Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Link to this | Hansard source

My question is to the Treasurer. Treasurer, in the interests of giving depositors and banks clear information on the proposal being canvassed by the government to now charge a fee for guaranteeing deposits over $1 million, I ask: will this fee be compulsory? Will a depositor with, say, the Commonwealth Bank, who has no concern about the safety of their deposit, be obliged to pay the fee, or will a bank that does not wish to have its deposits over $1 million guaranteed by the government be obliged to pay this fee?

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

The very simple answer is that the fee will be paid by all depositors in the deposit-taking institutions that are regulated by APRA, and the fee will be paid either by the depositor or by the bank.

Julie Collins (Franklin, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Finance and Deregulation. What regulatory reforms does the government believe should be considered in response to the global financial crisis? What substantive contributions have been made to the emerging debate on this issue?

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

I thank the member for Franklin for her question. The international financial crisis has already sparked a great deal of debate both in Australia and overseas with respect to the future regulation of the financial sector. The government of course has taken decisive immediate action to deal with the early consequences—the early issues—emerging from the international financial crisis. In particular, of course, I refer to the guarantees provided to the banking and financial institutions in Australia and our $10 billion Economic Security Strategy: the package of stimulus—the package of spending—to flow into economic activity and continue growth and employment at reasonable levels.

We are also, at the same time, turning our attention to wider regulatory issues. There has been considerable debate about what lessons can be learnt, particularly internationally but also for Australia specifically, as a result of the international financial crisis. It is worth noting that the Australian regulatory regime, under governments of both persuasions, is strong, has been strong and will be strong in the future. It is robust. In fact, nations overseas have regarded our regime as something of an exemplar that they can look to for inspiration and guidance as they tackle these issues.

Although we should never lose vigilance in considering our own options on the domestic front—and there will always be room for reconsideration of regulatory arrangements—the real issues that emerge from the financial crisis are international, particularly in the United States. The Prime Minister has already set out, in his speech to the United Nations General Assembly, five principles which we seek to insert into the international debate on these issues with respect to regulatory reform: stronger regulation of non-bank financial institutions, stronger capital adequacy requirements, tackling the culture of institutionalised greed and excessive executive salaries, stricter accounting rules and a greater role for the International Monetary Fund in analysing the global spread of risk.

Inevitably, some of these themes are already being debated. I specifically commend to honourable members work by an Australian who works for the OECD, Adrian Blundell-Wignall, who has highlighted the role, at least from his perspective, that the Basel II capital adequacy rules have played in contributing to the emergence of a mortgage based bubble in both the United States and the UK, with the fall of Northern Rock.

I look forward to the debate about these regulatory issues broadening and deepening. In particular, I look forward to a contribution from the opposition on these issues. We know that the opposition suggests that the Leader of the Opposition, given that he has a background in some of these things—he is a former investment banker, of course—has something to bring to the table on these questions. There is personal experience and personal expertise involved here, and no doubt he will have a lot to contribute, which makes it even more puzzling that we have heard very little from the opposition or the opposition leader about the third item on the Prime Minister’s list of reform issues: the question of excessive salaries for executives in the financial sector. There is no doubt that in this instance the opposition leader does have significant personal experience to draw upon.

Perhaps the opposition leader could explain to the Australian people why it is necessary that people leading these organisations need to have salaries in the vicinity of $10 million to incentivise them to work really hard and to put their best into the job. Why is that necessary? And perhaps he might explain to us how he manages to turn up to work as opposition leader on a humble couple of hundred grand. I look forward to the contribution from the Leader of the Opposition on these questions.

Opposition Members:

Opposition members interjecting—

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! Those on my left will come to order. The Minister for Finance and Deregulation has the call.

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

It is pretty easy to get them agitated on this question, Mr Speaker. It is pretty easy to get them agitated on this.

Opposition Members:

Opposition members interjecting—

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! Those on my left!

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

I think in future I will just stand up and say, ‘Executive salaries,’ and that will be enough. Thus far all we have from the opposition on this issue is silence. Silence! We know who the opposition represent. We know where they stand on these issues, but we have heard nothing but silence. It is long overdue, if they seek to play a major role in the fundamental issues that are in play internationally in the medium term as a result of the international financial crisis, that we hear something about the issue. What do they say about reining in excessive executive salaries?

