Thursday, 15 February 2018
Treasury Laws Amendment (Banking Measures No. 1) Bill 2017; Second Reading
I rise to continue my remarks on the Treasury Laws Amendment (Banking Measures No. 1) Bill. When I was concluding my remarks previously I was speaking about the legislative undertakings of the Labor government and the FOFA reforms which were undertaken under the leadership of Mr Shorten, who, I understand, joined us in the chamber here to recognise the ascendancy to the Senate of Senator Keneally, who is a great New South Wales woman that I'm glad to have with me, and I'm sure she will be interested in supporting adequate banking protection for ordinary people as well.
Returning to my comments around ASIC, we know that, according to the latest numbers from ASIC, there were 300,000 customer accounts affected by concerns regarding financial services, with amounts of fees improperly charged for underservicing but still sending out the bills of over $200 million excluding interest. ASIC has stated that FOFA requirements that were vehemently opposed by those opposite—namely, the requirement customers periodically opt in to the advice relationship and the requirement that advisers provide annual fee disclosure statements to all clients, including existing clients—helped to bring to light this massive fees-for-no-service scandal.
In government those opposite made massive cuts to ASIC and massive cuts to the capability of the corporate regulator and have given a massive free pass to corporate misconduct. They only moved to restore funding to ASIC when Labor began calling for a royal commission. Those opposite have a record of giving free passes to the financial sector, thereby enhancing the misconduct at every turn. That record continued with their stubborn refusal to initiate a banking royal commission.
Labor will support this bill, as I've indicated a number of times during my contribution to this debate. We are particularly pleased that this government has finally, after years of delay, introduced changes to credit cards, recommended by a Labor-led Senate inquiry back in 2015. We welcome other measures in this bill, including giving the right to use the word 'bank' to smaller ADIs, including credit unions and building societies. For Australians whose literacy around finance helps them understand what a bank is, I think that this will be a significant change and improvement in their access to services, particularly in some of the regional communities across Australia.
However, we note that this bill comes from a government that's really not fair dinkum about consumer protection in the financial services sector. It has come, begrudgingly, from a government that will stand up for the big end of town over ordinary Australians, every day. It has to be, and has been in this case, dragged kicking and screaming to do otherwise, whether it is in relation to something as simple as overdue charges to credit card regulations or something as significant as a much needed royal commission into the banks.
I rise today to speak on the Treasury Laws Amendment (Banking Measures No. 1) Bill 2017 on behalf of the Australian Greens. The bill amends the Banking Act 1959 to enable the Australian Prudential Regulation Authority, known as APRA, to make rules and directions relating to the provision of finance by non-authorised deposit-taking-institution lenders, which, as APRA has identified, may materially contribute to risks of instability in the Australian financial system. The bill removes restrictions on the use of the term 'bank' and inserts an objects provision. It also amends the National Consumer Credit Protection Act 2009 to require that the suitability of a credit card contract is assessed on the consumer's ability to pay the credit limit within a certain period and prohibits providers from making unsolicited credit limit offers in relation to credit card contracts and from retrospectively charging interest on credit card balances. Finally, it enables consumers to reduce credit card limits and terminate credit card contracts including by online means. The Greens will be supporting this bill. We don't see anything too controversial in it.
I note APRA's comments that were provided to the committee that the non-ADI, non-licensed, non-regulated finance market—I call it the shadow banking sector—is roughly only four to five per cent of the total market at this point in time, and is not enough to cause instability. But this is an issue that's been discussed all around the world, especially in the last five years, by regulators in just about every country and international institutions. The growth in the unregulated shadow banking sector is something that we do need to keep a close eye on. We're quite comfortable with giving APRA extra powers to monitor that sector, collect data and act, should they feel that there's any instability in the financial system brought on by the growth in the shadow banking sector.
On the credit card changes, I echo Labor's comments that we'll be reviewing these changes over time to see how the banking sectors themselves respond to this. You don't get between them and a buck, basically, so I'm sure they'll find a way to continue to squeeze Australians through the credit card market, but, nevertheless, the bill's provisions are good.
