Malcolm Turnbull (Wentworth, Liberal Party, Leader of the Opposition) Share this | Link to this | Hansard source

This Ruddbank, known as the Australian Business Investment Partnership Ltd, will be established with five shareholders: the Commonwealth of Australia and the four major banks—ANZ, Commonwealth, National and Westpac. The Commonwealth government will provide a contribution of $2 billion and provide a guarantee for an additional $26 billion of debt to be borrowed by Ruddbank, while the four commercial banks will provide $500 million each. The total capital therefore is potentially $30 billion, with the Commonwealth’s share up to $28 billion. So the Commonwealth has by far the lion’s share of the exposure. The equity is owned in the shares with the four banks having half of the equity and the Commonwealth having the other half.

The board of directors will comprise five persons—a nominee from the Commonwealth government as the chairman and a nominee from each of the four banks. Each director has a right of veto but, as with all directors under the Corporations Act, they are bound to act in the interest of the company—not to represent the institution or the entity that nominated them. The stated primary object of Ruddbank is:

… refinancing for loans relating to commercial property assets in Australia in situations where:

(a) finance relating to the assets is not available from commercial providers other than ABIP Limited; and

(b) the assets would otherwise be financially viable.

That is set out in the legislation.

This is consistent with the Prime Minister’s press release—it actually goes further than the Prime Minister’s press release—of 24 January 2009 where the Prime Minister talked about the concern that foreign banks would withdraw from lending syndicates to Australian property companies. So he said:

The Partnership will focus on completed commercial property investments and partly completed development projects with secured pre-commitments (for example, retail shopping centres, commercial office and industrial property). It will be structured to allow sufficient flexibility to provide financing in other areas of commercial lending, should the need arise and the Government and four major banks jointly agree.

This proposal had its origins in a paper developed by Mr Ahmed Fahour, who was then an executive of the National Australia Bank. Mr Fahour’s contention was that there were a large number of foreign banks lending to the Australian property industry who, because of the global financial crisis, were likely to withdraw their business from Australia and that this funding shortfall would not be able to be addressed by Australian banks. He said that, if that were to be the case, assets would be sold and prices would fall. He said that ‘market analysts are predicting property prices will fall 20 to 30 per cent in 2009’. So the object of the Ruddbank scheme is to stop commercial property prices falling. In other words, it is using taxpayers’ money—tens of billions of dollars of taxpayers’ money—to hold up commercial property prices.

Millions of Australians who have seen their investment in the stock market, in their superannuation funds, decline in value by half in many cases will be wondering why the government is so solicitous, so anxious to intervene, to hold up asset values for one particular asset class. Mr Rudd, characteristically, in January claimed that this was to do with jobs. He said:

Without action, a combination of weak demand … and tight credit conditions … could see up to 50,000 people in this sector lose their jobs, according to Treasury.

He has never provided any evidence of that. There has been no Treasury modelling produced, and it was no doubt a figure literally plucked out of the air.

The fact of the matter is that if a property—a shopping centre, an office building or a warehouse—is sold at a value lower than the value at which it was bought and the owner loses some money, or even if the lender loses some money on their loan, the workers still come to work and the tenant is there. The tenant might actually end up paying a lower rent because the new owner has less capital to service. So the fact of the matter is that, as asset prices go up and down for property, it does not affect employment at all. You could make an argument that it would impact on employment if the funding were designed to fund construction, but the Ruddbank is expressly designed not to take on construction risk. It is designed to refinance existing commercial property projects or projects that are already under construction with completion guarantees and with commitments of tenancies. So there is no construction risk and there are no construction jobs being protected by this exercise at all.

As we know, this venture was originally designed or stated to be for the purpose of stepping into the shoes of foreign banks if they pulled out of lending syndicates to commercial property companies and commercial property projects. The Australian Business Investment Partnership Bill 2009 and the draft shareholders agreement also give the parties to this venture, the shareholders, the four banks and the Commonwealth, the right—and I quote now from clause 7(2) of the bill—‘to provide financing in other areas of commercial lending through financing arrangements of a kind agreed to by the members of ABIP Ltd’.

This means that this Ruddbank can be used to provide commercial finance to any commercial project. Indeed, the government are asking the parliament not only to agree to put $28 billion of taxpayers’ money at risk here for the purpose of propping up commercial property prices—a poor enough objective in itself—but to give these four banks plus the Rudd government a blank cheque to enable Ruddbank to head off into any commercial lending venture that it sees fit. This is nothing short of a new government bank, which the parliament has no ability to supervise or to scrutinise. There is no accountability whatsoever. They have literally written themselves a blank cheque.

