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

I rise to speak on the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008. It is a long overdue bill. It has taken six weeks for this government to concede that the opposition had correctly called for legislation to be introduced into this parliament to support the government’s bank guarantee of large deposits and wholesale term funding.

It has been increasingly clear over those six weeks that the government’s bank guarantee policies were panicked and poorly thought through economic policy. When introducing this legislation the Treasurer resorted to the now familiar political spin to paper over the cracks of this poorly designed policy. The Treasurer is so insecure that he cannot simply admit that the government made a mistake, that they should have listened to the words of the Leader of the Opposition, taken his advice and just fixed the problems they had created.

In the second reading speech this afternoon the Treasurer made the extraordinary claim that the Leader of the Opposition was responsible for the ‘growing seeds of doubt in the minds of global investors’. What an absolute nonsense. That reveals the depth to which this incompetent government will stoop to blame anyone for their own problems. The Prime Minister’s inherent inability to admit to error—it is in his DNA—has started to infect others within this arrogant government. It is a sign of his inexperience that the Treasurer has been dragged kicking and screaming to introduce proper legislation to provide a standing appropriation for this policy. Yet when introducing the legislation to the House he maintained that his original policy design was flawless and somehow it was the Leader of the Opposition who was responsible for the growing seeds of doubt in the minds of global investors.

The Treasurer apparently wants us to believe that if no-one had raised any concerns about the shortcomings of his original position, the Australian financial and banking sector—indeed, the world financial markets—would have just turned a blind eye to the fact that the government was introducing a guarantee on wholesale term funding without having a standing appropriation to back it up. It would fail the fundamental test of an unconditional, irrevocable and timely guarantee. The Treasurer is living in a fool’s paradise if he thinks the highly skilled people working in large international banks and people working in the Australian banking sector would not have noticed the fact that the guarantee on wholesale term funding was not backed by legislation that provided a standing appropriation. He thought he would get away with it. So if the guarantee were ever called upon and, say, parliament were not sitting, there would be no standing appropriation and the guarantee could not be met. It was a fundamental error.

The Treasurer admitted in his second reading speech that, since the initial guarantee announcement, ‘the government has been engaged on a daily basis in putting in place all of the detailed arrangements’. I bet they have. They have certainly been engaged because they have been trying to play catch-up with the negative consequences of their initial hasty announcements. The Treasurer confirmed in his second reading speech:

During the government’s consultations banks raised concerns about doubts in international funding markets that government will be able to pass legislation with sufficient speed in the event of a claim on the guarantee.

Put simply, potential investors need to be confident that they can get their money quickly if a bank were to default on a loan.

This was basic. A guarantee that is not unconditional, irrevocable and timely is not worth the paper it is written on. The government should have known it. They did not need the international funding markets to tell them this. The Treasurer also said:

In one stroke, the guarantee provided support to banks, credit unions and building societies in the provision of credit to Australian businesses and households, and security and peace of mind to Australian depositors.

In reality, it did nothing of the kind. In reality, it was one stroke of hastily cobbled together and poorly considered policy with serious consequences.

When the Prime Minister was asked on 10 October what guarantee he would give Australians that their bank deposits would be protected, the Australian public was subjected to a roller-coaster ride of poor decision making that subsequently needed to be corrected and defined every step of the way. Now the government loves to claim that it was somehow acting ahead of the curve. The reality is that it was the opposition who was taking into account the global financial events and developing sound policy to provide stability and confidence. On 10 October the Leader of the Opposition and I held a press conference, and we called on the government to do a number of things including introducing a limited deposit guarantee of $100,000 or more. We also called on the government to delay its flawed ETS scheme and to put more funding into the residential mortgage-backed securities market. That press conference was reported upon, so the following morning the Prime Minister woke to headlines that the opposition had plans for the Australian public to help us weather the global financial storm. Indeed, the opposition had a plan for protecting the savings, the deposits, of Australians. So began the government’s political and media games. The resulting policy of this government was not driven by sound financial or economic considerations but by politics.

By 12 October, on the Sunday morning, Australians were treated to photographs of their Prime Minister sitting around the cabinet table on the weekend—

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

With rolled up sleeves.

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

No, they were not rolled up; they were pushed up. He was fighting what he has termed the ‘rolling national security crisis’. Later that day, the Prime Minister emerged from his bunker to announce an unlimited deposit guarantee. In doing so, he went further than any comparable country. If you take into account the United States and the United Kingdom, where there were serious problems and serious flaws in their banking sector, where their governments were recapitalising and purchasing troubled assets and where nationalisation plans were afoot in their banking sector, the United States had a deposit guarantee of about $100,000 and they were thinking of putting it to $250,000, and the United Kingdom were thinking of introducing a deposit scheme of about ₤50,000. But, oh, no, we would not do what comparable countries were doing, because that is what the opposition had suggested. So the government went further than any other comparable government and announced an unlimited bank guarantee for deposits. In doing so—and this is a very important point—he told the Australian public and the opposition that he was acting on the advice of the regulators and specifically acting on the advice of the Reserve Bank governor. We soon found out about that porky, didn’t we?

That afternoon the opposition provided its support, given that the Prime Minister had stated that the regulators had advised on, indeed had recommended, this specific proposal. We of course had called for a more considered scheme on the Friday and took it as read that the Reserve Bank governor had given direct and explicit advice to the government to extend our proposal into an unlimited deposit guarantee scheme. After all, this was one of the most significant monetary policy decisions made by an Australian government in a generation. The Reserve Bank governor is the person in this country responsible for monetary policy. He is the person responsible for the stability of the financial markets. He is the person to whom the government should have turned for explicit and direct advice on this deposit scheme. The next day the Leader of the Opposition wrote to the Prime Minister proposing a bipartisan approach to maintaining business and consumer confidence in response to the global financial crisis. This expression of bipartisanship was rebuffed by the Prime Minister, and it should be clear that bipartisanship—of course, always rebuffed by the government—does not mean that the opposition forgoes its obligation to the Australian people to provide critical assessment of government policies, particularly when there is so little detail provided surrounding this hastily put together policy.

It was therefore vital that the coalition ask questions in parliament about what the obligations of the taxpayer were going to be and what obligations, if any, the banks would have in exchange for the guarantee. What has been most disturbing about this is that the government has been unable, or perhaps unwilling, to answer even the most basic questions on this guarantee. The opposition was alarmed to find very little detail available from the government—just a press release, and that had scant detail.

On 14 October—and this was very revealing—the finance minister told ABC’s Lateline that the government had been working on the detail of its bank guarantee policy for over a week and that the weekend meeting was merely to finalise the details. I will come back to that porky in a moment. Despite this, little information had been made publicly available. So it was that the bill came to parliament on 15 October, and I made it clear in my speech then that the three bills providing for the guarantee had not been subject to normal scrutiny. There was no regulatory impact statement of the cost, benefits and risks of the policy. This is the government that said it would adhere to best practice, but there was no regulatory impact statement of the cost, benefits and risks of the policy to the government, to the financial sector, to business and to the Australian public.

In particular, I noted that the bills might have effects on those financial institutions that were excluded from their coverage. I raised that in my second reading contribution. The coalition supported the bill but, as I noted at the time, we were doing so while having to trust the government. I had assumed that the Prime Minister was telling the truth when he said he had acted on the express advice and specific recommendation of the Reserve Bank governor. On 21 October we found how that trust had been abused. We learned that within a few days the Reserve Bank governor was so concerned that he put his concerns in writing and said that there should be a cap—‘the lower, the better’. That is what the Reserve Bank governor said and the Prime Minister wants us to believe that he changed his mind overnight. No, they never asked the Reserve Bank governor for his views.

When we finally saw the Reserve Bank governor’s letter—only because it turned up on the front page of the Australian, not because the government produced it—we read that he said he wanted a cap on this unlimited guarantee, ‘the lower, the better’. We finally discovered that the Reserve Bank governor was not directly consulted. He was not even invited to the cabinet meeting—he was not there in person and he was not at the end of the telephone. They could ring up the Treasurer in Washington—they could get him on the phone—fat lot of good that would have done. But they could not get the Reserve Bank governor on the phone, let alone in person. He was not directly consulted. As the Leader of the Opposition has said, ‘It was akin to the Prime Minister declaring war and not consulting the generals.’

On 22 October, during the Senate estimates process, Australia learned that the decision to increase the deposit guarantee to an unlimited amount was entirely a political decision in response to the opposition’s call for a $100,000 scheme. I quote from the Senate estimates Hansard:

Senator COONANWhen did you first have a conversation with any senior member of the government about the possibility of extending the proposal for a $20,000 capped guarantee to one that is unlimited in amount?

The Secretary of the Treasury, Dr Henry, said:

… I suspect it would have been the day the Leader of the Opposition first suggested that the $20,000 capped figure may not be adequate.

So there it is. This was not a response to the global financial crisis; this was a response to the fact that the Leader of the Opposition had suggested a higher figure than the government, and the government was being outsmarted. That is what this was all about.

Once the government had announced this guarantee, and with the lack of policy detail underpinning it, there was immediate confusion and distortion in the markets. The government was on the back foot. The Treasurer was unable to answer my questions about the fee structure in question time and he was unable to say whether the triple B rated banks would have access at the same rate and on the same conditions as double A and triple A rated institutions. We saw the extraordinary dislocation in the financial markets—extraordinary not because it was unforeseeable; it was foreseeable all right—where money in cash management trusts and debentures issued by finance companies moved to institutions that were covered by the bank guarantee. One sector of the financial markets was covered and another sector was not. In other words, the Prime Minster was saying, ‘These institutions are guaranteed and therefore they are protected and safe,’ and, by implication, ‘Those institutions are not guaranteed and so not protected and safe.’

There was so much confusion—for example, about whether superannuation was covered. The government was unable to release a comprehensive list of institutions and accounts covered. I am sure members opposite received, as did members on our side, many calls and communications from constituents asking what institutions and accounts were covered. To this day, the list is only a sample list. Australians who want to know whether their funds are guaranteed or not remain unable to obtain in writing an assurance that their funds are covered. The lack of detail is appalling and this added to the uncertainty in the market.

By 24 October came the first of a series of changes by the government to the guarantee scheme, as they desperately tried to patch up the inconsistencies and mistakes that were becoming increasingly evident. The government announced some details of the deposit and wholesale funding guarantees. At first the Treasurer indicated that the government would impose a cap with a compulsory fee, and there was a very comical question time where the Treasurer announced a compulsory fee on deposits and then realised that he had announced a new tax. The next day they scrambled around and decided that a threshold of perhaps $1 million would be introduced on deposit guarantees and that a fee would be charged for guarantees on deposits over $1 million. They tried to cover up the fact that he said it was a compulsory fee, and therefore a tax, and tried to suggest it was voluntary. Then the government introduced a graduated fee structure for wholesale funding guarantees. The government finally sorted out the anomaly with foreign bank branches. The foreign bank branches, as the shadow minister at the table would know, are authorised deposit-taking institutions—

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

That is right; they are indeed.