In fact, I actually wrote to the regulator and spoke to them in estimates last year after being contacted by a friend who had had unsolicited attempts to increase his credit card limit from his bank. He was told how easy it would be if he just pressed a button on an email, which led to a doubling of his credit card limit. These kinds of things can be dangerous and they need to be monitored. The Greens will be supporting this bill today.
I rise to speak on the Treasury Laws Amendment (Banking Measures No. 1) Bill 2017. Labor supports this bill, which does a number of useful things. It provides further reform across the banking and financial sector. Of course, further reform is absolutely critical for the culture within this sector, and I note, before I talk in more detail about the bill, that it was for 601 days that Labor called for a royal commission into the financial sector, which we did because we recognised that there was a need for something substantial to be done to reform this sector to meet community expectations. That has now kicked off this week, and for anybody who might be looking at a copy of this speech, public submissions are now open online at www.financialservices.royalcommission.gov.au. It is very important that members of the public participate in this, particularly those who have a story to tell about how they've been treated by our big banks.
Before I proceed, let's review some of the facts about the Australian banking industry. Some of this information comes from the background paper that was prepared by the royal commission. We know that there are 147 ADIs operating in Australia, and that those ADIs hold $4.6 trillion in assets. Three-quarters of that figure is held by the big banks. I'm just underscoring the importance of this sector for the Australian economy. The big banks earned a profit margin of 36.4 per cent in the June quarter 2017. The big banks' net profit after tax in the June quarter was $7.8 billion. Other domestic banks earned a profit margin of 24.7 per cent, and total net profit after tax in the June quarter was $831 million. The financial and insurance services sector is the largest contributor to real industry gross value added in Australia—around nine per cent in the September quarter 2017. The mining and manufacturing industry is six per cent, for comparison's sake. All of this information, as I say, comes from the background paper prepared for the royal commission.
Publicly available data broadly indicates that the big banks in Australia may be more profitable than some international counterparts—for example, those in Canada and the UK. As at November 2017, there were over 16 million credit and charge card accounts, with total balances of $52.2 billion. So, this is an industry that warrants a lot of scrutiny and there is a need for continual oversight of this industry.
This bill expands APRA's regulatory powers to include reserve powers that cover non-ADI lending, should practices or the size of the non-ADI lending sector pose a risk to financial stability in the future. There's no suggestion that there is a problem at the current time with the size of the non-ADI lending sector, but, at some point in the future, this may become an issue and, therefore, APRA should have powers to monitor in this area.
Non-bank lenders do play an important role in Australia. They encourage competition in the market and they are very much involved in lending to small business, which, of course, is an engine room for employment growth. Schedule 3 to the bill allows smaller ADIs—authorised deposit-taking institutions—to use the word 'bank' in their business name. I note that this is one of the changes that was very strongly supported by the Customer Owned Banking Association, and I will talk a little bit about that shortly. The change is designed to reflect public perception regarding the regulations and protections applicable to entities using the term 'bank'. Whereas ADIs are prudentially supervised by APRA, this has been extended and deposits covered by the Financial Claims Scheme are guaranteed. Labor welcomes the fact that small ADIs, including many credit unions, will now have the right to call themselves banks if they choose to. Previously, the term 'bank' could only be applied to institutions that held more than $50 million in tier 1 capital.
I will digress briefly to mention that I am a big fan of the cooperatives and mutuals sector. I indicated that the Customer Owned Banking Association is a supporter of these changes and I do think it is extremely important that the mutuals are placed in a position where they can compete with the major banks. Their business model is one which, in my view, promotes more ethical treatment of customers. It's a situation where profits go back to members rather than return to shareholders, and we avoid the situation of the imperative for massive returns to shareholders, which drives the gouging and mistreatment of customers. I think the cooperatives and mutuals sector has a lot to offer the market and a lot to offer consumers. It's just interesting to note that, when it comes to cooperatives and mutuals, a lot of people are not aware of the prevalence of those.
