Thursday, 27 February 2020
Australian Business Growth Fund Bill 2019; In Committee
by leave—I move opposition amendments (1) and (2) on sheet 8890 together:
(1) Clause 21, page 9 (lines 21 and 22), omit subclause (2), substitute:
(2) The review must include:
(a) the effectiveness of this Act in meeting the object of this Act; and
(b) the effectiveness of any investment by the Commonwealth in the Fund in relation to the following:
(i) demand for equity investments by businesses;
(ii) the impact of the creation of the Fund on the overall access to capital for small and medium Australian enterprises;
(iii) the impact of the creation of the Fund on competition within capital markets in relation to small and medium Australian enterprises;
(iv) the operation of the rights and powers of the Commonwealth in relation to the governance arrangements of the Fund.
(2) Clause 21, page 9 (line 24), at the end of subclause (3), add "The report of the review must not include information that is commercially sensitive.".
Amendment (1) seeks to strengthen the review mechanisms built into the legislation. The strengthened mechanisms will ensure that we will be able to properly assess whether the investment is well-targeted and whether it increases SME access to finance. The amendment will ensure that the review looks at the impact of this proposal on the demand for equity investments by business, on the overall access to capital for small- and medium-sized businesses and on competition within capital markets used by SMEs, and at the governance arrangements around the Commonwealth's participation in the fund.
The government wants to ensure that its investment in the Australian Business Growth Fund is improving financing conditions for Australian SMEs. It is important that a comprehensive review is undertaken as early as possible to ensure that the Business Growth Fund is meeting its objectives. The government is satisfied that these amendments do not frustrate the purpose of the review and have appropriate protections for sensitive commercial information. Therefore, we will be supporting the amendments.
Question agreed to.
I move amendment (1) on sheet 8896:
(1) Clause 5, page 3 (line 7), after the definition of rules, insert:
small and medium Australian enterprise means an Australian business with an annual turnover (within the meaning of the Privacy Act 1988) of less than $100 million.
What this amendment seeks to do is to define what a small to medium enterprise is. The bill is purported to allow investment opportunities for small to medium enterprises, but it doesn't actually define what a small to medium enterprise is. So, the first part of my amendment inserts a definition as to what a small to medium enterprise is and basically puts a threshold in there, a criterion in there, of an enterprise with an annual turnover of less than $100 million. Currently the bill only refers to this term within the objects of the bill. My amendment will provide clarity that only Australian based businesses that have an annual turnover of $100 million are the types of businesses that the business growth fund may invest in.
The government will oppose Centre Alliance amendment (1) on sheet 8896, because the definition of a small to medium Australian enterprise will be established as the investment mandate, and that will be finalised with shareholders over the next few months. The investment mandate will also be made public. The establishment of the fund will be open-ended, so it won't have a defined termination date. And of course if it's very successful it could continue for many, many years. Setting a threshold in the legislation, while it sounds like it makes sense today, would become an inhibitor in the future.
In the event that the amendment doesn't get up—and I know you're not supporting it—one must ask the question: what's your starting position? What's the starting threshold with which the government is going into negotiations with the banks? And on what basis was that particular threshold selected? So, really I'm just trying to understand the current state.
In the normal course of negotiations of course you don't want to disclose anything that is confidential, but in fact the other parties will all know what your starting position is. It's not as though you're holding something secret from someone else. So, how could you possibly suggest that the Senate and the public couldn't know, when all of the parties do? There's no confidentiality associated with this.
There is, because the investment mandate isn't set yet. That's set by the shareholders and is yet to be done. When it's done and finalised it will be made public.
So, let me get this right: the investment mandate is going to be set by the shareholders, which includes a whole range of different considerations, including the governments of this fund. And the key shareholders are the big banks—the four big banks, and Macquarie Bank and HSBC. So, here we have a situation where we're being asked to provide $100 million of public funding with virtually no information about the investment mandate. We've been told to trust this government with their economic management—that they know what they're doing—without even the most basic information about what a small to medium enterprise is or how many SMEs are actually even needing this finance and how many have tried and failed. We're being asked to just trust the government.
