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

Some people say that it is very hard to get agreement in this place, but here I am, in the company of my colleagues, with two people in the public gallery to witness this moment: we are rising in support of the government's legislation to amend Commonwealth government securities legislation. The Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill 2012 seeks to establish a market for retail investors in Commonwealth government securities. The government has chosen to facilitate the trading of Commonwealth government securities to retail investors through an indirect beneficial ownership structure. The bill does this by making amendments to the Commonwealth Inscribed Stock Act 1911—which I am sure the people in the gallery have read!—in order to facilitate the trading of retail Commonwealth government securities on financial markets and to allow the Australian Office of Financial Management to carry out the administrative duties arising from the retail market.

The bill also amends the Corporations Act 2001—that was my bill. I introduced that bill into this place with the most significant referral of power from the states to the Commonwealth since income taxing powers. This amends the Corporations Act 2001 in order to ensure that investor protection measures and market integrity provisions apply to the retail CGS market.

The coalition welcomes the idea of opening up investment in Commonwealth securities to the retail market. It has many benefits. Investing in Commonwealth securities allows people to invest in the future of their country—you would hope—and to contribute in a direct sense to the building of the nation—that is, of course, if the debt is being used to build the nation.

Unfortunately it has been used, in the main, to paper over the cracks of deficit budgets under Labor over the last four years.

Having Australian households investing in Commonwealth securities helps to finance the government's debt from domestic sources of capital and reduces reliance on overseas financing. This is particularly important at present, when around three-quarters of Commonwealth government securities on issue are held by offshore investors—in fact, it is probably more than that at the moment. Improving access to Commonwealth securities also facilitates a broadening of investment choices for the retail sector.

It is widely noted that Australian superannuation investments are overly weighted, arguably, towards equities when compared with retirement fund investments in other countries, such as the United Kingdom and the United States. An OECD analysis of retirement income systems shows that equities are by far the largest asset allocation for Australia—nearly 55 per cent, compared to the United States at 45 per cent and the United Kingdom at just 40 per cent. Treasury analysis has shown that domestic equities measured as a percentage of GDP for Australian super funds have risen from just over one per cent of GDP from 2003 to 2007 to just over three per cent of GDP from 2008 to 2011. Of course, there was a period in late 2008 and early 2009 when the equity capital markets raised $103 billion, essentially from superannuation funds, in lieu of rolling over debt or to add to the capital of existing businesses, and that in itself represented a substantial increase.

This year's Budget Paper No. 1 noted:

Since 2008 there has been a substantial shift in superannuation funds' asset acquisition away from foreign equities and debt securities towards domestic equities …

This overweighting to equity seems in part to reflect a lack of alternative investments, particularly in domestically issued, fixed-interest securities. The opening up of the Commonwealth securities market to retail investors, along with the development of an active and liquid secondary market, should help facilitate the development of investor interest in private-sector corporate securities. The long-term objective should be the development of active secondary markets and retail investments in a full range of private and public debt instruments.

Of course, Australian retail investors were once readily able to invest in Commonwealth securities through the mechanism of Australian savings bonds. These were available from 1976 until 1987. They were hugely popular because, particularly during that period, they were high yield and a safe investment which carried no price risk. What I mean by 'no price risk' is that they could be sold before maturity at face value on a month's notice and without penalty after a minimum holding period, no matter what happened to yields in the interim since the date of purchase. Despite their popularity, these ASBs were discontinued—in part because there was a very high administrative cost associated with running them and introducing them.

Under the legislation before us, the mechanism for retail investment will be different from that of the old ASBs. As stated previously, the government has chosen to facilitate the trading of Commonwealth government securities to retail investors through an indirect beneficial ownership structure. Under the model being put forward by the government, retail investors will not acquire the legal ownership of the government bond. Instead, they will purchase a financial product known as a depository interest, which is linked to the underlying Commonwealth government security. This is not quite the same as American depository receipts, but it is not totally different either. Forms of beneficial ownership are already available in Australia for other types of securities. There are two main types of depository interest currently traded on the Australian securities exchange. The first type is CHESS units of foreign securities—known as CUFS—which are issued by foreign entities in order to facilitate the training of their equity on the ASX. The second type is depository interest issued in respect of private sector debt instruments.

Under the government's proposal, the depository interest provides retail investors with beneficial ownership of the underlying Commonwealth government security. Retail investors will receive their periodic interest and principal payments from the proceeds paid by the government in the same way as they would have if they were the legal owner of the security. The deposit interest will be available in minimum units of $100. The depository interest will be tradeable through market makers appointed by the ASX. These market makers will charge a fee for their services. The coalition expects that competition between market makers will keep the fee to reasonable levels, provided that there is sufficient demand.