For my own part, I'm a member of ME Bank, which is a mutual bank, I'm a member of Australian Unity Health Insurance and I'm also a member of the RACQ. These are very well known institutions. A lot of people don't know that they are actually mutuals, that they are customer owned and that they perform a very important role providing diversity and providing competition to the big banks.
I also want to give a plug, while I'm here, to the need for work to be done to enhance the mutuals sector, particularly in the banking area. I want to revisit some of the recommendations that were made by the Senate Economics References Committee on this issue, and I do welcome the fact that the government has picked up a number of the recommendations from that committee. Again, it's so important to the health of the financial services sector that we have this sort of healthy competition. Among the recommendations we looked at in the cooperatives and mutuals inquiry was for the Commonwealth to work with states and territories to develop a program of supports to encourage the establishment of new cooperatives and mutual enterprises. We recommended that a mutual enterprise be explicitly defined in the Corporations Act and its associated regulations. We also recommended that the cooperative and mutual sector be considered when the government is preparing a regulatory impact statement that accompanies new regulatory policies. We also recommended that the Commonwealth government liaise with state and territory counterparts to ensure that the regulatory burden for small and medium-sized cooperative and mutual enterprises aligns with the needs of these organisations to ensure they're not disadvantaged relative to companies of a similar size, because we know, and we've heard from a number of inquiries, that the regulatory burden is, in fact, a competitive advantage to some of the bigger corporations. We also talked about the Commonwealth and state governments supporting the formalisation of some of the innovative and market based approaches to raising capital for small and medium-sized cooperatives and mutual enterprises in the form of advice and information as they become available.
Importantly, we wanted APRA to set a target date for the outcome of discussions with the cooperative and mutual sector on issues of capital-raising and to bring those discussions to a timely conclusion. We also recommended, very importantly, that the Commonwealth examine proposals to amend the Corporations Act to provide cooperative and mutual enterprises with a mechanism to enable them access to a broader range of capital-raising and investment opportunities. This is a necessary vital reform. Unfortunately, we see a situation where a lot of cooperatives and mutuals, where they currently want to expand, see the only option going forward to de-mutualise. That's unfortunate. It sees a loss to the cooperative and mutual sector and is, I think, to the disadvantage and to the detriment of consumers, and I would certainly welcome movement in that area.
While I'm talking about this, I also wanted to just commend the work that the RACQ has done in merging with the QT Mutual Bank in 2016 and then, in September of last year, launching RACQ Bank, which is going to be an important player. RACQ is a very trusted organisation. As I've said, it's a cooperative owned by its members, and there are more than 1.6 million members. This now establishes one of Queensland's last remaining mutual banks. As I said earlier, the profits from the bank will be reinvested back into the RACQ ecosystem for the benefit of the RACQ members. That's a positive story. This, I think, underlines the fact we need to do more to support the cooperatives and mutuals sector. Its ability to call itself a bank followed from that merger in 2016 with QT Mutual Bank.
Turning to other aspects of the bill, schedule 5 of the bill amends the credit act to introduce a number of reforms to improve consumer outcomes under credit card contracts by tightening responsible lending obligations and prohibiting credit card providers from offering unsolicited credit limit increases—part of the reckless and irresponsible behaviour that we've seen in the past. It also simplifies the calculation of interest charges and requires credit card contracts to allow consumers to reduce credit limits and terminate credit card contracts, including the ability to do it online.
As at November 2017, there were 16.7 million credit and charge card accounts in Australia, with total balances, as I said earlier, of $52.2 billion. While credit card debt comprises a small percentage of the banks' overall assets, it can have a significant impact on household finances. These days, most consumers have some form of credit or store credit card, and many of these cards have hidden fees or charges. We have seen balance transfer schemes becoming more prevalent in the industry. Consumers do deserve the best protection we can give them from fee-gouging and shoddy bank practices.
Labor do, in fact, welcome the reforms that we are debating today. In fact, we actually came up with them first. I go back to the 2015 committee report findings of the Senate Economics References Committee, of which I am the chair. We released a report into the Australian credit card market. That report came up with a table of recommendations—I won't go through all of those quite significant recommendations. I note that the government did indicate its support for a large number of those, and it responded, promising reform, in May of 2016. But, as with many other things, it dragged its feet and has, for the last almost two years, been running a protection racket for the big banks.
