Doug Cameron (NSW, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Innovation, Industry, Science and Research. Can the minister update the Senate on government initiatives to minimise the impact of the global financial crisis on Australian industry?

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

I thank Senator Cameron for the question. The credit crunch has had a serious effect on financial markets and industry around the world. The government has acted decisively to stabilise Australia’s financial system and to reinforce our banks, which are already rated amongst the strongest in the world. The fundamentals of the Australian economy are sound and the government is confident that we can steer our way through this crisis and emerge stronger on the other side.

The International Monetary Fund forecasts that the Australian economy will grow by 2.5 per cent in 2008 and 2.2 per cent in 2009. However, the Australian budget projected a slight increase in unemployment as the global economy slows. We now have a situation where, as the IMF says, the most advanced economies are already in or close to recession. Australia is much better placed than just about any other of the developed countries to weather the storm. That does not mean that we are immune. The government is keenly aware of the danger that the financial crisis will spill over into the real economy. It is essential for all Australian businesses, including small businesses and manufacturers, to have access to affordable credit. It is essential that they continue to be able to pay for wages and supplies. It is essential that they continue to invest in new capacity, new products and services and new jobs.

The package announced by the Prime Minister yesterday is not just designed to guarantee the bank deposits of Australian families; it is also designed to increase the supply of finance to the Australian economy. The deposit guarantee applies to all accounts, including those of companies, partnerships and trusts. It will increase the capacity of financial institutions to attract deposits which can be lent to businesses and other customers and put to productive use.

Perhaps more important for businesses is the second part of the package, which is a government guarantee of eligible wholesale borrowing by financial institutions. The guarantee will restore confidence in credit markets and enable Australian banks, building societies and credit unions to raise funds overseas at a time when conditions are incredibly tight. To ensure there is no disadvantage to taxpayers, the institutions will pay a fee similar to an insurance premium for that guarantee. The guarantee will be available on application for new and existing debt instruments with terms up to five years.

The third element of the package is doubling the government’s investment in residential mortgage securities by some $8 billion. As well as being a shot in the arm for Australia’s mortgage market, it will also help maintain activity in the housing, construction and building supply industries, with flow-on benefits right across the economy. This is a bold and responsible package that demonstrates that the government is determined to restore the flow of credit needed to keep the wheels of industry turning.