At the very core of this project is a fatal and fundamental flaw. It is flawed because it has been put together by people who have very little understanding and, in some cases, absolutely no experience of the way in which lending syndicates operate in difficult economic times. The reality is that when you get into a recession or into a bad or slow economic period, when property values decline or tenants go out of business and landlords are not getting their rent—when all of those bad things happen in the property sector—lending syndicates will come under pressure. Often you will find that covenants relating to interest cover or coverage of the loan itself or various other conditions in the loan will become breached, and the lenders will have an opportunity to declare it an event of default and ask for their money back. What often happens in syndicates—and I have seen this many times in my own business life—is that the smaller participants, particularly those that do not have a longstanding relationship with the borrower, will try to stand over the larger lenders and persuade them to take them out. They will say: ‘Just get us out of here. Give us our money back.’ They put pressure on the larger lenders, who have a greater commitment to the project or to the borrower, who might be a client of the bank and so forth, to take them out.

What stops them being taken out, of course, is the risk that, if they push too hard, there may be a sale and they may lose some money. That is the tension. It is the risk that if they force a sale, call the event of default, put pressure on the lender, they may end up losing quite a lot of money through a sale at a value that does not enable them to be repaid in full. That is the tension that keeps the lenders together. As long as the tenants are there, as long as rent is being paid, as long as the project is financially viable—and I might add that, in terms of the objects of this company, it is designed to be only advancing money to projects which are financially viable—then common sense dictates that the lenders will stay in.

However, if you have Ruddbank sitting over there on the side with a bag of taxpayers’ money—a very large bag, in this case—and the preparedness to take out any financial institution that wants to get out, there is going to be enormous incentive for those lenders to kick up a fuss, to put as much pressure on the situation as they can, in order that they will be paid out in full. In other words, this Ruddbank is calculated to encourage the very circumstance that its authors claim to be concerned about. It is the most counterproductive piece of legislation I have ever seen. It will literally exacerbate the alleged problem.

That brings me to the second big flaw in Ruddbank: the colossal conflict of interest. Under the Ruddbank scheme, the big four banks have to maintain their pro rata share in a syndicate which Ruddbank is stepping into. So if, for argument’s sake, Westpac and the National Australia Bank each had 25 per cent of a syndicate, and two other banks—say, Suncorp Metway and perhaps a foreign bank like HSBC—had 25 per cent each, and the two non-big-four banks, Suncorp and HSBC, wanted to bail out, Ruddbank would be able to replace them but it would not be able to replace either of the big four banks because they have got to keep their proportion.

The way the world works with ‘mark to market’—and, obviously, with the scrutiny of banks’ balance sheets, particularly in this environment—is as follows. If a lender in a property syndicate exits for a price that is less than face value, less than 100c in the dollar—if he sells his loan for, say, 80c in the dollar—the other lenders will be compelled to mark their loans down to that level. They will have to mark them to market. So, in the hypothetical example that I have given, the last thing that Westpac or NAB would want is for the two other banks, Suncorp and HSBC, to be taken out for less than 100c in the dollar, because that would have an impact on the big four Australian banks’ balance sheets. The big four banks will clearly have enormous influence in this arrangement because they will be the bulk of the board and they have the banking expertise; there is nobody working for the government or in the Treasury who has any experience in commercial lending. So they will have an absolutely vested interest in encouraging the government to agree to taking out the exiting banks at full value even though the real value of their loan may be, on an arms-length basis, less than 100c in the dollar. This motive is disclosed by Mr Fahour. On the second page of his paper, he said:

Eventually, what was a funding shortfall becomes a credit problem and then liquidation and forced closures occur. A number of vulture funds are being formed with significant capital to take advantage.

What Mr Fahour means by a ‘vulture fund’ is simply any entity that wants to buy bank loans for less than 100c in the dollar.

So you can see that the Commonwealth not only has got itself into the absurd situation of trying to hold up asset values in one asset class as opposed to any other but has done so in a way that will encourage non-big-four Australian lenders and foreign lenders to exit. It will give them a real incentive by taking away the tension that they might lose money, which exists at the moment. In addition to that, this is structured in such a way that there is a massive conflict of interest, because the big four banks will want Ruddbank to refinance any exiting lender at full face value. So, needless to say, we do not support this flawed legislation. It is fatally flawed. It is very poor public policy and it offends all of the principles of good public and corporate governance.

