Steve Irons (Swan, Liberal Party) Share this | Link to this | Hansard source

I rise to speak about Australia’s response to the global financial crisis. I must admit that this subject has the potential to be difficult to address. You may well ask: what could be difficult about this subject? The difficulty is associated with the word ‘response’. I will first have to decide which is the definition of ‘response’ by the Rudd-Swan government from the following options: is the Rudd-Swan government responding as an economic conservative to the GFC or is this blind, rudderless panic with no direction because there is no economic or fiscal capacity within the Rudd-Swan government? Unfortunately, I will have to choose the second option. The member for Leichhardt is next to speak and he is in the chamber as well. I say to him that there is no ‘double happiness’ in this so-called response by the government to the GFC—none at all. The member for Deakin threw the ‘double happiness’ line at me in the main chamber last week during the MPI on jobs. I am sure that he understands that the Australian people are not feeling any happiness at all, whether it be single, double or triple, with the response by this government to the GFC.

I will endeavour to show why the government have not responded satisfactorily and why they continue to prove to the Australian people that they have no idea or direction. The government have no direction or future ideas about how to handle the Australian end of the GFC. In the House today the Treasurer, Mr Swan, said it would be irresponsible to rule out a deficit. He is clearly out of his depth. Our Treasurer, Mr Swan, said last week that he did not know what was going to happen next week. This is tantamount to saying: ‘We the government do not have a clue and we cannot help you any further. We are just going to sit here and wait for it all to happen. When we do make a decision, we will hope it is the right one.’ Early in his term, the Prime Minister said he had done all he physically could to help the Australian people on petrol prices, grocery prices and inflation. He gave up. Giving up and guessing that you are going to make the right decision is just not a good enough response to the GFC. This is a government with no control or direction. The opposition has always had the right, and in fact has a duty, to question the actions of the government of the day. Those on the other side might be interested to hear that I have support from the Prime Minister on this. As Leader of the Opposition, on 27 September last year, he said:

… the function of the parliament is to provide the executive with the opportunity to answer questions put to it by the opposition.

…            …            …

… the job of the parliament is to get an answer back from the executive …

I was therefore deeply concerned when the Treasurer told the House that the opposition was completely irrelevant, while the Deputy Prime Minister said the opposition should just ‘get out of the way’. With statements like that, one could say that arrogance is creeping into the government by the bucketload. The member for Braddon also stated in a speech recently that we are just ‘nitpicking’—while we are fulfilling our duty to the Australian people in our opposition role as recommended by the Prime Minister, trying to get answers from the executive. Given the Prime Minister’s statement last week that Australia is set to go into deficit, I say this to the member for Braddon: the opposition has never been more important, and the economic advice of the coalition opposition should not be ignored. The key message in the Prime Minister’s statement to the House last week was the following:

If global growth continues to deteriorate in the period ahead, consistent with the economic data that is emerging during November, then there will be a further slowing of growth in the Australian economy—as surely as night follows day.

If Australian economic growth slows further because of a further deepening of the global financial crisis, then it follows that the Australian government revenues will reduce further. Under those circumstances, it would be responsible to draw further from the surplus and, if necessary, to use a temporary deficit to begin investing in our future infrastructure needs including hospitals, schools, TAFEs, universities, ports, roads, urban rail and high-speed broadband.

I want to reiterate what the Leader of the Opposition said in reply to the Prime Minister:

Experience and history tell us that Labor deficits are never temporary.

I want to make it clear that, given the historically strong economic position which this government inherited, there should be no reason for this government to take the economy into deficit. This government has not even seen the effect of its stimulus package, which is due to be delivered on 8 December, but already it is telling us it needs to do more. That tells me that its first stimulus package is not going to work; it has already declared it a failure. Last week, the member for Brisbane was telling us about the achievements that were coming from the government’s economic stimulus package, and I reminded him that the government had achieved nothing as yet. He agreed with that. This is a government of contradiction. It saves the world and the globe one day and then says we are in a desperate state the next day. This government has eschewed responsible economic government and instead chosen populist political policies. A basic knowledge of governments around the world shows that populist political policies do not equate to strong economic management.

