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

On 29 February 2008 the Prime Minister said:

Trust is the key currency of politics, and unless you can be trusted to honour that to which you’ve committed to do, then, I’ve got to say, you’re not going to obtain the enduring respect of the Australian people.

The Australian people today are bewildered by the recent announcements of the government and the uncertainty that has been created by their bungling and mishandling of them. We have been told today, on the front page of the Australian newspaper, that the Reserve Bank has warned the government about the problems arising from an unlimited guarantee on bank deposits. We know that an unlimited guarantee is unusual. Deposit guarantees of this kind, historically—and indeed around the world—have had a cap on them. They have a cap in the United States, they have a cap in the United Kingdom and it is proposed to have a $20,000 cap here in Australia. But, apparently, on the weekend of 11 and 12 October, the strategic policy and budget committee of cabinet met and decided that there should be an unlimited deposit guarantee, and that was announced. The Prime Minister has gone to great pains to stress that this policy was taken on the advice of the Reserve Bank. He said that it was based on the advice of the bank. He said that on the day. On 15 October he said, ‘These measures have been implemented in the closest possible coordination with our financial and economic regulators.’ He said that again and again in talking about the importance of acting on the advice of our regulators. On 14 October in question time he said:

... we will act in accordance with the regulator’s advice in this difficult time rather than take short-term, populist positions in order to secure a headline.

The people of Australia were given the very clear impression, the unequivocal impression, firstly that the government was in close and direct contact with the regulators, the most important of which in this context was the Reserve Bank and, secondly, that the policy, the measure, being proposed and which has now been incorporated in law through an act of parliament passed through both houses, had the support, so the Prime Minister said, of the Reserve Bank. It has become clear in the course of question time today that on that weekend there were in fact no discussions directly between ministers and the Reserve Bank of Australia. We heard the Minister for Finance and Deregulation earlier today, who is a member of the committee, saying he was not aware of the advice of the Reserve Bank. I noticed his attempt to explain himself and he quoted somewhat from his transcript with Sky News earlier today. In one section, he said:

Oppositions routinely accuse governments of misleading parliament and a lot of the time it is stretching the truth to suggest that that is the case. Not being aware of what the Reserve Bank Governor is supposed to have said to the government, if anything—

and it goes on to say:

I note there are newspaper reports where there is no direct material from the Reserve Bank Governor.

He says that he is not aware of what the Reserve Bank governor is supposed to have said. So how did the government become aware of this? How did the Prime Minister become aware of this? What the Prime Minister has said—and he said it twice in question time—is that at the end of the meeting when they had gone through the options and reached their conclusion, he put a question to the Secretary of the Treasury, Dr Henry. The question was: is the position being recommended here—in other words, the unlimited deposit guarantee—that of the regulators? He said that Dr Henry said: ‘It was, and that includes the Reserve Bank.’ So the Prime Minister has said unequivocally twice in question time that the position being recommended was the position of the Reserve Bank and that that advice had apparently been given to the Secretary of the Treasury, who passed it on to the Prime Minister.

We on this side of the House have the utmost respect for both the competence and the integrity of Dr Henry. That is why we would not throw him to the wolves and use him as a human shield in the way the Prime Minister has done. Let us be very clear about the analysis of this. If the Reserve Bank governor did not recommend an unlimited guarantee on deposits to the Secretary to the Treasury, the Secretary to the Treasury could not have said that the position being recommended was that of the Reserve Bank. I think that is plain enough. If that had been the case—if he had misrepresented the position of the Reserve Bank—that would obviously be a very serious matter.

We do not imagine for one minute that Dr Henry misled the cabinet committee. We do not imagine for one minute that there was any misleading being done in the course of these events other than by the Prime Minister, Mr Rudd. The fact of the matter is that he has set out to create an impression that he is acting totally in accordance with the advice of the Reserve Bank. He hid behind the skirts of the Reserve Bank and, when the front page of the Australian revealed that that was not right, he then sought to verbal the Secretary to the Treasury.

Dr Henry deserves better than that. But what has happened to him today is that he has been verballed by the Prime Minister and put in the position where, if the Governor of the Reserve Bank did not recommend an unlimited cap on deposits—and it is plain enough from his speech today that he has the gravest of reservations about an unlimited deposit guarantee; you do not need to rely on the front page of the Australian to see that—one of two outcomes must be right. Either Dr Henry misrepresented the Reserve Bank’s position to the cabinet committee or the Prime Minister is misrepresenting what Dr Henry said to the cabinet committee. I can assure you that on our side of the House we have no doubt what the actual factual outcome is.