None of this information is provided to this nation's premier house of review, the Australian Senate—this chamber where we stand today. We're doing our job in here, Senators. We're scrutinising this government's legislation. Senator Patrick's asked a very simple question: what do you define as a small or medium enterprise? And that's led, through a chain of questioning, to a disclosure by this minister that the shareholders in this fund—this very influential private equity fund that is essentially the big four banks—are going to set the details. The details are going to be set by the shareholders. We know some of those banks were reluctant in the first place to even be part of this election policy by the government. We know that they were reluctant, and we find today that they haven't even discussed how it's going to work.
What is that investment mandate going to be? Like you, Minister Hume, there are people in here who do have a basic understanding of finance and economics, and we should have this information. You want us to vote for this and yet you can't provide that basic information. How could we, in good conscience, support this? I think what we need to do is actually have a decent inquiry into this—that is, not a one-hour inquiry on a Friday afternoon with three pre-selected witnesses. We actually need to have a proper inquiry into how we're going to spend $100 million and what impact it is going to have. Is it fair and equitable? I would argue that it isn't, and I have very strongly laid out the case for that in our second reading speech.
I want to deal with something that Senator Hanson raised in relation to the question: would only Australian or majority Australian owned companies have access to this finance? I think it's something that Australians would be very interested to know about. Why are they putting their public funds into a fund that's going to be shareholding with the big banks and that could, for example, be accessed by foreign companies. They could be foreign companies with subsidiaries in Australia or others. I raise the issue with the minister that the plethora of trade deals that we've signed specifically have chapters in them relating to finance and all those chapters and all investments—whether it's a trades and services agreement; or whether it's a Trans Pacific Partnership agreement and what that morphed into in the end; or whether it's bilateral trade agreements—have very clear stipulations that a government, party to those deals, cannot be discriminatory in their policies. Even if we, as a chamber in the Australian parliament, may feel it's in the public interest, we're precluded from legislating in the public interest if it breaches those trade deals. That's why I have spent so much time in this chamber arguing against these shady trade deals that are signed by the executive before they even come to parliament. Parliament has had no input into the construction of these trade deals. If we're lucky we might get a briefing. I have sat on the JSCOT committee, which essentially gets to rubberstamp these trade deals, and I have argued, as have other people in this chamber, that what they have done is essentially tied a hand behind our back in terms of how we regulate for this country. This is a classic example of it.
If we wanted to set up a fund that was only available to Australian majority owned businesses, we can't, because London to a brick it would attract one of two things. It would attract a state-to-state dispute, in other words where a foreign country or a foreign government sues our government through an international arbitration court. Or, if a company felt that they were discriminated against—like in Senator Hanson's question if a foreign SME wanted to access this pool of capital and were told they couldn't because they weren't a majority Australian owned company—they would have rights under these trade deals to immediately lodge an investor-state dispute settlement clause, an ISDS clause, under investor-state dispute settlement arbitration. And we all know about ISDS. Hopefully we've all heard about ISDS—talk about shady tribunals: we don't know who appoints the lawyers, there's no avenue of appeal and we know corporations have gamed the system by using these ISDS arbitration disputes to, in effect, force regulatory chilling—that is, to make sure legislation or regulations are put up in their interests and not in the public interest. This is a classic example of that.
Minister, I would ask that you go away and get some advice. I suspect Senator Hanson's not going to support your bill today unless you can actually, in black and white, say that these are going to be available to only majority Australian owned companies and if that that is actually legal under our trade system. I would ask that you seek some advice, if you don't already know that, and provide it to the Senate.
I want to put this in perspective: this is $100 million of public money that we are being asked to put into a fund, and we just don't know how it works. We could do a lot with $100 million in this country. There's been a perfectly sensible suggestion here today from Senator Patrick that provides for an underwriting fund for small and medium enterprises—for those that really do struggle to access capital, for those who, for whatever reason, are not able to get capital through their banks, through initial public offerings or through private equity, which are the three main sources of capital. There may be good reasons for that and no doubt those applications and risks are assessed on their merits. But if we are putting up public money and we're not expecting a high return, because we want to facilitate business investment, we want to see those SMEs that are struggling—not the ones that this government plans to cherrypick through this fund, the 30 per cent that probably would have gone somewhere else to get their funding without any problems. It makes sense that if they're a good investment proposition they're not going to have any problem going through an IPO process, an initial public offering process. They're not going to have any problem finding private equity investors and they may even be able to get debt, traditional debt, through a bank.