The Rudd government already has plans to borrow $200 billion. That legislation has gone through the parliament. We did not vote for it, I am pleased to say; in fact, we voted against it. It is a very bad move. In addition, another $26 billion is to be borrowed by Ruddbank and guaranteed by the Commonwealth. So the Commonwealth, with just one seat out of five on the board, has $28 billion of the $30 billion exposure to Ruddbank. This is indeed a government that is addicted to debt. Robert Palmer might have sung, ‘You might as well face it; you’re addicted to debt,’ as a tribute to the Prime Minister.

The government is not helping small business, which might benefit from lower rents. It is seeking to hold up commercial property prices, at the behest of one of the big four banks, in order to prop up their balance sheets. This is at a time when every balance sheet around the country is under pressure and when there is no support being given to self-funded retirees, who have seen their superannuation funds crash in value, and when no help is being given to mining companies, who have seen their commodity prices fall. This is a selective action to hold up prices in one sector. The history of governments trying to prop up prices in a falling market has always been self-defeating and catastrophic and has resulted in the governments concerned losing a huge amount of money.

The involvement of the four major banks is clearly nothing less than a cartel. These are the four biggest banks, who are meant to compete with each other ruthlessly and strenuously, working together in a cartel with the government. But that is addressed in the legislation: clause 16 of the bill explicitly and expressly exempts the Ruddbank from the operation of part IV of the Trade Practices Act 1974. Clearly this would otherwise be a collusion by the four major banks. It is ironic that there is currently legislation before the parliament that criminalises cartel conduct, allowing for penalties of up to 10 years jail. The government, at the same time as it is putting that legislation before the parliament, is actually establishing the largest cartel in our history and itself becoming a participant in that cartel.

The involvement therefore of the four major banks creates a cartel working against the interests of every other financial institution in the country. The four major banks will be partners with the government, with its unlimited resources, and will be collaborating together in a position to undermine the competitive position of every other lender in the country. There are inherent and dangerous conflicts of interest here, and the taxpayer is at risk. We are informed that the Commonwealth nominee—this one person out of five—will ensure that taxpayers are protected. That puts a lot of faith in one person who might be the only barrier to prevent the loss of $28 billion in government debt.

Our own history is replete with failures of this kind. We do not know who the Commonwealth nominee will be, but we can expect that the banks’ representatives will have an absolutely compelling incentive to transfer risk to the taxpayer. That is what this is all about. It is about shifting risk to the taxpayer, for the benefit of the big four banks, while disadvantaging Australians and their hard-earned taxes, which this government should be determined to protect.

We are told that initially the Ruddbank would only lend for commercial property purposes. Of course, lending is not restricted to that purpose, and it is in a position to lend for any other area that it may agree to. So we could see Ruddbank used to bail out failed state Labor governments. There is absolutely no barrier to it getting involved in other forms of lending. It could rescue state governments from failed projects. It literally has a blank cheque. All the government has to do to ensure that Ruddbank moves into a new field is to get the four Australian banks to agree. It only has $2 billion at risk and, in circumstances where the additional $26 billion affects the amount of regulatory capital that the big four banks have to carry in respect of their investment in Ruddbank, the additional capital borrowed by Ruddbank and guaranteed by the government will actually rank behind the contributions of the big four banks. This has not been widely reported at all but it is dealt with in clause 4.4C(iii) of the shareholders agreement. I will read a passage from it:

If the shareholders agree that an adverse capital consequence would result from the issue of further debt funding, the priority of a proportion of the relevant further debt funding will be subordinated so that it ranks in priority behind the initial debt funding.

In other words, there are circumstances where the money that Ruddbank borrows, guaranteed by the Commonwealth, will rank behind the money advanced to Ruddbank by the four big banks. So much for a government that is standing up for taxpayers!

