Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

My question is to the Prime Minister. Prime Minister, will you, prior to your departure overseas again, meet with me to discuss what bipartisan measures can be taken in response to the global financial crisis?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

A good start to bipartisanship would be to unblock the budget in the Senate. Six billion dollars is not, as has been suggested by some, a bit of loose change; it is important in producing a solid budget surplus, a buffer for Australia in difficult global financial circumstances. So bipartisanship should begin in the Senate, and I would strongly suggest to the leader of the Liberal Party that he instruct his Senate colleagues to unblock these budget measures. The reason for so doing is this: in uncertain global financial times the most irresponsible thing that can be done is to add to uncertainty. If a government in its budget delivers a budget surplus of $22 billion, the worst thing you can do to global markets is to say that an irresponsible political party in the Senate is threatening to block that surplus, given that Australia stands uniquely positioned to have that buffer for the future. I would suggest that bipartisanship begins about 200 metres away, in the Senate.

Sharon Grierson (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Prime Minister. Will the Prime Minister update the House on the government’s response to the current turmoil in international financial markets?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

I thank the honourable member for her question. The global financial crisis is having a significant impact on the real economy worldwide, not just on global financial markets. The Australian government has a strong set of policy measures in place to see Australia through these difficult financial times. They begin with the budget surplus, to which I just referred to in my answer to the previous question, but they are also anchored in the strength of this government and this country’s national financial regulatory institutions and in the extent of the collaboration between Australian financial regulatory institutions and those which exist abroad.

Over the weekend the United States authorities proposed a significant initiative to address the financial crisis. Their plan would give the authority to the United States Treasury department to buy up to US$700 billion—that is US$700 billion—in mortgage related assets from financial institutions. The US Treasury secretary, Hank Paulson, said on Sunday:

This is not something that we wanted to do. This was something that was … necessary.

This is a significant action on the part of the United States, and it is a welcome effort to put a floor under the problem by the US authorities. The program intends to fundamentally address the root cause of the financial system stresses in the United States by removing distressed assets from the financial system. Markets thus far, based on early reports of this impending US action, have responded positively in the United States and elsewhere.

Members will also recall that on Wednesday last week the US Securities and Exchange Commission tightened restrictions on short selling. Australia followed this move on Friday by working through our regulator, ASIC, to place a temporary ban on naked short selling. On Friday night the USSEC took further action to temporarily ban all short sales of nearly 800 financial stocks. The announcement followed a similar move by financial regulators in the United Kingdom. As a consequence, and in response, ASIC announced yesterday they would impose a 30-day ban on short selling of all stocks. The government endorsed the coordinated response, which accords with similar action by the US and UK financial regulatory authorities.

While appropriately regulated and disclosed short selling has a role to play in the effective operation of markets, it is appropriate to curtail its use at a time of heightened market volatility—and that is precisely what we have at present around the world. We are acting to help prevent market manipulators from artificially driving down stock prices. We cannot afford for that to happen in a time of unprecedented global financial instability as we have seen most recently on markets. In addition, the Commonwealth government will introduce legislation to improve the long-term disclosure requirements around short selling.

As I indicated earlier to the House, Australia, while not being immune from the problems in the United States, nonetheless is better placed than most economies to weather the current storm. The Australian Prudential Regulation Authority has advised the government that Australian deposit-taking and insurance companies supervised by APRA are well capitalised, profitable, well regulated, and they are weathering the turmoil well.

The government has also been active on a range of other regulatory fronts and also through the Reserve Bank. The Reserve Bank has enhanced liquidity in the market to compensate for an increased demand for liquidity. The RBA has been expanding its money market operations during periods of particular stress, including in the overnight money markets. For example, over the past week, aggregate exchange settlement balances have lifted from $1.5 billion to close to $7 billion in the overnight money markets. This follows additional liquidity injections by the Reserve Bank into markets both in March and June of this year.

In a further measure, the RBA also widened access to its repurchase agreement facilities by enabling financial institutions to use a much wider class of assets as collateral for such agreements. Again, this is designed to enhance liquidity. The RBA has been undertaking moves in this respect during the course of the financial crisis over the course of 2008. Furthermore, as a government we have, in partnership with the economic regulators, taking further steps to support liquidity in the government bond market to ensure our broader financial markets operate more effectively. We provided legislative authority for an increase in future Commonwealth government securities of some $25 billion, with an authorisation of $5 billion worth of further issuance in 2008-09.