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

that are regulated by APRA. Yet they were excluded from the guarantee, which was extended to authorised deposit-taking institutions regulated by APRA. That was an appalling mistake, an appalling oversight, and funds flowed out of foreign bank branches into those banks covered by the guarantee. Then of course there was hardship caused to depositors in non-guaranteed institutions and funds, as those institutions froze them to maintain the integrity of their funds in case of a run on the funds. The Treasurer told the Australian public, who had their funds frozen, that if they had a problem getting access to their savings they should go to Centrelink. They were his words. He tried to weasel out of them today in question time—

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

By quoting accurately.

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

That is what he said. We have got a copy of the transcript. They did not want the transcript tabled, because of course that transcript does not appear on his website.

The government then came up with another madcap idea and decided that they would tell those institutions that were not guaranteed that they should inquire of APRA how to become a bank—how to become a bank, a building society or a credit union. What kind of public policy is that? And then, finally, the government requested that ASIC provide advice on how to assist hardship cases where redemptions from funds had been frozen. There were so many adverse consequences of that hasty announcement made on 12 October.

Consistently, the Leader of the Opposition called on the government to implement a cap on the unlimited bank deposit guarantee. Our recommendation on 10 October was that it should be at least $100,000. If that advice had been followed, the government would not have found itself in the mess that it has, people would not have had their funds frozen and the dislocation in the markets would not have occurred. We said the cap should be set at a level that the Reserve Bank recommended. We know that the Reserve Bank says ‘the lower, the better’ and we know that the senior executives in the major banks have suggested $100,000—the CEO of Westpac has suggested around $100,000. The Leader of the Opposition also pointed out that the Treasurer’s plans to establish this compulsory guarantee fee for deposits over the cap—in other words, the tax—should be abandoned, and we pointed out that a tax would impose additional, heavy and unnecessary costs on banks.

The Leader of the Opposition also pointed out that guarantees of any deposits over the cap should be optional but subject to a fee. Eventually, the government came around to that thinking and made it voluntary. Specifically, the Leader of the Opposition informed the government, as he has on so many occasions over the last six weeks, that the wholesale term funding guarantee should be the subject of legislation, because the government was putting the Commonwealth and thus taxpayers on the hook for, potentially, hundreds of billions of dollars of contingent liabilities—without any legislation. That is an affront to our parliamentary democracy.

Senator Sherry, I believe, said in a speech on 30 October that the deposits covered by the unlimited guarantee amounted to about $800 billion and that the wholesale fundraising amounted to about $1.2 trillion—in total, about $2 trillion. Yet, in the Mid-Year Economic and Fiscal Outlook, the Treasurer was not able to put any figure at all on that. He was not able to quantify, in any form whatsoever, the contingent liability of these guarantees. Senator Sherry was able to do it; he said it was about $2 trillion. Now, couldn’t the government have worked out a contingent liability, to put a figure into the Mid-Year Economic and Fiscal Outlook?

David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

It’s remote and unquantifiable.

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

Well, Senator Sherry was able to put a figure on it. As the Leader of the Opposition noted, even if the government believed it had a legal argument to enable it to give a guarantee without legislation, it knows it could never honour that guarantee without an appropriation bill being passed by the parliament, and yet week after week we had every excuse as to why the government did not have to put in an appropriation bill. We set out what the legislation should include. More information was provided on the administration of the guarantee scheme, but there is still very little to give the markets, to give the financial sector, to give the banking sector and, more importantly, to give the Australian public any confidence in this government’s policies.

As for acting ahead of the curve, again, on 13 November, the government said they would not introduce legislation. The government indicated through the acting Treasurer and the Attorney-General, in response to specific questions from the Leader of the Opposition, that the government did not intend to introduce legislation. That is what the government said on 13 November. On 17 November, the Leader of the Opposition again called on the government to immediately present legislation to authorise the provision of wholesale term funding guarantees to Australian banks. He warned, quite properly, that without legislation the guarantees would not be effective commercially or practically and he asked that the legislation be circulated so that the opposition could comment on it. On 21 November, the Leader of the Opposition again repeated his call for the government to present legislation to provide for an appropriation to give effect to the wholesale term funding guarantee and to wind back the unlimited bank deposit guarantee. By that time the banks were sending the clearest message to the government that it must fix its bungled wholesale term funding and bank deposit guarantees. It was six weeks ago that the coalition called on the government to introduce this legislation.

Confronted with the real impact of its panicked and poorly thought through decisions, the government refused to acknowledge or immediately rectify its mistakes. What is wrong with the government just saying, ‘The Leader of the Opposition is right, actually; we do need an appropriation bill—otherwise the guarantee will not be “unconditional, irrevocable and timely”, in the words of Standard and Poor’s’? Why could the government not bring itself to admit that it got it wrong and that in fact what the opposition, through the Leader of the Opposition, had been calling for was appropriate and responsible advice? Because the Labor government’s bank guarantee has been all about politics. There was no focus on sound economic management and no focus on appropriate public policy. Over one weekend, in a series of long-distance calls between the Prime Minister and the Treasurer—calls that did not include the Reserve Bank governor—this government produced a flawed bank guarantee policy. They did not bother talking directly to the Reserve Bank governor before unveiling it. They did not bother to take account of the Reserve Bank governor’s advice before it was put in writing and made public.

Since the announcement of the bank guarantee policy, the government has been forced to announce a series of changes to paper over the cracks of this ill-considered policy. If the government had simply adopted the policies of the coalition and announced that, in accordance with other comparable countries, there would be a limit on the government guarantee, and if the government had just accepted the coalition’s advice that they needed an appropriation bill to give effect to the wholesale term funding policy, ordinary Australian investors and our financial markets would have been spared the six weeks of uncertainty and instability caused by the government’s ill-considered policy.

We support this long-overdue bill. We called for it six weeks ago. We cannot help but point out that, had the government accepted the opposition’s offer to work in a bipartisan manner in response to the challenges presented by the global financial crisis, the problems the government has experienced and the hardship and dislocation that has been caused to the Australian public, the banking sector and the financial markets in this country would not have occurred. We would not have seen funds frozen in these accounts to the extent that they have been. We would not have seen the massive dislocation in the financial sector as depositors moved money from one umbrella to another, not sure whether their institution was covered by the guarantee, not sure whether their account was covered by the guarantee, and all the time hearing the Prime Minister’s words: ‘These funds are guaranteed; therefore these funds are protected; therefore these funds are safe.’ By implication, the rest were not.

Had the government just taken up our offer to work with them in a bipartisan fashion, had the government listened to the suggestion that an appropriations bill was needed six weeks ago, none of this would have been necessary. But what is becoming a hallmark of this government is that it refuses to acknowledge its errors. It refuses to acknowledge that the opposition has a legitimate role in good public policy development in this country. The Deputy Prime Minister told us that we should get out of the way. The Treasurer said that we were completely irrelevant—the same Treasurer who has been resisting for six weeks the call to introduce an appropriations bill to give effect to the wholesale term funding guarantee. Today the Treasurer eventually caved in to the common sense being put forward by the opposition and introduced this bill. What a waste of time, all because of the arrogance and the incapacity of this government to admit its mistakes.

David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

I rise to support the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008. I will turn my attention shortly to the elements of the bill as I would like to speak on some of the specifics that are proposed within it. I would like to begin by commenting on some of the remarks made by the shadow Treasurer in her contribution to the House. I think one of the interesting things about the opposition throughout this debate has been the complete lack of consistency in their position. We can go back to 12 October, the day on which the very significant package was announced by the Prime Minister. The Prime Minister took strong and decisive action in delivering a package of measures that were designed to achieve a couple of things: firstly, to deliver greater certainty and stability into the financial markets but also to ensure greater liquidity. One of those measures was to ensure that there would be greater investment by the Australian Office of Financial Management in residential mortgage backed securities.

I heard what the shadow Treasurer said and I have heard the Leader of the Opposition on numerous occasions claim credit for being the architect of this plan to buy up residential mortgage backed securities to provide greater liquidity to the institutions that fall outside the ADI net. I want to put on record that the comments that the Leader of the Opposition refers back to and the comments that he cites to suggest that he was the one that put this on the agenda were in an interview with Laurie Oakes on 22 September. I want to read the passage that provides the genesis of the so-called contribution that the Leader of the Opposition made to this particular debate. He said:

We know that it has been very, much harder for banks, particularly the second-tier banks and financial institutions, to refinance mortgages and that’s one of the reasons why the cost of mortgages has gone up, why interest rates have gone up. Now, in other markets, the government, particularly in the US, the government is taking a role, proposing to buy back, buy some of these securities, in effect to provide additional liquidity to take the pressure off mums and dads.

That is what the Leader of the Opposition relies upon to say that he was the one that gave the government the idea of directing the Australian Office of Financial Management to invest in residential mortgage backed securities. I have got to tell you that that is not what they are doing in the United States. They are buying up bad mortgages. There is no suggestion from anyone in this place, at least now—there was on this occasion by the Leader of the Opposition—that we would be looking to take on the mortgage liabilities of individuals in respect of bad mortgages. That has never been what this discussion has been about. Providing greater liquidity through the residential mortgage backed security market is not about providing greater liquidity to bad mortgages but about providing greater liquidity in that marketplace so that the non-ADI institutions are able to access the necessary funds that they need in order to continue to lend within our residential mortgage market. I am horrified to think that the Leader of the Opposition, who relies upon this passage to say that he was setting the agenda, was in fact mistakenly comparing the goings-on in this jurisdiction with the troubled assets relief program in the United States, which is something of a fundamentally different character. So let it be noted, when they say that he was the architect of this idea, that he was wrong.

I will move on to the other elements of the package that was announced on 12 October, because of course the bill before us is part of the implementation strategy of those announcements. Apart from investing in more RMBS there was also a commitment to deliver an unlimited guarantee in respect of deposits. Of course this parliament has passed legislation in relation to the Financial Claims Scheme to protect deposits up to $1 million held by Australian incorporated authorised deposit-taking institutions. That has been secured. Of course that leaves open the issue of those deposits above $1 million, and that moves on to the third element of the package of measures that was announced on 12 October—the third element being providing a guarantee in relation to wholesale term funding. Of course this bill is about implementing that particular announcement.

The bill before us is only part of the overall guarantee scheme. It is important to recognise that. The guarantee scheme and its implementation has been ongoing for some months. In large part it will be implemented through contractual arrangements between the executive, the Commonwealth through the executive, and the institutions that are involved. Indeed that is not unremarkable; that is the way in which guarantees have been implemented in countries such as the UK and New Zealand. What is before the House on this occasion is a bill that provides a standing appropriation so that, in the event that there is a call on that guarantee, the executive has the capacity to immediately respond by providing funds—by drawing down on funds from the consolidated revenue fund. The bill also provides a borrowing power in the event that funds held in the consolidated revenue fund are insufficient to meet any obligations arising under the guarantee.

It is a part—and it has become a more significant part—of the implementation of the guarantee scheme. It has become more significant because of the role and the contribution of the opposition in this debate. Let us clearly understand what has occurred here. On day dot, on October 12, the opposition came forward and said: ‘We will support this package. We will move heaven and earth to ensure the passage of this legislation. We won’t quibble.’ Those were the words of the Leader of the Opposition. But we have seen nothing but quibbling ever since. Amidst all of the sniping, all of the political games and the political point-scoring that has occurred on the part of the opposition, the only thing that has been achieved is the injection of greater uncertainty into the marketplace. These measures are designed to achieve nothing other than the delivery of certainty into the marketplace but those efforts are being undermined by those on the other side, who are determined to score political points day after day—often with no real impact in terms of the overall architecture of any of the schemes that are in place but in order to take those pot shots. But in doing so let them understand that they are merely contributing to an undermining of the confidence that these measures are designed to instil.

