Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Hansard source

No, they were not rolled up; they were pushed up. He was fighting what he has termed the ‘rolling national security crisis’. Later that day, the Prime Minister emerged from his bunker to announce an unlimited deposit guarantee. In doing so, he went further than any comparable country. If you take into account the United States and the United Kingdom, where there were serious problems and serious flaws in their banking sector, where their governments were recapitalising and purchasing troubled assets and where nationalisation plans were afoot in their banking sector, the United States had a deposit guarantee of about $100,000 and they were thinking of putting it to $250,000, and the United Kingdom were thinking of introducing a deposit scheme of about ₤50,000. But, oh, no, we would not do what comparable countries were doing, because that is what the opposition had suggested. So the government went further than any other comparable government and announced an unlimited bank guarantee for deposits. In doing so—and this is a very important point—he told the Australian public and the opposition that he was acting on the advice of the regulators and specifically acting on the advice of the Reserve Bank governor. We soon found out about that porky, didn’t we?

That afternoon the opposition provided its support, given that the Prime Minister had stated that the regulators had advised on, indeed had recommended, this specific proposal. We of course had called for a more considered scheme on the Friday and took it as read that the Reserve Bank governor had given direct and explicit advice to the government to extend our proposal into an unlimited deposit guarantee scheme. After all, this was one of the most significant monetary policy decisions made by an Australian government in a generation. The Reserve Bank governor is the person in this country responsible for monetary policy. He is the person responsible for the stability of the financial markets. He is the person to whom the government should have turned for explicit and direct advice on this deposit scheme. The next day the Leader of the Opposition wrote to the Prime Minister proposing a bipartisan approach to maintaining business and consumer confidence in response to the global financial crisis. This expression of bipartisanship was rebuffed by the Prime Minister, and it should be clear that bipartisanship—of course, always rebuffed by the government—does not mean that the opposition forgoes its obligation to the Australian people to provide critical assessment of government policies, particularly when there is so little detail provided surrounding this hastily put together policy.

It was therefore vital that the coalition ask questions in parliament about what the obligations of the taxpayer were going to be and what obligations, if any, the banks would have in exchange for the guarantee. What has been most disturbing about this is that the government has been unable, or perhaps unwilling, to answer even the most basic questions on this guarantee. The opposition was alarmed to find very little detail available from the government—just a press release, and that had scant detail.

On 14 October—and this was very revealing—the finance minister told ABC’s Lateline that the government had been working on the detail of its bank guarantee policy for over a week and that the weekend meeting was merely to finalise the details. I will come back to that porky in a moment. Despite this, little information had been made publicly available. So it was that the bill came to parliament on 15 October, and I made it clear in my speech then that the three bills providing for the guarantee had not been subject to normal scrutiny. There was no regulatory impact statement of the cost, benefits and risks of the policy. This is the government that said it would adhere to best practice, but there was no regulatory impact statement of the cost, benefits and risks of the policy to the government, to the financial sector, to business and to the Australian public.

In particular, I noted that the bills might have effects on those financial institutions that were excluded from their coverage. I raised that in my second reading contribution. The coalition supported the bill but, as I noted at the time, we were doing so while having to trust the government. I had assumed that the Prime Minister was telling the truth when he said he had acted on the express advice and specific recommendation of the Reserve Bank governor. On 21 October we found how that trust had been abused. We learned that within a few days the Reserve Bank governor was so concerned that he put his concerns in writing and said that there should be a cap—‘the lower, the better’. That is what the Reserve Bank governor said and the Prime Minister wants us to believe that he changed his mind overnight. No, they never asked the Reserve Bank governor for his views.

When we finally saw the Reserve Bank governor’s letter—only because it turned up on the front page of the Australian, not because the government produced it—we read that he said he wanted a cap on this unlimited guarantee, ‘the lower, the better’. We finally discovered that the Reserve Bank governor was not directly consulted. He was not even invited to the cabinet meeting—he was not there in person and he was not at the end of the telephone. They could ring up the Treasurer in Washington—they could get him on the phone—fat lot of good that would have done. But they could not get the Reserve Bank governor on the phone, let alone in person. He was not directly consulted. As the Leader of the Opposition has said, ‘It was akin to the Prime Minister declaring war and not consulting the generals.’

On 22 October, during the Senate estimates process, Australia learned that the decision to increase the deposit guarantee to an unlimited amount was entirely a political decision in response to the opposition’s call for a $100,000 scheme. I quote from the Senate estimates Hansard:

Senator COONANWhen did you first have a conversation with any senior member of the government about the possibility of extending the proposal for a $20,000 capped guarantee to one that is unlimited in amount?

The Secretary of the Treasury, Dr Henry, said:

… I suspect it would have been the day the Leader of the Opposition first suggested that the $20,000 capped figure may not be adequate.

So there it is. This was not a response to the global financial crisis; this was a response to the fact that the Leader of the Opposition had suggested a higher figure than the government, and the government was being outsmarted. That is what this was all about.

Once the government had announced this guarantee, and with the lack of policy detail underpinning it, there was immediate confusion and distortion in the markets. The government was on the back foot. The Treasurer was unable to answer my questions about the fee structure in question time and he was unable to say whether the triple B rated banks would have access at the same rate and on the same conditions as double A and triple A rated institutions. We saw the extraordinary dislocation in the financial markets—extraordinary not because it was unforeseeable; it was foreseeable all right—where money in cash management trusts and debentures issued by finance companies moved to institutions that were covered by the bank guarantee. One sector of the financial markets was covered and another sector was not. In other words, the Prime Minster was saying, ‘These institutions are guaranteed and therefore they are protected and safe,’ and, by implication, ‘Those institutions are not guaranteed and so not protected and safe.’

There was so much confusion—for example, about whether superannuation was covered. The government was unable to release a comprehensive list of institutions and accounts covered. I am sure members opposite received, as did members on our side, many calls and communications from constituents asking what institutions and accounts were covered. To this day, the list is only a sample list. Australians who want to know whether their funds are guaranteed or not remain unable to obtain in writing an assurance that their funds are covered. The lack of detail is appalling and this added to the uncertainty in the market.

By 24 October came the first of a series of changes by the government to the guarantee scheme, as they desperately tried to patch up the inconsistencies and mistakes that were becoming increasingly evident. The government announced some details of the deposit and wholesale funding guarantees. At first the Treasurer indicated that the government would impose a cap with a compulsory fee, and there was a very comical question time where the Treasurer announced a compulsory fee on deposits and then realised that he had announced a new tax. The next day they scrambled around and decided that a threshold of perhaps $1 million would be introduced on deposit guarantees and that a fee would be charged for guarantees on deposits over $1 million. They tried to cover up the fact that he said it was a compulsory fee, and therefore a tax, and tried to suggest it was voluntary. Then the government introduced a graduated fee structure for wholesale funding guarantees. The government finally sorted out the anomaly with foreign bank branches. The foreign bank branches, as the shadow minister at the table would know, are authorised deposit-taking institutions—

See this speech in context