Jessica Collins (NSW, Liberal Party) Share this | Hansard source

I rise to speak on the Pacific Banking Guarantee Bill 2025. I do so in support of its broad objectives, but also with some concerns about its transparency and the adequacy of its guarantees. The purpose of this bill is to ensure that Australian banks or authorised deposit-taking institutions continue to have operations in the Pacific region. I note the Treasurer's statement that the aim of the bill is 'to help ensure Pacific nations have access to correspondent banking relationships, CBRs, which provide important connections to the global financial system'. These CBRs are vital to both Australia and Pacific nations. They facilitate international trade and allow Pacific island countries to receive aid money and remittances, attract investment and grow their economies.

I liken CBRs to the plumbing of banks. They let money flow from one country to another. Without CBRs, Pacific island countries are completely financially cut off from the rest of the world. They'd have no stores of foreign currency and wouldn't be able to trade, for example. Remittances, especially, are a lifeline for household incomes of Pacific countries. Remittances are defined as 'cross-border transfers of funds'. Put simply, people remit earnings to their family and friends back home. Small businesses remit frequently across borders too. As well as providing essential income, remittances put more food on the table. They alleviate poverty, improve nutritional outcomes and are associated with higher school enrolment rates for children in disadvantaged households. The decline of CBRs is not just a financial issue but a socioeconomic one. Australian banks are the critical conduit through which the remittances of Pacific island workers are processed. Their sustained presence in the homelands of these workers is a must.

Over the past decade, financial institutions have dropped a significant proportion of their CBRs in the Pacific. For every five banks exiting the Pacific, four are Western—that is, providing services in US dollars. So 80 per cent of the CBRs withdrawing are carrying the currencies that Pacific island countries need. The process is known is as derisking, and banks are withdrawing CBRs from the region because of small and shallow markets, low profits, high cost of compliance and increasing risk. These all contribute to banks deciding that the business case of operating in the Pacific does not stack up. Smaller Pacific nations with little capacity to combat financial crime are particularly impacted by this alarming loss of banking relationships. Moreover, increasingly stringent regulations on anti-money-laundering and combatting the financing of terrorism have driven the derisking of Western banks further.

Pacific island nations are close friends of Australia, and now is the time for our government to step up and ensure the provision of adequate banking services in the region. Our banks must remain the trusted go-to for our Pacific family. If Australian and American banks continue their retreat from the Pacific, they will leave a wider vacuum for banks of other nations to fill. Banks with lower standards on financial crime taking the place of Australian banks will only increase the risk of doing business there, pushing more good banks out of the region.

I welcome the objective of this bill to counter the risk of Australian banks leaving the Pacific, by making conditions more favourable for Australian banks to operate in the region. The bill seeks to do this through two key measures—firstly, by allowing the Commonwealth to enter legally binding guarantees with banks that could act as a safety net for their operations in the Pacific; and, secondly, by ensuring that the money from the consolidated revenue fund can be used to pay out funds to Australians banks under the terms of a Pacific banking guarantee.

The bill sees these two measures as allowing Australian banks to mitigate the expected risks and constraints of operating in the smaller markets typical of Pacific island economies. Remember this: risky markets make it hard for banks to sell the business case to shareholders. The ANZ banking group announced it would be the first recipient of a Pacific banking guarantee, a maximum $2 billion, 10-year bank guarantee to support its regional operations. This is the first such guarantee, and it is contingent on the passage of this legislation.

I am fully on board with the intention of this bill to support Australian banks in the Pacific and to counter the risks of banking withdrawals. These are worthy goals. I do, however, have concerns about the lack of clarity with some of the bill's provisions. First, I am concerned about the transparency on how taxpayers are made aware of when a guarantee is triggered. There is also no specificity on how much gets paid out, on what the red line will be. The bill in its present form provides for an uncapped appropriation with no dollar limit and no end date. I'm not convinced taxpayers will be informed well, if at all. There also needs to be transparency on why this guarantee is needed, when the risk of needing the guarantee is deemed by Treasury to be low.