It was interesting to see an article in the Herald Sun back on 8 October where Terry McCrann said:

OK, I’ll take Malcolm Turnbull at his word. The Opposition Leader really is an idiot and doesn’t understand how financial markets work.

The article goes on to say:

There’s a bigger worry than Turnbull just making an idiot of himself. Again, he apparently doesn’t understand that we are living in extremely dangerous times.

Terry McCrann understands that we live in dangerous times. When you live in dangerous times you need security, safety and stability not the unpredictability, the uncertainty and the fear-mongering that has occurred from the Leader of the Opposition and those on the other side. At a time of a global economic security crisis we need steady hands behind the wheel. Unfortunately all we have had are these political pot shots from the Leader of the Opposition, throwing more fuel onto the fire of uncertainty that has been ravaging the international financial markets. These are not the actions of a person capable of leading this country at a time of need; instead the Leader of the Opposition would be much better served by contributing in the bipartisan way that he keeps promising, and genuinely trying to achieve bipartisan outcomes.

I note that in the Australian Financial Review this morning there were a number of remarks in one of the articles by Laura Tingle. One of the comments contained within the article was:

The government has been resisting introducing the legislation—

that is the legislation we are now talking about—

and the banks have supported this position—because it will make the job of eventually unwinding the guarantee more difficult and it may delay the finalisation of the guarantee before it begins operation on Friday.

So what we have there is contrary to what the shadow Treasurer just told us. She said that there were absolutely no reasons why anyone would contemplate introducing the guarantee scheme in relation to wholesale funding and large deposits without introducing legislation. Well, there we have it. Not only was the government intending to do it, the government was in concert with the key stakeholders, who saw that the most expeditious, quickest and fastest way of introducing this scheme was through the executive action of the government entering into contractual arrangements with the respective institutions. Of course that has occurred. A deed of guarantee has been entered into on an interim basis and it is publicly available for those who are interested. These are the contractual arrangements that deliver the guarantee. That will continue to be the case but we will be providing, as a result of the passage of this bill, a standing appropriation and a borrowing power in relation to any future need to call upon the guarantee—however unlikely and remote that might be. That also raises the issue of the remoteness of the likelihood of ever having to call on the guarantee. Clearly that was one of the reasons why there was no intention to introduce legislation to accompany the administrative arrangements that were already in place.

I mentioned earlier the fact that the Leader of the Opposition has been lacking in his contribution to this debate by merely hyping up the uncertainty that has surrounded the current global financial crisis. I make the point that, around the time that the guarantee was introduced in relation to deposits, the Leader of the Opposition was contributing to stirring up uncertainty within the marketplace. If I can return to the Financial Review article from this morning, I note that there were some comments there that tapped into the disquiet within the banking sector and in particular amongst key stakeholders within the financial services sector. The article reads:

Banking sources have been uneasy about earlier comments made by Mr Turnbull about the deposit guarantee, believing his push for a $100,000 limit also helped undermine confidence among larger depositors in the lead-up to the October 12 announcement of the unlimited guarantee being put in place.

Clearly sources within the industry understand that these are dangerous times. These are uncertain times and the very trigger-happy approach of the Leader of the Opposition in coming forward and taking pot shots left, right and centre is only adding to that uncertainty. If the Leader of the Opposition is fair dinkum and genuine about his commitment to bipartisanship, he will appreciate the need to temper his comments and to ensure that he is not contributing to this uncertainty.

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

I’m sure he’ll take your advice!

David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

He would do well to take the member for Aston’s comments to heart and take my advice on this matter. Can I say in relation to the threshold of $1 million that, if you listened to the shadow Treasurer, you would come to the view that this is part of a one-off decision taken by the government without any reference to the advice of the key regulators. I refute entirely the suggestion that the government acted without the total support of the key regulators or that it did not act upon their recommendations. The Governor of the Reserve Bank is a member of the Council of Financial Regulators and, acting upon the advice of the Council of Financial Regulators, the government made its announcement on 12 October.

I draw the attention of the House to a further announcement made by the Treasurer on 24 October, when the Treasurer enunciated the reasons for the slight shift in the approach towards the $1 million threshold. The Treasurer said:

Today the Prime Minister and I received advice from the Council of Financial Regulators—

and of course we know that on the Council of Financial Regulators we have the Reserve Bank Governor, the Secretary to the Treasury, the Chairman of APRA and the Chairman of ASIC—all the key regulators. So acting upon that advice:

… the Government has decided that a threshold of $1 million be implemented, over which a fee will be charged to receive the benefits of the deposit guarantee.

Importantly, it goes on to say:

This fee will ensure the deposit and wholesale funding guarantees apply in a consistent manner for larger investments, for which deposits and securities are interchangeable. In particular, it will ensure that the deposit guarantee does not provide disincentives for market participants to operate in short-term money markets.

So, clearly there is a very reasonable justification here for the threshold. Acting upon the advice of the Council of Financial Regulators, the government has recognised that we do not want to be making investments in the short-term money markets unattractive. We do not want to be providing disincentives in that particular area of the market by providing an unlimited guarantee beyond the $1 million without that guarantee having at its core at least the requirement for a fee to be charged in return for that guarantee and that that fee be levied in a comparable way to the way in which it would apply to deposits at that level. So clearly what we have here is sensible, reasonable policy based on the advice of the regulators—contrary to what those on the other side say.

In relation to the scope of the guarantee, I want to turn my attention to its coverage, because of course the government has already implemented the Financial Claims Scheme, which has protected deposits held by authorised deposit-taking institutions—Australian incorporated ADIs—up to the value of $1 million. This guarantee scheme will, for a fee, protect deposits above $1 million. It will also protect all deposits with Australian branches of foreign banks, once again for a fee. It will also protect wholesale funding for Australian incorporated ADIs—and that is both short-term and long-term wholesale funding—and will provide a guarantee in respect of short-term funding for foreign bank branches where funds are raised from Australian residents.

In terms of how ‘short-term’ and ‘long-term’ are classified, short-term are those liabilities with initial maturities of up to 15 months and might include such instruments as bank bills, certificates of deposit, commercial paper and certain debentures. In relation to longer-term liabilities, we are talking about liabilities with terms of maturity of 15 to 60 months, which would include bonds, notes and certain debentures. This guarantee will apply to these instruments whether they are offered domestically or in international markets. It is important to acknowledge that.

When all these measures are taken into account, what we see is a package of measures designed to restore certainty and confidence to our financial markets. Since the announcement of the government back on 12 October, we have already seen some improvements in the unclogging of the arteries of the international financial system. We are starting to see more interbank lending at more competitive rates. We are seeing a narrowing of spreads. All of these factors have resulted from the decisive action that the government took in making its announcements on 12 October. The challenge for those on the other side is: do they support these measures?

Sussan Ley (Farrer, Liberal Party, Shadow Minister for Justice and Customs) Share this | Link to this | Hansard source

Ms Ley interjecting

David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

I hear the member opposite suggest that they do support the measures, and we welcome their support. But, for people who support the measures, there is a lot of criticism and a lot of nay-saying going on on that side. I ask two questions of the speakers to come. Firstly, what is the opposition’s position in relation to the $100,000 cap? Do they still retain that position, or do they support the view of their leader—at least on one occasion—when he said they have now abandoned it? Listening to the shadow Treasurer, all I hear is a continued adherence to that policy even though the Leader of the Opposition has since abandoned it.

They carp and they argue about the unintended consequences of providing the guarantee and the impact it has been having on those institutions that fall outside of the ADI net. I ask them a simple question: are they proposing that we extend the guarantee to those institutions? Because if you listen to the shadow Treasurer, it almost sounds as though that is the only conclusion you can draw from the argument she is putting. Are the opposition seriously suggesting that we should extend the coverage of this guarantee to managed funds and other investment funds that are not regulated in the same fashion as the authorised deposit-taking institutions that are currently proposed to be the beneficiaries of this scheme? The member for Aston has gone quiet on that one, but I am sure that we will be enlightened by subsequent speakers in this debate, because if they are not prepared to put up— (Time expired)

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

Order! The honourable member’s time has expired, so he should go quiet. I would ask the honourable member to resume his seat and I thank him for his contribution.

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

Can I start by saying that I think it is always interesting to hear a new member to this House carrying on about how they perceive the other side of the House. I was just chatting with my honourable colleague at the table, the member for Denison, who has been here three times as long as I have. I recommend to the member for Lindsay that maybe in the forthcoming Christmas-New Year period—I hope that he will have the opportunity to relax with his family—if he has any time, he might care to order just a few videos of his party during 13 years in opposition. He referred to the opposition playing politics and political point-scoring. I would just say to the new member for Lindsay—he has only been here for one year—that I really recommend that he does a bit of research about his own side of politics before he starts firing some pot shots at us. I have been here for 7½ years, and every day for 7½ years I have heard nothing but the Australian Labor Party playing politics with everything possibly known to man. So I think it is interesting to hear new members, in their naivety, try to present themselves in a way that makes them holier than thou.

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

I would gently remind the honourable member to return to the bill.

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

Thank you, Mr Deputy Speaker. We are here to talk about the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008. Looking at the explanatory memorandum, which I picked up off the table tonight, it is interesting to see on page 3 that the announcements were made on 12 October and the date of the effect of this bill is 28 November, and here we are today on 25 November introducing the bill. You really do have to ask yourself the question: what on earth has this government has been doing since 12 October to make an announcement on 12 October and introduce legislation into the House some six weeks later?

Of course we know the answer to that question. The answer is they have been trying to sort out the absolute mess that they created with their announcement on 12 October. It is difficult to try to construct a phrase which in an adequate way sums up the absolute mess that this government has created through its announcement on 12 October. I have thought about various descriptions, but it is difficult to come up with a description that totally reflects the dislocation that this government’s announcement has made in the Australian financial system. I guess the best way is to refer to some remarks from the Leader of the Opposition. He has made the point very strongly, and correctly in my view, that we are yet to see a leader of a developed nation throughout the world actually make things worse, by their response to the global financial crisis, other than Kevin Rudd, the Prime Minister of our country. He has managed to earn this distinction for himself because through his policy responses he has made things worse in our country rather than better. I think that does define him in the true and proper way that he deserves to be defined.

This bill goes to providing a guarantee scheme for large deposits in the wholesale funding issue. This is a proposal that the opposition requested of the government six weeks ago—weeks and weeks and weeks ago. And for weeks and weeks and weeks we have been hearing from the government that they would not legislate, that there was no need to legislate and that everything would be fine. So what we have seen today from the Treasurer is probably one of the biggest backflips in Australian parliamentary history. I notice that no government speakers so far have mentioned this, but Mr Deputy Speaker, you being the very astute person that I know you are, will recall that it was around the middle of this year that the government said that it would introduce a guarantee to cover deposits up to $20,000. We have just heard the member for Lindsay criticising our position for stating that there might be a deposit limit of $100,000, but it was the government that proposed a policy initially of $20,000.

