Malcolm Turnbull (Wentworth, Liberal Party, Leader of the Opposition) Share this | Hansard source

As the recent developments in the United States and Europe have shown us, it is vital during these difficult economic times that political leaders work together to ensure economic stability. We are confronted with extraordinary economic circumstances. None of the events of the last months would have been predicted six months ago by even the most apocalyptically minded. There is a great deal of uncertainty in the business community, and anxiety in the community overall.

In times like these it is the duty of both governments and oppositions to try to promote stability and certainty to the greatest extent possible. In a free society leaders must do their utmost to restore confidence, but without intervening needlessly or inappropriately. Decisions that are taken by governments must be carefully explained, and they must be based on firm principles. They cannot be put together at the last minute or be announced with the proviso that details will follow. The last thing the private sector, businesses and families need in a situation like this is governments that intervene in an ad hoc fashion—governments that intervene when they are not anchored to a set of guiding principles.

Those principles are very important. It is vital that Australian businesses and households understand exactly what measures are being taken, why they are being undertaken and the principles that are guiding those measures. Principles provide assurance, and that is why I wrote to the Prime Minister yesterday offering him the opportunity for the whole of the House to send a clear message to the Australian community as to the relative strength of our economy and our commitment to work together to ensure domestic stability and to play our part in contributing to international stability. I presented the Prime Minister with a motion regarding those principles that could guide us through the current crisis and offered to discuss these and other matters relating to the global financial situation. This followed my earlier calls, dating back several weeks now, for a bipartisan approach to the response to this crisis. The Prime Minister rejected my offer, but I will read the motion to the House. The motion read:

That:

(1)

the Australian Parliament affirms that the Australian economy is better positioned than that of most other countries to withstand the current global financial crisis due to:

(a)

Our sound public balance sheet and low levels of public debt;

(b)

Our low unemployment and flexible labour market;

(c)

Our sound corporate and prudential regulation;

(d)

Australia’s diverse, productive and dynamic economy; and

(e)

Above all, the enterprise, optimism and the energy of 21 million Australians.

The motion went on:

(2)

That the Australian Parliament also reaffirms its confidence in the private sector’s ability to provide broad financial services to consumers and businesses – large and small; and

(3)

Moreover, that the Australian Parliament believes that the Government’s intervention in financial markets necessitated by the extraordinary global economic crisis must:

(a)

Recognise the need for an urgent and coordinated international approach to the current financial crisis;

(b)

Be temporary until such time as confidence has been restored in global financial markets;

(c)

Not facilitate imprudent behaviour that may disadvantage Australian business and Australian consumers;

(d)

Not diminish competition in the provision of financial services to businesses and consumers across Australia; and

(e)

Not facilitate a transfer of losses from the private sector to the taxpayer.

That was the motion that I sent to the Prime Minister in a spirit of bipartisanship, as a draft that he could consider and, if agreed, we could move together in the House. I repeat that offer to him. I think it would provide real leadership and real confidence if both sides of politics were to unite in setting out the principles that should guide us through these difficult times.

In question time yesterday, we asked a number of questions relating to the government’s proposal to guarantee wholesale term funding. The questions that we asked were directed at precisely the set of principles that we had called on the Prime Minister to endorse earlier in the day. He did not answer the questions. He did not distinguish between the cost of providing a Commonwealth government guarantee to a bank or another authorised deposit-taking institution and the prudential supervision of that institution itself. That is a vital issue because it is vital—critical—that in these circumstances government intervention not facilitate a transfer of losses from the private sector to the taxpayer.

Other countries have been quite explicit in the way they have approached this. In the United Kingdom the government has been very clear that banks seeking the benefit of guarantees of this kind must put up extra capital. No such requirement has been canvassed or articulated in any way by this government. All we have heard is that the Australian Prudential Regulation Authority will look into it. It is not good enough for the government to outsource the Commonwealth’s balance sheet like this to APRA. It has to provide clear principles and clear leadership, because what the government is talking about now is asking APRA to do a very different job. At the moment APRA is responsible for prudential supervision, but a bank’s financial risk is undertaken by its shareholders and ultimately its creditors. What we are talking about here is the government providing guarantees, very likely in very, very substantial sums. Therefore the protection of the taxpayer is absolutely vital.

It is not good enough for the Prime Minister simply to wave his hand, indignant that questions could be asked, and say, ‘How dare the opposition ask questions about protecting the Commonwealth’s balance sheet, the funds of taxpayers and the results of all those surpluses that were accumulated during the coalition’s time in government.’ Indignation is no substitute for information. We need clear information on this matter.

