Kevin Andrews (Menzies, Liberal Party) Share this | Hansard source

by leave—I join with the Chair of the House of Representatives Standing Committee on Economics, the member for Dobell, in commending the recommendations of this report to the House. This inquiry and the report which flows from it, Competition in the banking and non-banking sectors, which has been tabled today, is both timely and important given the developments in the financial markets and in financial regulation over the past few months, both here in Australia and overseas.

The reality is that the global financial crisis has affected Australia. In the first instance there was a dramatic loss of liquidity in the market for residential mortgage backed securities—securitisation products. This was because these products were tarred with the same brush throughout the world irrespective of the quality of the securities. The subprime issue originated in the United States, where more than 15 per cent of loans were subprime. People who could not afford to borrow were overextended. Securitisation products in the US packaged a number of loans, both good and bad, but the market collapsed because of the loss of confidence following dramatic falls in home prices in the United States, which unfortunately left many defaulting loans. As an example, during the boom, people were being assessed for creditworthiness on their ability to pay a honeymoon rate of 0.5 per cent rather than the normal rate of around 5.5 per cent.

Part of this problem flows back to what undoubtedly was a noble intention some years ago to try and increase the homeownership rate, particularly of poorer people in the United States. But one of the unintended consequences of that was that, when these problems arose, the reality was that many people were unable to repay loans and simply returned to the keys to the lenders, as they can do in the United States. Fortunately, in Australia our subprime level is well below one per cent. Yet liquidity in the residential mortgage backed securities dried up—hence the providers of such products either fell over or were bought out. This has led to a contraction in the number of providers of home and other loans, and hence there has been a reduction in competition.

The reality is that Australia’s financial sector is well regulated and relatively strong on any global or international comparison. However, there are a series of recommendations which the committee has made in order to further strengthen that system of regulation in Australia—for example: that the government review the current adequacy of the Trade Practices Act to extend the Australian Competition and Consumer Commission’s powers, that the government implement the findings of the Australian Law Reform Commission report recommendations on reforming Australia’s credit reporting system, that the government review the account-switching package in 12 months time and that consideration be given to including card schemes in the package, and also that the government consider mechanisms for making entry and exit fees more transparent and address unfair entry and exit fees, giving consideration to the feasibility of regulating unsolicited credit card limits. There are also a series of other recommendations.

One thing that the committee did not recommend was the adoption of an Aussie Mac model in Australia, along the lines of the two mortgage instruments in the US. I think one of the reasons for that is not just what has happen-ed with them in recent years but that, otherwise, Australia has a well-regulated market.

The ultimate guarantee, of course, in terms of people being able to repay their loans is for them to have a job. If people have a job, if there is full employment in the count-ry, then generally people are able to con-tinue to meet their obligations to pay off their home mortgages. They become stressed when they lose their jobs, and that is where the threat of default is most acute. In this context, the government guarantee is important at present, while we are still in the midst of this financial crisis, but it should not be on-going. It must be terminated in due course, when we are over the current difficulties so far as Australia is concerned. In conclusion, I join with the chairman of the committee, as the new deputy chair of the committee, in com-mending the report to the House and the recommendations contained in it to the government.

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