Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Hansard source

I rise to speak on the Australian Business Growth Fund Bill 2019. Like most pieces of legislation that come before us in the Senate, we have a policy background and a policy perspective, and we have a political background and a political perspective. I think it's worth talking about the political perspective. This was an election commitment by the coalition going into the last election. Why would they be promising a government led initiative, a funding initiative, a financing initiative in the small and medium enterprise sector? There was a lot of concern from the business community about a drawing up of capital, about a change in risk appetites. Much of this had to do with pressure that came from the royal commission into banking, the changes that we've seen recently with a risk appetite of banks after a tightening of prudential standards by APRA, and some very strong jawboning from the Reserve Bank of Australia more generally about credit conditions in Australia. The irony of this, of course, is that most of this had a very solid basis and had come from the fact that most capital in this country has gone towards property and speculative investment, and not towards small and medium enterprises, or even to business investment in general. There was concern about the royal commission at the last election, concern about the stunning revelations of Hayne and concern that businesses weren't borrowing enough and therefore not investing enough.

By the way, there have been no attempts to fix the structural problems in our economy that have led to this speculative bubble with credit going into real estate—non-productive real estate investments, speculative real estate investment that doesn't do any good for anyone except for those that can afford to buy their second, third and fourth home in this country thanks to the very generous capital gains tax concessions and negative gearing concessions from the government. There has been so attempt to fix those structural problems that have led to this massive boom in unproductive investment which absolutely has taken away business investment in Australia. There's only a set pool of funds that are available in this country. No attempt has been made to change the structural problems in the economy; rather here we have the fig leaf—I must say, very socialist principles—of the government led initiative to try and get businesses to lend more and invest more.

In principle, the Greens don't have a problem with that. We've actually floated the idea of a government owned bank, a people's bank. We've talked about an infrastructure bank in the past. We've talked about the need for government to actively finance and lend to infrastructure projects. Right around the country there's a massive infrastructure gap in Australia. So we don't have a problem with governments playing an active role in markets—in fact, we think it's essential that they do. But it's got to be fair and it's got to be equitable, and it's got to be not for the advantage of the big banks. Unfortunately, when I look at the structure—I did go along to the very brief legislative inquiry. It was one hour last Friday afternoon; it is extraordinary how quickly this has been rushed through the Senate. That brings me to the second point about the policy background and the policy perspective. The political momentum is there for the government to be seen to be helping small business, but that should not put at risk the chances of us looking at this legislation—scrutinising it properly, getting full consultation and bringing in the stakeholders who are going to be impacted by this legislation to help properly design it to make sure we get it right.

One of the most striking trends we have seen in modern finance is the shift in the profile of bank lending. Thirty years ago banks lent twice as much for business as they did for housing. Now, as I mentioned earlier, it's the other way around, with banks lending almost twice as much for housing as they do for business. This shift has been driven by a number of factors, including the advent of mortgage-backed securities, which have turned housing into a liquid asset for banks, and tax incentives for investors that have increased the demand for housing. However, a much overlooked factor is the incentive given to banks to lend to housing by prudential standards. These standards are set by the Basel Committee on Banking Supervision and adopted locally by APRA, one of our key regulators.

Since the Basel I accord in 1988 there has been a lowering of the amount of regulatory capital that a bank must hold against mortgages—even more so for those banks authorised to adopt an internal-risk-based approach, an IRB, to establishing mortgage risk weights. The result of this is the cheapest money in history. Let's put that on the table. Interest rates have never been as low as they are now. The cheapest money in history is going towards more speculation in real estate than towards productive investment in business. Is this legislation before us today the way to fix that? I strongly argue that it's not. Without tackling the problems that we have with speculative investment in real estate, which has totally crowded out business investment in this country, you've got no chance of getting that reallocation towards business investment, towards employment and towards sustainable economic growth.

For small and medium enterprises, SMEs, the effect has been doubly crippling in this country. As well as skewing bank lending towards housing rather than towards business, prudential standards skew bank lending towards businessowners who own housing rather than towards businessowners who don't. In other words, it's not the merit of the business that matters; it's whether they own land. The Productivity Commission explains this and the effect this is having. It said:

Continued reliance on having a home as security for a business loan—in an era when home ownership in the key entrepreneurial period of life is at a low—will increasingly inhibit SME growth. Around one third of major bank SME loans, and often a higher proportion of smaller lender SME loans, are secured by a home.

The Productivity Commission is clear on what the policy response should be:

… the reform that would most significantly improve SME access to finance to be changes to the underlying prudential requirements for SME business lending compared with lending for residential mortgages.

The Productivity Commission also goes on to explain how the existing rules favour those banks with IRB accreditation. I recommend senators read that Productivity Commission report.