The coalition welcomes the opening—or rather the reopening—of the Commonwealth securities market to retail investors. It also welcomes the security of the product, because a bond issued by a corporation is of greater security than an equity. In the event of a company falling over, a bondholder usually ranks ahead of equity or shareholders, so corporate bonds generally are a more secure investment. But, in the retail space, one of the reasons that there is a drift towards shares over equities is that you can receive a fully franked dividend. This is so in a number of cases with a number of companies with a share, but you do not get the same beneficial tax treatment with a corporate bond. Having said that, obviously this does not apply to the Commonwealth government, because we do not have shareholders but constituents.

The benefit of this is that in a retail market it effectively becomes a benchmark yield and, therefore, hopefully—this is one of the reasons we support this—it will start stimulating greater retail interest in the corporate bond market, which at the moment is very small.

The bill has given issuers of CGS depository interests exemption from the product disclosure statement requirements under the Corporations Act. This is a very good thing. Many product disclosure statements are unreadable. It is interesting: the government excludes itself from the product disclosure statements but expects everyone else to put them out. That really says it all about the red tape which this government has become rather famous for. It does not want to apply the red tape to itself, but all the issuers of bonds and everyone else out there—anyone who buys a financial product—has to have one of the convoluted product disclosure statements.

Mr Bowen interjecting—

I introduced them, but they were never meant to butcher commercial activity in the way they have, with their extremely onerous requirements. In their place, the bill requires the Australian Office of Financial Management to issue disclosure documentation for all retail investors on the basis that this would be more efficient than having the nominee companies prepare and release the information. So let's give the government a rare tick. This is good; we are heading in the right direction.

The government have, on average, introduced 11 new regulations a day since they were elected—18,000 new regulations. Mr Deputy Speaker Murphy, you would be appalled at that. The government has introduced 18,000 new regulations since they were elected back in 2007. I think they have only abolished 86. They have introduced 18,000 regulations and they have abolished 86. That is outrageous, as I am sure you would know, Deputy Speaker.

Unlike the old Australian savings bonds, the new depository interests will not be redeemable for the price that we talked about that was paid. Their market value will vary in line with movements and yields. That will mean that the redemption value prior to maturity will be uncertain. They may be worth more than what was paid for them or they may be worthless. Retail investors need to understand that there is virtually no credit risk, although if these guys keep running the budget the way they are, you never know; but I am not going to suggest there is credit risk with the government. Although we did just see South Australia under Labor downgraded from AAA by the ratings agencies, which is hugely disappointing. Compare and contrast that with New South Wales and Queensland, which are working desperately to hold their current credit ratings—and this government criticises them for it, but that is by the by.

Chris Bowen (McMahon, Australian Labor Party, Minister for Immigration and Citizenship) Share this | Link to this | Hansard source

You support the education cuts?

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

You know what, we always have to repair the job when Labor gets in. We always have to do the hard yards.

John Murphy (Reid, Australian Labor Party) Share this | Link to this | Hansard source

The member for North Sydney should address his comments through the chair.

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

Well, the minister interjected, and I am just addressing the minister's comment. It is always up to us to do the heavy lifting, Mr Deputy Speaker. You would appreciate this. Labor is elected, they spend all the money and then we have to come in and fix the joint. That is exactly what is happening in Queensland, New South Wales and Victoria. Why do we have to climb the mountain every time? We saw the hypocrisy of the Treasurer today, when he was crying crocodile tears about job losses in Queensland, saying it was outrageous that there are job losses in Queensland, and his own budget papers show that he is sacking over 3,000 people here in Canberra.

Andrew Laming (Bowman, Liberal Party, Shadow Parliamentary Secretary for Regional Health Services and Indigenous Health) Share this | Link to this | Hansard source

Oops!

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

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

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

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

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

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

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

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

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

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

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

Deborah O'Neill (Robertson, Australian Labor Party) Share this | Link to this | Hansard source

I too support the Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill 2012. It was indeed a rare moment: I think we did have two citizens in the public gallery but after that riveting performance they have departed the scene.

Andrew Laming (Bowman, Liberal Party, Shadow Parliamentary Secretary for Regional Health Services and Indigenous Health) Share this | Link to this | Hansard source

They knew you were next!

Deborah O'Neill (Robertson, Australian Labor Party) Share this | Link to this | Hansard source

I am sure they will be pouring in when they hear what I have to say about the opportunity that the Labor government is legislating in this bill. The member for North Sydney claims that he supports this bill, but you would hardly know it from the way he spoke. He returned to form in the way of so many on the other side with a trashing of our economy, talking it down, ignoring the fact that there is so much to celebrate in this great country of ours and so much to celebrate in the strength of our economy.

I noticed the praise that the member for North Sydney had for the regulators. That is a good thing, because regulation is a critical element of Australia's success in riding out the storm of the global financial crisis. We received a very different response when it came to believing in the stimulus package that we implemented to make sure we kept Australians in work.