I'm also concerned about the locking in of fee-free remittances for 10 years without assurances from ANZ that the markup on the foreign transfer for Pacific Islanders won't be exorbitant. Will the government scrutinise this commitment to fee-free remittances under its annual review and get assurances that Pacific workers aren't getting ripped off? I recognise that this is a commercial venture, but we still need to protect workers from excessive mark-ups on the foreign exchange. The absolute lack of transparency on the total cost of remittances, not just the fee, and the lack of competition makes the Australian-Pacific remittance corridor one of the most expensive in the world.

As I wrote in a 2023 policy brief for the Lowy Institute, the Australian government should better support Pacific workers who remit significant earnings home by reducing transaction costs. The government must get assurances from our banks that their markups on international money transfers for Pacific workers will be made transparent so they can choose if that is the right transfer provider for them. Transparency is key to competition and fairness. Keeping foreign exchange markups down will mean Pacific island workers can pocket more of their hard-earned cash.

My other concern is that the bill provides limited specificity about the nature of any future banking guarantees. As my colleagues in the other place have argued, there is limited detail about how these guarantees will be managed by the Commonwealth. The bill offers no explicit mechanisms for parliamentary oversight or regulatory reviews of the guarantees and their impacts. Again taxpayers are left in the dark, this time about what is actually being guaranteed.

To provide the public with the clarity they need, I agree with the recommendation of the great ANU economist in the Development Policy Centre, Professor Stephen Howes. In his submission to the Senate Standing Committee on Economics inquiry on the Pacific banking guarantee, he recommended:

The Bill should have transparency requirements written into it, similar to those associated with community service obligations. These would stipulate at a minimum that the terms and conditions of any guarantee made under this Bill would be made public, and that the recipient of the guarantee would be required to report on its compliance with the obligations it has entered into.

Adopting this recommendation would give taxpayers assurance that their money is being handled with transparency and accountability by the Commonwealth. As Professor Howes rightly pointed out:

Any corporation receiving a benefit from the taxpayer should be required to disclose the terms and conditions on which such benefits are provided and should be obliged to report on what it is doing in return.

I welcome the thoughtful submission of Professor Howes to the public consideration of this bill. I appreciate the longstanding contributions he has made to Australia's foreign aid policy through the Development Policy Centre, AusAID and the many other bodies on which he has served as chair or adviser. Like Professor Howes, I believe this bill not only lacks transparency but awards too much discretion to government and business officials. It requires more rigorous accountability on the part of these players to ensure that the interests of taxpayers are properly served.

In short, I fully support legislation that maintains Australia's banking presence in the Pacific yet does so in a way that is fiscally responsible, transparent and fair to Australian taxpayers. Beyond this bill, there are other ways by which the government could support and sustain the presence of Australian banks in the Pacific. Professor Howes has proposed an interesting measure that this government could consider, which reflects one I made in my 2023 policy brief on remittance costs—that the government explore a more direct role for the Reserve Bank of Australia to facilitate international transactions involving Pacific island workers employed in Australia under the Pacific Australia Labour Mobility Scheme. There are many ways to support cheaper remittances into the region, and we need all options on the table. We need to think outside the square as to how we can best serve the banking needs of our Pacific family.

We also need to help the Pacific islands region build a self-sustaining banking system. In this vein, we need to create an environment that enables its own banking system to flourish and prosper in the long term. In so doing, we can build on the previous coalition government's proud record of empowering our Pacific family. As I said in my maiden speech on 30 July, we must help our Pacific family develop a harmonised banking regulation framework that will integrate with Australia's. This will reduce the cost of compliance, lower the risk profile and encourage more Australian and American banks to do business there.

Looking forward, we will continue to work with the government to help sustain healthy correspondent banking relationships in the Pacific, yet we will ensure that all Pacific banking policy is transparent and fiscally responsible, with accountability to the Australian taxpayer. Importantly, the coalition will ensure that all such future legislation is directed towards the financial autonomy, security and wellbeing of Pacific island workers in Australia. When they prosper, their home countries will also prosper. A thriving Pacific region connected to the global financial system through our banks is absolutely something we should strive for.