But what we're doing here is crowding out those other sources of funding that already exist, without even the slimmest, or even a glimpse, of an explanation as to why there's some kind of market failure right now. The minister has openly said, and admitted, that the Reserve Bank didn't recommend this way forward. So, why are we passing it? Why are we allowing ourselves to be rushed? Why is the Labor Party rubber-stamping this? Why is the Labor Party giving the Liberal Party and the National Party a win to give more money to the banks and more power to the banks? That's another question that we haven't explored yet, but it absolutely needs to be explored.
We have a chance to actually get this right, to scrutinise it properly, and to consider what I think is a very good amendment to this that actually would provide equity or some kind of financing in place on a market failure. So, Minister, could you please provide to Senator Hanson the advice in relation to whether providing finance for majority Australian-owned businesses would be in contravention of our trade deal obligations, specifically in relation to investor-state disputes and state to state disputes.
My understanding is that when you first announced the fund you said that $50 million was the cap. That was in the press release. I raise that to see whether or not there has been a change in relation to that and also it raises questions again as to the claim as to confidentiality.
Sorry, Senator Patrick, my misunderstanding. It's a $100 million investment. You're after the size of the organisation in which it will invest. No, that hasn't been.
Just because there was a misunderstanding: in your original announcement of this fund you basically indicated that the companies—and I apologise for not being clear—that could receive funding under this fund had to have a turnover of less than $50 million. Noting that was what was announced, is that still the case? Is that still what you are planning in respect of your negotiations with the banks?
The announcement said that it was expected to back 30 to 50 businesses each year with annual turnovers between $2 million and $50 million. That wasn't a hard range. That's something that will be negotiated with the banks, who are the other shareholders.
Let's say—fictitiously, just for the sake of understanding the question—you set a limit of $100 million for turnover. It could be $50 million; it could be $20 million. In some sense it doesn't matter. If that's set and worked into the agreement—noting, if my amendment doesn't pass, it's not a legislated number, and noting clause 13 of the bill and the lack of control that the government has over the operation of the fund—what's to prevent the bank saying, 'Well, we're going to override our 19 per cent Commonwealth shareholder; we have 81 per cent control of the company, and we're now going to expand the threshold to $500 million'? What protections are in place to prevent that sort of change being made at a board level or an investment mandate level?
The objective of the fund, Senator Patrick, is explicit. It will be outlined in the investment mandate, which, we said, isn't publicly available yet but will be made publicly available when it's confirmed.
I'm sorry if I didn't ask this clearly enough. Once it's defined, as a first instance—and noting the government have not got control over this; they're a 19 per cent shareholder—what prevents the banks holding a meeting and resolving to lift the threshold to companies that have a turnover of less than $500 million or some other number? It's about what protections and controls are in place.
Senator Patrick, that would be a change to the terms of agreement, which would need the approval of all shareholders. There is always the ultimate ejector seat. We can sell our shareholding, as well, as can any other shareholder.
That would require that you understand what you're going to get back for your shares, as well, and perhaps how successful the fund might be. But I'll move on. In terms of the investment mandate, we've got $540 million in the fund, and you mentioned in your press release that it might talk about the range of investment capital that might be granted under the fund. Have you landed on a place now as to the maximum amount of money any particular company can seek through the fund?
During the committee hearing, I asked Treasury officials for some understanding of what due diligence had been done, noting these banks normally don't conduct these sorts of activities. They conceded that, in principle, the banks will be starting from scratch. This is not something they normally do. What processes are going to be put in place to train people so that we end up with skilled people managing and looking after the fund?
My question goes not to the constitution or arrangements in place but, in effect, the qualifications. Where do you draw these people from? How does the Commonwealth make sure that the right sorts of people, which you simply can't just make, will in fact be employed by the fund, such that we're protecting our investment?
The independent board has a vested interest in seeing the fund succeed. I'm sure that it has the ability to employ the right people to make that happen.
There's no training to actually make the applications. But, because there is a vested interest in seeing the fund succeed and making sure that the small and medium enterprises that are accessing the finance do well, there will be some assistance there.