On 10 October that week we called on the government to increase that guarantee to a minimum of $100,000. We did that because we were hearing firsthand the reports of deposits being moved from second-tier ADIs et cetera into the so-called big four banks. So it was that on 12 October, just two days later, the Prime Minister announced the introduction of an uncapped guarantee for all deposits of Australian banks, building societies and credit unions and the subsidiaries of foreign banks and for wholesale term funding. It has gone down in Australian political history, of course, that the Prime Minister did that without even talking directly with the Governor of the Reserve Bank of Australia. Mr Deputy Speaker, I am sure you would agree with me that it is incredible to think that the Prime Minister of Australia could actually make this decision without consulting directly the Governor of the Reserve Bank of Australia.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

I would like to remind the honourable member for Aston that as Deputy Speaker I have no views.

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

Thank you very much, Mr Deputy Speaker, for that. I appreciate that point very much. But it is also fascinating when one takes a second to reflect on the fact that, since all of this fiasco began in the government in and around this announcement—and it may shock you, Mr Deputy Speaker; I know it shocked many people in Australia—the Prime Minister of Australia is yet to come into this chamber and actually address the parliament in relation to the global financial crisis or anything to do with the government’s policies. The Prime Minister is yet to actually come in, stand up at the dispatch box and speak to the parliament about the global financial crisis and any policy response of the government.

James Bidgood (Dawson, Australian Labor Party) Share this | Link to this | Hansard source

Ten billion dollars response!

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

It is fascinating to think that the Prime Minister of this country is not prepared to come into the chamber—

James Bidgood (Dawson, Australian Labor Party) Share this | Link to this | Hansard source

You haven’t been listening!

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The honourable member for Aston will just wait while I remind the honourable member for Dawson that he ought to contain himself.

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

The honourable member for Dawson is yet another new member and I appreciate that he has not been here to see the behaviour of his side of politics over a long period of time.

It is amazing to think that we cannot get the Prime Minister to come into this chamber. I think I know what might be some sort of an incentive for the Prime Minister to come in here. If we were to relocate this chamber overseas, the Prime Minister would come in very swiftly. He would be very happy to address the parliament. I think the problem with this chamber is that it is in Australia. Because it is in Australia, the Prime Minister does not feel obliged to speak to the parliament at all, but if we were to transport the parliament to some foreign country I think you would find the Prime Minister would be delighted to address the parliament—because, as we know, the Prime Minister very much likes to address foreign entities wherever possible. I think the problem that we have is that our chamber is actually in Australia. It is fascinating to reflect on that point.

Since the government announced its policy in relation to this guarantee scheme, we have, as I mentioned earlier, been for weeks and weeks hearing from the government that there is no need to legislate—that everything will be okay. Yet, of course, we see this legislation before us today. What has also been fascinating to watch throughout this process is the way in which this government has sought to cut people out of the debate. We read various media reports about how the government has consulted with the big four banks, but I know for a fact, based on my consultation with the industry, that the government has not been consulting with a broad cross-section in the financial services community at all. As a matter of fact, it has deliberately cut out key players in the financial services industry. That is a major concern. It is a concern because as a result of this government’s policy there has been a huge dislocation in the Australian financial services sector.

The investments of around 300,000 Australians have been frozen as a result of this government’s policy. Government members may think that that is acceptable. Government members may think that introducing a policy to have 300,000 Australians’ investments frozen—Australians who need security and certainty about their investments—is appropriate. I think it is exceptionally inappropriate. Those Australians have been locked out of their savings. Senior Australian business leaders have stated that the government’s policy needs to change. Gail Kelly, the CEO of Westpac, has said publicly that the government’s policy needs to change. Consumer confidence is now at an all-time low. Business confidence is at an all-time low. Inflation is at a 13-year high.

We heard about the Prime Minister’s declaration of war on almost anything. It is fascinating to think about the Prime Minister’s war on inflation, which he declared in January this year in Perth. The member for Dawson might remember that five-point plan to fight inflation. It is interesting that, ever since the Prime Minister announced his war on inflation, inflation has increased every quarter.

James Bidgood (Dawson, Australian Labor Party) Share this | Link to this | Hansard source

Interest rates have gone down!

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

We have had this declaration of war on inflation and yet every quarter inflation has gone up. So I am not sure how the war on inflation is going, Member for Dawson. Three hundred thousand Australians have had their investments frozen. Senior Australian business leaders have called on the government’s policy to change. Consumer confidence and business confidence are at an all-time low. Inflation is at a 13-year high. Unemployment is now forecast to rise, and the government says—

James Bidgood (Dawson, Australian Labor Party) Share this | Link to this | Hansard source

Interest rates have gone down two per cent!

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

Order! The honourable member for Dawson will cease interjecting.

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

Thank you, Mr Deputy Speaker. Unemployment is now forecast to rise and the government would have us believe that all of this is within their plan. This is despite their war on almost everything that opens and shuts.

The coalition welcomes this very long-overdue piece of legislation. This is the piece of legislation that we asked the government to introduce. We asked the government to do this weeks and weeks ago. For weeks the government berated us in the parliament and told the Australian people that it was not needed, that it was not required and that they had everything in hand, and yet today we see this piece of legislation tabled in the parliament. We support this legislation. It is long overdue and it is another sign that this government really does not understand what they are doing in relation to the global financial crisis, which of course is of great concern to the people of Australia.

Jason Clare (Blaxland, Australian Labor Party) Share this | Link to this | Hansard source

It is good to see the opposition welcoming this legislation, the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008. We hope they welcome with the same gusto the legislation that we have introduced today to abolish Work Choices once and forever. Work Choices might be the most appalling legislation ever to be introduced into this parliament. 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.

James Bidgood (Dawson, Australian Labor Party) Share this | Link to this | Hansard source

Mr Bidgood interjecting

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

The honourable member for Dawson will contain himself, as I previously requested him to do.

Stuart Robert (Fadden, Liberal Party) Share this | Link to this | Hansard source

Isn’t it interesting that we find ourselves in the House at this time debating this bill, the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008? It was only a few sparse weeks ago that the Leader of the Opposition called upon the government to introduce an appropriation bill for wholesale funding on the premise that Standard & Poor’s and other rating agencies would only provide AAA rating to wholesale guarantees if the redemption could occur in a timely manner. Clearly, without an appropriation bill, timeliness was not possible. If the parliament were on recess, away on a six-week break, either parliament would be recalled or a redemption as in the government guarantee on wholesale funding would take the length of time of the break plus time for parliament to pass an appropriation bill and for it to receive royal assent.

You would think that a government, once informed of this, would simply say thank you and get on with the job. But, unfortunately, one nervous little Treasurer thought it best to assault, attack, rebuke and fire away, denouncing the opposition’s call. Yet here we are. One should, I suppose, give credit to the government for realising the error of its ways and for coming back into the House to do the sensible, the right and the appropriate thing—to pass an appropriation bill so that in the event of the wholesale guarantee being required it can indeed be paid in a timely manner. But the question needs to be asked: what has forced the government’s hand? The government has shown through a series and a multiplicity of errors that its pride gets in the way of it coming back to correct the errors it has made. Could it be that the egregious nature of the error of not passing an appropriations bill simply meant that the wholesale guarantee would not achieve a AAA rating and the government had no choice?

It is interesting to reflect that this government is the only government on the planet that has actually made things worse through its handling of the financial crisis. Let us think about that for a second. The whole range of countries affected by what has been going on has passed legislation, has passed bank guarantees and has made thoughtful and prudent steps. Clearly the crisis we are in is something that governments have not faced to the degree in which it has occurred for a long time. Because of that, caution has been the order of the day with most governments. They have trodden warily, they have thought carefully, they have legislated prudently. But not this government. This government has not trodden carefully. It has not embraced economic modelling. It has not sought advice. It has not got all regulators in the one room at the one time.

When the dollar was floating, at least the Hawke and Keating government at the time had the good sense to have the Reserve Bank governor next to them, amongst other officials. But not this government. And because of the haste with which they have jumped into this, they are the only government—not only in the developed world but on the planet—whose decision making has made things worse. This began very early on in the government. It began with them taking the Treasury bench, when the government felt it necessary to expose the apparent dreadfulness, the dire consequences, of the Howard-Costello years and sought to inflate and exaggerate an inflationary issue. Indeed, when inflation reached three per cent the Treasurer, a day before the Reserve Bank raised interest rates, rolled out that famous comment, ‘The inflation genie is out of the bottle,’ followed by the Prime Minister, who spoke of the ‘inflation monster wrecking the economy’.

At a time when other comparable OECD countries were ensuring fiscal policy that reduced interest rates and were increasing spending, seeing the dark, looming clouds on the horizon, what was this government doing? They were talking up inflation by imagining a wrecking monster and an almighty genie carving its way through. They increased taxes. The rest of the world was cutting taxes. This government increased taxes by over $19 billion over the forward estimates and they cut spending. They did exactly the opposite of what other, sensible governments were doing.

To make matters worse they even cut spending to critical economic institutions such as the Australian Prudential Regulatory Authority, APRA, and the Australian Bureau of Statistics. They cut spending to organisations that are now so sorely needed. Then on Tuesday, 14 October Prime Minister Rudd and Treasurer Wayne Swan announced a package of spending measures totalling $10.4 billion, $9.65 billion to be spent in the 2008-09 financial year. Half of the forecast budget surplus has been spent.

We—we now know foolishly—took this government on trust, we took it on good faith, perhaps no more. We thought that perhaps they would do the proper modelling. We supported the bill because we thought no government would be so reckless as to commit $10.4 billion without seeking appropriate advice, without regulatory statements, without impact statements and without proper economic modelling to ensure that the desired stimulus outcome was indeed what would occur. You can imagine our surprise. You can imagine the nation’s surprise when it was revealed that nothing of this sort was done.

There was persistent questioning in the House as the opposition sought to fulfil its role and appropriately question the legislation. There was no response from the government at all. It is not hard to see how this government is clearly out of its depth. That squandering in the shallows continued when the Rudd government announced midyear that it would introduce the government guarantee of up to $20,000. On 10 October, as the coalition observed what other comparable nations were doing, we called on the Rudd government to increase that guarantee to $100,000 in response to reports of deposits being moved from second-tier banks, building societies and credit unions into the four big banks.

Other nations moved to increase their bank guarantees—the Brits to ₤35,000, the French to just over 200,000 comparable dollars, the Americans to over US$200,000 and other nations to sensible levels somewhere between A$100,000 and A$200,000. But not to be outdone, what did our Prime Minister do? He announced an uncapped guarantee for all deposits in Australian banks, building societies and credit unions and for Australian subsidiaries of foreign banks and for wholesale term funding. He said he had sought the advice of our financial regulators. However, we later found out that the Prime Minister had in fact not received any direct advice from the responsible regulator, which is responsible for the stability of banking system, the Governor of the Reserve Bank. He had not been directly consulted. The Prime Minister actually rolled out to say, ‘When we had made the decision, we turned to Secretary Henry to say’—almost as an afterthought—‘is this also the view of the other regulators?’ Apparently, Secretary Henry indicated it was. One of the most momentous decisions to be made and the Governor of the Reserve Bank and the head of APRA were not even in the room.