In the meantime, the Khoury review of the Code of Banking Practice, for the Australian Bankers' Association, recommended that banks voluntarily make changes to credit card practices for a fairer system for consumers. But the banks refused the recommendations to stop unsolicited credit card increase offers and to stop the tricky credit card interest charging practices, and they also refused to clearly commit to simple, online cancellation of credit cards. I think these are very telling responses from the Bankers' Association which show that they have been unwilling to grasp the nettle and go about the job of reforming their own practices. Because of the Prime Minister's inaction and the banks' reluctance, consumers will have to wait until 2019 for these long-overdue protections to take effect.
We're seeing a recurring theme here from the financial sector and the Turnbull government: review something, vaguely promise action and then hope that the issue goes away. Labor refuses to let these issues go away. That's why, after 601 days, the Prime Minister has been dragged, kicking and screaming, by Labor into having the royal commission.
Labor fought for this inquiry because banks were ripping off consumers with credit cards through hidden charging, high interest rates, high annual fees, expensive rewards programs, exorbitant late payment fees and inappropriate lending practices. Customers were being taken for a ride here, while the banks made—and are still making—millions in credit card profits. While the government has dilly-dallied on these laws to protect consumers with credit cards, OECD data shows that Australia is in the top five countries for personal debt. I refer to an article that has appeared in the Gladstone Observer to that effect. This particular article, by Tim McIntyre of the Gladstone Observer on 12 February, showed this concerning statistic. The article had a comment from Wealth Within chief analyst Dale Gillham, who said that the debt levels were a concern. He went on to say:
We are stuck on a debt treadmill and many of us don't know how to get off … Identify you have a problem with debt, cut back on non-essential spending … and funnel the cash freed up into paying down your bad debt.
As a society, we do have an issue with this. Let's hope that some of these improvements in credit card changes will assist.
In terms of Labor's record, we introduced the National Consumer Credit Protection Act 2009, which was the first single-standard and nationally consistent regime for consumer credit regulation and oversight in the country. We gave ASIC regulatory powers to oversee consumer credit, including home loans and credit cards. I want to give a shout out to Wayne Swan, who did fantastic work on credit card reform as Treasurer. These measures that he introduced began in July 2012. I won't go through the details of those, but I just want to take a minute to wish Wayne all the best for the next phase of his life. We all remember that he was voted world's best Treasurer in 2011. He's made an enormous contribution to our country, and I'm sure that he will be missed in this place.
So just further in terms of Labor's achievements, we looked into the Future of Financial Advice reforms, or FoFA, which came about in the wake of the Storm Financial, Trio Capital and Westpoint collapses. We had a Parliamentary Joint Committee on Corporations and Financial Services inquiry in 2011-12. Reforms included financial advice providers legally being required to act in the best interests of their clients, eliminating kickbacks to financial advisors. Unfortunately, these were fought by the coalition. They voted against FoFA in the House, they voted against FoFA in the Senate and they tried to undermine its function when they came to government. But thanks to Labor taking up the fight on the finance front, FoFA lived on. As a result, ASIC uncovered in 2016 that customers were paying fees for financial advice that was never provided. There were more than 300,000 customers affected by this. In conclusion, this change cannot come soon enough, though the royal commission will deliver the real change in practice and culture.
I rise to speak on the Treasury Laws Amendment (Banking Measures No. 1) Bill 2017. Australians are people who believe in treating others fairly. The fair go is a hallmark of the Australian way of life. In turn, they expect fairness from those around them. They expect fairness from their mates, from the government and from the other institutions in society, such as the banking and financial sector; however, it's quite clear to most Australians that banks, the financial sector and credit card companies have not upheld their end of this fairness bargain. All of us have heard horror stories, and may even know victims of the financial sector—in fact, my own parents lost $150,000 some years ago.
There are dodgy financial products, hidden fees and charges and just plain rip-offs. We can clearly see from the overwhelming community support for Labor's call for a banking royal commission—which the government ignored for two years and then belatedly and begrudgingly supported once they had given their mates in the sector the opportunity to write the convenient terms of reference—that the community wants things to change.