In a further measure of direct relevance to households, the Financial Stability Forum, in which Australia has been active, recommended in April of this year that authorities review and, where necessary, strengthen deposit insurance arrangements. For us that has meant taking action on the financial claims scheme—a financial claims scheme which would provide better protection for consumers in any uncertainties which would lie ahead.

Internationally, Australia remains active with the Financial Stability Forum because we must act not just nationally but in absolute concert with regulators in the United States and elsewhere. That is why, through our financial authorities—APRA, ASIC, the RBA and Treasury—we have been working in all five areas of global collaboration with the FSF on strengthening prudential oversight of capital, enhancing transparency in valuation, changing the roles and uses of credit ratings, strengthening the authorities’ responsiveness to risks and implementing robust arrangements for dealing with stress in the financial system.

These are practical measures which the government, together with the financial regulatory authorities in Australia, have been taking in response to this crisis. It is important to continue to stress the absolute strength of Australia’s regulators, the fact that our regulators are among the best in the world and that the government, in concert with the regulators, has been acting throughout the course of this crisis and throughout the course of 2008 in response to what is a global problem now confronting all economies.

Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Link to this | Hansard source

My question is to the Prime Minister. Is the Prime Minister aware that the recently enacted Commonwealth Securities and Investment Legislation Amendment Act 2008, which was supported by the opposition, enables the government to provide additional liquidity to the mortgage market? Why did the Prime Minister and his Treasurer ridicule any discussion of Commonwealth investment in mortgage backed securities, when only two months ago the government changed the law to make such an investment possible?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

The position put forward by the Leader of the Opposition yesterday, as I understand it, was that now in other markets, particularly in the United States, the government is taking a role and proposing to buy back some of these securities. That relates specifically to the measures announced in the United States to which I referred in my answer before—an action taken by the United States Treasury to use $700 billion worth of US money to purchase bad debt from those who currently hold those mortgages on the part of US financial institutions.

Why have the US regulator and the US Treasury done that? Because, if you go to the actual state of the problem in the United States, it is that subprime mortgages began filtering their way through the real economy and across the breadth of financial institutions from August last year. Subprime mortgages, as the Deputy Leader of the Opposition would be aware, represent some 15 per cent of mortgages in the United States mortgage market. Subprime mortgages represent something like one per cent of mortgages in the Australian market. There is, therefore, a clear distinction between our set of circumstances and those of the United States. And there is a further distinction, which I draw the honourable member’s attention to as well: in the United States currently the arrears rate in terms of repayment on mortgages is something like six times that which currently exists within Australia. Again, our circumstances are significantly different. And I draw honourable members’ attention to the remarks made by others last week which sought to cast doubt on the statements by the Governor of the Reserve Bank about the state of Australia’s financial system relative to that which pertains in the United States and elsewhere.

Therefore, the point I would make to the honourable member putting her question is that this represents the distinction between our markets and those which exist in the United States. That is why the measures that we have adopted, we believe, are responsible: they follow complete and close collaboration with the advice provided to the government by the financial regulators over the course of this year—not just the injection of liquidity into the economy by the Reserve Bank but also actions in relation to other aspects of assistance to financial players within the Australian financial market.

I would say this to the Deputy Leader of the Opposition and to the Leader of the Opposition on this most sensitive question: it is far better to proceed cautiously, rationally and intelligently through this debate in Australia than it is to simply shoot from the lip with anything which happens to come to the mind of the Leader of the Opposition in a press interview. These are serious and substantial matters. The government has been acting in close and absolute concert with the advice provided by our financial regulators. For the alternative Prime Minister of the country, as he would describe himself, to stand up and say that the US$700 billion rescue package should be adopted here reflects, I think, an absence of understanding of what is occurring in the Australian financial market. I would say to him also that, in these difficult and volatile times, words amount to bullets. Therefore I would suggest to the Leader of the Opposition and to the Liberal Party that, rather than engaging in loose debate on these most serious matters, he becomes a constructive participant in them. The most constructive thing the Leader of the Opposition can do at the moment, apart from minding what he says publicly on these matters, is to head to the Senate and unblock the budget and deliver to the government an appropriate surplus for providing a buffer for the future—a buffer which Australia needs given the uncertainties we confront through global financial markets.