The primary justification given for this legislation is that there is a pending withdrawal of foreign banks from the Australian market. In our briefing with the Treasury recently we were advised that no foreign bank has indicated that it will withdraw from Australia, except the Royal Bank of Scotland. That is consistent with feedback that we have received from the financial sector. The Reserve Bank’s February 2009 Statement on monetary policy states:

Over recent months there has been some speculation that many foreign-owned banks will withdraw from the Australian market and that this will create a significant funding shortfall for businesses. While there is a risk that some foreign lenders will scale back their Australian operations, particularly if offshore financial markets deteriorate further, at this stage there is little sign of this, with most of the large foreign-owned banks planning to maintain their lending activities in the Australian market.

Yet the parliament is being asked to agree to the establishment of an unprecedented organisation with wide powers to address a problem that according to the Reserve Bank and, indeed, the Treasury has not appeared on the horizon. The legislation will, as I said, encourage banks to leave Australia. It will encourage every bank which cannot exit from these syndicates—other than the big four, of course—to go. So it is counterproductive.

There has been no regulatory impact statement. Once again, the government has failed to provide any evidence to support its rash policy. This is what the highly respected economist Henry Ergas said in an article on 27 January:

In the short run, the scheme seems likely to induce developers to play off their existing foreign lenders against the safety net the scheme provides. This could accelerate the very withdrawal of foreign lenders the scheme is intended to guard against, while allowing developers to secure some free kicks on the basis of what amounts to taxpayer-funded insurance.

It does not matter how you rationalise or analyse it, this is bad policy.

If our concerns seem unreasonable to those on the government side, let us just remember the record of previous state Labor governments. The State Bank of Victoria, a great triumph of democratic socialist finance, lost around $3 billion, mainly through its subsidiary Tricontinental. The State Bank of South Australia, another democratic socialist experiment, had to be bailed out by the state government, with a final cost to taxpayers of around $2.2 billion. That does not even take into account the enormously expensive consequences of the government getting involved in money matters with the corporate sector and supporting corporate players and corporate participants in Western Australia. That, of course, ended up in a shocking collapse, the WA Inc. scandal and a consequent royal commission.

The reality is that Kevin Rudd, the Prime Minister, is the Rebecca Bloomwood of Australian politics. He is addicted to maxing out the nation’s credit card. He is a shopaholic. He happily goes around the world giving other nations financial and economic advice while handing out cash splashes in Australia and running up $200 billion in debt plus a $26 billion debt for Ruddbank. He is so addicted to spending that he has even started his own bank, Ruddbank, using other people’s money to fuel his addiction. This is bad policy. It is counterproductive, it is self-defeating, it will exacerbate the problem its authors claim to be seeking to address and it will put billions of dollars of Australian taxpayers’ money at risk for a misconceived venture. The government should abandon it, and we intend to oppose it both here and in the Senate.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

We have just had an MPI where the opposition criticised the government for allegedly failing to manage the economy to prevent job losses, and here they are opposing legislation that will support jobs. The Treasury—and I believe the Treasury rather than the Leader of the Opposition—says that without action of this nature a combination of weak demand and tight credit conditions could see up to 50,000 people in the commercial property sector lose their jobs, with flow-on effects to other parts of the economy. This legislation, the Australian Business Investment Partnership Bill 2009 and cognate bill, is a necessary measure to support confidence in the commercial property sector. It is necessary in the circumstances where employment is threatened by the withdrawal of a foreign bank affected by the global financial crisis. It creates a special-purpose vehicle, just as we did with the car industry, to support jobs and investment. It is done with the support of private capital invested by banks who are participants. Overseas we have seen governments doing this sort of thing but without the support of private banks.

Does the Leader of the Opposition seriously think that the government is engaging in criminal cartel type behaviour? That is what he alluded to. I do not seriously believe he is making that allegation. Perhaps he had his tongue in his cheek. But we are doing this with the consent, approbation and approval of the Australian banking sector and with its cooperation. It is a temporary measure, as we have said, in specific circumstances to support the economy and to assist liquidity in the commercial property sector. Those people who work in the commercial property sector are electricians, carpenters, small business people and independent contractors, and they need this sort of support.

To support jobs we are establishing a $4 billion Australian Business Investment Partnership, ABIP. It is a temporary contingency measure to support commercial property assets, those projects such as shopping centres, office towers and factories under construction as well as existing properties of that nature. We know that the commercial property sector employs about 150,000 people in Australia. It is a big employer of people: tradesmen, carpenters, plumbers, those people managing property, electricians and other people who work in the industry. This is the real face of Australian humanity—small business operators, workers and their families in the sector. What we are doing is supporting that sector, and those opposite are saying: ‘We will wait and see. We will do nothing about this.’ They have opposed the stimulus package, and this is part of their opposition. We are supporting local jobs. We are not sitting back idly waiting for the world; we are doing things that will support the sector.