What was the impact of the decision? At the end of the day you cannot hide behind facts. You cannot hide behind the truth and the reality of what actually happened. The decision created turmoil within the Australian financial system. Thousands of Australians, in fact almost 270,000 Australians, have had billions of dollars of savings in cash and property management funds frozen in investment funds. I was at a veterans dinner last Saturday night and sat next to Ms Kay Wilson, who explained how she and her husband, a veteran, have had their money frozen because 13 out of the 20 top cash and property management accounts were receiving such a run on their redemptions to the four banks that they closed redemptions for up to six months because people were moving money into the uncapped guarantee area.

Major providers of credit to car retailers have withdrawn from the Australian market due to problems assessing commercial funding. Some estimates, and the numbers would appear horrific, have 20 to 40 per cent of car dealerships closing by Christmas—if that is to be believed—because of the inability to access funding because most cars in car yards are leased. The chief executive of the Motor Trades Association of New South Wales is the person who rolled out the figure of 40 per cent of car dealers going to the wall along with 30,000 jobs.

The Westpac CEO, Gail Kelly, has called on the government to place a cap of $100,000 on the deposit guarantee. That is not what the government did—they gave an unlimited guarantee that completely skewed the financial markets. Then under pressure the Treasurer—that nervous Treasurer we have—in perhaps a moment of some weakness or perhaps indecision but clearly not having a grasp of his brief, rolled out that there will be a deposit tax. ‘Compulsory,’ he said walking up to the dispatch box, ‘it will be compulsory.’ If it is compulsory, it is a tax. The next day, of course, under pressure he repealed that and said, ‘No, it may not be compulsory.’ The following day, Friday, he rolled out, ‘It will be voluntary, except for those with over $1 million. If they want it, they’re going to have it and, yes, they’ll have to pay an amount of money for it.’ This is our Treasurer. This is the person at the helm of our fiscal financial system in whom we are supposed to have faith. The decision created absolute turmoil within the financial market.

The coalition has been calling on the government for more than a month to release current economic forecasts. By way of history, we know that when the Howard-Costello government came in in 1996 the finances from the previous Labor government were in an embarrassing shambles. The then finance minister Kim Beazley said that the budget was actually in surplus and balanced, but it turned out that it was over $10 billion in deficit. It was a shameful omission by the former Labor government. When we came in we found the books in such an abhorrent position that to ensure that no Australian government ever faced that degree of dishonesty and that degree of sham the Charter of Budget Honesty Bill, which required a Mid-Year Economic and Fiscal Outlook, a MYEFO, was put in place. Treasurer Swan finally released the information on the day of the United States election. This is a Treasurer who stood up before the election saying that they would bring transparency into the system. He had the information for a number of weeks but he chose the day of one of the most momentous US elections to deliver it in order to hide it from the Australian people—to hide the evidence of the economic bungling of what this Treasurer had done for the country. The MYEFO revealed that there had been a dramatic turnaround in the figures that this government inherited when it came to office in November. It inherited a first-class economy, the envy of the world, an economy that had zero Commonwealth debt, an economy that had superannuation taken care of in the form of the Future Fund. The economic indicators had been heading all the right way. Indeed, unemployment had dropped in February to something like 3.97 per cent. But the economic mismanagement of the Rudd government, including Treasurer Swan, since coming to office has severely hampered where we sit.

Consumer confidence has dropped to the lowest level since recordings were kept. Confidence is about expectancy. It is about expectation. It is about how consumers and small business expect the future to be. When the readings were showing consumer confidence at an all-time low in the very first half of the year, the great clouds of the economic crisis—what we now know as the KFC—had not quite crested and broken. Consumer confidence was responding to the lack of confidence being exhibited by the government. MYEFO showed that the $22 billion surplus would now be little more than $5 billion, and many commentators are saying that the government may already be in a deficit position.

This week Access Economics has indicated that the next two financial year budgets, just on committed spending alone, will already be in deficit. It took the previous Howard-Costello government 11½ years to get us out of the quagmire that the previous Labor government subjected us to and to pay off the appalling debt that they had driven the nation into, and it would appear that in just 12 short months the Rudd Labor government are putting the nation back into deficit again. The rhetoric from the government is indicating that they are going to use the global financial crisis as an excuse for incompetence and mismanagement every step of the way. Their rhetoric is indicating that they are preparing a nation for a deficit budget position. If the economy is growing at two per cent as MYEFO has indicated, which is surprising because Prime Minister Rudd indicated that growth will have a two in front of it—and Treasury for the first time in recorded history actually changed the way they looked at what growth will be by looking at a lower interest rate rather than at the interest rate which prevailed at the time MYEFO was done—that is a perfectly respectable growth rate. A nation should be proud of two per cent growth. If we have a two per cent growth, there is no need for any deficit budgeting. The opposition will not provide a leave pass for a poorly managed and incompetent government, headed by a very nervous Treasurer, to plunge the nation into deficit.

The government will blame the global financial crisis for everything. They will blame it for every bungle that comes along, however incompetent. Yet this opposition will not allow the government to get away with that. A two per cent growth is respectable; there is no requirement for deficit. What is required is for the government to stop making horrendous mistakes. Errors will be made and the nation understands that. This nation will always give credit to a bloke who stands up and says, ‘Do you know what? I made a mistake but I’m going to correct it.’ The average Aussie will give a bloke a chance, but they will not give a chance to an institution, an organisation or a government that tries to bluster and bungle its way through. The government are the only government on the planet that have bungled their response so much that things have been made worse in the nation because of it. I will give credit to the government for at least, after a month of our calling for it, coming into this House and putting forward an appropriation bill to allow for the wholesale funding guarantee. At least they listened. It would have been nice if they had said thank you, but perhaps that is a little too much to expect. The government are on notice that, however they pander to their union mates and colleagues, they cannot blame all of their incompetent decisions—their incompetent practices, their incompetent legislation, their job-destroying fair work legislation and the outcomes of that, which, industrially, will plunge us back 10 years—on the global financial crisis. This opposition will continue to keep them accountable. It will continue to open up and show the nation the mistakes and the mismanagement. We will not be bullied and blustered by the frontbench, and we will hold the government accountable.

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

It is always interesting when you follow the member for Fadden. His grasp of reality and fantasy often gets confused. In fact, I recall a speech he made earlier in this place when he said that the Leader of the Opposition had predicted the global financial crisis some 12 months before it started. At that stage the now opposition was in government and of course the notion that that had happened was totally fanciful.

I speak in support of the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008. Over the past 18 months there has been significant upheaval in global financial markets. The government is acting responsibly, decisively and quickly to shelter the Australian economy from the full impact of the global financial crisis. The damage that the credit crisis has caused to the global financial system is considerable. Governments around the world have taken unprecedented steps to guarantee their banks and other financial institutions to ensure stability. Unlike the opposition, this government is about providing financial system stability, confidence in our banks, building societies and credit unions and helping to ensure the flow of credit to businesses and households.

On 12 October this year the government took action to stabilise and promote confidence in Australia’s financial system by instituting a broadly based deposit and wholesale funding guarantee. This guarantee is part of a coordinated global action. If the government had sat on its hands at this time and done nothing, the consequences for the Australian financial system on the global level could have been dire, and our banks could have been seen as below par compared to their international counterparts covered by government guarantees. This guarantee gave 13 million Australians certainty over their deposits. During an address to the Trans-Tasman Business Circle on 21 October 2008, the Governor of the Reserve Bank of Australia, Mr Stevens, supported the government’s decision and stated:

This will ensure that Australian institutions, some of which are among the highest rated of the world’s banks, are able to retain adequate access to term funding in an environment where banks of other countries are able, in effect, to use the rating of their governments when borrowing. Steps in these directions, in the context of what other countries were doing, were sensible and the Reserve Bank supported them.

This is something that the member for Fadden completely ignored in his—I hasten to say—contribution to this debate. Additionally, the governor stated that action like this:

… averted … potential systemic collapses that would have had massive repercussions throughout the world.

Over the month of October, the now opposition leader, who likes to portray himself as a man of authority on the economy, had no less than seven different positions on the government’s bank deposit guarantees. That is right—seven positions in that period of time. It is worth spending a little bit of time to look at his seven positions. Responding to the bank deposit guarantee at a media conference on 10 October, the member for Wentworth said:

Now there are very powerful reasons for having one in this climate and we believe that $20,000 is inadequate in this climate and … we recommend it be increased to not less than $100,000.

That was his first position. Two days later—it only took two days—he said, ‘We welcome this measure, we support it and we will give the Prime Minister every assistance.’ That was after the Prime Minister had announced our position. So there was a second position. Then on 22 October, on The 7.30 Report, he was apparently not personally in favour of the guarantee and said:

Well, plainly because I advocated a $100,000 limit, I obviously wasn’t personally in favour of an unlimited guarantee…

The position changed a little later on the same program—we did not actually even have to wait another day. On the same program he said:

But let me say this: the policy that was announced on the 12th of October was a failure…

This was position No. 4 from the Leader of the Opposition. Then, again, in the same interview, he took another position, No. 5, that he was not going to form a view until he had received advice from the Reserve Bank. He said:

What I want to see is the advice, unfiltered, from the Reserve Bank of Australia. I want to see what Glenn Stevens proposes, and then we will form our view in response.

In the space of that interview he had three separate positions. But it did not end there. Two days later on 24 October, the Leader of the Opposition said:

Our initial recommendation was that it should be at least $100,000 and if that recommendation had been taken up we would not be in the Rudd/Swan created mess we are today. But given where we are today the cap should be set at the level the Reserve Bank recommends;

This was position No. 6. Three days later the opposition leader criticised the government for following the RBA’s advice—position No. 7. Now the unlimited bank deposit guarantee was a very big policy blunder. So he had said, ‘Let’s wait for the Reserve Bank’s advice; let’s get it.’ Then when it came in, he said it was wrong. This was the seventh position from the so-called self-proclaimed expert on the Australian economy, the opposition leader.

Mr Turnbull’s actions have been a real threat to the stability of our banking system. This is one of the reasons we have acted responsibly again today. The Australian community and their banks could have been more comfortable if the opposition leader had stuck to his initial pledge of support. Unfortunately, the Leader of the Opposition’s growing attacks on the guarantee scheme sowed the seeds of doubt in the minds of the global investors. This shows again that the Leader of the Opposition fails to understand that the national interest is more important than his narrow political interests, and more important than his love of the sound of his own voice. We have, in the Leader of the Opposition, a person who likes to take credit for everything. You would expect him to take credit for the sun coming up in the morning. But one thing is clear: by the time the sun sets at night we know that his position will have changed again.

Today, we are introducing a standing appropriation to pay any possible claims made under the government’s guarantee scheme for large deposits and wholesale funding. We have stuck to our position—unlike those on the other side, who might have yet another position tonight or tomorrow, or next week. Who actually knows when they will next change their minds? This bill will provide international markets with the assurance that Australian institutions are supported by a government guarantee, and that any payments will be made in a timely way. This assurance is something that the opposition has been trying to erode with its willy-nilly changing of positions. The bill will guarantee financial system stability, confidence in our banks, building societies and credit unions and will help ensure the flow of credit to businesses and households.