This bill, which is supported by the Liberals, is not the sort of legislation that reveals their values, but it certainly reveals ours. It is about making a great financial product to ordinary mums and dads and ordinary investors: ordinary Australians who want to make sure that they secure their future with a very useful financial product which will become available.

I am very proud to stand in this place today and talk about another great reform being made by the Gillard Labor government, the Commonwealth Government Securities Amendment (Retail Trading) Bill 2012. This is a reform for our nation, certainly a reform for our finance sector and a reform that will engage individual Australians who have an eye on their future. It is another plank in our Competitive and Sustainable Banking System package that was announced shortly after the last election.

This bill aims to improve protection for consumers in banking services. It also aims to support our smaller lenders so they can grow and thrive and put downward pressure on service prices and increase pressure on the big banks, which has been a significant imperative for us in the changes that we have undertaken in the financial sector. This bill aims to secure the long-term safety and sustainability of the Australian financial system by reducing recurrent reliance on offshore wholesale funding markets by opening up new markets right here on Australian shores.

Despite the doom and gloom, endless carping and relentless negativity of those opposite, for the first time in our history Australia has been awarded a gold-plated AAA rating from all three global ratings agencies.

Andrew Laming (Bowman, Liberal Party, Shadow Parliamentary Secretary for Regional Health Services and Indigenous Health) Share this | Link to this | Hansard source

Has South Australia got it?

Deborah O'Neill (Robertson, Australian Labor Party) Share this | Link to this | Hansard source

Let us just talk about Australia once more. I notice that on the other side we have a member who could not wait for the moment to jump in with another negative, damning indictment of something in Australia. There is so much to celebrate here, but they will always look for the negative; they will always talk us down instead of talk us up. Australians are getting well and truly sick of that. When 1 July came Australians saw that it was mythology that had been created by those on the other side, and they are just starting to wake up to the fact that there is a great Australian future out there for them to be a part of.

I state again the very important, historic fact that for the first time in our history, right now under a Gillard Labor government, with a leading Treasurer, Australia has a gold-plated AAA rating from all three global ratings agencies. To put that in perspective, which is something you will never get from those opposite, we are one of only eight nations around the world to achieve this with a 'stable' outlook. That critical perspective is a lens through which we can see just how strong the Australian economy is and how secure the fundamentals of this economy are.

We are in a great position at this time to move these amendments that introduce a retail market for Commonwealth government securities and develop further deep and liquid bond markets for corporate and, now as a result of this legislation, for retail bond owners. These reforms will make it possible for mum and dad investors to buy into some of the safest bonds in Australia. This, at heart, is Labor policy. It is to make accessible things that those opposite would make and keep inaccessible, things that are vital to success in our country, things such as education and things such as financial markets with low risk. This is important for ordinary Australians and we are doing that. It is at the heart of Labor policy.

We are aiming at enabling everyday Australians to invest in their own nation safely and with guaranteed results, and we intend to use that to help pay for a better future. Giving everyday Australians this opportunity is an important first step in introducing thousands of individuals and families to the share market and to the benefits that come from investment. Perhaps that benefit will be some extra retirement income; perhaps it will be to help prepare for the purchase of a second car or a new house or maybe it will be to help Australians become just a little more comfortable from day to day.

These changes will provide retail investors with a benchmark for other investments and opportunities in the finance world. Similarly, for those Australians already engaged in the share market these amendments will also provide the opportunity for a more diversified portfolio by creating a relatively safe buy-in and a steady dividend at maturity.

While the allure of a high-risk investment is something that appeals to some, there are many who are certainly not interested in high-risk investment. It is certainly not a great place to start—the high-risk investment end. People want to start somewhere safe when they first get involved in investment, and this Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill 2012 will enable so many people, previously unsure of their footing in the market, a place to wet their toes and get started on their journey of handling and managing their own investment.

A couple of weeks ago in our last sitting period I had a visit from the students of Umina Public School. At the time that they were visiting and sitting upstairs I was actually speaking on our MySuper provisions. I took the opportunity when I went out to speak to the kids to ask them if anybody knew what superannuation was. I can certainly say that, when I was a student in year 6, superannuation was not anything that I knew about or had heard about and it certainly was not anything that my parents had or knew about or would talk about. It was the Labor Party that brought superannuation in and made it a feature of our economy and a feature of the lives of those people who rely on Labor to give them a fair chance and to give them dignity in retirement and the freedom that a lifetime of hard work and saving can make possible with the support of a superannuation structure.