There are safeguards which will ensure that the banks will continue to finance projects. We have said that. We think that foreign banks play an important role in our economy and in the banking sector and we support that. We are the ones who internationalised the economy and brought foreign banks into this country. Those opposite in their stifled Hansonite delusions of the 1950s, 1960s and 1970s were the ones who opposed opening up the economy and internationalising the economy. We are supportive of the contribution that foreign banks make to ensure that constrained construction in the commercial sector remains viable in all the circumstances.

As I listened to the Leader of the Opposition go on about this legislation, I wondered whether he had actually looked at it. He talked about lack of oversight and lack of a regulatory framework. But, if you have a look at what ABIP’s operation is going to be like, it consists of a board with expertise and it has a requirement for all resolutions of the ABIP board to be unanimous, with the exception of enforcement resolutions. Even then it requires an 80 per cent majority of the board, provided that the government is a member of the majority. There is a requirement that any major bank continue its participation in terms of its loan facilities. There is a requirement that the Auditor-General audit the financial statements of the company and subsidiaries and the auditing must be done consistently with the Corporations Act 2001. Further, there is a requirement for the Treasurer to table the company’s financial report, directors’ reports and audit reports each financial year in each house of parliament as soon as practicable after receipt. According to the Leader of the Opposition, there is no oversight, no regulation. It is carte blanche, if you listen to what he says. But that is not true. In fact, what we are doing is creating an organisation, a bank in which all the participants have ‘skin in the game’, as the Treasurer eloquently said. It is true: all the major banking companies are in the game. They are participating in supporting the Australian economy. The only ones not supporting the Australian economy are those who sit opposite, who are opposing this particular reform.

We know that the commercial property sector supports what we are doing in this regard. We are initially financing ABIP to the tune of $4 billion, with the government’s contribution at $2 billion. We know it is being matched by a half-billion dollar contribution by each of the four major banks and extending also the capacity in terms of borrowing of up to $30 billion by a government guaranteed debt of $26 billion to create the $30 billion fund. We know that the global credit situation is going to be tight. We know that so many of our trading partners are in recession. We also know that China’s economy has contracted for the first time in about seven years. We know that the Japanese economy has gone back by 4.6 per cent in the last year. We have seen the dole queues in America; we have seen unemployment to the tune of about 651,000 a month rising in the United States of America. We know that the global financial crisis is going to wash across our shores.

We have seen in my electorate, which contains Ipswich, the Lockyer Valley and the old Boonah shire, a rise in unemployment. For example, we have seen in Ipswich about 3,000 people unemployed but we have seen an increase of 400 people, in terms of Centrelink entitlements, being unemployed in the last month. This is the real face of the global financial crisis affecting my electorate and, I am sure, the electorates of all members of this House. So it is very important that we ensure the continued finance which will enable shopping centres and property developments to continue, because this sort of thing is very important for our economy. It is also very important where I come from in South-East Queensland, where there are big property developments in places like Springfield and also proposed at Walloon and Ripley Valley. We have big shopping centres which have grown in the last 10 years at Riverlink and Brassel. We have seen big developments. Ipswich’s population is growing in such a way that we need a new classroom every week to educate the children in the Ipswich area, which is covered by the electorates of Blair and Oxley.

It is important that we get commercial property supported by a banking system that ensures that there is not weak demand and that there are not tight credit conditions which might impact upon the commercial property sector. I am really supportive of this reform. I think it is a reform. I think there is oversight in relation to the matter. The reform is supported by the Governor of the Reserve Bank of Australia, Glenn Stevens. Master Builders Australia support it. Ian Harper, of Access Economics—someone whom those opposite have used in the past for advice and for appointment—has also talked about how important this type of operation to support commercial property is in all the circumstances. The Property Council of Australia also support what we are doing here.

But once again the coalition opt out of the game, take off the boots, take off the uniform and say: ‘We’re not playing. We’re not going to participate in any bipartisan approach to address the global financial crisis. We’re not going to be part of the game.’ We have seen it on Work Choices, alcopops and the ETS; we are seeing it here on ABIP. The coalition are abdicating their responsibilities to the property sector. Once again, those people opposite, who champion business, are letting down business.