The bill has two measures: a standing appropriation to enable claims to be paid in a timely way, in the unlikely event that claims are made of the scheme; and a borrowing power. The appropriation is not a legal necessity according to our legal advice, nor would it be a commercial necessity if international markets could be confident that there would be bipartisan support for an appropriation in the very unlikely event that one were needed.

The government response to the global financial situation is to strengthen our economy and protect Australians by guaranteeing Australian depositors and wholesale funding, ensuring that the Australian market remains globally competitive. Since the initial guarantee announcement, the government has been engaged on a daily basis in putting in place the detailed arrangements. We have consulted with regulators and the industry to manage new developments as they have arisen, providing a standing appropriation is a part of this process. It is part of our ongoing efforts to work quietly and methodically through the complex issues the nation confronts, and this will continue as global circumstances change. Obviously the consultative approach we have taken to these matters means information can leak out from time to time, including to the opposition. Our promise is that at all times we will keep consulting broadly, work collaboratively with regulators and with industry, and act in the national interest.

This government has introduced a number of strategies for tackling this difficult global financial environment, such as the $10.4 billion Economic Security Strategy, to strengthen the Australian economy and support Australian households during the global financial crisis. During a speech in November to the Australia-Japan Economic Outlook Conference 2008, Malcolm Edey, the RBA assistant governor, stated:

The fiscal package announced by the Government in October will provide a near-term stimulus of a bit under 1 per cent of GDP.

He said the package was one of the factors that would:

… help to cushion the effects of the much more difficult global environment in which we now find ourselves.

That is what the regulators are saying in relation to the government’s actions. Australia is not immune to these developments, but we are in a much better position to weather the storm than many other countries. The International Monetary Fund, in its October 2008 World Economic Outlook, commented:

… sound fiscal positions provide scope for allowing automatic stabilizers to operate in full and for judicious use of discretionary stimulus if the outlook deteriorates further.

It is crucial during these uncertain global economic times that monetary policy and fiscal policy work together to shelter the Australian economy from the full impact of the global economic crisis.

The economic stimulus package will have a positive impact in my electorate of Dobell on the New South Wales Central Coast this Christmas time. In Dobell alone, 43,000 people will benefit directly from the government’s package. On the Central Coast, more than $120 million will be injected into the local economy this December. I know this is partisan, but what I encourage locals on the Central Coast to do, if they are spending their money, is to spend it locally and support the local businesses on the Central Coast. This will help our area weather the storms, the financial typhoons, that have swept the world, bringing with them financial upheaval. This is very important for an electorate like Dobell where the biggest employer is the retail sector and unemployment is already at 7½ per cent. So money that is spent locally on the Central Coast is very important to keeping jobs there. That is what part of this Economic Security Strategy is about: making sure that we continue to have growth and making sure that we create jobs and keep jobs.

It is a global financial crisis that no-one foresaw the extent of. This is an unprecedented crisis which is still reverberating around the financial markets of the world. Governments around the world, including this government, responded with unparalleled steps to bolster financial stability both domestically and globally. Such responses followed the upheaval in the United States caused by the collapse in the subprime market in that country. In 2003 the US economy was doing very well: jobs were readily available, productivity grew steadily, inflation was low and interest rates dropped to record lows that had not been seen in 40 years. With an increased household income, consumers purchased houses which in turn stimulated the housing construction industry, and house prices increased in value. With low interest rates and a booming economy, mortgage brokers, believing that housing prices would always increase in value, provided housing loans on behalf of banks and other lenders to customers who would not normally be granted a home loan. The RBA noted in its March 2007 Financial stability review:

… sub-prime loans … are typically loans made to borrowers with impaired credit histories, which might include one or more payment defaults, a previous loan foreclosure, or bankruptcy. Because of their higher risk of default, sub-prime borrowers are charged higher interest rates than prime borrowers.

The RBA also noted:

There has been rapid growth in US sub-prime lending since 2003, with these loans accounting for around one fifth of mortgage originations in 2006 and an estimated 15 per cent of all outstanding mortgages.

It is reassuring to know that this government has taken the steps to buffer the impacts of the global financial crisis. Our May budget forecast that problems abroad would slow the Australian economy and have an impact on employment. The government took the tough decisions in the budget to build a strong surplus to act as a buffer in an economic slowdown. This is now providing the flexibility to respond to deterioration in the Australian economy. Additional liquidity has been injected into the Australian economy by the Australian government through the Australian Office of Financial Management. The AOFM will be investing $8 billion worth of residential mortgage backed securities over the next three years.

Some speakers from the opposition have claimed, again, that the Leader of the Opposition came up with this idea, but he did not. In fact, what the Leader of the Opposition suggested in his interview with Laurie Oakes was that we adopt the position that the US government did and buy bad mortgages. That is a very, very different proposition from what this government did, and it is something that I do not think anyone with any economic credibility would suggest should happen—that we take on bad mortgages. What this government has done is inject $8 billion worth of liquidity into the market, and that is something that all parties have been supporting.

In such extraordinary times, decisive action is essential, and that is what this government has done. Now monetary and fiscal policies are working in tandem to help Australia confront the uncertain economic conditions. Both Australia’s financial system and mortgage market are relatively strong and healthy in comparison with other countries. The International Monetary Fund noted:

… house prices fell in the first half of 2008 at an annual rate of 5 percent to 12 percent in Canada, Denmark, Spain, New Zealand, and the United Kingdom …

Australia is one of the few countries that have continued to see a modest increase in house prices.

The International Monetary Fund’s country report on Australia highlighted the strength of this country’s banking system, stating:

Australian banks have weathered the global financial turmoil reasonably well. The four large banks that account for two thirds of bank assets continued to report strong profits through early 2008, together with adequate capital.

In addition, Australia’s four largest banks have been given a credit rating of AA by credit rating agency Standard and Poor’s. Those four banks are four of only 18 such banks in the world, and the Reserve Bank of Australia noted that ‘of the world’s largest 100 banks, only a handful have higher ratings’; and that ‘no Australian owned bank has had its rating downgraded since the onset of the credit turmoil’. The strong credit rating has enabled the banks to access both domestic and international capital markets.

Compared with the US and UK, Australia’s mortgage market continues to function. The market is also relatively concentrated in comparison with some other countries. The Treasury noted that, ‘Australia’s five largest banks account for the majority of market share.’ The entire banking sector has consolidated to some extent since 2000 with ‘the number of building societies falling from 19 to 13 between March 2000 and March 2007, and the number of credit unions from 218 to 137 over the same period’. Both the banking and non-banking sectors have made prudent decisions about international investments and home loans. Both sectors have had a relatively small exposure to US subprime assets and were therefore not as vulnerable as other countries to the credit crisis, particularly in Europe. The RBA noted in its September 2008 Financial stability review:

US exposures account for less than 10 per cent of the total foreign claims of Australian-owned banks, and typically do not arise through lending to the US household sector. While some banks have reported that they have exposures to the US sub-prime market through holdings of financial instruments, these remain small when compared to the size of these banks’ balance sheets.

The guarantee scheme will apply from 28 November 2008. In the unlikely event that claims must be met under the guarantee scheme, those claims can only be paid out of funds appropriated by the parliament. This bill provides a standing appropriation for the guarantee scheme, which the government proposes to have in place by 28 November 2008. This will ensure the timely payment of claims, providing certainty for Australian and international investors in wholesale funding instruments provided by authorised deposit-taking institutions, including banks, building societies and credit unions, and providing certainty in relation to large deposits with ADIs. In addition, the bill provides a borrowing power to enable funds to be borrowed to pay claims under the guarantee scheme if there are insufficient funds in the Consolidated Revenue Fund at the time those claims are to be paid. On 12 October 2008, the government announced a guarantee for deposits with all Australian-incorporated ADIs for a period of three years. The government also announced a guarantee on wholesale funding for all Australian-incorporated ADIs, on application, for a fee.

This government has taken swift and decisive action to ensure that Australian financial institutions are protected. It has taken decisive action to ensure that our economy remains as strong as it possibly can. The Rudd government has taken decisive action to provide a stimulus to the economy to make sure that jobs will continue to be there and that we can continue to have growth. The bill before us today is part of that scheme. This is an important bill and I commend it to the House.

Andrew Laming (Bowman, Liberal Party) Share this | Link to this | Hansard source

Drawing this debate on the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008 back to the general community and their expectations of what we should be debating tonight, most of what we have seen in what has now become termed as the global financial crisis has been viewed by Australians through a television screen. Many of course are shocked by what they have seen but just as many of them are uncertain, not only about what faces us in the next 12 months to five years but about what a responsible and beneficent government should be doing to protect where possible and, where it is not possible, to adapt to some of those external shocks that may face Australia. What they also expect from us in parliament is a bipartisan approach to what is certainly one of the great economic challenges of the past decades. Their expectations would be that we have a strong banking system, a pillar of four large and highly regarded AA rated banks. They would expect that the opposition, along with the government, would be consulting with the major players.

What has become clear over the course of the last month or two is that that actually has not occurred on the government side. Much of the debate tonight about the merits and the pros and cons of an unlimited banking guarantee is probably quite esoteric to most in the community. I guess the overriding sense I have found is that the government is exceedingly sensitive to any form of dialogue on this issue. Very early in their term, when, in November last year, the first offers of bipartisanship were cast across the dispatch box, you would have hoped it might have been the first of a number of offers to follow. But when it really came to the crunch and there was some hope that there could be some bipartisan approach, that was not only ruled out but energetically resisted by the government. If every one of their moves were without mistake and without uncertainty, the Australian public would respect the government for that. But that has been far from the case. I think the opposition has done an exceptional job—not in a negative way, not in a point-scoring way—to highlight not only the deficiencies of a policy that has been very much put together on the run but also the reluctance of those opposite to incorporate the views of the opposition and, as we have learned here in debates at question time, the reluctance of senior members of government to talk in a constructive way with the very regulators that they are quite happy to roll out and quote when required. That became very obvious to us in the past four weeks.

Let us remember a little bit of the context. It was 10 October when the Leader of the Opposition and shadow Treasurer called upon the Rudd government to take three immediate decisions—to increase the proposed government backed deposit guarantee scheme to cover deposits up to, in this case, a minimum of around $100,000; to increase the investment into AAA rated residential mortgage backed securities through the Australian Office of Financial Management; and to announce that there would not be an introduction of an emissions trading scheme prior to 2011. The coalition at that time was committing to working cooperatively with the government to expedite the passage of any legislation that was required for the deposit guarantee. But, almost in contrast to that, what we saw was an approach by the government that seemed more about a political strategy—not only appearing to be decisive and committed without any doubt whatsoever but also giving a sense that they had to do something that was bigger, brasher, bolder and more confident and visionary than anything that had been proposed in a common-sense way by the opposition.

We woke up on 12 October to photographs of the Prime Minister again rolling up his sleeves, as he has oft tended to do, and, probably in a series of phone calls with the Treasurer, he concocted the unlimited banking guarantee. One would have thought that it is not a terribly hard thing to do to speak to the nation’s major regulators. Many of them are exceptionally experienced over the long term—they have seen a number of crises before and ridden the Australian economy through them. I would have hoped that, prior to finalising that policy, that intimate communication would have taken place. No matter how hard the opposition have tried, we are yet to clearly understand whether there was that communication directly between the Prime Minister and the Reserve Bank of Australia. That should not be a hard question to ask or a difficult answer to provide. One wonders just what level of communication there was, if any at all. It has been an answer that has been almost impossible to divine.

