Annette Hurley (SA, Australian Labor Party) Share this | Hansard source

Continuing my discussion about why this Australian Business Investment Partnership (Consequential Amendment) Bill 2009 is needed, I want to say that one of the key issues is employment, and this has been a continuing mantra of the Rudd Labor government. The commercial property sector alone employs approximately 150,000 people. Treasury figures indicate that, without action, a combination of weak demand and tight credit conditions could see up to 50,000 people in this sector lose their jobs, with flow-on effects to jobs in other parts of the economy, such as the construction industry. Employment in the construction industry has dropped by 15,000 people in the six months from August 2008 to February 2009. This is a sector that is already being affected. The Senate Standing Committee on Economics heard that another 75,000 jobs may be lost in the construction sector if no action is taken by the government to support contingency measures such as the establishment of ABIP.

There are also implications for Australian superannuation funds should an artificial collapse in commercial property values occur. More than one-third of the equity in the commercial property sector is held by superannuation funds, representing 10 per cent of aggregate funds in superannuation overall. So a distorted decline in the value of commercial property assets would flow through to impact the wealth of over 10 million Australians through their superannuation funds. We all know that superannuation funds, for ordinary people, have been fairly adversely affected by the decline in the stock market already. The Rudd Labor government wants to ensure that funds are not further affected by an overcorrection in the commercial property sector.

The coalition, in their dissenting report, describe ABIP as ‘an unnecessary overreaction to an unlikely possibility’. This seems to be a fairly common reaction of the opposition regarding any and all measures the government is taking to respond to the global recession. I think the Treasurer, Mr Wayne Swan, put it well in his speech in the second reading debate on this bill. He said:

When I was at the G20 finance ministers meeting on the weekend I learnt that these are measures which have been implemented by conservative governments around the world. They have not been condemned for being risky. They have implemented them because they are prudent, because we are in extraordinary circumstances. But there is not one measure this government has put in place that those opposite have seen fit to support in order to support Australian jobs.

It is also worth saying that the Reserve Bank governor’s response when asked about ABIP was:

I do not have any problem with there being a plan in the top drawer to do that should it be needed.

We hear from the opposition, though, that contingency measures such as ABIP are unnecessary to ameliorate abnormal economic disruption, protect jobs in the commercial property and construction sectors and prevent further declines in the superannuation incomes of tens of millions of Australians. The possibility of a foreign withdrawal of investment from the commercial sector is an unlikely possibility, they say, because no evidence was tendered to the committee of the intention of foreign banks to withdraw from the Australian market. But I utterly refute this statement. It is not what we heard in the Senate economics committee inquiry. The committee heard from a number of witnesses, via written submissions, in public hearings and in in-camera hearings, evidence raising concerns that foreign investment may be withdrawn, as well as evidence that this is already occurring. The procession of witnesses that we heard continued to raise these issues. We heard from the Property Council, from BIS Shrapnel, Mr Frank Gelber, from the Master Builders Association and from AMP that this was a serious issue of concern. They were unequivocal in their responses. And it is very interesting to me that the coalition has obviously stopped listening to people such as the Property Council and the Master Builders Association. But they continue to say this rather than provide support to a prudent government measure.

One of the issues of concern the coalition had was the withdrawal of foreign investment, the manufactured concern that ABIP may encourage the withdrawal of foreign investment. This was comprehensively shown to be based on a false premise. As explained in the majority report, the assumption that foreign banks could use ABIP to effectively walk away from Australian assets without losing money assumes that ABIP would step in to finance property assets at their original price. In fact, ABIP will only lend based on contemporary market values, not the original values of the commercial property. Put simply, there will be no financial incentive for a foreign investment bank to withdraw finance for a project in the Australian commercial property sector as a result of ABIP. In fact, the committee heard that ABIP could actually strengthen the security of investment in the commercial property sector by restoring confidence in the sector and increasing stability and liquidity in the sector. That means that banks would have much more confidence in the ability of the commercial property sector to remain stable and not to decline. Therefore they would be much more likely to keep their money in that sector rather than withdraw.