When I left the chamber and went to meet those students there were a few who at the tender age of 11 and 12 knew what superannuation was. When I explained to them that if they were fortunate enough to get a job in Umina down at Woolworths, Coles or any of the other small traders in that wonderful shopping strip on the Central Coast—which people should come and visit to help out with our tourism industry—the students were very pleased to understand that their retirement was going to be part of the consideration for the future because of what this Labor government had done.

When that came in there was a degree of financial literacy that was much lower than is currently the case. Right now this bill will have a product come onto the market that will make it so much easier for ordinary investors to move forward safely and take an investment of very low risk with government bonds.

In their submission to ASIC on this piece of legislation, the National Australia Bank indicated that there has been an increased demand for these securities driven by more and more local investors moving into retirement. We do have 4.6 million baby boomers reaching retirement with a higher level of education than many who reached that age in former decades and a very great interest, because of their growing financial literacy through their engagement with their superannuation, in how they can make their money last them better. Many of these boomers have already got some money in the market and, after the learning experience of the global financial crisis, they are very much looking at decreasing their level of risk and diversifying their portfolios. The Reserve Bank has also noted that some other investors are moving their portfolios away from high-risk, high-yield financial assets in favour of lower return but less risky deposit based assets.

Due to their relative difficulty to acquire, bonds currently make up less than one per cent of self-managed super funds. But, once this legislation is enacted, it would be beneficial for an emphasis to be put on education about these new financial assets. For many ordinary Australians there will be a dictionary of new terminology that they would previously have been unfamiliar with, but they have increasingly become familiar with the risk of volatile markets and volatility in interest rates. Through that awareness, Australians are ready to engage.

I want to take the opportunity now to highlight the fact that ASIC is overseeing a significant effort to increase Australians' financial literacy. For those who are in the gallery this afternoon and those who are listening, a simple google search of financial literacy will bring up the www.financialliteracy.gov.au site. That is the first thing that will appear. There are a number of links to wonderful programs in there that can help people develop financial literacy. It is never too late to start learning new things. If people do not have a great understanding of the financial market and they are interested in financial literacy this website is a wonderful place to start.

There is a link to a site called MoneySmart which I understand has a very good mobile app. I happened to see a couple of young people discussing this and looking at this mobile app in a local public bar recently. A few questions were being answered by using that MoneySmart website. Very importantly too, the MoneySmart website has a teaching component so that teachers who want to do real-world literacy with their students can use these tools to engage in financial literacy awareness as well as teaching them important management skills.

While this will be a new opportunity for many Australians, there will be a requirement that efforts are taken to ensure protection for new investors. These measures will ensure that financial services providers will have to comply with a range of licensing, conduct and disclosure requirements when they provide their services in relation to Commonwealth Government Securities depository interests. As an example, financial advisers providing personal advice to a retail client about CGS depository interests will have to be licensed and supervised by ASIC before they can do so. They will also have to give the client a statement of advice setting out a range of information relating to their advice, as required under the law.

The amendments in this bill will also require information statements to be provided to retail clients when they are given personal advice about CGS depository interests. The information statements will take the place of the product disclosure statement that is usually required for a financial product. The government considers that tailor-made disclosure documents are appropriate for CGS depository interests because they are a particular type of safe and simple investment.

The establishment of an active retail CGS market will constitute an important step in the formation of a deep and liquid corporate bond market, and I look forward to the opportunities that this will bring to Australians across the nation. This is a critical reform, and I commend the bill to the House.

Andrew Robb (Goldstein, Liberal Party, Chairman of the Coalition Policy Development Committee) Share this | Link to this | Hansard source

We have just heard a contribution from the government, from the member for Robertson, who made some fairly disparaging remarks about my colleague as she opened her remarks. I do not think the member for Robertson, having listened to her now for a few minutes, is really one to judge what is riveting or not, on that performance. But I do say that we support this initiative. It is a good initiative. It is a good thing that small investors will be able to access government bonds through a retail facility. Again picking up the member for Robertson's rhetoric, I would not get too carried away. It is a good thing—I am not putting it down—but I do not know that it is one of the greatest financial reforms in the nation's history. It is not going to add great depth and liquidity to the Australian bond market. It is a good initiative. It is an important one, but let's not get carried away. There are further important steps that I think need to be considered in this regard.

The fact of the matter is that, as the member for Robertson has said, there is a cultural issue which seems to militate against investments in debt rather than in equity products. What we have found is that compared with other countries, despite having substantial superannuation funds, the proportion of those funds held in products which give an annuity or a fixed return is much, much lower than what is typically the case in retirement funds elsewhere in the world. Currently, out of the $1.3 trillion, about 16 per cent is in investments which give a fixed return. I think the US is next at about 30 or 35 per cent, but typically for the developed world we are talking about 45 to 50 per cent as the proportion of retirement fund assets invested in products which give a fixed return.