I'd also like to go to the constitution of the board. We know, I think, from an earlier answer that there'll be one member of the government. There will presumably be one from each of the banks, but I'd like that clarified. Are there going to be any independent board members?
Sorry, I should've made that a little bit clearer. The big four banks will each have a director. HSBC will have a director. There'll be three independent directors and then a Commonwealth government director, no Macquarie.
The more I hear about this bill, the more greatly it concerns me. I don't think you've been really up-front with the Australian people. This is based on the UK and Canadian equivalents, but in the UK and Canada there's no public money in it; it's all private investment. So my concern is: why would the Australian government want to get involved in this at this stage? Why don't the banks just put their money in and have something to do with it, not the Australian government and taxpayers' money? In fact, John Roskam, the executive director of the Institute of Public Affairs, suggested that the use of $100 million of taxpayers' funds to invest in small-business enterprises was 'picking winners' and 'smacks of state socialism', and he indicated there were more important policy issues to resolve than access to credit for SMEs.
I know the government has been involved in other enterprises and the supply of funding. That was the case with the Regional Investment Corporation. RIC administers $2 billion for farm business loans and $2 billion for national water and infrastructure loans. The RIC is a corporate Commonwealth entity, and the Regional Investment Corporation Act 2018 provides for its governance arrangements, including the establishment, function and membership of the board. But this bill does not provide such governance arrangements in relation to the fund.
The unique status of the ABGF, the Australian Business Growth Fund, appears to be reflective of the government's intention of working with the banks and having the fund operate commercially, independent of the government. You're basically propping up the banks. The banks are going to get the majority of the loan here. I can't understand why the government would want to get involved in a commercial enterprise. Why are you getting involved in propping up the banks here when this is based on what's happened in the UK and Canada? They did not put any public moneys into this, and yet this government is intending to. As I said before, I want to know what returns you're going to get back on it.
Yes, Senator Hanson, you are absolutely right. The Business Growth Fund is a brand-new financing model. It's unlike anything that we've done before in Australia, and it didn't exist in the UK and Canada until their business growth funds were set up. You're right, though. While ultimately government funding wasn't necessary in the UK and Canada, the governments of both of those countries did play a very critical role in getting their business growth funds off the ground. But it was decided that there is a level of leadership required for these big decisions to create an entirely new level of financing, an entirely new option, for small and medium enterprises in Australia, and the Morrison government is showing that leadership.
When you say 'small to medium businesses' you're talking people that employ up to 199 staff. Senator Patrick has an amendment to make it up to $100 million turnover. Yours, I think, was unlimited. The government did not limit the turnover.
In that case, is there any concerns if you're propping up these businesses? They've got to show revenue from a profit for the past three years. So these businesses are doing okay. You won't give me or the Australian people a commitment that they are Australian owned companies. You keep going back to the fact they are Australian enterprises. So they're not Australian owned companies. We could be propping up foreign multinational companies that don't pay their taxes in Australia. They're supposed to be profitable, but we're going to invest in them to actually help them further. Is it the case then that you investing in these companies is going to give them a benefit over their competitors? There are companies out there that are struggling and don't meet the criteria and who possibly need a helping hand. What you're doing is propping up businesses who are going to get this benefit from you and the banks. It's like the big companies Woolies, Coles and Aldi saying, 'We're going to just move aside those smaller ones, like the IGAs and corner shops and people who are trying to make a living out there.' So you're going to prop them up with cheaper loans and then allow these bigger companies to actually take over smaller Australian businesses. How are you going to make sure there is competitiveness? My belief is it's not the government's job to do this. You are investing in businesses in this country and you're going to give them unfair competitiveness against other businesses in Australia.
This entire bill, this entire process, is about helping Australian owned small and medium enterprises to grow further, to reinvest in their own businesses and to employ other Australians. It's about providing a brand-new form of financing. It's financing that simply isn't available right now in Australia—long-term, patient capital that doesn't dilute those businesses' equity holdings. The fund isn't about to invest in businesses that need 'propping up', as you put it. In fact, we are looking for businesses that have a record of revenue growth and profitability, which is exactly what you would be looking for in a fund that intends to make a profit.