This legislation is important in all the circumstances. It is important for the commercial property sector. It is important for my electorate, in South-East Queensland. It is important for the people of Ipswich and the rural areas outside it. It will sustain economic development. It will sustain employment and jobs. Therefore it will help Australian families in this very difficult time. It is a shame that those opposite are coming up with silly arguments to oppose this, when all the stakeholders—those people who are interested, like the Reserve Bank of Australia, the Property Council of Australia and Master Builders Australia—support what we are doing in this regard. I think the coalition should listen to those sectors, to those people who really are in the game. I urge those opposite to put the boots back on, put the uniform back on and actually participate in the great debate in this regard.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Richard Marles (Corio, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of the Australian Business Investment Partnership Bill 2009 and the Australian Business Investment Partnership (Consequential Amendment) Bill 2009. I do so with pride, as I stand on the side of this parliament which is acting swiftly and decisively to bolster the Australian economy against the biggest economic shock that the globe has seen since the Second World War. This measure is one of a suite of measures which have been taken by this government to bolster this economy. We have acted swiftly and decisively, and the actions that we have undertaken have been watched with commendation around the world. They stand in such stark contrast to what we see on the other side of the House and to what we have just heard from the shadow Treasurer. At a time of national crisis, when we might have expected some bipartisanship in policy across both sides of politics to deal with it, instead we see rank politicking and scaremongering from the opposition. That was in evidence in the speech that we just heard from the shadow Treasurer, as he seeks to characterise what we are doing now as the establishment of a bank. What we are actually doing is putting in place a short-term temporary measure to get this country through what is the worst global economic crisis that we have seen since the Second World War.

This bill does three things: it establishes the Australian Business Investment Partnership Ltd, it provides for an appropriation by government to the Australian Business Investment Partnership and it also provides for the ability to establish a guarantee on extra debt issued by ABIP in the future. There is a consequential amendment to the Corporations Act so that ABIP, the Australian Business Investment Partnership, is exempt from holding an Australian financial services licence. The aim of this bill is to restore confidence in Australia’s commercial property sector by providing a vehicle where finance can be made available in circumstances where there are viable commercial property projects which have had their finance withdrawn or risk their finance being withdrawn. The commercial property sector employs 150,000 Australians, and Treasury predicts that if nothing is done then the global credit crunch and the reduction in demand will put 50,000 of those jobs at risk—nearly one-third of the sector. So this is a $4 billion plan to build Australia’s future and to support Australian jobs through the creation of the Australian Business Investment Partnership.

It is a temporary measure. It is not the establishment of a bank but a temporary measure to support viable commercial projects. Foreign banks and, indeed, second tier banks in this country have played—and we hope will continue to play—a very important role in financing commercial property projects. But the sad fact is that the global economic crisis has impacted upon our economy such that foreign banks may find themselves withdrawing money from viable commercial property projects because they are seeking to repatriate that money to their home countries. This creates a tightening in conditions which will last through the rest of 2009. It is a tightening of conditions that persists for the entire economy but is particularly felt within the commercial property sector because of the highly leveraged nature of that sector. The sudden withdrawal of finance from a commercial property project risks the possibility of an investor in such a project being required to sell that property in a depressed market.

The market stability of the commercial property sector is at stake in what we are discussing here this evening and, indeed, that flows on to the stability of the property market more generally. Therefore, the value of superannuation funds is also at stake—the value of the life savings of superannuants. Making sure that we have a robust commercial property market is, in one aspect, essential to ensuring that those superannuation funds continue to maintain their value as best they possibly can in this difficult economic time. The commercial property market is fundamental to our nation’s economy, and the government, through this measure, is providing certainty and stability to a very important sector of our economy. We cannot afford to sit still and do nothing, which is what is being advocated by those on the other side of this House. We need to take extraordinary measures which befit the extraordinary time that we find ourselves in. Ian Harper, of Access Economics, said as much:

In normal times, the Government ought have no business lending to property or to anything else, but these are extraordinary times.

Aaron Gadiel, from the Urban Taskforce, said:

Without action we would lose valuable jobs, income and development that our community desperately needs. For every $1 million spent in construction, 27 jobs are created.

So the government needs to protect the interests of good Australian businesses, we need to protect the interests of this very important sector in the Australian economy and we need to ensure that investor confidence is not eroded by the uncertainty which characterises global capital markets at the moment.