I hope that the focus of the royal commission will turn to the victims of banking and financial scandals. This is an opportunity for those who have suffered because of insurance scams, dodgy lending and fee rip-offs to tell their stories and present their evidence to the royal commission. I hope that the royal commission delivers justice to families and small businesses that have suffered because of misconduct in the banking and financial services sector. We already know—and the royal commission will show us—that change is needed.
The bill before us today makes some important and significant changes—changes which will significantly help credit card consumers, in particular, and changes that Labor has been calling for for years. We really have to ask ourselves why it has taken this government so long. It's not that the issue only affects a small number of people: there were 16,690,289 credit cards in Australia as of November 2017. Almost every adult in Australia has a credit card, and many people have more than one. Why has the government taken so long to act? Is it to allow their mates in the sector to keep on rolling in record profits to squirrel away to tax havens, like Mr Turnbull's in the Cayman Islands? In 2015, a Labor-led Senate inquiry first stirred changes to credit card regulation. It was in response to the recommendations of the inquiry that the Treasurer promised to progress these changes to credit card regulation. Even with the passage of this bill, we won't see most of those protections come into place until 2019.
Let me tell you a bit about the bill. The bill makes three key changes. It will allow smaller authorised deposit-taking institutions, or ADIs, to use the word 'bank' in their business name, and the bill will give the Australian Prudential Regulation Authority, APRA, powers to deal with developments in non-ADI lending that pose a risk to financial stability. It also introduces reforms to improve consumer outcomes under credit card contracts.
As I mentioned, in 2015 the Senate Economics References Committee, which my colleague Senator Ketter referred to earlier, handed down its report Interest rates and informed choice in the Australian credit card market. This is quite a comprehensive report, and I urge anyone with any interest in the issue to download it from the committee's website and read it.
The committee handed down 11 recommendations in the report, derived from written submissions and five public hearings held in Sydney, Melbourne and Canberra. In 2016, the government promised legislation in the near future to respond to the recommendations of that inquiry, yet it's taken nearly two years to come to it. Seriously, I would hate to see this government on a go-slow, I really would. While the Treasurer dithered, the banking sector continued to thumb their nose at him. The Australian Bankers' Association refused recommendations from the review of their code of practice that, in the name of fairness to customers, they should voluntarily make changes. The banks refused to stop unsolicited credit card increase offers and tricky credit card interest rate charging practices. They also refused to clearly commit to simple online cancellation of credit cards.
If the government could just spend a little bit of time away from their internal bickering, their scandals, their back-stabbing and their incompetence, the Australian people would really appreciate them focusing their attention on legislating for the interests of the Australian people.
One of the changes to credit cards is the tightening of the responsible lending requirements. Many thousands of desperate people have racked up credit card debt beyond their means to repay. They've spent years trying to pay these debts off, often with interest rates over the 20 per cent mark. This change will require that the suitability of a credit card contract is assessed on the consumer's ability to repay the credit limit within a certain period. That period is to be set in a legislative instrument made by ASIC. We'll be watching closely to see what that period is.
It's obviously important that Australians are properly protected from predatory or unsuitable lending. Another of the changes is the standardisation of the way credit card interest is calculated. I was taught how to calculate interest in my high school maths classes; however, the well-respected website Choice has said that the way the banks calculate credit card interest is 'mind bending'. When respected governance adviser Phil Khoury conducted a review of the code of conduct of banking practice, he investigated the ways that banks were applying credit card interest. He looked at some practices and found that few customers would be aware that they were even happening at all. Khoury describes the interest calculation practices as 'unacceptable' and 'substantially unfair' and indicates that, if understood, they would be seen as 'just plain tricky'. This is pretty troubling criticism from a very respected reviewer. Under this bill, credit card providers are prohibited from imposing interest charges retrospectively to a credit card balance or part of that balance that has the benefit of an interest-free period. Again, we welcome these changes to the way credit card interest is calculated—but, again, they're long overdue, and we've been calling for them for many years.