Another issue of concern was that the proposed board structure of ABIP lends itself to a conflict of interest and the abuse of market power by the major banks. However, again this argument is incorrect and indicates either a wilful or a genuine misunderstanding by the coalition as to what ABIP would do. ABIP would only be financing commercial property at the current market values and no incentive exists to sell out of investment in an unprofitable asset. Furthermore, not only can the major four banks not have their own loans refinanced; they cannot reduce the size of their investment in a syndicate either. The proffered argument that most syndicated loan arrangements, which notably did not specify commercial property markets, usually include one of the four major banks simply serves to demonstrate the highly unusual circumstances that would arise should ABIP be accessed. It also serves to demonstrate the lack of detailed analysis by the opposition of these bills.

In respect of protecting Australian jobs, the opposition arguments amount to the fact that ABIP does not create employment. The fact that the committee was told that if ABIP is required it could provide job security to more than 100,000 Australians is apparently inconsequential. The Rudd Labor government has said again and again that it is about protecting jobs in this global economic downturn.

The question of the scope of ABIP and why the government would need to establish ABIP to support the commercial property market and not other industries heavily reliant on foreign investment, such as mining, is a completely contradictory argument. On the one hand the coalition is saying we should not have a provision for the commercial property sector, and on the other they are saying we should include these other sectors as well. It is a completely nonsensical argument, and evidence tendered to the committee demonstrated that it was the commercial property sector that may be vulnerable to withdrawal of foreign finance and not in particular the mining or agriculture sector or any other sector.

The committee did, however, receive evidence that the scope of the bill was in fact too broad and potentially allowed ABIP to enter arrangements outside of the commercial property sector, particularly the residential sector. This was in the case where there might be a bit of overlap in the investment, for example. However, in view of the fact that ABIP can only make loans with the unanimous support of the board, which the government chairs, and only has the temporary capacity to make loans for two years, sufficient protections should exist to prevent loans being abused in this way. ABIP will operate as a lender of last recourse, with a focus on commercial property projects and assets. I believe that is very important, because where a bank such as this is set up the government must of course keep that at arm’s length so that it does not have any conflict of interest. That means relinquishing some ability to keep control of that organisation, and those of us from South Australia are particularly aware of the dangers of this and are very sensitive to issues about whether ABIP would be able to broaden out from the commercial property market and go into other areas. I certainly would regard with extreme caution any ability of the bank to do that. But, because it is temporary, because it is a contingency measure, because it is a last recourse lender, I have some comfort in the way that this bill is structured that this bill is designed to deal with this particular area.

Exemption from the Trade Practices Act also has been raised, but I think there was convincing evidence that ABIP is not a cartel arrangement. The point was made by the Treasury that all shareholders would be subject to confidentiality arrangements and directors’ provisions under the Corporations Act and that again the short-term nature of ABIP and its function as a lender of last recourse require short-term certainty around its operations to ensure it operates effectively if required. The fact that this is coming to the parliament to be considered means that the government has been completely open about this, and I do not believe that there was any evidence that it would be a cartel type arrangement.

In conclusion, the vast majority of submissions and evidence provided to the Senate Standing Committee on Economics during the inquiry argued that ABIP was a prudent and effective contingency measure to counter a potential impact of the global recession on Australia’s commercial property markets. When considering international measures being taken to address similar proposed withdrawal of foreign investment, ABIP was described by the Property Council as being ‘focused’ and ‘elegant’ and far better than schemes being considered by any other country with a similar focus.

The full ramifications of the global recession are unfortunately as yet unknown. We are dealing with an unprecedented global economic crisis that requires us to be flexible and use our initiative in our approach to protect Australia’s standard of living, primarily through our protection of jobs. We have been told that, should a collapse occur in the value of commercial property through a withdrawal of foreign investment, unnecessary and harmful economic disruption will occur. In some cases foreign banks have already withdrawn from the commercial property sector and there is a possibility this may continue. It would be irresponsible to oppose any measure that has the potential to prevent unnecessary harm to our economy, and therefore I commend the bill to the Senate.