Just last week, I had the privilege of opening a commercial residential building on Geelong’s waterfront. This is a building which has a significant commercial aspect. It is these kinds of buildings which may be the beneficiaries of finance from these funds going into the future. I want to tell the story of Edgewater because it gives us a snapshot of the significance of this industry to the economy of Geelong and a snapshot of the significance of this industry to our nation’s economy.

The Edgewater development was a $66 million investment that provided work for a hundred construction workers for two years as they built this property. But what is really significant is that it will also provide ongoing employment for 50 workers on a permanent basis—people employed in the retail outlets on the ground floor of this property. It is a property which has retail outlets on the ground floor and apartments on five floors above that. The Edgewater building is a very significant step forward in property development in Geelong. It brings a range of retail outlets, principally eateries and cafes, to Eastern Beach Road, which is the main thoroughfare along the Geelong waterfront. It will turn this thoroughfare into one of the great boulevards in our country and will provide life, a sense of energy and a buzz to that area which will greatly enhance the city of Geelong. With that buzz and that vibrancy come jobs, and it is a really important development which not only adds to the quality of life in Geelong but also provides employment to so many people who live in Geelong.

It is an example of the fact that, prior to the global economic recession coming into being, Geelong was experiencing something of a construction boom. Hundreds of millions of dollars of investment on an unprecedented scale was reshaping Geelong’s waterfront and central business district. Several major jobs—including, for example, the $100 million TAC headquarters—have been completed. So, too, has the Westfield shopping centre, which has been a revelation in revitalising the CBD in the Geelong area. These construction projects have been significant drivers of construction jobs and have also provided long-term jobs in Geelong beyond the construction of those buildings. The building of these buildings is, in a sense, the most obvious manifestation of vibrant economic growth within a city—certainly within Geelong.

But those involved in the construction and commercial property sector within Geelong now tell me that the sector is starting to slow dramatically. At least half-a-dozen major commercial projects that were about to get underway have been put on the backburner because of the current economic climate, and that will inevitably have an impact upon jobs—both short-term jobs in construction and ongoing jobs in running whatever is the outcome of that construction work. And what is happening in Geelong is being repeated in many regional centres and major cities across Australia.

This bill brings certainty in a sector and in a year when many things are so uncertain, when people are so nervous about what the future holds and when we are already starting to see the effects of the credit crunch not only in this sector but also in many other industries. The Australian Business Investment Partnership will work as follows. There will be an initial financing of $4 billion to ABIP, which includes a $2 billion appropriation as a result of this bill from the Commonwealth along with half a billion dollars from the four major banks. There will also then be the ability to provide a guarantee of loans of up to $26 billion in the future, creating a financing vehicle of up to $30 billion. ABIP will lend for two years—two years only—and this is to deal with the immediate issue of the global economic crisis which we are confronted with.

In financing commercial property ventures it will be limited to the refinancing of Australian commercial property assets on commercial terms when withdrawal of funding by a lender threatens the refinancing of the loan. It will focus on completed commercial property investments and partly completed projects with secured precommitments such as retail shopping centres, commercial office blocks or industrial property. It will not be able to be used to provide for the refinancing of loans from the four major banks.

ABIP will be established as a company. It will have a board of five members consisting of one from each of the four major banks and one from the government, with the government member as the chair of ABIP. It will be subject to a number of stringent requirements, such as providing for the composition of an expert board and governance requirements of the board which require that all resolutions are made unanimously with the exception of enforcement resolutions. Even enforcement resolutions can only be made with an 80 per cent majority vote which must include the government member as part of that majority. Any major bank in the loan facility must continue its participation in the loan facility, and there are other parameters which will exist around ABIP’s operations. All of this will be put in place to ensure that there is minimal risk of exposure to Australian taxpayers in the establishment of ABIP.

This is an important intervention at this time. It is important government support for a vital sector of our economy which drives employment. We cannot stand idly by as the global economic recession continues to operate upon our economy. We cannot walk down the path which is being offered by those on the other side of the House, which is essentially a path that leads nowhere, a path that is about doing nothing. Confidence in our action—confidence in government action—will breed confidence in this sector. That is what this bill is all about, and in breeding confidence in this sector we will ensure the jobs of tens of thousands of Australian workers, which is so important during this global economic crisis.

Debate (on motion by Mrs Mirabella) adjourned.