Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Hansard source

We do support this bill, the Treasury Laws Amendment (Banking Measures No. 1) Bill 2017. It is a bill that amends APRA's jurisdiction and its powers to make rules with respect to non-ADI lenders, particularly to secure stability and reduce risk in the lending market in Australia.

The importance of financial stability cannot be overestimated. It's critically important to the maintenance of strong economic growth and to the livelihoods and prosperity of all Australians. We saw, in the wake of the global financial crisis, that we did have a stable banking system, with relatively tight lending standards and rules against predatory lending, and Australia and the Australian economy weren't affected as badly as other Western economies. That has a lot to do with the stability of our banking system and the role of organisations like APRA in maintaining that stability.

Consistent with its mandate to promote financial stability, APRA has taken actions to reinforce sound residential mortgage lending practices by authorised deposit-taking institutions. We've seen that some of these actions, particularly around interest-only loans and the amount of capital that ADI lenders have to carry in their loan books, have produced some changes in lending practices throughout Australia. Under the Banking Act, a body corporate that wishes to carry on a banking business in Australia may only do so if APRA has granted an authority to the body corporate for the purposes of carrying on that business. Once authorised by APRA, the body corporate is an ADI and is subject to APRA's prudential requirements and ongoing supervision.

However, there currently exists a regulatory gap where APRA has no ability to manage the financial stability risks that might arise from lending activities of entities that are non-ADIs. Increasingly, we're seeing many Australians turn to many of these organisations through mortgage brokers to access finance, particularly housing finance, in what's been a tight lending market in recent years. The gap potentially undermines the ability of APRA to promote financial stability, as lending practices that APRA has curtailed or prohibited for ADIs may continue to be pursued by non-ADI lenders. The Banking Act will be amended by the passage of this bill to provide APRA with powers to make rules for non-ADI lenders where there is a material risk to the stability of the Australian financial system. These are intended to be reserve powers. APRA will also be able to roll out and to collect data from these entities for the purposes of monitoring risks in the non-ADI lending sector so as to determine when to use these new powers. These rules close a gap which has occurred and exist when APRA restricts the lending activities of ADIs but is unable to affect the activities and the lending practices of non-ADI institutions.

These new powers are proposed in recognition of the fact that APRA does have responsibilities in relation to the stability of the Australian financial system. It's vital for these institutions that they are well resourced to do everything they can to maintain stability in our system, particularly when the government appears to be doing its best to undermine it.

Labor's shadow Treasurer, Chris Bowen, has been working to highlight areas of our economy where there are unacceptable risks. One such area is in household debt, particularly in household debt related to housing in Australia. We've seen over the recent decade astronomical price increases in the cost of housing, particularly in the Sydney and Melbourne markets. Australians' levels of debt is now 100 per cent higher than the total earnings of all households. Australia has the most generous property tax concessions in the world when it comes particularly to investing in housing. I'm speaking here, of course, of our negative gearing regime, the ability to deduct interest payments on an investment loan for an investment property, and the capital gains tax discount that was introduced by the Howard government—the 50 per cent discount on capital gains tax being paid on the sale of an investment property. When these two reforms were introduced by the Howard government, importantly, in the budgetary context, they weren't funded. In other words, there was no revenue source that offset the reduction in revenue that came about from this additional expenditure associated with these tax concessions. Now that we've got a growing budget deficit—it's almost tripled under this government—we're seeing the folly of those decisions coming home to be borne upon this generation of Australians, because there was no funding source put in place to introduce those very generous tax concessions into the budgetary process. Therefore, it's hardly a surprise that we have one of the highest household leverage rates in the world.

For almost two years, the Labor Party has been calling on the government to bring attention to the risks associated with such high household debt. The Reserve Bank, the International Monetary Fund, the Grattan Institute and the government's Financial Systems Inquiry have argued forcefully that tax concessions, such as negative gearing, distort economic decision-making and encourage leverage in the economy. The overwhelming evidence is that those who benefit from those tax concessions are the wealthiest Australians. I think it was confirmed in the newspapers most recently that the top 10 per cent of income earners in this country benefit from 80 per cent of the capital gains tax discount. So, 80 per cent of the capital gains tax discount benefits go to the top 10 per cent of income earners in Australia.

It's a similar figure when it comes to the benefits of negative gearing. It really is the wealthiest Australians who are benefiting from these tax concessions, and the average homeowner, in particular, the average first home owner, bears the cost of that. They are the ones who are paying for the wealthiest Australians to get a tax discount on the sale of investment properties and a tax deduction for the interest payments on loans associated with those investment properties. Those deductions are even available if they're bought within a self-managed super fund as an investment vehicle. This has led to the situation where first home buyers simply can't get into the market. They turn up to auctions on a Saturday, and they're priced out of the market by people who may be negatively gearing their seventh or eighth investment property. The person negatively gearing that property gets more support from the government than the first home buyer to buy their first home. That's simply unacceptable. It's unfair, and it's generating an imbalance in the operation of the housing market and in our lending practices. It's our view that the government must listen to the experts and deal with the tax concessions, such as negative gearing, that are encouraging higher and higher levels of debt and threatening the stability of our financial system.

Schedule 3 of this bill will allow smaller ADIs to use the word bank in their business name. The changes will align community expectations in respect of the use of the word bank with the fact that ADIs are now prudentially supervised by APRA and deposits are covered by the Financial Claims Scheme guarantee.

Schedule 5 of the bill amends the credit act to introduce a number of reforms to improve consumer outcomes under credit card contracts. These reforms include tightening responsible lending obligations, prohibiting credit card providers from offering unsolicited credit limit increases, simplifying the calculation of interest charges and requiring credit card contracts to allow consumers to reduce credit card limits and terminate credit card contracts, including by online means. We all know how difficult it is to cancel a credit card online. In fact, it's virtually impossible. These reforms will make it easier for consumers to do that. The purpose of these amendments is to reduce the likelihood of consumers being granted excessive credit limits, align the way interest is charged with consumers' reasonable expectations and make it easier for consumers to terminate a credit card or reduce a credit limit.

In response to the 2015 Labor-led Senate inquiry, the Treasurer promised to progress changes to credit card laws in May 2016. Unfortunately, the Treasurer appeared to forget about this promise, and it took Labor politically and publicly pushing for these reforms to force them to reannounce the measures in the 2017 budget. Nevertheless, we welcome these measures, which will improve consumer protections in relation to credit cards. They are long overdue, and it's disappointing that consumers will have to wait until 2019 to get most of these new protections in place. I pity those who have been in the debt spiral and in the situation where they couldn't get out of some of these credit contracts in the meantime. Nonetheless, Labor does support this bill and the changes it makes, particularly to the rules around non-ADI lenders and bringing them under the gambit of APRA's supervisory jurisdiction when it comes to prudential regulations and ensuring stability in our lending practices, the lending market and, indeed, the changes to credit contracts, particularly making it easier for people to get out of credit cards that they are getting into a bad situation with. I commend this bill to the chamber.

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