These businesses, as you say, have to show profit for the last three years, so these businesses should be going on alright. It goes back to the competitiveness of this. I quote:
As reflected in the Senate Selection of Bills Committee's reasons for referring the Bill to the Senate Economics Committee for inquiry, there are concerns that the ABGF may cause competition issues in Australia's financial markets. From the supply side, other providers of equity finance may be disadvantaged—it may crowd out their ability to provide equity capital because of the better terms available for those seeking funding under the ABGF.
We hear from economists, and I'm going to let the people know what Adam Creighton, the economics editor at The Australian newspaper, said:
The Australian Business Growth Fund … will be another case of crony capitalism, bringing together the government and the biggest financial institutions in a cosy venture that will crowd out existing private sector investors … Not content with giving the big banks the right to join a fund that will enjoy artificially low borrowing costs by virtue of government involvement, the banking regulator even has agreed to pervert prudential regulation so the banks can treat high-risk investments through the fund as loans.
This double whammy of market manipulation will ensure the ABGF has a huge advantage in the market for providing equity finance to small to medium enterprises.
What do you say to that, Minister?
Thank you, Senator Hanson. There is absolutely no evidence that there will be crowding out of the equity market. In fact, I'm surprised at your line of questioning, because I genuinely thought that your party in particular would be delighted if there were an investment by Australia in the Australian Business Growth Fund, because that would result in increased Australian ownership of what might otherwise end up as a foreign owned business. This is like buying back the farm. This is a good thing for Australian businesses.
I can't believe that you actually said that. Yes, I am interested in Australian owned businesses here. I have asked you repeatedly: is this purely for Australian owned companies and businesses? You can't even answer that. You can't even say that the ISDS with the international free trade agreements is going to have anything to actually override this. Your answer before the break was, 'Yes, our commitment is to the free trade agreements first and foremost.' That's where your head is at. It's not about Australian businesses. Don't put on me that I should be supporting this, because I support businesses in this country but I will not be propping up multinational companies in Australia to get money from taxpayers' dollars when they can't even pay their fair share of tax in Australia. What I ask you is this: does this have anything to do with the ISDS of international free trade agreements under which we can be called to account if we give moneys to Australian companies, and is that why you are reluctant to look at my amendment and put in that it's not just about Australian enterprises? It's about having majority Australian ownership, and it should be 100 per cent Australian ownership as far as I am concerned. You can't even give me that guarantee. You can't even give the guarantee to the Australian people. So, as far as I'm concerned, you have answered the questions. That satisfies me and the Australian taxpayers.
Senator Hanson, with all due respect, I think I did answer your question before we took the break. I said that Australia abides by its international obligations, but it is absolutely explicit in this bill that the investment is into Australian incorporated and Australian operated businesses.
I might take up that point, Minister. We know that an Australian incorporated business could easily be a foreign business that is incorporated in Australia or has a subsidiary in Australia. I think Senator Hanson's point is that Australians don't want to see their taxpayer funds being used to prop up foreign businesses that might be competing or, for example, potentially buying out Australian businesses. We know that's how a small—
An honourable senator: In the Virgin Islands or something like that.
Yes, they potentially have tax havens in the Virgin Islands—as an aside. But how does a small business become a medium-sized business? How does a medium business become a big business?
Through growth reconsolidation, through mergers and through acquisition. That is why they need capital. Whether they are a patient investor or an impatient investor, it's the same thing: they are chasing capital. That means that there is a very real risk, as Senator Hanson has identified here today, that they may potentially buy out Australian businesses and we may see more Australian businesses become foreign owned—ironically, by using Australian taxpayer funds in the first place. I think it is a very valid concern.
Minister, it's not your fault that we've signed a raft of Australian trade deals. Could you provide advice to us today, please, on whether Senator Hanson's amendment—this is for all senators, because we have to decide if we can vote on it—is workable under the free trade deals that we have signed?
All I can say to you, Senator Whish-Wilson, is the same that I have already said to Senator Hanson—that is, we will abide by our free trade agreements, and the development of the Business Growth Fund is not contrary to that obligation. This bill is about facilitating a fund that will invest in Australian businesses and those Australian businesses will be allowed to grow, to reinvest in their own businesses, and to employ with confidence that they have that long-term patient capital. That is why we're doing this—for no other nefarious reason. This is a good bill, and I would urge you all, despite your objections in the Senate today, to support it for that reason. It is a good bill for all Australians.