With many Australians having significant superannuation holdings, going through the global financial crisis and finding that the money put aside for their retirement was substantially diminished because of the preoccupation of so many of our super funds with equity products rather than a combination of equity and debt products, people have suffered accordingly. So there is a greater interest in, and there should be a greater interest in, doing whatever we can to encourage a greater portfolio spread amongst investments, including among self-managed funds.

The large super funds have been able to access government bonds and securities through the wholesale market. This initiative does not increase liquidity for banks or large insurance companies in their investment portfolios across fixed products. But self-managed funds, which are becoming increasingly attractive—I think they are now the biggest fund as a category within the range of superannuation fund organisations—have not been able to access wholesale funds. I think that perhaps the most important part of this initiative is that we will now find an opportunity for people running their self-managed funds to have access to a product which may return less but which has much greater safety, security and certainty about the return.

The other thing is that this initiative will not add new money or new liquidity in any great sense. The government debt is out there and is accessible now on the wholesale market to our large institutions. But we know that Australian companies are issuing more than $26 billion to global markets in corporate bonds, yet only about $6 billion was issued in the domestic market. A lot of that is to do with the complexity of issuing and often the difficulty of purchasing government securities compared with other products.

This may well lead and should lead to consideration of a broader retail corporate bond market, which may attract companies and some of that $26 billion, which would be extremely important. That would be a reform of great moment because it would potentially attract a significant part of that $26 billion, which is currently being placed overseas on the corporate bond markets, back to Australia. When you have issues such as Basel III and the increasing demands and restrictions, if you like, on our major banks and other financial institutions in terms of the capital base that they are increasingly required to hold, we do need to look very seriously at a range of products which will attract more capital and more diverse forms of capital into our financial market.

In this bill in particular, though, we have in front of us not an opportunity for the retail corporate bond market but an opportunity to reinstate a retail market for government bonds not dissimilar to that which existed some 20-odd years or 30 years ago.

There are distinctions, though, and they are important ones, in the way in which this has been structured, which again we support. The government has chosen a model of indirect beneficial ownership to facilitate the retail trade, which basically means that retail investors will not acquire legal ownership of the actual debt security; they will acquire a financial product—a depository interest, as it is called—which will be linked to the government security and linked to its performance. The product will provide the purchaser with a beneficial stake in the government securities. It is a neat way of providing a system where selling can be done through intermediaries and managed so that the clearing and settlement facilities for debt can be dealt with efficiently and without too great a cost. The current system, as it has stood, has not been equipped really to deal with settlement of trading directly to retail investors. Hopefully what we have before us will overcome that problem where the market has been inaccessible to retail investors, albeit that it is simply for government bonds in this case.

While this is a small step towards adding depth and liquidity—and access, more importantly—to the Australian bond market, there needs to be further clarity about the actual mechanics of this model on a couple of fronts. Firstly, there should be equalisation of tax treatment for income from equity investments and income from government securities. Currently, investors are able to receive a tax concession in the form of an imputation credit on dividend income received from equity investments, while interest income received from government securities is taxed at marginal tax rates when held by an individual. A tax incentive for income from equity investments creates a distortion in investment choice which will need to be addressed by the government with regard to the legislation we have before us.

Secondly, there needs to be an education process in order to inform retail investors. Again I state the importance of self-managed superannuation funds, where there is a large body of investors who could and should be considering these sorts of investments in many cases, to give greater certainty and to have a body of investments which are secure because they are government bonds. There needs to be an education process in order to foster the development of this market. It should be accompanied by measures which foster the promotion of a market in conjunction with the industry.

Finally, the arrangements for prospectus requirements will need to be reviewed. Currently, the government has exempted issuers of government security depository interest from having to provide investors with product disclosure statements, giving the AOFM sole responsibility for preparing disclosure documents for retail investors.

The other issue is an issue which was dealt with some years ago, when the previous government, the Howard government, found itself in a situation where it had no government debt. That was related to strong financial management. It is not a problem that confronts this government, which has record debt and rising—and all the states where there have been Labor governments are lumbering under masses of state government debt. We have gone from debt which, in net terms, was nearly zero to debt now approaching, in gross terms, half a trillion dollars. The issue that Peter Costello confronted, as to whether we should have the issue of government bonds at all, will not have to be to addressed again for a long time, I suspect. But it was resolved—I think importantly—that, given the complexity of the market, and all the range of investors these days, a government bond market, both wholesale and retail, is important and we do need to have government bonds available for those purposes, to provide that greater liquidity. As I said, that is not a problem that will confront this government. In fact, it will hand over at some stage—hopefully at the next election—to us.

Bill Shorten (Maribyrnong, Australian Labor Party, Minister for Financial Services and Superannuation) Share this | Link to this | Hansard source

Don't count your chickens!

