House debates

Wednesday, 24 February 2010

Questions without Notice

Mortgages

2:47 pm

Photo of Sid SidebottomSid Sidebottom (Braddon, Australian Labor Party) Share this | | Hansard source

My question is to the Treasurer. Treasurer, what have been the recent developments in home loan funding for smaller Australian lenders?

Photo of Wayne SwanWayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | | Hansard source

I thank the member for Braddon for his question. Last November I directed the Australian Office of Financial Management to invest up to $8 billion in high-quality, AAA-rated residential mortgage backed securities to further support competition in Australia’s home loan market. Many smaller lenders rely heavily on RMBS to fund their lending by packaging home loans into these securities and borrowing against them. Members would know that the government had previously announced an initial $8 billion in RMBS in late 2008. And just a few weeks ago, I announced a fresh boost to competition, with three nonbank lenders and two smaller banks allocated up to $3.4 billion in year-long pipeline funding for our second $8 billion investment.

The government’s support has been critical to preserving the infrastructure of this very important market which many smaller bank and nonbank lenders depend on to fund their home loans. Last week we saw the evidence of this, with AMP reducing its basic variable interest rate for new home loans by a full 10 basis points and attributing the cut directly to the government’s action. In fact, AMP’s chief executive, Craig Dunn, wrote to me to say:

… this reduction in interest rates has only been possible because of the improvement to the securitisation markets flowing on from the Government’s support.

There is a long way to go yet, but there is no doubt that we have seen some encouraging signs that our support is helping confidence among private investors in RMBS.

Of the $13.2 billion in Australian RMBS issuance in which the AOFM has taken a stake, some 39 per cent of nearly $5.2 billion has been private capital. Mr Dunn in his letter to me said:

… we are also hopeful that we will be further able to reduce our rates in the coming months, as we gear up our operations in light of ongoing improvements in the securitisation market.

In fact, last week, Reserve Bank assistant governor Guy Debelle confirmed that:

… RMBS is again beginning to provide a competitive source of funding, particularly for the regional banks … and non-bank lenders …

It is clear that the government’s direct investment of up to $16 billion in the RMBS market is enabling smaller lenders to lend at competitive interest rates and to maintain a higher level of lending than would otherwise have been possible. But, of course, the global financial crisis has created significant challenges for competition in our domestic banking market. We know that we cannot overcome these overnight, but I think Australians appreciate that we are working hard to support more competition in the banking sector—because, by supporting smaller Australian lenders, our investments are helping place more competition on big banks and downward pressure on mortgage rates.

But we have had some commentary today by the shadow finance minister about levels of debt and about levels of interest rates. The shadow finance minister got himself in another one of his famous tangles this morning—after being released from the ‘witness protection program’, where they have had him for over a week. This morning he actually invented a new economic concept called ‘net debt gross, public and private’. That is a bit like a new winter sport—NRL, AFL and NBL all played at Rod Laver Oval with a ball in the middle. He does not have a clue about what he is talking about. This morning the shadow Treasurer was asked by a journalist:

Have you heard the term ‘net debt gross, public and private’?

Mr Hockey laughs:

Well, I did today.

Things are getting to a pretty sad state when the shadow Treasurer cannot explain what the shadow finance minister is talking about. Fair dinkum; it is a case of dumb and dumber!

It is not really humorous because the shadow finance minister has an impact: when he speaks many people think he knows what he is talking about. This morning he repeated what was rejected last week by the Reserve Bank governor. He repeated his claim that somehow Australia might default. This is a very serious and irresponsible thing for a shadow finance minister to say. This was the question from the journalist, ‘How serious is the problem?’—the question being debt. This is what Joyce said:

I stand by my belief that if you go on that path, that’s quite evident. If you continue on that trajectory, you are going to get to a point of reckoning. Quite obviously you will get to a point of reckoning.

This is the point that was rejected by the Reserve Bank governor last week. On 19 February, when he was questioned about the previous statements from the shadow finance minister, this is what the Reserve Bank governor had to say:

People in positions of authority and responsibility certainly must be wary of the way they speak. … I think one has to be careful of inadvertently giving false impressions, to be sure.

Joyce went on to say a whole lot of other ridiculous, stupid and damaging things about debt. He went on to talk about private debt and made all sorts of outrageous claims. There is one thing that we must all be aware of: his claims about private debt are a complete condemnation of the record of everybody sitting on the other side. This is the case: he said that he was concerned about what was happening with foreign debt.

Think about this: between 1996 and 2007, the Liberals presided over a doubling in net foreign debt. Under the Liberals, net foreign debt rose from $192 billion in March 1996 to $589 billion in December 2007. In fact, net debt is smaller today under this government than it was when those opposite were in government. What we have here is scaremongering. Consider this: between 1996 and 2007, the Liberals left the nation with a 440 per cent increase in credit card debt, a 280 per cent increase in household debt and a 270 per cent increase in corporate debt. They are out of their depth, they do not know what they are talking about and they are a risk to the economic future of this nation.