By dispelling a number of myths that the Rudd-Swan government would have us believe, I will explain to the House how the Prime Minister has mismanaged the economy. The first is that the government took swift action in anticipating the global financial crisis. The Prime Minister in his statement last week suggested this; however, we know that this is simply not true. The government devoted all its energy in its first months in power attempting to besmirch the previous coalition government’s reputation for strong economic management. All members will recall the government’s line of attack: ‘The inflation genie is out of the bottle,’ said the Treasurer, Mr Swan. Well, the often-besmirched genie has morphed into an elephant, and the government have no way of getting it back into the bottle, whatever form they want to say it is in this week. This rhetoric about the genie put undue pressure on the Reserve Bank to increase interest rates, which it duly did. This seems a perverse way of anticipating a global financial crisis. In early February, when the government should have been encouraging economic growth, they were instead talking down the economy, threatening business and consumer confidence and growth. Meanwhile, the opposition was talking up the economy and, given the poor global economic data, warning about the potential impact of a global financial crisis.

This is a government of contradiction. The Prime Minister last week used the D-word, but on 11 May 2008 he said, ‘Budget surpluses are essential for economic security.’ He also said on 4 September:

Can I say to all those opposite: if you are going to prosecute a policy of responsible economic management, it means ensuring that you deliver a responsible surplus outcome.

On 5 September, he said:

The cornerstone of responsible economic management is to have a strong Budget surplus …

The decision making of the government has been poor, if not pathetic, but not unexpected. The confusion and indecision surrounding the government’s unlimited deposit guarantee scheme led to 270,000 Australians having their savings, mortgage funds, cash management trusts and similar investment institution funds frozen to redemptions. It has since been suspected that the government stumbled through this decision in an anticonsultative manner. When, within a few days, the massive distortion resulting from this policy became apparent, the Treasurer did nothing. As the Leader of the Opposition said yesterday, the Treasurer did nothing until a letter between the Reserve Bank and the Treasury secretary found its way into the media. We learnt the Reserve Bank governor himself recommended a cap just a few days after the policy had been announced. Indecision often leads to inconsistency. The Rudd-Swan government have demonstrated inconsistency particularly aptly during this financial crisis.

The Treasurer, the man who spent a minute fumbling around for his inflation figures, said as recently as Monday last week that a deficit would not be necessary. Yet later in the week the Prime Minister told us we were going towards a deficit. What has changed? The implications of inconsistency and indecision are significant for business confidence. Indicators have suggested a recent collapse in business confidence. Part of this is due to the global financial crisis. However, the Prime Minister, with his language of despair and hopelessness, is exacerbating this.

Two weeks ago I had the pleasure of welcoming the Leader of the Opposition to my electorate. The purpose of his visit was to assess the state of business confidence in the midst of the global financial crisis. The member for Wentworth and I visited several local small businesses before addressing a gathering of small businesses in my electorate office in the dynamic suburb of East Victoria Park. Firms expressed some concern about the global financial crisis but also reported that business was good and steady. If businesses are operating at the moment and—as we are led to believe by the Prime Minister—Australia is in a strong position to withstand the effects of the GFC, why should the Rudd government be talking down the economy? The reason is that, over the last 12 months, the Rudd-Swan government has mismanaged the economy and is now trying to blame its mistakes on the global problem.

We should of course have been talking up our economy and inspiring business confidence at this time and providing positive, pragmatic policies. Only last week the Governor of the Reserve Bank warned that the biggest mistake we could make would be to talk ourselves into an unnecessary weakness. However, I fear the Rudd government’s poor management is on the verge of taking us over the precipice. Labor deficits are not short-lived.

At every juncture, the government has rejected bipartisan support. Where around the world governments are working together, in Australia our centralising Prime Minister has made all the decisions himself. If he had listened to the opposition from the start, he would have passed an appropriation law earlier to ensure the wholesale term funding guarantee was practicable. Mr Rudd has backflipped on bipartisanship. Only last year he said:

On the day the Prime Minister announced his intention to intervene to protect the children in the Northern Territory I said that we would offer our … bipartisan support. Let us be blunt: this emergency plan is far from perfect. We are, however, prepared on this side of the House to give it a go and we commend the proposals we have put to the government by way of amendment …

Mr Rudd could not have put the meaning of bipartisanship better. However, whilst our proposals are being ignored by the Rudd government, bipartisanship is non-existent.

