Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

My question is to Senator Minchin, representing the Treasurer. I again refer the minister to the Treasurer’s recent false assurances that Australian financial institutions would be unaffected by the US subprime mortgage meltdown. Is the minister aware that the Commonwealth Bank chief executive, Mr Ralph Norris, has said that the subprime crisis may cause the bank to put up its interest rates again, even if the Reserve Bank did not lift official rates, and that rates on credit cards and other products could move even higher?

What would be the impact of interest rates going up, yet again, on working families, who already pay $430 a month more on home loan repayments because of the nine hikes in a row? Doesn’t this illustrate, yet again, that the recent promise by the Howard government, that it would ‘keep interest rates at record lows’, was broken in respect of families?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

As I have repeatedly said in this place, the undertaking we took to the last election was that we would ensure that interest rates remained lower under us than they would under the Labor Party. That is our undertaking. That is our commitment, and that is what we will say to the people at this federal election. As I have said before on numerous occasions, the evidence stands to support our assertion that interest rates are lower under the coalition than they are under Labor.

We have the latest evidence that the implications for interest rates in this country of the election of a Rudd-Swan government that would wind back nearly 15 years of industrial relations reform to the bad old days pre Keating would be an increase in interest rates of at least 1.4 percentage points. So we do know that interest rates would be higher under a Labor government than under a coalition government. We believe that the Australian people understand that.

With respect to Senator Sherry’s question as to Mr Norris’s remarks, it is a fact that there is financial volatility in the wider world, particularly caused by the concerns and the fallout from the subprime mortgage market difficulties in the United States. Mr Norris was making the fair point that in the globalised economy that we have, which generally works to people’s benefit, there can be financial contagion—financial flow-ons—even to countries as strong as Australia. As the Prime Minister said in his press conference today, the reassuring aspect for Australia is that we do now have a very strong, resilient and flexible economy. We have paid off all our debt; we have the budget in surplus; we have real wages rising; and we have relatively low inflation and relatively low interest rates. So we could not possibly be in a better position, in our submission, to withstand any flow-on effects from the instability in world financial markets caused by the subprime mortgage market in the United States. Mr Norris was really saying that there will be a reappraisal of risk and a reappraisal of the price of credit.

We want to make sure that all our levers are set, as I said before, at low inflation. That emphasises the importance of maintaining flexible labour markets. It emphasises the importance of keeping the budget with strong surpluses. We have said that our target and our operating principle are to keep the budget at about one per cent surplus. That is why we are concerned about the extent of fiscal laxity at the state government level: it is placing undue demand on the economy, which will put pressure on inflation and, therefore, on interest rates. There are reasons for concern, and that is why, as the Prime Minister said, it is more important than ever at a time like this to ensure that you have experienced, strong, capable hands at the wheel of the national economy. And I submit to you, Mr President, that that is what Australia has, with Mr Howard as Prime Minister and Mr Costello as Treasurer.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. The minister has referred to the Prime Minister’s reference to reasons for concern. He has not explained why the Treasurer has been claiming constantly that we will be unaffected by this meltdown. Has the minister also seen comments by a director of public-private sector partnerships, Dr Currie, that Australian non-bank lenders are ‘in a regulatory black hole’? In other words, they are not regulated. In light of this, on what basis did the Treasurer give his assurance that all is well for Australian financial institutions? Isn’t this just further evidence from the Treasurer and the government that they are arrogant and out of touch?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

I think Senator Sherry would know that the non-bank lending sector, given that they do not take deposits, are not regulated in the same fashion as other parts of the banking system. That is a fact of life. Senator Sherry knows that and, of course, the Treasurer knows that. What concerns me is the extent to which Senator Sherry is causing alarm to borrowers from non-bank financial lenders by suggesting that there is any difficulty with them. There is no risk whatsoever to borrowers from non-financial lenders. They do have full mortgage insurance so it is wrong for Senator Sherry to suggest in this place, at least by implication, that there is any risk to them. I condemn Senator Sherry for the extent to which he is causing concern to borrowers from those sorts of lenders. They do not bear any risk because they are insured. To the extent that they are borrowing from others and the price of their credit goes up, there may be an impact. But there is no question of the financial stability or surety of the loans that people have taken out from those non-bank financial lenders, and nor should Senator Sherry be causing concern.