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

As my colleagues are observing, she obviously had not read the essay—mind you, she is a very busy woman and it is a long essay. The reality is that today we are looking at an extraordinary turnaround in public finances—from a surplus of $22 billion projected nine months ago in the budget to a deficit forecast for this year we are currently in of $22 billion. It is as Whitlamesque in its dimensions as the Prime Minister’s political writings are Orwellian in denying reality.

We have said from the outset that we are prepared to, and indeed seek to, sit down and work cooperatively with the government on the appropriate response to the financial crisis. There is no suggestion that the government should do nothing. Governments are acting all over the world. The question is: is the right decision being taken? Is the policy that is being undertaken correct? We know that the government has already made a number of very big mistakes. We have seen the unlimited deposit guarantee on bank deposits. That was rushed and it was bungled, and within days the Governor of the Reserve Bank was writing to the Secretary of the Treasury begging him to impose a cap. In that letter, the Governor of the Reserve Bank said, ‘The lower, the better.’ The Prime Minister imposed that unlimited deposit guarantee, almost unique in the world, without speaking directly to the Governor of the Reserve Bank, yet within a few days the Reserve Bank was begging them to change it. The dislocation was enormous. Hundreds of thousands of Australians saw their investments frozen in cash management trusts and mortgage funds.

We have also seen the large payment just before Christmas. There has been a series of one-off payments. The concern that we have had, and that many Australians have had, is not that the payments will not be well used, because people who take that money and use it to pay off their debts or increase their savings are using it very wisely. There are many wise uses within the context of each household that are nonetheless not going to add to economic activity. The real question with these one-off payments is not whether the recipients will use them well or indeed whether they are appropriately distributed. The single biggest question in this climate is: will it produce an economic stimulus? We do not yet know for sure whether the cash splash in December has worked. There is a lot of anecdotal evidence to suggest that it has not been effective. But we do know that in the middle of last year, when the United States government undertook a series of one-off payments that were very similar in terms of their size as a percentage of GDP, there was quite a dramatic spike in household income and a very modest rise in household consumption or expenditure, and only a small percentage of that investment by the government in those one off-payments contributed to economic activity. In other words, as an economic stimulus it was not effective because, in times of uncertainty, one-off payments are largely saved or used to reduce debt, which of course is a very prudent thing to do in the context of a household.

That is why, around the world, leading economists have argued that a more effective way of providing a stimulus is to increase permanent income. Over time, it could cost the taxpayer—the Commonwealth—the same amount. It a question not just of the amount of money but of the timing of the tax breaks, the way in which money is returned to taxpayers and the way in which the stimulus is delivered. That is why we proposed that the tax cuts due on 1 July 2009 could be brought forward to 1 January and that indeed, for a larger stimulus, the tax cuts due on 1 July 2010 could be brought forward. These will be a substantial cost, undoubtedly, but they will nonetheless provide an increase in permanent income, and the experience is that that will provide a greater incentive because increases in permanent income provide a more effective stimulus.

Before the government knows whether its cash splash in December has been effective it is undertaking another one. If the experience in the United States proves to be the same here with the December payments, and indeed with these, then a very large amount of money will have been spent and, as I said, at the level of every household no doubt used, for the vast majority of households, very wisely, but it will have been used in a way that is ineffective as a financial stimulus. So we have concerns about that. We have concerns not about the question of stimulus but about the structure of the stimulus, the way in which it is delivered and whether it will be effective.

The other issue I turn to now is the notorious ‘Ruddbank’. The Prime Minister received a proposal from Mr Ahmed Fahour of the National Australia Bank—a proposal that is designed, quite blatantly and plainly, to get the Commonwealth government on the hook for $30 billion to underwrite commercial property values which, Mr Fahour said in his submission, could fall by 20 to 30 per cent in the absence of that support. That was his concern. He said this could come about because foreign banks, who are members of lending syndicates secured on commercial property, might pull out and take their capital back to their home countries.

When loan syndicates come to an end—when the time for repayment comes or when there is an event of default—there is always a lot of game playing and negotiation between the syndicate members. Very often you will see the smaller lenders try to bully the larger ones into taking them out. They will say, ‘Unless you give us our money back we will force an insolvency, there will be a receivership and you will lose money.’ That is why Ruddbank is plainly counterproductive, because by sitting there it provides an incentive for foreign banks to demand their money back. And, of course, the government, being in partnership in Ruddbank with the four Australian banks, who have the most to lose from any forced insolvency, will be leant on by its commercial partners to pony up the money and bail out the foreign banks for full face value. In other words, there is a monstrous conflict of interest.

But it gets worse than that. When the government announced this misconceived idea it claimed it was going to support jobs. It will not protect one job, because whether a commercial property—a shopping centre or an office building—is worth a billion dollars, $800 million or $700 million, people still come to work. Tradesmen still come and service the building. There is no change to employment. This Ruddbank fund, which was detailed in the Prime Minister’s statement here today, does absolutely nothing to support employment; it does nothing about the three top priorities for 2009, which are jobs, jobs, jobs. Self-funded retirees, who have seen their savings devastated by the stock market decline, and small businesses, who are struggling to keep their employees on the payroll, will ask this question: why is the government putting $30 billion to work at the behest of the National Australia Bank to hold up property values in one sector alone for the simple and sole reason of protecting the balance sheets and profitability of the big banks?

We turn to the investment in schools. There is a large investment in schools and in building what the Prime Minister described as 21st century libraries in primary schools. I am very relieved that he is not planning to build 19th century libraries or perhaps 22nd century libraries. We are, indeed, in the 21st century, so it goes without saying that the libraries will be 21st century libraries. But the question we have, firstly, is: can the government deliver on an investment in schools after its chaotic and incompetent computer program for schools? Secondly, this $14 billion is focused solely on primary schools. Primary schools are worthy subjects of investment, but we have a large economy with many areas of building activity that should be supported. We find there are no incentives for promoting construction activity in other parts of the economy. What about incentives for the private sector? What about private sector construction in private sector housing and private sector commercial buildings?

The real question with programs like this always has to be: are we, by this massive government investment, going to crowd out private sector investment? That is why we need to look very carefully at this package. We have heard claims that this package will support 90,000 jobs in 2008-09 and 2009-10. That is a cost equivalent to $230,000 per year per job. Again, we need to know whether those jobs, if indeed they can be delivered, can be supported in a more cost-effective way. We have to remember that it is only a few days ago that the Prime Minister said that the Ruddbank would create, or preserve, 50,000 jobs. There is no basis whatsoever for suggesting that the Ruddbank will preserve one job—not one job. It is purely designed to hold up the carrying values, the balance sheet values, of commercial property loans on the books of big banks. The Prime Minister said that the $10.4 billion stimulus—the cash flash before Christmas—would create 75,000 jobs.

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