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

My question is to the Prime Minister. Is the Prime Minister aware that much of Australia’s finance for farmers and small business is provided by institutions which, despite their size and creditworthiness, are not benefiting from the government guarantee and, as a consequence, are only able to refinance a very small proportion of their funding requirements? What does the Prime Minister have to say to farmers and small businesses that will, as a consequence of his unlimited deposit guarantee, be unable to secure the leasing and other business finance they need to keep Australia working?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

As the honourable member would know, the government’s guarantee extends to APRA regulated deposit-taking institutions, and that is the responsible course of action. It is also the course of action which was the subject of advice to us by the Secretary of the Treasury, whose advice we take seriously, whereas the Leader of the Opposition chooses to castigate, attack and demean him at any opportunity. We knew that the Leader of the Opposition overstepped yesterday when the member for Higgins, who has been recently engaged in an animated way in the debate in this chamber, suddenly buried his head in his books when the Leader of the Opposition went from being out of touch to being out of control.

Christopher Pyne (Sturt, Liberal Party, Shadow Minister for Education, Apprenticeships and Training) Share this | Link to this | Hansard source

Mr Speaker, on a point of order: we know the Prime Minister likes to flick the switch to vaudeville, but this is a very important question for farmers and small businesses. They do not want a distraction about the member for Higgins; they want answers.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! The member for Sturt will resume his seat. When seeking the call for the point of order, come to the point of order. The member for Sturt’s elevated status over the next couple of days, no matter how temporary, does not allow him that sort of behaviour.

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

The guarantee which was provided by the government in its statement on the weekend before last was taken on the basis of the advice that we received and was necessary to provide and maintain stability in the Australian financial system, which is of relevance to all Australians, including  those in rural Australia as well. The second point is this: the consequences of the government’s action flow through to the financial system more broadly. If you have continued stability in the Australian financial system, frankly it benefits over time all users of credit in the economy. Obviously those who are immediately covered by the deposit guarantee will obtain that benefit in the immediate term, but more broadly that, together with the critical provisions by the government to provide a guarantee for the wholesale term funding arrangements of the banks, helps to bring and maintain stability for the entire system. My third point in response to the Leader of the Opposition’s question is this: if you look at the cost of finance out there for all Australians, look carefully at what has happened in the period since the government made this announcement on Sunday a week ago.

Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Link to this | Hansard source

Turmoil!

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

The member for Curtin says, ‘Turmoil!’ The turmoil was along these lines: the ANZ reduced its interest rates by 25 basis points, the National Australia Bank by 20 basis points, the Commonwealth Bank by 21 basis points and Westpac by 20 basis points—all of that being of no consequence. But I had forgotten that the alternative Prime Minister regards a 25-basis-point move as irrelevant. Remember that he said that after seven interest rate increases on the part of those opposite.

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

Mr Speaker, a point of order on relevance: the question related to institutions that are not covered by the guarantee. The Prime Minister is talking about institutions that are.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! The Leader of the Opposition will resume his seat. The Prime Minister will respond to the question.

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

I assume, therefore, that the alternative Prime Minister is now announcing new policy on the run as well. We know what one policy is at present, which is to have a depositors guarantee that excludes 40 per cent of all deposits around the country. That is where their $100,000 policy goes. If anyone thinks that that is not their policy, Senator Brandis, a member of the shadow cabinet, reconfirmed on national radio today that that is their policy. Those opposite, in answering questions from their constituents, need to answer this question: what of the 40 per cent of depositors which are not covered by their $100,000 cap? That is something which they need to answer—not just to those depositors but also to the roll-on implications for the stability of the entire system.

There is a further set of consequences which have flowed of course from the government’s decisive action a week or so ago, and that is that over the past days we have seen spreads narrow, especially in Australia, and the cost of borrowing for banks fall. The key measure of liquidity in the Australian dollar interbank market, the spread between the 90-day bank bill and the three-month overnight index swap, the OIS, has fallen from 93 basis points at the close of business on 10 October to 63 basis points at COB on 21 October. We have a long way to go in order to maintain continued stability in the Australian financial system but, because of the action that the government took the weekend before last, we have seen movements in interest rates by banks head in the right direction from the point of view of the general economy. We have also seen spreads narrow in terms of the interbank lending rate. This is good news for the general economy and for those who draw upon these financial institutions for loans which they need to get on with the business of expanding their activities out there in the economy, maintaining their business operations or lending for mortgage purposes.

One of the key motivating factors this government had in mind in providing this unprecedented guarantee for wholesale term funding for the APRA regulated banking institutions was this: to ensure that in the future we have our banks in a position to provide loans for businesses and small businesses across Australia. You could have sat there, as those opposite presumably are arguing, twiddled your thumbs and done nothing or you could have acted decisively. This government, acting on the interests of small business across the country, in rural areas and in non-rural areas, took the necessary decisive action. What has flowed in terms of recent moves in spreads and in interest rate actions by the banks is now on the documentary record. That is real action and real results as opposed to short-term politics, in which the alternative Prime Minister of Australia has now become a first-class honours degree holder.