Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Hansard source

Over the past three days the government has announced two very major economic initiatives to enable Australia to deal with the very serious international financial circumstances that we now confront. The first of these was a set of guarantees with respect to domestic bank and financial institution deposits—deposits that are held by approved deposit-taking institutions. That guarantee came on top of the proposal that was being developed to guarantee deposits up to a level of $20,000 and has indeed been incorporated into that proposal and will stay in place for three years and then be reviewed. The second is the guarantee for wholesale bank funding, borrowing offshore in particular, to ensure that Australian banks are not disadvantaged relative to other major financial institutions around the world in dealing with what is a very challenging market, particularly given that Australia is very dependent on accessing that borrowing in order to cover our current account deficit, to maintain economic activity and, in particular, to maintain competition and activity within the mortgage market. Thirdly, there is an additional $4 billion to be invested in the mortgage market by providing that to non-approved deposit-taking institutions in order to enable them to continue financing mortgages and therefore maintain vibrant competition in circumstances where competition has been impeded or diminished somewhat as a result of the sources of finance available to these major organisations internationally.

The second major announcement today was the Economic Security Strategy package of over $10 billion, mobilising the budget surplus in order to stimulate economic activity, in order to enable households to spend and in order to push back very strongly against the very powerful downward pressures that are being felt by the Australian economy already as a result of the US and international financial crisis. I will quickly remind the House of the details of that package. There is $4.8 billion in an immediate down payment to pensioners as part of long-term pension reform. Of course that extends not just to age pensioners but also to disability pensioners, veterans and people who qualify for the seniors health card, so it is a very broad package of support for pensioners and others in similar circumstances.

Second, there is $3.9 billion in one-off payments to families caring for children—essentially low- and middle-income families—based around family tax benefit part A. Third, there is $1½ billion worth of investment in additional incentives for first home buyers—an additional $7,000 for first home buyers buying an existing home and an additional $14,000 for first home buyers buying a new home. Then there is an additional $187 million to create a further 56,000 training places in the current financial year. Of course, there is also an acceleration of the Infrastructure Australia process associated with the government’s nation-building agenda and the three major infrastructure funds in order to ensure that, in the medium term, all of the activity, the employment and the increase in economic capacity that is generated by the infrastructure-building agenda of the government can be accelerated.

We should note, of course, that these initiatives do not occur against a blank backdrop. In fact, in the course of the entire year the government has been obliged to deal with the gathering storm on international financial markets and has had to take specific decisions at certain times very much with those circumstances in mind. I referred to a couple of them in question time. We had previously taken a decision to invest $4 billion in mortgage backed securities of high quality in order to maintain competition in the mortgage lending market. We had taken a decision to increase liquidity in the bond market. We had taken a decision some time ago to guarantee bank deposits up to $20,000. Most importantly, of course, with one eye on the possibility of the circumstances that are now emerging, we had resolved to remain firmly committed to the tax cuts in the budget which we had committed to in the election campaign and which many commentators had urged us to modify or abandon because of the economic circumstances at the time. Of course, we had also resolved to develop a very substantial budget surplus dependent on major spending cuts in a variety of areas, which I have referred to before, and put in place serious plans for investment in skills and infrastructure into the future. So the government has been dealing with these issues pretty well all year, but inevitably we have had to respond to these matters as they have unfolded and to keep in front of the situation as it has been developing, with one eye on what is occurring internationally as a crucial element in framing our policy.

Australia is linked to the global economy. We are critically linked through our financial services sector. That is a crucial connecting point through the funds we access to fund the current account deficit and to fund borrowing for Australian home buyers and others. That has been very much underlined by recent events. We are also connected via the stock market. Australians own stocks in foreign countries, foreigners own stocks in Australia, and therefore it is not a coincidence that the recent gyrations on stock markets around the world have been broadly reflected in the Australian stock market. Most significantly, of course, we are connected by confidence. One of the key elements in the current international circumstance has been a collapse of confidence—a collapse of confidence in the security and stability of financial systems and a collapse of confidence in regulators in major countries. Australia has not had that collapse of confidence in our own arrangements, but inevitably that confidence collapse in other countries such as the United States and in Europe has had a ripple-on effect in Australia.

The government has taken decisive action to deal with these issues, particularly to protect the stability and security of the financial system, and also to stimulate economic activity. That is what today’s package is all about. It is ensuring that, as we have very powerful downward pressures on economic activity and we have to revise our projections for growth and for employment, we are pushing back up in a very strong way with the force that is available to us through that very strong budget surplus in order to ensure that we can sustain growth and long-term economic development, that we protect employment and that economic activity continues at a reasonable level.

History tells us that if you wait too long in circumstances such as those we are facing you will inevitably end up having to do much more in much more difficult circumstances. We can all remember the circumstances of the last major economic downturn in this country, where the ultimate outcomes were very painful for large proportions of the community. By the time action was taken, in some respects it was a bit belated, and that meant that we had an outcome with respect to economic growth and jobs that we all remember with some dismay.

We should note that the devaluation of the Australian dollar that has occurred in recent times will have a significant stimulatory effect. We cannot predict where the currency markets will head. Of course, part of that change has been driven by changes with respect to the American dollar—it is not all a one-way process. That will have a significant stimulatory effect and will be helpful to a lot of businesses that are exporters or that are import exposed. Many of them have been squeezed a good deal by the very high level of the Australian dollar recently. Similarly, interest rate reductions will also have a stimulatory effect. Of course, the work of the automatic stabilisers—namely, the fact that, as a result of growth slowing, receipts will slow a bit, so taxes will automatically slow a bit and payments will increase a little bit—will have a stimulatory effect on the economy. But it is our judgement that, by themselves, they will not have sufficient effect to sustain growth at a reasonable level, given the very powerful pressures that are prevailing in the international climate.

I turn finally to the position being adopted by the opposition on all of these issues. I note that the Leader of the Opposition, in his contribution to this debate, once again put forward a facade of bipartisanship, where the aura of the statesman, the aura of the dignified leader, was adopted. It was all about seeking to join with the government in the interests of the nation, to take bipartisan action for the future of the country and all those kinds of things. I have a pretty basic take on these things. Bipartisan is as bipartisan does. If you act like you speak, we will treat you seriously. We need to just think back over the last few weeks—in fact, maybe even the last week would do—to the behaviour of the opposition to see how much faith we can place in this pitch for bipartisanship. We have seen them consistently seeking to block major budget initiatives and to undermine the budget surplus, and they are still doing it. At the same time as they are here preaching bipartisanship to the government they are still seeking to punch big holes in the budget surplus. It is also the very time when the government is seeking to use that surplus for the very purpose for which it was always available—that is, in circumstances where it is needed to stimulate the economy.

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