The haste to finalise the policy should be contrasted with the lethargy in actually bringing this legislation to this chamber. The government was in haste to roll it out. One senses again that that 24-hour headline cycle was driving the Prime Minister more than any great concern for a functional, well thought through deposit guarantee scheme. When this deposit guarantee was announced, the Prime Minister told Australians and the opposition that he had had the advice of the Australian regulators. I think ordinary Australians would think of the Reserve Bank as being a fairly critical player in Australia’s banking regulators. As I have said, we are not confident that the Prime Minister has done that. The answer has never been provided. On the other hand, any bipartisan approach has been firmly rebuffed—and it is worth examining why that would be.

When it comes to the economic dogma of the last decade or two, economics has matured significantly over the last two decades. There do remain different schools of thought, but I am very confident that in this country we have exceptional advice. One would expect that there would only be perhaps some nuancing between the views of the two sides of the chamber—I would not say that there are massive ideological fault lines that run between the two sides of this chamber on how to deal with the global financial crisis. For that reason you would think that the offer of bipartisanship would not be a difficult one to take up. It would not be terribly hard to extend the hand of friendship and actually think through all of the implications of an unlimited bank guarantee.

Let us be mindful that Australia and New Zealand were two of the developed economies that did not have any form of guarantee until this debate of the last few weeks, so we have been relatively slow to come to the table with those policies—and that is for very good reason: there are as many pros as there are cons to a banking guarantee. But in the current times we have seen most developed economies moving not only to put such a scheme in place but also to increase them where required. A great reason for that is not only to avoid contagion but also to remove of course the distortions that may exist between different economies and the financial flows that can be aggravated as a result.

After rebuffing the offer of bipartisanship what we then saw was a very precious determination on the part of the Prime Minister to go it alone. You might think: ‘Well, there must be significant political gain for an individual to make such a decision—to attempt to look not only decisive but also as if he is acting completely without the assistance of the minnows of the political system, those on the other side of the chamber.’ Well, as I have said, if the government were making faultless decisions then that would be fine, but that is far from the case. As these inconsistencies and these inadequacies have been pointed out we have seen a rushed effort—every time something salient or pertinent to the debate has been suggested there has been a rushed mopping up of what has been left undecided. The government have rushed out a quick press release and then of course suggested that this was always going to happen. If we look at the history, we can actually see that that was far from the case. In many cases there was very little intention to move to address some of the concerns until they were effectively staring the government in the face—until the concerns were sitting, like the elephant in the room, as a completely unaddressed fault line that ran through the government’s plan, with no move to correct it.

Of course it is very difficult, once the regulators have been rolled out and used in pic facts to make it appear that the Prime Minister is shoulder to shoulder with the regulators and that their embrace is warm, to then expect those same regulators to be defending the inconsistencies and the inadequacies of our Prime Minister’s hastily cobbled together plan. So of course when this policy was announced it did what had been suggested by the Leader of the Opposition—it created confusion and distortion in the markets. There was a lack of policy detail, and there can of course be some understanding that economic times were moving fast and that you cannot expect to have a finished product. But the government was determined to do it alone, to do it without the best advice and to do it without the assistance of the opposition. So for that reason the scrutiny must be on the Prime Minister for the results.

The government was unable to answer questions about the fee structure. Those of us who sat through the almost-agonising Senate estimates with Treasury could see that there was great pressure on the regulators to support the Prime Minister at a time when it must have been exceptionally difficult to do so, but they managed to do so. There was no detail on the fee structure and no detail on the fee levels. There was no detail on whether BBB rated banks would have the same access at the same rate and under the same conditions as AA and AAA rated institutions. So what did we see? Precisely what had been predicted—an attempt to move cash management trusts into government backed assets and debentures issued by financial companies, and confusion over whether or not superannuation was in fact covered. The government at that time was completely unable to release a comprehensive list of institutions or accounts that were covered. This only came at a much later date.

It was at that time, again, that the Leader of the Opposition called upon a workable cap for the free bank deposit guarantee. We made initial recommendations, and of course those were ignored. That was part of the early debate. Mr Swan’s plan to establish a compulsory guarantee fee for deposits over the cap was effectively a tax. We put it to this place and to the Australian people that that should be abandoned. The tax would only serve to impose additional heavy and unnecessary costs on banks at a time when they could least afford them, and it may also put upward pressure on interest rates, as banks would naturally seek to recover additional costs from their customers.

Guarantees on any deposits over the cap, as we had put to the government, should be optional and subject to a fee. The fee should be at a commercial level that does not encourage risky behaviour or moral hazard by banks. The Reserve Bank had recommended a scale of fees in its letter to Dr Henry in mid-October, and once again the government had a chance to accept some of that advice from the regulators that they have so often claimed to stand shoulder to shoulder with.

The wholesale term funding guarantee would eventually be subject to legislation. Putting the Commonwealth and thus the taxpayers on the hook with potentially billions of dollars that, if these obligations could not be met through consolidated revenue, would have to be borrowed was a significant ask. It should be noted that, even if the government believes it has a legal argument to enable it to give a guarantee without legislation, it knows that it would be very difficult to honour that guarantee without an appropriation bill at least being passed through parliament. So the legislation needs to state that the price of the guarantee will be set on a commercial basis and, once again, on the advice of the Reserve Bank.

Once this policy had been proposed, what we saw was a rush to patch it up. I have to say that over the last few weeks that has been a most unseemly exercise. Probably the only forgiving element for the government is that the average Australian who is watching what is happening, predominantly through a television screen, knows that the economy has been in good hands for over a decade, and I think they are hoping that the economy does remain in good hands. The last thing that any Australian would want is for there to be, over the next year or following years, dire economic consequences from the actions of this government over the last two or three months. That would be the most painful lesson to subject an economy to, and of course no-one wants that to happen. That is the very reason why there is an offer of bipartisan assistance, the offer to make sure that suggestions that are put from this side of the House are meaningfully taken up rather than summarily dismissed and then secretly added to the explanatory memorandum at a later date.

It was on 13 November that the government indicated through the Acting Treasurer, in response to questions from the Leader of the Opposition, that they did not intend to introduce legislation. On 17 November 2008 the Leader of the Opposition again called on the government to immediately present legislation to authorise the provision of wholesale term funding guarantees to Australian banks. Then, again on 17 November, he warned that without legislation the guarantees would not be effective, commercially or practically. Four days later, on 21 November, the Leader of the Opposition repeated the call to the government to present legislation to provide for an appropriation to give effect to the wholesale term funding guarantee and to wind back the unlimited element of the guarantee.

By this time, the banks were delivering a very clear message to the government that it had to fix its bungled wholesale term funding and bank deposit guarantees. Well, we are still waiting. It has taken six weeks for the government to finally concede that legislation needs to be introduced to parliament to support this entire process. It has become clear that the government’s bank guarantee policy was panicked and bungled rather than decisive. Six weeks ago the legislation was called for. It did not come. When confronted with the harsh reality and the real impact of this panicked and poorly thought through policy, the government has even now refused to acknowledge those mistakes.

The government’s bank guarantee has predominantly, I think we have now come to realise, been about a political strategy. The nature of an unlimited bank guarantee was one that surely no-one could possibly surpass—the ‘big pictureness’ of it all. The fact that Ireland had done it for its six banks a few weeks earlier led the government to think, ‘Well, if they could do it, let’s have a go.’ So what was announced was an unlimited guarantee, and it was quite obvious that in the mind of the government at the time there was no real understanding of what that implied. There was no real understanding of why, if it was such a fantastic idea, it had never been done before, save for Ireland. That should have been a warning bell that perhaps there are some significant cons to an unlimited banking guarantee. But those questions were not able to be answered at the time. Clearly, had there been reasonable discussion with our regulators, you would expect at least those answers to be there.

We have research from the OECD, easily available on the internet, to show the fairly detailed work that had been done on reserve bank guarantees. It had not even been looked at, we sensed, at the time that this announcement was made, and I think that is to the loss of this country. That will be to the loss of many people. I know many of them may seem faceless. They may be people who have large sums of money banked and who, for one reason or another, cannot access them. It can seem like that is a long way away, but they are Australians like anyone else, many of whom are planning for their futures and many of whom have been considerably inconvenienced, if not put at financial threat, as a result of what many now realise was a very hasty decision.

The government could simply have adopted the policy put forward by the opposition on 10 October. This is not about big-noting ourselves. It is not about saying we are better financial managers. It is about putting up a decent idea and hoping that the government would adopt it. It is not a hard thing, as the speaker on my side who preceded me said, to simply say: ‘You know what? The policy could have been slightly better. We had to move fast. We acknowledge these things require tweaking and improving and, yes, we will do it.’ But making these improvements has been an almost agonising process.

So what have we seen? Australian investors and our financial markets have been subject to six weeks of completely unnecessary uncertainty. It is one thing to try and cobble together comments by the Leader of the Opposition and say that he has had more positions than the Kama Sutra, but when you look at these comments they are effectively expressing an overall willingness to support the general trend of a bank guarantee but an uncertainty, a lack of confidence, in the way the Prime Minister has handled it. There was an unwillingness to give a blanket guarantee of support, of course remembering that the opposition has a basic right in any strong democracy to question the policies of the government. I do not think I need to say much more than that.

What we do know is that when we look at pros and cons of these bank guarantees, many countries have faced the very same questions Australia has. Financial uncertainty will always lead to the revival of deposit and safety schemes, and we have seen it no better exemplified than in the last few months. These kinds of insurance that we are debating tonight are now appearing in virtually every OECD economy and in the countries where they existed before, in many cases, they have been ramped up. We know that the US has some of the highest amounts covered, and it has now raised it to US$250,000; Norway is higher at $375,000; Italy is just over $150,000; and Canada and Mexico are around US$100,000. I think it was perfectly reasonable to have that debate in this chamber about amounts in that range. As I have commonly said, it is useful to be at the front of the pack, but you do not always have to be the one way out in front, for the obvious reasons—as any long distance runner would know when they get lost on the marathon track. We know that there are advantages in moving quickly and decisively in creating fiscal stability. Few would disagree with that. But we also know that there are considerable downsides to having a guarantee—in this case we believe that the upsides obviously exceed the downsides—as well as significant concerns about an unlimited guarantee. We have been wrestling with and grasping at those concerns over the last six weeks. It has been six weeks of agony for the financial markets, six weeks of agony for small investors, and had the Prime Minister been a little more humble in his approach, that six weeks of pain could have been avoided.

Gary Gray (Brand, Australian Labor Party, Parliamentary Secretary for Regional Development and Northern Australia) Share this | Link to this | Hansard source

I am fascinated, in speaking in favour of this bill, the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008, because I have listened intently to the observations of the opposition. In the concluding moments of the member for Bowman’s speech, I became convinced he is actually a showman, not the member for Bowman. To speak of an attitude by the opposition, because they believe somehow that the Prime Minister was being a little overbearing in the way in which the government pursued the urgency and the need to create certainty in our economy, is a little surprising. We find ourselves here today supporting a bill—on both sides of our parliament—which provides a standing appropriation for the guarantee scheme, and it will be in place by 28 November 2008. In the unlikely event that claims are made under the scheme, this bill will ensure timely payment of those claims. This provides certainty for Australian and international investors in wholesale funding instruments provided by authorised deposit-taking institutions—ADIs—such as banks, building societies and credit unions. It also provides certainty in relation to large deposits—that is, over $1 million—with ADIs. The bill also creates a borrowing power that enables claims to be paid under the guarantee scheme if there are insufficient funds in the consolidated revenue fund at the time those claims need to be paid.