Andrew Robb (Goldstein, Liberal Party, Chairman of the Coalition Policy Development Committee) Share this | Link to this | Hansard source

I said that I hope that at the next election it will hand over to us. As my colleague said in this chamber just a few minutes ago, it seems always to be the case that Labor gets in, spends the money, creates a problem and then we are required to fix up the mess. Then, when we do, we get pilloried, as the Queensland government and the New South Wales government are getting pilloried on a daily basis in this House for trying to get the books in order, for trying to get some semblance of sound financial management back into government. No doubt we will confront the same problem.

Finally, I just want to make the observation that we should not stop with a government retail bond market. There is every good reason to look to a corporate retail bond market. It is grossly underdeveloped at the moment. It is extremely difficult, if not impossible, to really access. It has a concentration of issuers and relatively short maturities. The key to adding genuine depth and liquidity in debt markets is through the serious development of a corporate retail bond market. Once this bill is through and bedded down, all eyes should turn to that exercise.

Stephen Jones (Throsby, Australian Labor Party) Share this | Link to this | Hansard source

It is a great pleasure to be speaking on the Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill 2012, otherwise known as the retail trading bill. Of course, Deputy Speaker, as you know, this was an important part of the government's banking and financial reform package.

It is an even greater pleasure that I follow what might be described as the bookends of the coalition's economic management team—sometimes described, perhaps, as the bookends, sometimes as competitors for the mantle of the principal economic spokesperson. We saw earlier the member for North Sydney huff and puff. He comes in here and makes a hell of a lot of sound and noise and fury, rarely very much sense. Sometimes he speaks on the subject before the House but rarely does. So you have the noisy end of the coalition's financial spokesperson team, and then you have the member for Goldstein, who on some days, like today, could pass as a rather fancy substitute for Horlicks on a cold winter night—not the sound and fury or the noise and rarely the same content either.

But there are serious matters before the House, and this bill is one of them. I will address the matters in the bill and then I will go to some of the matters that have been raised by the member for Goldstein and the member for North Sydney, because they really do need to be debunked. The bill amends the Commonwealth Inscribed Stock Act 1911 to enable the Australian Office of Financial Management to make payments in relation to depository interests in Commonwealth government securities. It is intended that these depository interests will be quoted on financial markets, thereby making them available to retail investors. The bill also contains amendments to the Corporations Act 2001 to ensure that depository interests in Commonwealth government securities are subject to the investor protection and market integrity provisions within the legislation.

One of the key objectives of the federal government's banking package, which was announced in 2010, was to secure the long-term safety and sustainability of the Australian financial system, some domestic sustainability, by reducing reliance on offshore wholesale funding markets but also to ensure that domestic borrowers were not subject to the significant swings in the costs—at that point in time, a significant increase in the costs—in borrowing from offshore wholesale markets. One of the ways that we decided to achieve this was to foster a deeper and more liquid corporate bond market and thereby trading of Commonwealth government securities on financial markets, making it accessible to retail investors. This is a crucial element of this proposal because it provides retail investors with a visible pricing benchmark for investments they may wish to make in corporate bonds. Establishing a strong liquid retail market in the premium debt security—that is, Commonwealth government securities—is a critical step in the formation of a wider retail debt market, including corporate debt.

Following consultation with stakeholders, it has been decided to adopt an indirect or beneficial ownership type of trading model whereby retail investors will be able to buy and sell a derivative known as a depository interest in the Commonwealth government securities. It is a widely used model. There are already about 80 types of depository interests which are traded on the Australian Stock Exchange, and more are expected. Based on this model, retail investors will be able to buy and sell depository interests in Commonwealth government securities in the same manner as any other listed share.

Owners of Commonwealth government security depository interests will have the same claim to payments of principal and interest as if they owned the underlying security itself. As the current legislation does not contemplate beneficial interests in Commonwealth government securities, the amendments in the bill are required to ensure that the necessary payments of principal and interest, as well as costs and expenses, can be made in connection with the issue, sale and management of depository interests in the security.

In order to enable the retail trading of the security to commence, proposals and tenders have been requested from industry stakeholders for the provision of commercial services necessary to implement this policy. The government anticipates that trading will be able to commence on at least one such market in the very near future.

The bill will also ensure that the investor protection and market integrity provisions apply to the security depository interests. These measures will ensure that financial services providers will have to comply with a range of licensing, conduct and disclosure requirements when they provide their services in relation to the CGS depository interests. The amendments in the bill will also require information statements to be provided to retail clients when they are given personal advice about CGS depository interests.

The government considers that the tailor-made disclosure documents prepared by the AOFM are appropriate for CGS depository interests because they are a particular type of safe and simple investment. The government will ensure that these information statements will be made available to the public on a dedicated website, together with other information related to CGS. Financial advisers will be able to download and print out the information statements from this website before talking to their clients.