The Minister for Finance and Deregulation, who I see is in the House, seems to understand the key issue here. On the Sky News Sunday Agenda program the finance minister was asked about the possibility of a deposit guarantee being increased in the way we had proposed. He said: ‘Putting in place guarantees of this kind changes behaviour.’ In the current circumstance, that is what is occurring in other major economies and it is occurring for very good reasons. But the change in behaviour, the change in what people make decisions about and how they decide where their money is going, is something that has to be considered very seriously, as do the boundaries and the detail of any proposition that is put in place. So what we have been seeking to do is far from criticising the proposal, far from failing to give it support. We have given it complete support. What we are seeking to do is ensure that the government puts in place the boundaries and the details of this proposition because it is vital in terms of protecting the interests of the taxpayer.

We have put forward a series of concrete, constructive and practical methods to help address this current financial crisis. Honourable members will recall that three weeks ago we raised the possibility that the Treasurer should direct the Australian Office of Financial Management to invest in investment grade, residential mortgage backed securities. Since last year, as we know, this market has been all but completely shut in Australia. It does not deserve to be. In the United States, 15 per cent of mortgages are subprime; in Australia that figure is less than one per cent. Our residential mortgages are of high quality overall, with relatively low levels of default. So it was appropriate for the government, consistent with its investment mandate, to provide some additional liquidity.

This suggestion was initially ridiculed by Mr Swan as ‘a monumental gaffe’. Well, five days later he adopted it, committing $4 billion, and then on Sunday added another $4 billion to it, as we had suggested. In the bipartisan tone that we are filled with today, I can only observe that the adoption of our suggestion was as gratifying as Mr Swan’s backflip has been baffling.

Earlier this year, the government also announced a scheme to provide a guarantee of deposits up to $20,000. Deposit insurance is commonplace in other countries. Indeed, most comparable countries have deposit insurance and, of course, it is becoming more common nowadays—almost universal. Australia historically did not see a great need for it given the priority the Banking Act gives depositors over other creditors and our high standards of regulation and prudential supervision.

However, the absence of an explicit guarantee can be interpreted as meaning there is an implicit guarantee of all deposits, so the argument has always run—and it is a good argument—that it is better to have an explicit limited guarantee than an implicit unlimited one. We supported the $20,000 proposal. In fact, we would have announced it last year other than for the circumstances at the time. The Treasurer at the time, the member for Higgins, took the view—correctly—that to announce it may have created more uncertainty than it allayed. So it was essentially a timing issue. We considered that this cap was too low and we recommended last week that the government increase the level of protection to at least $100,000. The government has taken that up and set up an unlimited guarantee, and we strongly support that. However, we are acutely aware of the point that I think the Minister for Finance and Deregulation and I absolutely agree on of the potential additional moral hazard from the introduction of such a scheme. So we have proposed that its effectiveness and efficiency be reviewed by the Productivity Commission not later than three years after the scheme’s commencement and we certainly commend that suggestion to the government.

Let me conclude my remarks in terms of principles and prudence on the subject of the emissions trading scheme. We on this side of the House are completely committed to an effective environmental response to the challenge of climate change. Under our policies Australia will meet its Kyoto target. We have established some of the world’s best initiatives in tackling climate change—the National Plan for Water Security is unique in the world in terms of its scale and its ambition to tackle water scarcity. The Global Initiative on Forests and Climate, which we undertook with neighbouring countries, is again a world first in tackling the big challenge of deforestation. So we are very committed to this.

Indeed, last year we committed to an emissions trading scheme with a start date targeted for 2011 or not later than 2012. Those dates were very significant because we know that establishing an emissions trading scheme is very complex—extremely difficult. It will impose very substantial costs right across the economy. It has the potential to do considerable damage to Australian export industries and for no environmental benefit. If we impose a heavy carbon cost on our export industries and they become uncompetitive and we see the production move offshore we will have exported both the emissions and the jobs. In other words, the world will keep getting warmer and we will start getting a lot poorer. There is a lot at stake here and design is vital. All of us, including Professor Garnaut, including the members of the government, recognise that whatever Australia does is going to be immaterial in terms of emissions reduction or dealing with climate change unless there is effective global action, which is the key objective. And we share that objective. But we should not be finalising our ETS in Australia until we know what the shape of the post-Kyoto world is going to look like, until we know what comes out of the Copenhagen meeting at the end of 2009, until we know what the new US President will do. This election year flourish of the Prime Minister of a start date in 2010 is unwise, it is dangerous and it runs the risk of us establishing an emissions trading scheme in the dark and ill-informed. Australia deserves to design its emissions trading scheme when we are fully informed, and we cannot do that until after 2009.

See this speech in context