Minister, you're prosecuting your case, as you are entitled to do, but my question was: would this amendment from One Nation, which we have to consider voting on, be workable given the free trade deals that we have signed? Could you advise us whether it would be a breach of Australia's free trade obligations under any particular free trade deal—for example, the Trans-Pacific Partnership agreement and the Trade in Services Agreement, which is currently being negotiated? Would it be a breach or would it be considered discriminatory if majority owned Australian businesses—not a foreign business incorporated as a subsidiary in Australia—were to be able to access this fund? Could you please provide that advice or say that you'll take it on notice? I don't mind, but we need to make a decision here today on whether we are going to support One Nation's amendment.
You get paid more than me, Minister. My amendment deals with setting a threshold in respect of the revenue of the company that may seek application for funding. I asked you what the revenue cap was and you told me that you couldn't tell me; that it was confidential. I argued that point with you and then Senator Hanson asked the same question. She asked what the revenue cap is and you said it was somewhere between $2 million to $100 million. My understanding is that you have provided this to the Labor Party. You have now provided it to Senator Hanson. Is it the colour of my tie or the way that I am wearing my suit today that you've decided that you are not going to tell me but you're going to tell others? Can you clarify: is that the revenue range? Is that what you are negotiating now? Or is it just to be kept secret from me?
Senator Patrick, I don't want you to take this personally, but, yes, it is your tie! No, it's not your tie. There are a number of issues that will determine what companies the fund will invest in. The revenue range is one of them and profitability is another. But all of the details of this will be outlined in the investment mandate. I can't, hand on heart, stand in front of you today and give you that investment mandate, because it has to be negotiated and worked out by the shareholders themselves. Until this bill is passed and until it is enabled, we can't actually go ahead and negotiate with those other shareholders.
That's the intention of the bill. The way the bill has been described in the explanatory memorandum, the whole thing—that's what we have said. However, in terms of the details of it, the investment mandate hasn't been nailed down yet because we can't do that until the bill is enacted.
I want to touch on one of the things that Senator Hanson and indeed Senator Whish-Wilson raised. It goes to the constitution and arrangements of the companies that might seek to make application for an investment and it goes to the nature of tax havens. Sometimes what happens in Australia is that companies with foreign owners will invest in a company. They'll take an R&D incentive, a tax incentive, from the government, and they might get some refunds in relation to tax. They'll develop IP and sell it back to the parent at some very small cost, which then licences it back to them at some very high cost. That's done to transfer profit. Often the company that they might be transferring it to will be in a tax haven. One of the defining attributes of tax havens is a complete lack of transparency. Obviously, we don't want to have a situation, as Senator Hanson was describing, where we invest in a company and ultimately the money ends up going offshore, particularly in circumstances where it goes offshore to a known tax haven. So, in relation to the investor mandate and the criteria for investment, are there any conditions that will be placed on investment in respect of companies that have related entities in known tax havens?
I think the hypothetical you've given us there—and it is a hypothetical; there is no other way of looking at it—would be something that would be considered by the fund at the time. But it's certainly not the intention of the fund. The intention of the fund is to invest in Australian owned, Australian operated, Australian incorporated businesses, because that's what is best for Australia. That's why we're doing it.
I think that, yes, there might be some complicated arrangements that are presented to the committee that is deciding which companies are going to be eligible, but that would certainly come under its radar. It would certainly be part of the consideration. If it had complicated taxation arrangements, I would imagine it would reduce that company's eligibility to be invested in by the fund. To some extent you're going to have to understand that everybody—all the shareholders that are part of this fund—will have a vested interest in seeing Australian incorporated, Australian operated, Australian owned companies do well from this investment.