As I said at the outset, these measures deliver part of the banking package commitments which the government announced in December 2010. The banking package was announced in the wake of the global financial crisis, as the government sought to steer our economy and our financial system through an unprecedented set of global circumstances. The government has been acutely aware of the impacts of the global financial crisis on our competitive outlook for our banking sector. I have to say that the performance of the Australian banking system, and indeed the Australian economy as a whole, as we wove our way through the global financial crisis means that Australia is the standout economy of all comparable economies throughout the world. In Europe, countries are really struggling under burdens of debt that would be unimaginable in this country and under record levels of unemployment. I recently visited one such country, for example, which had unemployment rates in excess of 20 per cent. They would be envious of the sorts of issues that we struggle with in this country.

Of course, we get little recognition from those opposite for the way we managed the economy through this crisis, but we get plenty of recognition when representatives of the Australian government or Australian businesses travel abroad. It is widely recognised that due to the actions of the Australian government we are now the beneficiaries of nothing more and nothing less than the Australian miracle.

It did not have to go that way. If we had listened to the advice of the coalition, particularly the member for North Sydney and the member for Goldstein, we would have been struggling under record levels of unemployment. Some people suggest that had we not acted quickly to stimulate the economy we would have been seeing in excess of a half a million people unemployed instead of having unemployment levels below five per cent and having our economy dip out of growth for only one quarter throughout that entire period. We have seen our economy grow on trend on average for each of the years we have been in government. We have an unemployment level that is the envy of the world. Many state governments are trying to attack that by laying off public sector workers in levels not seen since the Howard government was in office, in 1996 and 1997. But, by and large, through the sound financial management of this government we have low unemployment, and that will continue to be our driving objective, because nothing is more important to a Labor government than ensuring people have jobs—decent jobs, good-paying jobs and secure jobs.

I heard the contributions from the member for Goldstein and the member for North Sydney, who tried to puff up their economic credentials, particularly the member for North Sydney. I had to laugh because this is the same man who was having thought bubble after thought bubble two years ago when it came to policies around banking sector reform. This is a guy who quite seriously tried to politicise the Australian government's longstanding membership of the International Monetary Fund and bipartisan approach to our membership of it. He tried to get some political leverage out of us renewing and improving our quota arrangements and security arrangements with the International Monetary Fund.

Talking about structural deficits, the structural deficit we inherited from those opposite was something we spent our first year and a half in office addressing, whether it was the extreme growth in middle-class welfare or the handouts and the boondoggles to the National Party members and the National Party seats.

Andrew Laming (Bowman, Liberal Party, Shadow Parliamentary Secretary for Regional Health Services and Indigenous Health) Share this | Link to this | Hansard source

Give an example.

Stephen Jones (Throsby, Australian Labor Party) Share this | Link to this | Hansard source

I am asked to give an example. What about the 'roads to nowhere' program? What about the 'networking the nation' program? What happened to the proceeds from the first tranche of the sale of Telstra, T1? We were supposed to be putting that into a fund to network the nation. They have asked for an example of where their failed economic policies have left us with a burden. What about the nine failed broadband plans? Not only did they squander the money they gained from the first three tranches of the sale of Telstra, but in their entire time in office they have not come up with a plan to connect broadband services to the regions throughout Australia where they are greatly needed. They left us with a structural deficit and they left us with infrastructure in a dire state of disrepair. Infrastructure Australia estimates that there was a $46 billion deficit, which we have set about fixing up. They left us with a tax-to-GDP ratio at record levels, yet they like to talk about themselves as a low-taxing government. This will be the first coalition government in living memory that is going into the next election on a promise to increase company taxes, increase personal taxes and decrease pensions. We on this side are interested in managing the economy in the interests of working people. With those on the other side you could not use the words 'managing the economy' when it comes to their propositions.

I want to talk about unemployment, because we have done our level best to ensure we manage spending. We have had the fastest fiscal consolidation in the history of this country as we are living up to our promise to return the budget to surplus, and that requires some tough decisions. But what we are not going to do is take the meataxe to the Public Service, as is being done by the Queensland and New South Wales state Liberal governments. Those on the other side of the chamber are cheering as their mates in Queensland are slashing 14,000 jobs from the Queensland economy, a measure that on its own could have the impact of driving the state into recession. The impact of withdrawing that number of jobs and salaries from regional Queensland will be absolutely devastating, and it is happening in New South Wales as well.

The Commonwealth government has a policy of increasing the size of the education pie. The government is trying to increase the funding that goes into the education bucket but we see the Liberal Premier of New South Wales, with the biggest chisel and hammer he can get his hands on, putting a dirty big $1.7 billion hole in the bottom of that education bucket. So, their claims to sound financial management do not withstand scrutiny, and they need to be exposed at every turn.