Many Australians have come to realise that some of the credit products that they hold aren't suitable or aren't good value for money and they want to cancel them, but, currently, people can't do that online, where most Australians now do their banking. Under this bill, banks will now be required to allow online cancellation of credit cards. This makes eminent sense. You can get a credit card online quite easily, but, if you try and cancel a credit card online, it's very difficult—and it shouldn't be that way. If a customer sees a card that's a better deal, they should be able to move over to that better deal with great ease. Additionally, customers end up hanging onto old cards that they do not intend to keep, with access to more credit than they otherwise need, and these cards often have annual fees and other ongoing costs which add up over the years to a substantial amount of money. So it does make simple sense to require banks and card issuers to have simple online cancellation of credit cards. Under the bill before us today, a bank may not be required to cancel a credit card where there is still an outstanding balance. Again, we need to ensure that this element of the bill is monitored to make sure that the impact of encouraging customers to switch credit cards is real and to ensure that it enables customers to more easily ditch unsuitable cards.
Labor notes that this bill will also require banks to allow a reduction of credit card limits online. As those listening would all be aware, you can very easily increase your credit limit online, often in minutes, so it should be just as easy to reduce your credit limit online. If a consumer has the insight or the awareness that they have too much credit available to them and that they might not easily be able to pay that off and they want to do the right thing and take some control, they should find it easy, not hard, to reduce their credit card limit. I believe we should be supporting consumers that want to take proactive actions to limit their liabilities and we should make it easy for them to do that. The Consumer Action Law Centre has drawn attention to the fact that, as the bill is currently drafted, banks are not required to reduce credit limits below the minimum credit of the card. Labor will continue to monitor that closely and, if further improvements are needed, we will make those suggestions in due course.
Schedules 1 and 2 of the bill will give APRA powers in relation to non-ADI lenders. These powers, which have been described as reserve powers, are designed to be used should the activities of these lenders pose a risk to financial stability in the future. The bill also gives APRA power to collect certain data from these lenders. ADI lenders such as banks and credit unions are subject to APRA's prudential requirements and ongoing supervision. These new powers for APRA are proposed in recognition of the fact that APRA has responsibilities in relation to stability of the Australian financial system which are consistent with its core mandate of protecting depositors. Labor notes that some non-bank lenders have raised concern about the scope of these powers. We recognise that non-ADI lenders can play an important role in ensuring competition against banks; indeed, this is an increasing element of our financial system. There is disruption with these new providers, peer-to-peer lenders and others. This includes disruption in relation to business lending. As an example, innovative non-banking lenders can play an important role in providing finance needed to small-business owners to expand. And, as mentioned briefly earlier, schedule 3 will allow smaller ADIs to use the word 'bank' in their business names should they choose to.
As the explanatory memorandum points out:
… the changes will align community expectations in respect of the use of the term 'bank' with the fact that ADIs are prudentially supervised by APRA and deposits are covered by the FCS guarantee—
the Financial Claims Scheme guarantee. Under this change all ADIs can use the word 'bank' in their business name unless APRA, for whatever reason, has issued a determination to the contrary. Currently, APRA permits only ADIs with tier-1 capital exceeding $50 million to use the terms 'bank', 'banker' and 'banking'. There are a number of small ADIs who would benefit from the use of these terms, and I note that the Customer Owned Banking Association, which represents credit unions and building societies as well as mutual banks, has been particularly supportive of this change. Again, Labor supports this change.
Finally, schedule 4 to the bill modernises the Banking Act by inserting an objects provision. Similar industry acts, the Life Insurance Act 1995 and the Insurance Act 1973 contain objects provisions which guide the reader on the main purposes of the act. The main objects of the Banking Act will be (a) to protect the interests of depositors in ADIs in ways that are consistent with the continued development of a viable, competitive and innovative banking industry and (b) to promote financial system stability in Australia.