I'll take you back to the election campaign. You might remember the 'watergate' affair that involved Minister Angus Taylor and the properties of Clyde and Kia Ora in Queensland. I remember the now quite famous interview that Mr Barnaby Joyce gave on radio. During that interview he was asked whether he knew if the company that the Commonwealth was dealing with had any related entities in the Cayman Islands. His answer was no; he had no idea. I'm not saying that in the context of any sort of pejorative remark; I'm simply saying that the process in place didn't necessarily require the Commonwealth to ask the question of the entity they were dealing with whether or not they had related entities in tax havens. So, it was beyond the purview of the minister in making that decision. I put it to you that unless you put active requirements in place to require people who have investment control to look at those sorts of arrangements then it's very likely that they won't. So, again, my question is: is the government placing a requirement on the board to look at that or is it considering placing a requirement on the board to do that? I ask this in the interests of the Australian taxpayers, because we often end up with companies here in Australia siphoning off profits to these places and we don't get tax coming into consolidated revenue. That means we don't pay for education services and health services. We don't get to pay for infrastructure, police services or national security. So it is really important to make sure, particularly noting that we are contributing to this to the tune of $100 million, that that money is not then used to in some way minimise tax. In relation to the board, what protections will the Commonwealth seek where it is known that companies who make application have a related entity in a tax haven? And, if they do, what sorts of requirements might be placed on them with respect to transparency?
This fund has an enormous responsibility. I think that's something that the government is very aware of, but it's also something that the other shareholders will be aware of, too, as will the independent directors that participate in the Business Growth Fund. While there isn't anything explicit in this bill that says that the ownership structures well down the food chain will be looked at, there is no reason why that wouldn't be something that would be considered. In fact, I'd be surprised if it weren't. But, that's not what this bill is about. This bill is about enabling the Commonwealth to be a part of this Business Growth Fund and to invest in the Business Growth Fund. And that investment mandate and all the decisions that are made in choosing the companies in which the Business Growth Fund will invest have to be made down the track. They can't be made at this early stage. I think, too, that you should feel comfort, Senator Patrick, in the safeguards provided by a three-year review, which is Labor's amendment—which I would love you to move. I hope we can get around to moving Labor's amendment, because I think that that three-year review should provide you with the comfort that there is an opportunity to look back on what it is that this fund is going to invest in and decide whether it's doing the job that it set out to do.
The minister is forgiven. I understand that it's not in the bill, but the bill seeks to allow for an appropriation and the Senate has a job to make sure, when we are appropriating money, that there are appropriate safeguards in place. Minister, rather than leaving it ambiguous and saying that the independent directors would likely look at it and the board may be familiar with this, simply say back to me, 'Senator, the government would actually place that requirement in any agreements that are set up subsequent to the bill passing.' And then there can be no doubt that there is an obligation upon these board members to ensure that we have transparency in respect of whether or not taxpayers' funds are being used to in some way assist a company that may have related entities in a tax haven.
I didn't really put a question in there, but will the government mandate or go into negotiations actively proposing that there be transparency requirements in respect of applicants and any relationships those applicants may have to entities that are domiciled in a tax haven?
Minister, you've said to the chamber that this is an entirely new policy for the government—an entirely new venture, never been done before. I'm not aware if it has been done anywhere else internationally. Could you provide any benchmarks internationally, or any examples of exactly where the government has put in as a shareholder in long-term, patient investments?
What I said was that this is an entirely new form of financing—that long-term, patient-capital, passive equity financing. While it takes an equity stake, it doesn't necessarily dilute the ownership structure or direct operations. That's the new part, not necessarily the structure itself.
Minister, you may be aware that 830,000 Commonwealth Bank shareholders directly expressed to the Commonwealth Bank not to invest in the Australian Business Growth Fund for fear of missing out on potential opportunities. Also issues have been raised about dilution of existing business owners and existing shareholders under your structure. So I don't know if it's necessarily accurate to say that this is going to benefit existing shareholders when some very serious concerns have been put on the table. That's a side issue. I was interested as to what the international benchmarks are here. We've looked at Canada. We've looked at the UK. In that instance the government helped to facilitate access to capital, but it never put its own money in. So my question was: do we know of other examples where the government is a co-financer and therefore the public in those countries are co-financers?
My understanding is that, in the UK model, the government has shareholdings in the banks and the banks are the ones that put the fund together. The Australian Commonwealth doesn't have shares in the banks, so this is a different structure that's entirely unique to Australia.