Craig Thomson (Dobell, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Treasurer. What moves have been taken by ASIC over the weekend to ban short selling, and why is this so important?

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

I thank the member for Dobell for his question. The government certainly welcomes the decision of the independent regulator, ASIC, to ban short selling, because, as the Prime Minister was saying before, we are in a time of great difficulty in global financial markets. We probably have not seen a time of difficulty like this for a very long period of time. We certainly do welcome the announcements by the US government over the weekend and we certainly note the recovery in financial markets this morning. But nobody should imagine that we are out of the woods as yet. We will continue to see global financial market volatility over the period ahead. That is why this decision from ASIC is so important.

It does remain the case that our banks are well capitalised and well regulated, and most certainly they do not face the same problems as the banks in the United States face, because they do not have the exposure to the subprime problem in this country that there is in the United States. So we are not complacent about our economic situation, and that is one of the reasons why the government has moved quickly to strengthen our financial system. We are implementing the Financial Stability Forum recommendations and encouraging their implementation internationally. Encouraging their implementation internationally is very important because what we need here is concerted global action that in the end can produce some surveillance of the international investment banks—which do go to the core of this instability in the United States and around the globe.

That is but one reason why engaging with international leadership, engaging with international policymakers, as the Prime Minister will do, is so important—because the world requires a global solution. No country is an island in these circumstances. That is why we are not immune from the fallout. What is required here is an international agreement, as well as strong domestic action—and the government has been taking strong domestic action by increasing bond issuance, such as that which was referred to before. But one thing this government will not do is take the advice of the Leader of the Opposition to invest in subprime debt. That is effectively the gaffe that the Leader of the Opposition made on Laurie Oakes’s program yesterday; and he is very sensitive about it—very, very sensitive about it. It was a gaffe of epic proportions.

So we have been moving to strengthen the system, to introduce a financial claims scheme. We have also been very supportive of the decision taken by ASIC to put a ban on short selling. That is also very important to protect the integrity of our financial system. But we do need concerted international action. That is where the solution lies, globally and domestically. I just wish the opposition would put aside its petty politics and get behind constructive initiatives, globally and nationally, on this very important issue.

Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Link to this | Hansard source

My question is to the Treasurer. Why has the government had three different positions on short selling in the last three days?

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

I thank the member for Curtin for her question. I congratulate her on her appointment. I look forward to a constructive dialogue and debate about these matters which are so important to the economic health of the country. The parliament is the appropriate place for that. Let us just deal with short selling. Was there any legislation on short selling in 12 years from that side of the House? No.

Opposition Member:

An opposition member—There was no need for it.

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

There was no need for it? Okay. That is good. I will just take them through this issue. We did say earlier in the year that we would move to legislate for the disclosure of covered short selling. The government has prepared a bill in that area. But, as everybody in the world knows, financial markets melted down last week. In response to that, governments around the globe moved to change their position on short selling. They moved to change their position on short selling because of the carnage that was going on in stock markets in an environment that was so destabilising it had lost touch with the economic fundamentals of many companies. So there was a very strong case at the end of last week for substantial action on short selling.

ASIC, the independent regulator, determined late on Friday that they would take some further action. What happened after the market closed in Australia over the weekend was that further decisions were taken by other governments internationally. A further decision was taken in the United States by the SEC. A further decision was taken in Canada, and in at least three other countries decisions were taken. So over the weekend I conferred with all of our regulators. In fact, on Friday afternoon there was a meeting of the Council of Financial Regulators. On Friday afternoon and through the weekend I conferred with our regulators on this position and I conferred with people right across the financial services sector, because the ban on short selling in various forms by all of those other countries would have exposed our market first thing on Monday morning to a wall of funding that could have really had a detrimental impact on many, many reputable Australian companies.

We on this side of the House make no apology for the decision of our independent regulator to ban short selling—a decision they announced late yesterday afternoon. It was a very important decision in the history of this country. There is a case for short selling, but there is not a case for short selling in the market environment in which we now find ourselves domestically and around the globe. We are a small market and it was simply not possible for us to remain open to short selling when every other market in the world had closed. What occurred was that the regulator met again and took an independent decision on Sunday afternoon, announced it and it has been applied from this morning. This is yet another example of our regulators being up to the mark and acting to protect our national interest. I would have thought those on that side of the House really would have understood how important this decision is and how it deserves bipartisan support.