Nick Champion (Wakefield, Australian Labor Party) Share this | Hansard source

I rise to support these bills because we are facing rather extraordinary challenges in global credit markets, and these challenges require us to take action. It is not just business as usual. The challenges posed by the global financial crisis threaten Australian jobs, Australian businesses and Australian homes. The bills before us in the House today, the Australian Business Investment Partnership Bill 2009 and the Australian Business Investment Partnership (Consequential Amendment) Bill 2009, are just one of the measures taken by this government to ensure that Australians are protected from the harsh effects of the global downturn.

The Australian Business Investment Partnership is a temporary measure aimed at stopping a potential fire sale of Australian assets triggered by the withdrawal of international finance, banks and corporations. This bill provides for a mechanism to ensure refinancing options are available where the abnormal conditions of the global credit market would otherwise prevent that finance from being available. It is vitally important to the commercial property sector, which is at the heart of a great deal of Australia’s economic activity across a range of industries such as retail, manufacturing, hospitality and others. That is why ABIP is such an important and responsible contingency measure.

ABIP is a partnership between the Commonwealth government and Australia’s four major banks to provide refinancing of loans related to commercial property assets in Australia where finance is just not going to be available. ABIP will be established under the Corporations Act and will be a public company. The shareholders will be the Commonwealth of Australia and Australia’s four major domestic banks. The Commonwealth will have a 50 per cent shareholding in the company and the four major banks will each take a share of 12½ per cent. The government will provide $2 billion and the major banks will provide $500 million each.

Accordingly, on its establishment ABIP will have access to around $4 billion of undrawn loan facilities, less a small amount for working capital. If it requires—and that is a big ‘if’—additional financing beyond the initial $4 billion contribution then $26 billion will be able to be reraised to provide extra funding to projects in the economy. The availability of financing for viable commercial property projects is essential to continued investment opportunities for Australian businesses and superannuation funds. Recently there was an announcement of 7,000 new jobs by Woolworths, and we know just how interconnected retail is with commercial property. It is impossible to have 7,000 new jobs in supermarkets if you cannot build the shopping centres in which these jobs would reside.

The danger is that many foreign banks are looking to reduce their lending commitments and exposure generally and are pulling back to their domestic markets. That may mean a withdrawal from Australia’s commercial property sector, and that might have pretty dire consequences for Australian industries, Australian businesses and Australian workers. The danger is not just to immediate projects. The withdrawal of finance may set off a spiral whereby those projects are forced to sell off assets, compounding the problem with a cascading deflation of assets. ABIP steps in to address this threat and is an important and sensible measure to facilitate the flow of credit to this important sector.

Earlier in the debate we heard the Leader of the Opposition advocating the merits of asset price deflation. He said, ‘Oh well, you will have cheap rents and people will pick up good deals.’ But the Great Depression, of course, showed the peril of asset price deflation, of credit contraction. It showed the peril of policymakers sitting on their hands and just expecting the market to act. We are clearly in a very different environment from the one that has existed in previous downturns. Niall Ferguson, who is a rather famous historian, discussed the Depression in his latest book The Ascent of Money. He talked about how the US Federal Reserve’s inability to avert a total of around 10,000 bank failures was crucial in the onset of the Great Depression. He said that that was:

… not just because of the shock to consumers whose deposits were lost or to shareholders whose equity was lost, but because of the broader effect on the money supply and the volume of credit. Between 1929 and 1933, the public succeeded in increasing its cash holdings by 31%; commercial bank reserves were scarcely altered (indeed, surviving banks built up excess reserves); but commercial bank deposits decreased by 37% and loans by 47%.

The absolute numbers reveal the lethal dynamic of the “great contraction”. An increase of cash in public hands of $1.2 billion was achieved at the cost of a decline in bank deposits of $15.6 billion and a decline in bank loans of $19.6-billion, equivalent to 19% of 1929 GDP.

And it is that lethal dynamic that governments around the world are seeking to avoid and so far have avoided. But the opposition leader’s policy—that is, just let assets deflate—courts disaster, particularly in this environment. It absolutely courts disasters. The Rudd government’s actions, both at national and international level, have been responsible and prudent. Without action a combination of weak demand and tight credit conditions, brought about by the global financial conditions, could see significant job losses. It could see up to 50,000 people at risk of losing their jobs—plumbers, electricians, carpenters and the like. The effect on jobs and businesses in other parts of the economy will be dire.

In my electorate there are many families where the main breadwinner is a tradesman, typically, and the other partner works in hospitality or retail. When you think of those families and the way they derive their income, you see how commercial property is an absolutely critical part of the economy. I guess that has been recognised by the Master Builders Association, the Property Council of Australia and the Urban Taskforce, and it is why the government providing viable finance for this sector is both responsible and prudent.

This legislation also has appropriate governance arrangements. They include a board composed of people with significant expertise: one representative from each of the partners and one from each bank, with the government being the chair. The board’s decisions must be unanimous in order to ensure that any issue is adequately dealt with and there is a consensus to act. In terms of financing decisions, there will be safeguards—including prudent lending criteria. ABIP will only provide funding to commercial property where there are underlying assets and income streams from those assets and they are financially viable. There is a requirement on the banks that they maintain their exposure to commercial property assets that ABIP lends to.

The purpose of ABIP is to address a potential liquidity problem and its effects on Australian business and jobs. That is why property outside of Australia—land banks, speculative development assets and rural property—will fall outside of the scope of ABIP’s lending. This partnership will provide financing to retail shopping centres, to commercial office buildings and to industrial property—all important drivers of Australian economic growth.

In conclusion, I guess I would say that in a normal set of circumstances we would not be doing this. If credit markets improve and ABIP is no longer required then it will be wound up. It is simply an important contingency measure that is put in place to meet a truly unique global challenge. I commend the legislation to the House.

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