In the context of this bill, the Australian Business Growth Fund will provide a concession on the risk weighting of loans to SMEs for participating banks. The major banks and Macquarie Bank are five of the six participating banks—and some, may I say, are reluctantly participating. The major banks and Macquarie also happened to be five of the six banks that are privileged in having the IRB accreditation. It's not the only privilege they have, let me tell you. Many times in this place we've talked about being too big to fail. In other words, those banks that have already been given a competitive advantage through preferential prudential rules will be given a further competitive advantage through even more preferential prudential rules. Instead of providing the structural reform needed in order to direct capital towards more-productive investment, including in the transformation to a low-carbon economy—which I believe is the No. 1 challenge for this country and the biggest opportunity for Australia—the Australian Business Growth Fund will further entrench the market power of the major banks.

The government's rush to establish the ABGF is both very concerning and very telling. The two weeks given to this committee to conduct an inquiry into this bill was ridiculously short. This haste might be explained by the failure of the government to have gathered even the most basic information about the market that the ABGF is seeking to intervene in, let alone establish what the problem is and why the ABGF is the solution. I actually have a copy of the questions I asked the Treasury officials last Friday. I asked them how many SMEs have revenue from $3 million to $100 million in Australia, and no data was given to the committee on the most basic classifications of what is an SME market. I also asked, of these SMEs, how many sought minority investment from the private sector last year. Nobody seems to know. I asked how many did not receive funding. Nobody seems to know. I asked how an Australian Business Growth Fund that cherrypicks the best SMEs will expand access to equity for SMEs that do not receive it today—and so on and so forth. Then I asked some questions about the comparisons with overseas examples, because of course there is the UK Business Growth Fund.

The government has been unable to provide this basic information—the number and size of SMEs seeking access to equity finance, for example. It follows that the government has not been able to identify the actual market failure that the Australian Business Growth Fund would address. Anyone who understands economics knows there's a role for governments to play when markets fail. That is why, for example, it's so critical that we have a real policy on tackling climate change in this country. That is the biggest market failure of all time, yet this government refuses to act on that, because we have a political problem in this country where they're refusing to take any action because it might impact on their donors in the fossil fuel industry.

So, the underlying bias in prudential regulations has not explicitly been identified by the government as a problem, which also explains why it has been only incompletely addressed and addressed only at the expense of competition. Further, Treasury did not invite non-bank and non-superannuation financiers to participate in the round table to discuss the design of the ABGF. As a result, the government has not considered the proposal to instead use the Australian Business Growth Fund to provide underwriting for equity financing from all sources, rather than simply giving the banks a leg up over direct investors. Much has been made by the government of the Australian Small Business and Family Enterprise Ombudsman of the Reserve Bank of Australia and its study into access to finance for SMEs. But, tellingly, while examining the concept of a business growth fund, the RBA did not specifically recommend the establishment of this fund as constructed by the bill.

While we accept that there is a need for the government to help small businesses to get better access to finance, this legislation is not the answer. We believe that the Australian Business Growth Fund is a con. It neither harnesses the power of the market nor makes a constructive government intervention. The ABGF is simply crony capitalism, giving more money, more power and more market concentration to the big banks in Australia. We have no doubt that it will help lower the cost of capital for some SMEs—the cherrypicked SMEs—but it will do so by providing a government subsidy for the major banks. This is not in the long-term interests of SMEs, the investment environment or the wider economy. As a said, we have very strong views in the Greens about government intervention and the need for government intervention in markets, even for direct financing investor means by government. The Australian government took a step forward in this regard with the establishment of the Australian Small Business Securitisation Fund. But we believe that this particular fund would be a step backwards in that regard.

I'd just like to finish by addressing something Senator Brockman raised in relation to a letter from COSBOA. Now, I'm a fan of COSBOA. I've had a lot to do with the small business community over the years and have been very proud that the Greens have done some great work in relation to legislation in this place regarding the small business community.

But let me tell you about that letter. Some of the contents of that letter, which were reported in the Australian Financial Review yesterday—I note that the AFR has retracted and printed a new version—were misleading. COSBOA misled, going by yesterday's uncorrected paper version, and misrepresented the underwriting proposal that we're going to be hearing from Centre Alliance today. The amendment was not proposed by private equity but in fact was by public offers, so mum and dads can invest. We heard from the other stakeholders in relation to this last Friday. The current bill makes the Business Growth Fund a giant private equity fund which, as I mentioned earlier, is prudentially advantaged, taxpayer funded and bank controlled; whereas the amendment that COSBOA wrote to us about would help make this a lot fairer. I was hoping that Senator Patrick would come in and talk to his amendment—I'm not sure if he's still on the speaking list—but I do support at least a process where SMEs and small businesses who can't get access to any finance, be it public, private, debt or equity, can go to a lender of last resort kind of fund. That is exactly the thing we should be looking at, not a process that cherry-picks and is disadvantaging existing finances.