important it is to keep the ship of state on track.

In the budget handed down in May we saw the deficit for the last financial year double in only 12 months. They said: 'Don't worry. We are going to have a deficit of $22.6 billion. We are determined to contain that deficit, so that is why we are going to have a flood levy. We are going to impose a flood levy on Australians of $1.72 billion because we are so determined to keep the deficit at $22 billion and start paying off the debt.' Lo and behold, what happens? The deficit goes from $22 billion to $44 billion.

Lucky you had that flood levy. Gee, that was a great idea. Let's impose a flood levy, undermine consumer confidence, undermine business confidence. But it will all be okay, because we will maintain the state of the budget, and the budget deficit doubles. Well done, Labor. Who knows what the final budget outcomes will look like? We know what they are up to: they are freezing grants and shuffling money between years, desperate to get that ever elusive surplus. The problem is that they are leaving us with a structural problem that may well take a generation to fix, because what they are doing is betting on a mining boom—a mining boom that their own resources minister said has come to an end—which undeniably will have an impact on revenue.

There are a few issues here that need to be addressed. In order to foster that liquid and deep corporate bond market the government should think about the issue of equalisation of tax treatment between income from equity investments and income from debt. I am not saying in any way that we would reduce that but, if you want a liquid retail bond market, it is an issue that does need to be addressed. As I said, the after-tax yield on Commonwealth securities may not look all that attractive relative to the fully-franked returns on equities but, if there is a change of government, companies will be more profitable, the return on equities will improve and there will be less need to have government debt.

As it stands, investors are able to receive a tax concession in the form of franking credit, which I addressed a little bit earlier, and that is an incentive to go with equities over debt. What we saw in the May budget this year was the government abandon its mining-resource-rent-tax-funded initiative to offer a 50 per cent discount on interest income earned by households. The tax incentive in the form of a franking credit on equity investments compared to the tax treatment of interest income from CGS will impact the minds of some investors when deciding on their investment strategies. Without any policy initiatives to dress the equalisation of tax treatment for CGS, it is difficult to see how retail investors will react to the establishment of a new market. Further to this, the coalition also believes that an education process should be undertaken to inform retail investors of the steps the government has taken in order to foster development of the market. This should be accompanied by measures to promote the new market. Obviously, these initiatives should be undertaken in conjunction with industry.

Finally, I would like to use this opportunity to restate the coalition's commitment to a financial system inquiry. I have been calling for a root and branch review of the financial system for over three years. I even released draft terms of reference for such an inquiry. I am not saying those terms of reference are definitive. Obviously there are a number of issues that need to be addressed, but it is our policy to have a son of the Wallis financial system inquiry or a granddaughter of Campbell—given that we do not want to be sexist in any way. The Campbell inquiry was the first major inquiry into financial services system, initiated by John Howard. To his credit—I am feeling so magnanimous today—Paul Keating deregulated the banking system, provided licences to new entrants to the market. That was hugely important although a little rocky during the eighties with the free availability of credit, but it was a systemic change initiated by John Howard. The coalition in government initiated the Wallis inquiry of the financial system, which was hugely important in helping to inoculate us against the volatility that came with the global financial crisis.

The signature initiative to come out of Wallis—which I would suggest should not necessarily be revisited—was the three-pillars approach to financial system regulation. Having the Reserve Bank deal with the general economic issues, having a separate prudential regulator and having a corporate regulator together was a hugely important initiative. During the financial crisis, each of the three pillars was able to deal with the challenges and they were able to work together—unlike the Financial Services Authority in the UK—each addressing a different crisis riddled part of the global crisis. It meant that our resources were well deployed across the agencies and could deal with the challenges of that crisis.

As stated at the outset, the coalition will support the passage of the bill. I have outlined a number of initiatives for the Commonwealth to consider following this. We do want to see a deep and liquid corporate bond market. Government securities are important in setting a benchmark yield curve for the corporate bond market. As I said before, I would like to see longer-dated Commonwealth government issuance, which would help to create a benchmark yield curve for the market. I expect that will have to wait for a change of government, but we will watch with interest how this goes and we will support the bill in the House.

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