The government’s supply of spin has expired. During the debate on the Economic Security Strategy legislation, which was cut short, there was continuous whining from that side of the House about the opposition not supporting the bill. The theme from the other side of the House virtually was that we had no right, as an opposition, to question the details of the legislation, that we should just accept it on trust. Why should we accept it on trust? Is it because the font of all knowledge, the Prime Minister, has been prancing around the globe and saying that this is the solution to the GFC? Is it because the Prime Minister and the Treasurer, who made a fool of himself when he could not find that graph that would tell him the inflation forecast, have done their Tweedledee and Tweedledum act around the country trying to convince everyone they are economic conservatives? Must this bill work because the Prime Minister has his sleeves rolled up for a camera shoot? As the member for Solomon would know, you only roll up your sleeves when you raise a sweat or whilst drinking a Darwin stubby in that well-known place called the Cage. I did not see one drop of sweat on the Prime Minister’s brow. For that matter, I did not see one Darwin stubby either.

The Australian public are only going to swallow this spin for so long. They will see the arrogance of the Prime Minister sooner rather than later. The good news is that the IMF has forecast positive growth in the Australian economy. The government should go out there with a positive message to the Australian people that we have a growing economy and a built-in culture that will see us fight our way out of perceived threats to our families and lifestyle. We are a country that survived economic threats over the 11 years of a strong coalition government. We survived such things as the Asian meltdown, the SARS crisis and the pilot strike. We have a nation of people who, with a strong government and sound economic and fiscal policies, will see us through the toughest of times. We are a nation of people with substance. We need our government to be positive, to take this nation forward and to lead us back to a strong economy that can withstand outside negative influences. We can only hope that this government is up to the job. I noticed the Prime Minister said in his speech last week:

The impact of the global financial crisis on our economy will be real. Its impact on our businesses will be real. Its impact on our families will be real. Its impact on our workers will be real. Its impact on our country will be real.

I am glad not only that our Prime Minister has the capacity to comprehend these obvious effects but that he actually walked into the House and enlightened honourable members and the Australian community with his wisdom. I would say to the Prime Minister: when are you going to get real?

Jim Turnour (Leichhardt, Australian Labor Party) Share this | Link to this | Hansard source

I rise today to support this motion on the global financial crisis. The member for Swan, in his last comments, made a very clear point: the Prime Minister does understand how significant this crisis is. Unlike the opposition, the Prime Minister is not saying it is being hyped up; he says it is serious and needs a proper response. The member for Swan contends that the government has not responded to the global financial crisis and he makes fallacious arguments to that effect, but the reality is that the government is responding and has responded not only decisively and swiftly but responsibly. We brought down earlier in the year a budget with a significant surplus; we have supported the financial sector through these difficult times through a range of different measures; we have delivered a $10.4 billion stimulus package, which will start to flow to families and pensioners in the next week; and we have taken international action through the G20 and APEC. We will continue to take all necessary action in the national interest. So we have responded early and appropriately, and we have a holistic plan to tackle the global financial crisis.

This is a significant crisis. We need to remember that this started in the United States through the subprime mortgage crisis more than 12 months ago—bankers lending money to poor people and those on welfare who could not afford to buy a house and merchant bankers coming up with a good idea for how they could make a short-term buck. It was merchant bankers who got us into this financial crisis, and merchant bankers are not helping us get out of it, given the way a former merchant banker, the Leader of the Opposition, is pursuing his political strategy within this House.

This is a serious crisis. More than 30 banks have needed to be bailed out or supported, if they have not failed. Many share markets around the world are down more than 50 per cent, including Australia’s, wiping many trillions of dollars of wealth away from families, small businesses and others all around the world. Housing prices are also in decline—or in free fall in many countries—destroying consumer wealth and confidence. Europe and the US are in recession or going into recession, and the world’s seven largest economies have experienced a quarter of negative growth this year.

We are the world’s 14th biggest economy and have benefited from the global growth over the past 10 years. Resources booms have filled the Treasury coffers. We have had periods of high growth and low unemployment. The reality is that for too long the former government failed to invest these windfalls in appropriate infrastructure and skills development within this nation. We were left with some difficult economic challenges to face earlier this year, and subsequently we have had the global financial crisis. We saw the former government reign over 10 interest rate rises in a row and leave the country with an inflation problem. We have this year brought down a budget that was responsible and subsequently followed that up with a detailed and comprehensive response to the global financial crisis through measures I have already touched on. The budget, though, was critical in enabling us to respond appropriately. We delivered in that budget $9 billion in tax cuts to help ease cost-of-living pressures on working families. We established a significant budget surplus, giving the government the flexibility to respond to the crisis today. The budget surplus that we created early in the year has enabled us to respond appropriately to the global financial crisis.

