Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Hansard source

I thank honourable members for their contributions to this debate. The Australian Business Investment Partnership Bill 2009 and the Australian Business Investment Partnership (Consequential Amendment) Bill 2009 are very much a necessary part of the government’s response to the current unprecedented global economic conditions. We have seen many banks in Europe and the US collapse or be bailed out by their governments. Australia does not face the same problem of toxic assets infecting the banking systems of the United States and Europe, but we have seen the impact on liquidity in our system and this will only be exacerbated if foreign lenders are forced to retreat to their home countries—a prospect that is all too real.

The global financial crisis raises the possibility that some financiers, particularly foreign banks, may reduce their level of financing of viable Australian businesses. Because many foreign lenders are facing difficult circumstances at home and may look to reduce their lending commitments and exposures generally, this could create a funding gap here in Australia. Commercial property assets are particularly vulnerable to liquidity shortage because of their generally highly leveraged nature. Foreign banks comprise around one-quarter of the commercial property exposures in Australia. The withdrawal of foreign banks is not because of concerns about Australian assets. It is entirely unrelated to the Australian economy. A disorderly deleveraging process could force many commercial property projects to sell their assets immediately at whatever price could be obtained—that is, it could lead to a fire sale. Such a fire sale could destabilise the entire commercial property sector and create a vicious cycle where falling prices trigger further fire sales.

A collapse in the commercial property market would have adverse impacts on the Australian banking system and, through the banking system, on the broader health of the wider economy. The Rudd government is not willing to wait for foreign lenders to withdraw their money and have commercial property values fall, resulting in Australian job losses. That is why, on 24 January 2009, the Prime Minister and I announced the government’s intention to establish the Australian Business Investment Partnership, ABIP, with a view to having it operational by March 2009. This legislation does deliver on the Rudd government’s commitment to establish the Australian Business Investment Partnership.

The Rudd government recognises the importance of the commercial property sector to the Australian economy and most importantly to Australian jobs. The commercial property sector provides business and employment opportunities during the development phase and after projects are completed, including in the retail, manufacturing, hospitality and corporate sectors. It also provides important investment opportunities for everyday Australians, including through superannuation funds. The commercial property sector employs 150,000 people, including plumbers, electricians and carpenters. If we do not act, Treasury advises that a combination of weak demand and tight credit conditions could see up to 50,000 people in this sector lose their jobs, with flow-on effects to employment in other sectors.

As we have said many times before, the Rudd government will not sit idly by and watch these jobs and small and medium sized businesses be wiped out by fluctuations in global credit markets. ABIP will provide essential backing for the Australian commercial property sector and the jobs and businesses it supports should that be required. ABIP is—and I say this again and stress it—a temporary contingency measure to provide support for viable commercial property assets where there is a withdrawal from refinancing arrangements due to abnormal conditions in global financial markets. I cannot stress that enough.

The commercial property sector is volatile and of course there is no doubt it is risky. We have been upfront about that from the very beginning. That is why we put in place in this bill a range of safeguards to limit the risk to taxpayers’ funds, and we have been very upfront about that. Under the legislation ABIP has a limited life and will only be able to write loans during the two years to follow its creation. The terms of the loans are not to exceed three years unless they are extended by regulation. ABIP will operate on a commercial basis and it will not provide support to every business that asks for it. It most certainly will not be doing that. ABIP will only provide financing for commercial property assets where the underlying assets and the income streams from those assets are financially viable. I want to make that point very clearly, particularly to the member for New England, who spoke earlier. ABIP will be financing only commercially viable assets with income streams, and it will have appropriate lending criteria which will be consistent with the lending criteria of the four major banks and credit-rating agencies. The lending criteria will be prudent and conservative. As such, it is recognised that ABIP’s pricing will be at a small premium to the prevailing market. ABIP will not be used to refinance loans from the four major banks, and any of the four major banks will need to continue their participation in the loan facility. Borrowers from ABIP will have to engage with ABIP, as I said before, on a fully commercial basis consistent with normal commercial lending requirements. ABIP will only provide financing if a borrower cannot obtain finance from other commercial providers. If the terms of alternative financing would impose an onerous and commercially unrealistic burden on the borrower, the board could determine that ABIP may provide the financing. ABIP will also put in place appropriate provisioning for any bad and doubtful debts.

Despite these arrangements, given the volatility in the commercial property sector, the government is aware that ABIP is not without its risks or losses, as I said before. If a loan becomes impaired, ABIP will take normal enforcement procedures to protect its investment. All resolutions of the board are required to be unanimous, with the exception of enforcement resolutions, where an 80 per cent majority will be required, provided a government member is part of the majority. The Auditor-General will be required to audit the financial statements of ABIP. Finally, we will be required to table the company’s financial report, directors’ reports and auditors’ reports for each financial year in each house of the parliament as soon as practical after their receipt. These measures, as I have outlined, will help to protect taxpayers’ funds while also ensuring that we are able to support the commercial property sector should that be required.

I want to say this again; I want to underline it and I want to stress this: the Rudd government is not willing to stand idly by and do nothing while commercial property prices tumble and jobs are wiped out by events in global financial markets. That is what is driving the government with this measure. The opposition say that no commercial property project or jobs are at risk. I do not know how much more out of touch the opposition could be to make that statement in this parliament. In this environment, there is no guarantee that foreign banks will maintain their commitment to the Australian commercial property sector. Indeed, there has been press in recent days of foreign banks withdrawing—precisely the circumstances that the government wants to address.

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