That bull in a china shop, the member for North Sydney, stands here and says that we have to fix up the problems, when it is this side of the House that has fixed up the neglect, waste and mismanagement of those opposite, and we will continue to do it. This legislation is just another piece of the legislation that is a part of that package. We are reforming the banking system and the financial system and managing our economy in the interests of ordinary working people. (Time expired)

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

I thank the honourable members who have taken part in the debate on the Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill 2012. Trading of CGS on a retail financial market is important because it provides retail investors with a visible pricing benchmark for corporate bonds. Trading of CGS on retail financial markets is, therefore, an important step in the formation of a wider retail debt debate. Building a deep and liquid domestic corporate bond market will in turn help reduce our reliance on overseas wholesale funding markets and help harness our national superannuation savings so we can domestically fund more productive investment in our economy.

The government has consulted with industry stakeholders on how retail CGS trading should be implemented and has decided to adopt the model based on depository interests in the CGS. The bill makes a number of necessary amendments to the legislation to allow retail investors to start trading and investing in depository interests in CGS. The bill ensures that the investor protection and market integrity provisions in the Corporations Act 2001 apply to retail CGS. Financial services providers will have to comply with a range of licensing, conduct and disclosure requirements when they provide their services in relation to CGS depository interests. The bill will require special information statements to be provided to retail clients when they are given personal advice about CGS depository interests. The government considers the tailor-made disclosure documents are appropriate for CGS depository interests, given they are a particular type of safe and simple investment. The government will ensure that these information statements provide concise and targeted information on CGS depository interests and will be made available to the public on a dedicated website, together with other information related to CGS.

There were some contributions to this debate from those opposite, and I know that the member for Goldstein has returned to the chamber. Listening to the member for Goldstein, you would be led to believe that the state of the Australian economy was something akin to the state of the Greek economy or akin to the state of the Spanish economy. In fact, I use those references because they are the deceptive comparisons that have been made by the Premier of Queensland and, indeed, by those of his colleagues in New South Wales. These are the deceptive and the misleading comparisons that have been made by your state Liberal colleagues. And what have they done? They have used these deceptive and misleading comparisons as a basis for hacking the living daylights out of services and ripping away jobs—ripping them away.

What we have seen in Queensland and New South Wales today from your Liberal and National colleagues is exactly what the Australian public will see if you ever get your hands on the levers of power in this country. You have a $70 billion black hole. What we saw in New South Wales today was $1.7 billion worth of cuts. You have a $70 billion black hole. That is only $1.7 billion, and look at the damage that can be done with cuts of that magnitude. There are parents who have picked up their kids from school across New South Wales today—and it does not matter whether they go to a government school, a local Catholic school or an independent school—and been greeted with the news that funding to the tune of $1.7 billion has been ripped out of the education budget. This is something that the people of New South Wales are not going to cop lying down. But, every time someone in New South Wales joins one of the inevitable protests that will occur over the coming weeks, I ask each and every one of those people to just reflect upon the damage that the Liberals have done with a $1.7 billion cut and magnify that by about another 70 times, because that is the extent of the damage that is going to need to be done by ripping away services and cutting jobs in order to fill the $70 billion black hole that even the member for Goldstein acknowledges exists.

His colleague has sought to walk away from it, even though he mentioned it on morning television. But now we see the member for Goldstein continues to make the point. I heard his interjection a bit earlier where he said, 'Oh, well, that's the price you pay if you want to have the sort of debt you people have saddled us with.' Our net debt as a percentage of GDP is about a 10th of that of our major economic competitors' across the globe—about a 10th. It is misleading, it is deceptive, but it is what Liberals do. If you vote for a Liberal government, sooner or later you will get one. And what do they do? Sooner or later they rip away funding. They cut services and they cut jobs. If you need any evidence of that, look at what they are doing in New South Wales and look at what they are doing in Queensland.

Bill Shorten (Maribyrnong, Australian Labor Party, Minister for Financial Services and Superannuation) Share this | Link to this | Hansard source

And Victoria.

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

The minister mentions Victoria. So if you want to see the damage they can do, look at that $1.7 billion worth of cuts and magnify it by another 70—$70 billion, that is the black hole they have got to fill. So when they come here and talk about debt and talk about these ridiculous comparisons with countries that are performing so poorly, they are trying to soften people up so they can do exactly what Premier Newman and Premier O'Farrell and Premier Baillieu are doing.

This is an important bill. This will play an important role in developing a deep and liquid corporate bond market. It is a critical reform that is part of the Gillard government's broad agenda to promote Australia as a leading financial services hub and to boost our reputation as one of the most attractive investment destinations in the world. Irrespective of what those opposite seek to say, we continue to be one of the best investment destinations in the global economy.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.