While the changes in this bill are welcome, they are long overdue. This government does not care about the consumer, and it only acts belatedly when it has no other choice—when it has to be dragged in, kicking and screaming. In contrast, Labor made significant reforms when we were in government. These landmark reforms included the National Consumer Credit Protection Act 2009. This was the first single standard and nationally consistent regime for consumer credit regulation and oversight in this country. This act gave oversight to consumer credit, including home loans and credit cards, to a national regulator, that being ASIC. It included what are proving to be very important responsible lending obligations. Labor also enacted the Future of Financial Advice, FOFA, reforms. Those opposite want to write these reforms out of history because their persistent opposition to FOFA now looks so embarrassing. They voted against FOFA in the House, they voted against FOFA in the Senate and, when they got into government, they tried to gut FOFA, first by legislation and then by regulation. Labor had to fight tooth and nail to protect FOFA, and it was lucky that we prevailed.
To take one example, ASIC's Fees for no service report revealed, in October 2016, that the big four banks and AMP had spent years taking fees from customers for financial advice services that were never provided. ASIC found that there were great systems in place to record incoming revenue but very little in place to prove that customers were getting anything in return. The number of customers affected is over 300,000. The amount of fees improperly charged is over $200 million. ASIC has stated that the FOFA requirements that were vehemently fought against by those opposite—namely, the requirement that customers periodically opt in to the advice relationship and the requirement that advisers provide annual fee disclosure statements to all of their clients, including existing clients—helped to bring to light this massive fees-for-no-service scandal.
In government, those opposite made massive cuts to ASIC, made massive cuts to the capability of the corporate regulator and gave a massive free pass to corporate misconduct. They only moved to restore funding to ASIC when Labor began calling for a royal commission. Those opposite have a record of giving free passes to financial sector misconduct at every turn, and that continued until recently with their stubborn refusal to initiate a banking royal commission.
Labor have identified other areas where we could see a greater stability in our economy—and I'd like to thank my colleague the shadow Treasurer, Chris Bowen, who has been working to highlight areas of our economy where there are unacceptable risks. I'd also like to concur with Senator Ketter's words about Mr Swan and to thank him for his work as well.
One such area where there is unacceptable risk is that of household debt, particularly in regard to household debt related to housing in Australia. Over the recent decade, we've seen astronomical price increases in the cost of housing, particularly in the Sydney and Melbourne markets and, interestingly enough, in the Hobart market, which is growing at a staggering rate. Australia's level of debt is now 100 per cent higher than the total earnings of all households. Australia has the most generous property tax concessions in the world when it comes to investing in housing. I'm speaking here, of course, of our negative-gearing regime—the ability to deduct interest payments on an investment loan for an investment property—and the capital gains tax discount: the 50 per cent discount on capital gains tax being paid on the sale of an investment property.
When these two reforms were introduced by the Howard government, importantly, in the budgetary context, they weren't funded. In other words, there was no revenue source that offset the reduction in revenue that came about from the additional expenditure associated with these tax concessions. Now that we've got a growing budget deficit—it's almost tripled under this government—we're seeing the folly of those decisions being borne by this generation of Australians, because there was no funding source put in place to introduce those very generous tax concessions into the budgetary process. Therefore, it's hardly surprising that we have one of the highest household leverage rates in the world.
For almost two years the Labor Party has been calling on the government to bring attention to the risks associated with such high household debt. The Reserve Bank, the International Monetary Fund, the Grattan Institute and the government's Financial System Inquiry have argued forcefully that tax concessions such as negative gearing distort economic decision-making and encourage leverage in the economy. The overwhelming evidence is that those who benefit from those tax concessions are the wealthiest Australians. It was confirmed in the newspapers fairly recently that the top 10 per cent of income earners in this country benefit from 80 per cent of the capital gains tax discount—that is, 80 per cent of the capital gains tax discount benefits go to the top 10 per cent of income earners in Australia.
We would welcome the government's making such additional reforms if they could be bothered to concentrate long enough on the task of government. While we welcome the bill before us and the consumer protections it entails, the government need to be reprimanded for their tardiness and their unwillingness to act until now. They really do need to sharpen their pencils, as a dear friend of mine would say. This legislation could have been enacted two years ago. That would have been an additional two years of protections for consumers across Australia. But I do call upon my fellow senators to support the bill. As I said, it's a start, but it's not enough. The government needs to pay more attention to the role of governing and sort out their squabbling and their bickering and their scandals so that the people of Australia can have some faith in this government.