There has been a betrayal of trust. Do we imagine that there are any Australians today who thought prior to question time today that the Prime Minister had made these momentous decisions without speaking directly to the regulators themselves? Only today we had the Minister for Finance and Deregulation on Sky News saying:

Throughout the international financial crisis, the Government has been in very regular contact, almost constant contact, with the key regulators including the Reserve Bank and we have paid a lot of attention to the advice we have received from the regulators.

Yet it is plain enough that on that crucial weekend they paid no attention to the Reserve Bank other than, allegedly, at second hand via Dr Henry. I am sure that Glenn Stevens was available to take a call. I am sure Dr Laker at APRA was available to take a call. But, no, the Prime Minister was too busy to talk to them as he planned his unlimited guarantee.

We have talked about in this House on many occasions the moral hazard problems of deposit guarantees, and they exist whatever the level of the guarantee. We took an unlimited guarantee on trust because we believed the government was acting on the express advice of the Reserve Bank of Australia, the agency and regulator responsible for the systemic stability of our whole financial system. If you have an unlimited guarantee, it means that a deposit of any size—it could be $100 million; it could be $1 billion—with the smallest guaranteed institution in Australia, such as a credit union, will have a higher credit rating than a deposit with any other financial institution, such as a foreign bank branch that is not covered, a large corporation or a cash management trust. It is no wonder that the announcement of this unlimited guarantee has caused so much difficulty.

If we are to believe the Prime Minister that the Reserve Bank recommended an unlimited guarantee on that weekend, why is it that only a matter of days, not weeks, later the Reserve Bank governor is saying to the government: ‘You’ve got to change it. You’ve got to install a cap.’ Why would you pass this bill through the House and through the Senate? It may have received royal assent today. I am not familiar with that detail. Perhaps the Treasurer can tell us. It may now be the law of the land. Why would the government take it through both houses of parliament if it was going to turn around and amend it, if it was seriously considering doing that?

The fact is that in the second reading speech the Treasurer said quite expressly and very clearly that it was proposed to review it in three years with the intent of having a cap after three years. Indeed, when the shadow Treasurer and I recommended there be a $100,000 cap because we thought $20,000 was too low, we also said it should be reviewed in three years by the Productivity Commission.

We know that confidence in this economy in these difficult times is absolutely vital. Trust and confidence are co-extensive, and the public has put enormous trust in the Prime Minister. It has taken him on trust. These are extraordinary measures that he has announced. Yet what we are seeing is an indignation, a resistance—a petulance—when confronted with the most basic questions. We have a proposal to grant guarantees to the wholesale funding of banks. The Prime Minister, in the course of one of his answers, made it quite clear that he did not understand the distinction at all between deposits with banks which have priority under the Banking Act and the other sources of funding for banks, in particular their wholesale term funding.

The government is proposing to offer guarantees there, and they will be the subject of a fee. This could involve the Commonwealth taking on hundreds of billions of dollars of contingent liabilities. The taxpayers of Australia could be on the hook for an enormous amount of money. Those term funding obligations do not have priority under the Banking Act—they are, if you like, right at the top of the risk profile of a bank, other than for its capital. The most protected are the deposits; after that are the other liabilities; and then there is the capital. So if a bank were to fail, the wholesale term funding that we are talking about providing Commonwealth guarantees for would be at far more risk than deposits. That is the scheme of the Banking Act, and has been so for many years.

The government is proposing that this not be the subject of legislation, so the parliament will have no say in how those fees may be set. Of course, we saw the bizarre, if somewhat hilarious, example of the Treasurer who did not understand the difference between a BBB credit and an AA credit. When asked a very simple question by the shadow Treasurer as to whether you charge a higher fee for a BBB bank than for a AA bank, and prompted by the finance minister, ‘Just say yes,’ he either didn’t hear him or was too vain to accept the prompt and so gave another bumbling response. But, as I said, this momentous step is apparently not going to be the subject of legislation. Consider the absurdity of the government’s position: it is proposing to have the Commonwealth take on its book hundreds of billions of dollars of contingent liabilities without legislation and yet it knows that were one of those guarantees to be called it could not be paid out without an appropriation bill being passed through the parliament. What a ridiculous— (Time expired)

See this speech in context