The guarantee scheme is in place because we have increasing uncertainty regarding the stability of international financial markets. The government committed to swift and decisive action in support of the Australian economy and Australian families. On 12 October 2008, the Prime Minister announced that the government will guarantee deposits in Australian owned banks, locally incorporated subsidiaries of foreign banks, credit unions and building societies for a period of three years. The deposit guarantee means that the first $1 million deposited with an Australian incorporated bank, credit union or building society will be guaranteed free of charge. Large deposits in excess of $1 million deposited with an Australian incorporated bank, building society or credit union can pay a fee to be eligible for the guarantee. The government has also made the same commitment to support short-term and long-term wholesale funding for Australian incorporated banks, building societies and credit unions and short-term funding for foreign bank branches. This ensures that vital Australian institutions are given the best possible chance when competing in international markets.

This is particularly important given that many international competitors have the benefit of similar government guarantees. The Australian government guarantee scheme for large deposits and wholesale funding will be administered by the Reserve Bank of Australia. The Treasury, the Reserve Bank and the Australian Prudential Regulation Authority will cooperate closely to ensure the guarantee scheme is administered effectively. To access the guarantee scheme, eligible institutions will need to apply. The scheme is entirely voluntary and it is up to institutions to determine which of their deposits and which of their wholesale funding liabilities need to be covered by the government scheme. To ensure public and business confidence, the government will ensure the scheme is administered with full transparency and full accountability. In this light, the government will publish regular reports on the guarantee scheme’s website. The government will also provide six-month reports to the parliament on the guarantee scheme’s operation.

Over the past month we have heard many comments from those opposite. The Deputy Leader of the Opposition spoke at length on her claims that the government botched this policy—did that in this place tonight. If indeed it is botched, I find it very interesting that the Leader of the Opposition initially provided support for the scheme and those opposite will continue to support it, as they should. On 13 October 2008, the Leader of the Opposition stated:

The Opposition welcomes the decision taken by the Prime Minister today to provide a guarantee for all deposits in Australian … institutions, banks, credit unions, building societies and so forth.

It was a positive statement to make. Over the course of the last five weeks, we have all seen the Leader of the Opposition and various shadow ministers dancing around that commitment—at times working as hard as they possibly could to undermine public confidence in our banking system. You might well wonder why members opposite would want to do that. I know in my electorate of Brand, people have asked me that question: why would it be that the Leader of the Opposition, who one would think knows so much about the banking system, would be working so hard to create the maximum level of uncertainty? The answer to that is actually quite obvious: it is because he does know about the banking system that he is working so hard to create uncertainty.

In the newspapers today we see significant and insightful commentary that comes to us from a number of outlets about the position taken by the Leader of the Opposition. In an editorial in one of the nation’s most significant newspapers, the Courier-Mail, we see:

Political capital is hard to earn. And right now Opposition Leader Malcolm Turnbull risks burning through this scarce commodity faster than the US banking system is burning cash.

The editorial is, of course, about the position of the opposition leader with regard to the banking guarantee. The editorial is, of course, an insightful comment on the way in which the Leader of the Opposition seeks to do no more than build his own political position at the expense of the stability and certainty in the Australian banking system. Why is that the case? It was indeed the Leader of the Opposition who spent his time over the last few weeks gallivanting around the countryside telling everyone that we must actually have this bill—that we must have an act to create an appropriation to support the guarantee—because he knew that if he did he would create uncertainty amongst banks. He knew, because of his background and his knowledge of risk registers, the way in which banks understand risk and the way in which risk is transmitted around the world, that if he did that he could get a bit of a win—at least in banking terms.

Today’s newspapers suggest a completely different and thoughtful response from the media in Australia. The Financial Review states:

The Big Four banks have told Opposition Leader Malcolm Turnbull his attacks on the bank deposit guarantee have been unhelpful and have urged him to back speedy passage of legislation to ensure funding for the guarantee.

… banking sources say senior executives of the Big Four contacted Mr Turnbull on Friday and yesterday to express concern that his attacks on the government’s handling of the guarantee were undermining the finalisation of the measures and its eventual effectiveness.

What an indictment of the Leader of the Opposition. What a condemnation of a man who would argue that his principal qualification to be in this place at this time as Leader of the Opposition is his knowledge of the banking system. For the nation’s premier financial newspaper to be so damning—and so precisely damning—of the opposition leader’s tactics, actions and words is indeed a revelation. The article continued:

One source said that “the basic point made to Malcolm was that he might be scoring a lot of political hits on the government but they have been entirely counterproductive from our point of view”.

What is ‘our point of view’? ‘Our point of view’ is the stability and integrity of our national banking system. The article went on to say:

… Mr Turnbull has been the increasing pressure on the government over the guarantee and recently released private advice from ratings agency Standard & Poor’s, which said that a government guarantee must be “unconditional, irrevocable, and timely” to attract the AAA rating, saying the advice showed a standing appropriation was essential.

There we have it: the Leader of the Opposition took a rating advice from a ratings agency and carried it around the countryside, arguing that this guarantee should be in place. He argued that it was rushed and that it was bungled—arguments that were only ever designed to prop up a political position and not designed to create certainty in our banking system.

The editorial in today’s Courier-Mail went on to say:

The bank guarantee was not about popular politics—

and it is not. The banking guarantee is a tough piece of legislation. It takes character and courage to draft legislation like this. It takes understanding of our banking system. It takes an understanding of what is happening around the world in banking systems. You have to stare in the face of 30 banks around the world that are in trouble or have gone. You have to know what it is like to be in Washington and New York, as the Prime Minister and the Treasurer have been in recent days, talking with people who are creating policy and dealing with this crisis, not on a day-to-day basis but on a minute-to-minute basis. The editorial in the Courier-Mail says:

The bank guarantee was not about popular politics, it was all about restoring confidence in a time of crisis. And quickly. And at the time the initial decision was made it had the full support of the Reserve Bank and the Treasury.

As indeed has every single action taken by this government, by the Prime Minister, by the Treasurer and by the cabinet.

I commend this bill to the House as an outstanding piece of legislation designed to support our banking system at a time of need.

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

in reply—I would like to thank all members who have taken part in the debate on the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008 this evening. It is an important debate because we are witnessing turmoil, in global financial markets, of historical proportions. These conditions have prompted unprecedented actions from governments right around the world. Throughout this global financial crisis, the Rudd government has responded to volatile market conditions swiftly, calmly and methodically. To that end, on 12 October we put in place a broad based deposit and wholesale funding guarantee. Of course, these guarantees are part of the coordinated global action. They are designed to promote financial system stability and to ensure the continued flow of credit right throughout our economy. The guarantees are designed to assist Australian banks, credit unions and building societies to continue to access funding in domestic and international credit markets.

Again tonight we have heard those opposite call into question the support for these measures from our regulators, despite the unequivocal public comments by the regulators to the contrary. I find it quite extraordinary and quite damaging for those opposite to call into question our regulators at a time of global financial market turbulence. It is an unfortunate continuation of the attack on the integrity of our regulators that was launched some weeks ago by the opposition. This attack, I think, is rooted in the frustration that this government’s policy is built on the sound advice of regulators and not on the latest whim of the opposition. These guarantees were put in place on the advice of the Council of Financial Regulators. We know that the Secretary of the Treasury and the Governor of the Reserve Bank of Australia were of one mind in recommending the action taken by the government. In fact, the governor has said:

Steps in these directions, in the context of what other countries were doing, were sensible and the RBA supported them.

In fact, Reserve Bank Governor Stevens noted only last week that globally coordinated action of which our guarantee was part ‘averted potential systemic collapses that would have had massive repercussions throughout the world’. Of course, in just the last hour the OECD has had this to say about guarantees:

Guaranteeing deposits in bank lending have contributed to directly tackling the crisis of confidence that reached epic proportions in early October 2008, when the complete breakdown of credit markets was threatened, with potentially dire consequences for the real economy.

Our action has eased spreads in money markets. The guarantee has helped banks pass on lower interest rates to businesses and families.

This bill will introduce a standing appropriation with associated borrowing power, which will allow the government to pay any possible claims made under the scheme. It has been made necessary by the short-term political attacks of the opposition, and those short-term political attacks have created doubt amongst international investors of the bipartisan support for this measure. That is why this bill is necessary. This bill will provide international markets with the assurance that Australian institutions are supported by a government guarantee and that, in the unlikely event that any claim were made, payments under the scheme would be timely. It is an important measure, the next in the process of responding calmly and decisively to these unprecedented global conditions. Undoubtedly, in the weeks ahead further adjustments may be necessary. Whilst I welcome the opposition’s support for this bill tonight, I note that they continue to oppose the comprehensive guarantee on bank deposits.

We have had a lot of schoolboy and schoolgirl debating tonight. There has not been a lot of substance. For example, the opposition continues to call for a cap of $100,000 to be applied to the guarantee. I want to assure the House and the Australian people that in these uncertain times we will not be moving away from the comprehensive scheme by introducing a cap of $100,000. This would leave 40 per cent of the most liquid deposits outside the guarantee—money that could be moved quickly and could potentially destabilise our system. This is not a risk the government is willing to take when facing the most difficult times in global financial markets since the Great Depression.

This bill is an important step taken by the Rudd government to secure the Australian economy from the ravages of the global economic crisis—a crisis which has already sent some of the world’s largest economies into recession. Having a standing appropriation is not legally necessary for our guarantee to take effect, but the opposition leader continues to use the Rudd government’s response to the financial crisis as some political football—further proof that he puts his own political interests ahead of the national interest. Nothing could be more important now than bipartisan support for this guarantee. The Leader of the Opposition has judged that to not be in his interests. He insists on starting spot fires, raising baseless doubts and provoking uncertainty. In those circumstances, the very least you would have expected this evening is that the Leader of the Opposition would have had the gumption to come into this House and defend his actions, yet he has not even bothered to turn up. It is something he spoke about at length yesterday at the Press Club but he could not actually come into the House today to talk about it. The opposition leader’s approach has not escaped the notice of the community, as the member for Brand said before, or other institutions that depend on leaders bolstering trust in the system, not tearing it down for political gain.

Deposit-taking institutions have expressed their disappointment with the Leader of the Opposition, and so too has the community that has been a significant beneficiary of stability in our banking system and deposit-taking institutions. Under normal circumstances the Leader of the Opposition’s campaign, his ongoing efforts to talk down our economy and to talk initiatives in this place, would have little impact, but these are not normal circumstances. We are confronting the worst global conditions since the Great Depression. We must all put our commitment to protecting our financial system beyond a shadow of doubt and beyond immediate partisan interest. That is what this bill allows us to do. I urge the opposition to desist with their short-term political tactics, get behind the national interest and get behind these measures which mean so much to households and businesses in this economy.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.