I rise to sum up the debate on the Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, and I thank all senators for their contribution to the debate. The bill enhances the stability, competitiveness and fairness of the financial system.
Schedule 1 to the bill provides the Australian Prudential Regulation Authority, which is known as APRA, a new power to make rules concerning the lending activities of non-bank lenders. This new power is a reserve power, which means that in ordinary times it will not be used. Schedule 2 reinforces APRA's ability to monitor the sector by strengthening APRA's existing data collection powers. Together, these reforms mean APRA will be able to make rules where it assesses that the lending activities of non-ADI lenders are materially contributing to risks of instability in the Australian financial system. While non-ADI lenders are currently a small share of the financial sector, APRA's macroprudential measures for ADI mean it is likely that the sector will grow and, potentially, contribute to risks. Risks to financial stability can be very costly. Risks, if realised, will ultimately fall on the broader Australian community. However, the government is of the view that non-ADI lenders are not currently materially contributing to financial stability risks, and therefore the government does not expect a rule to be made on day 1. Schedules 1 and 2 to the bill will add to APRA's tools on the shelf by expanding the powers APRA can use if and when risks to financial stability emerge in the non-ADI lending sector.
Schedule 3 of the bill removes the prohibition on the term 'bank' and allows all banking businesses with an ADI licence to benefit from this term. Currently, only ADIs with at least $50 million in capital are permitted to use the term 'bank'. This is a real problem for the innovative new banking entrants who want to enter the market. Customers need to understand the product you are offering before they come on board, and these entities need to onboard customers to grow. This is a real catch 22 for new bank entrants. They can't call themselves a bank before they hit $50 million in capital but they can't grow without being able to call themselves a bank. The limit on the use of the term 'bank' to entities over $50 million also creates a false perception in the community that the level of protection afforded to depositors in large APRA regulated institutions is greater than that of small regulated institutions. This is simply not the case. All depositors can take comfort in the fact that APRA regulates all ADIs and all depositors are protected under the Financial Claims Scheme, the government's deposit guarantee scheme.
In implementing this measure, the government has three objectives. It opens the door to innovative new entrants, it levels the playing field for existing ADIs and it meets the community expectation that the only entities that can use the term 'bank' are APRA regulated entities. In order to achieve the third objective, this measure alters the framework for the administrative review of decisions made by APRA concerning the use of the term 'bank'. Non-banks will no longer be able to challenge a decision by APRA to deny the use of the term 'bank' other than on the grounds of procedural fairness. This has the added benefit of reducing an administrative burden on APRA.
Schedule 4 of the bill seeks to modernise the Banking Act by inserting an objects provision, clarifying APRA's mandate under this act. This provides an opportunity for government to reinforce APRA's mandate to protect depositors and financial stability, whilst also promoting innovation. A reference is also incorporated to make it clear that APRA can take account of geographic and sectoral considerations where appropriate.
In addition, schedule 5 will prohibit credit card providers from making unsolicited credit limit increase invitations to consumers through any form of communication. This prohibition will cover all consumers, even if they have previously opted in to receive these invitations. Schedule 5 will also simplify how credit card interest can be calculated by prohibiting credit card providers from backdating interest charges or charging interest on a balance that has already been repaid. This reform will bring credit card interest in line with community expectation and reduce the complexity of the calculation of credit card interest. Finally, schedule 5 will require credit card providers to have online options for consumers to lower a credit limit or request to cancel a credit card. Consumers can face substantial barriers to cancelling a credit card or lowering a credit limit, which reduces competition and impedes the ability of consumers to manage their credit card debts. Schedule 5 will require credit card providers to facilitate a request and will prohibit providers from imposing unnecessary requirements on consumers.
These reforms will provide vital protections to vulnerable Australians and improve competition in the credit card market. I commend the bill to the Senate.
Question agreed to.
Bill read a second time.