John Howard (Bennelong, Liberal Party, Prime Minister) Share this | Hansard source

That advice in the first instance would come to the Treasurer, and I know the Treasurer will have something to say about this matter shortly. Let me say to the Leader of the Opposition that it is very important at a time like this to reassert our very strong confidence in Australia’s financial institutions.

Australia is fortunate at this time that we have very strong, properly supervised and prudential financial institutions. We have two regulatory authorities, namely the Reserve Bank and APRA, both of which are run by people of the highest calibre. Clearly, a correction is taking place in world financial markets and that correction has been inspired by adverse developments in the American subprime mortgage market.

What I can tell the Leader of the Opposition is that, if you compare like with like, the number of loans in Australia which are the equivalent of the subprime market in the United States is about one per cent as against some 15 per cent in the United States. Some of the commentary mistakenly likens the low-document loans of some of the financial intermediaries to the subprime loans in the United States. That is a misinterpretation of the situation. The subprime loans in the United States are far more risky and adventurous and, for that reason, they have caused very considerable difficulties.

The markets at the moment are repricing credit. As a result of that, credit subject to being rolled over at frequent intervals will obviously incur a higher cost, and there will be some interest rate implications as a consequence of that. I draw the attention of the Leader of the Opposition to some of the more informed commentary that has been made on that matter.

Let me finally say to the Leader of the Opposition that, as we deal as a nation with this situation, we are fortunate that we do have strong financial institutions. They are well regulated. We have regulators in whom we have great trust. The other great pillar of our financial security is of course our very strong budget position. It is as well at this time that we have a strong budget surplus. It is as well at this time that we have low levels of inflation. It is as well at this time that this country’s credit ratings are very high around the world and we have a strong, balanced economy.

As people examine the stock market and the developments in it, we should remember that the Australian stock market has enjoyed rises over recent years of unprecedented proportions and has performed in a very strong fashion compared with other stock markets. It is very important at a time like this that people not overreact. Adjustments do occur from time to time and there will be consequences of that. But if your fundamentals are strong and economic management is experienced, if economic management has seen this country through earlier adverse developments such as the Asian economic downturn and the aftermath of the terrorist attack on 11 September 2001, that same strong economic management will serve this nation well at the present time.

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