Was the shareholding in the bank primarily to establish this fund, or was it around bailouts of banks from the GFC or from other situations? Perhaps, Minister, I could get you to explain that in a second. But I just wanted to make this really clear: from the Greens' point of view, this is an entirely new thing for the Australian government. We have no details about the investment mandate here today. As I mentioned before, you also haven't been able to provide us with any of the macro details around the market we're looking at—market failure and exactly who this fund is going to be targeting. On top of that, it's widely recognised—it was reported on, for example, by Adam Creighton, who has been mentioned in here today already, at The Australian and by Jennifer Hewett—that this is not a traditional area of business for the banks; that was the first thing they reported on in their media reports. They're not investment banks; they're retail banks. They have owned stockbroking companies and they've had online share companies, but there's a reason that they're not investment banks.
We've seen Glass-Steagall legislation introduced in the US to break up banks to make sure that they're not both investment banks and retail banks, and there's a very good reason for that: it's to reduce the risk to the system. The concern here—which has been raised by those who are already in this market providing equity capital, be it private equity capital or be it public equity capital—is that this is essentially a backdoor way of facilitating the Australian banks, who are already very big and powerful and have significant market concentrations in their existing areas of expertise. This is a way now of backdooring an investment bank platform or revenue stream. That's essentially what they're going to be. They are going to be long-term—patient, as you call it—private equity investors, which is a role that's played by investment banks. I don't even know—and I'm sure you'll answer it if I ask you the question—how it's going to work when the banks or the government want to sell their shareholdings in these SMEs that are going to be invested in. I don't even know how that's going to work, and maybe that's something I could ask you to elaborate on.
But why are we creating a whole new revenue stream for the banks? This is not an area they've traditionally focused on, and there's been a good reason for that. I will accept that National Australia Bank has done some work in small business lending. The definition of small business can be varied, but we know it's a small turnover amount, or a number of employees. I've owned a small business. My wife owns a small business at the moment. We're talking about maybe six-figure revenue streams or potentially seven-figure revenue streams. What you're talking about here is potentially a $100 million revenue stream. So, you are providing the banks with a new source of revenue, a new source of market power, a new source of concentration. I ask the chamber: what could go wrong? What could possibly go wrong in helping our retail banks now become investment banks?
This is a very serious issue that I don't think we've had addressed here today. There's a good reason that the Glass-Steagall legislation was enacted in the US, and there's a good reason that our banks have not become investment banks. I see this as a back door for them becoming investment banks. We know the fund could potentially grow to $1 billion. I don't think it's going to stop at $1 billion. I'm sure that if this kind of business model is to their liking then we're going to see a lot more of it. Saying that, Minister, we know that it's been reported that both ANZ and Westpac have been particularly sceptical of this fund. We don't have the details of how it's going to work. It's never been done before. I just want you to address those issues, please.
I think the fact that it's never been done before in fact makes it an exciting innovation and something that I would have thought the Greens would grasp hold of and say, 'This is going to be fantastic'! You understand, though, that this is an entirely separate vehicle. The banks are shareholders, and they provide capital, but the purpose of the fund is to help small and medium enterprises to find access to long-term, patient capital that they would never otherwise be able to access so they can continue their businesses, reinvest in their businesses, grow, and employ other Australians. This is not some conspiracy. In fact, it's a really good thing. The banks are shareholders, but there is a professional investment team that is in charge of making the decisions as to where that finance goes.
Because it doesn't come under the Public Governance, Performance and Accountability Act, it is not liable for the duty to keep the responsible minister and the finance minister informed of the company's activities, ensuring that the company has an audit committee, preparing corporate plans and providing budget estimates to the finance secretary in the case of wholly owned Commonwealth companies and providing the responsible minister with certain annual recourse. Do you believe that is in the interests of the Australian taxpayer?
One Nation supports small businesses, as we've already said. But we don't give free rides to big banks. We've had lots of problems with the big banks and their agents through the receivers. What I would like to know is: if it's so good, why are the banks not currently doing it?
I think that your question has contradictory components. The banks want to be involved in this is because we are encouraging them to. We are showing them the leadership to get them involved. But the purpose is not to empower or to profit the big banks; it is to help small and medium enterprises find access to long-term patient capital so they can invest, grow and employ Australians.