We need to remember that the opposition, who claim that they support our stimulus package while at the same time nitpicking against it, fought tooth and nail to prevent the government bringing down a budget that was in surplus. They have opposed measures in the Senate: alcopops, increases in taxes on luxury cars, changes to the Medicare levy surcharge and a range of other measures to give the government the surplus that it needed to respond appropriately to the global financial crisis.

The Rudd government have acted decisively with the stimulus package. We have been able to do that because we have a budget surplus—a budget surplus that the opposition sought to undermine and prevent us establishing. Within the budget we also established three funds—the Building Australia Fund, the Health and Hospitals Fund and the Education Investment Fund—because we recognised the failure of the former government to invest the proceeds of the resources boom in infrastructure, training, health and education. We are committed to nation building within this country and we established those funds within the budget earlier this year. Over the weekend, we saw the government respond again in that nation-building agenda, through cooperative federalism—working with the states and adding another $15 billion to the COAG agreement—to ensure that we can effectively invest in health, education and a range of other services to support this nation into the future.

The $10.4 billion economic security package has been one of the central responses that this government has made to the global financial crisis. On 8 December, single pensioners will receive $1,400 in one-off payments, couples will receive $2,100 and families will receive $1,000 per child if they are in receipt of family tax benefit A. The first home owner grant has been doubled to $14,000 for those purchasing an established home and increased to $21,000 for those building a new home. We have doubled the new training places, recognising the need to support education and training in this country, and we have brought forward our nation-building agenda. So we have responded through a strong budget and we are responding now through the economic security package, which we are able to deliver because we had worked hard and established a strong surplus in the budget delivered earlier in the year.

We have also strongly supported the financial system in this country. Where the opposition have sought to undermine the financial system and drive confidence out of the financial system, we have sought to support it. We saw in parliament the Leader of the Opposition well over-reach in attacking the Secretary of the Treasury, Ken Henry, and, rather than stepping back from that, he then sent his senator, Senator Brandis, out to further attack the secretary in estimates hearings later that week. So we have had the opposition attacking the Secretary of the Treasury. We similarly had the member for Canning at the doors attacking the Reserve Bank governor, suggesting that he was in the Labor Party’s pocket. The member for Canning subsequently retracted those statements, and he should be respected for doing that. But what we had was a concerted attack by the opposition on the government’s regulators—regulators that are critical to confidence in our financial system, and to families and businesses having confidence in our banks, our share market and other financial institutions. The opposition sought not to create confidence in the financial sector but to undermine it for their own short-term political gain.

We have responded throughout this year to liquidity problems within the financial market through the Reserve Bank of Australia. In September, ASIC also acted concertedly with other regulators around the world to temporarily ban short selling. In October, it provided a deposit and wholesale funding guarantee to the Australian deposit-taking institutions, our banks, and will continue to maintain a task force working on issues as they arise in the financial sector. The opposition has taken great joy in criticising our financial guarantee measures, but I can assure you that, in my electorate, working families and businesses were worried about their bank deposits. They were talking to me about it and I received very positive feedback in my electorate straight after we put a guarantee behind our banks.

The member for Swan indicated that the Treasurer basically bungled that. The Treasurer made the point in his speech to the parliament, introducing the appropriate legislation, that there would need to be finetuning and, in response to bank deposits, that is what the government did. We have acted nationally through a budget, through a stimulus package and through support for our regulators in the financial sector. We recognise—and I said this in my first speech to the parliament—that we need to respond internationally to the challenges we face in the financial sector.

The Prime Minister is working with the G20 countries. He attended the G20 summit a few weeks ago, which agreed to a range of different measures to support action in the international community. Those countries in the G20 agreed to work together to stabilise the financial system, to create greater transparency and to strengthen the global financial sector. They also agreed to support individual countries taking action to run stimulus packages, whether they be in fiscal or monetary policy, to work together to stimulate and strengthen their economies, as the Rudd government is doing through its $10.4 billion stimulus package. But they also agreed to open up global trade and investment to reach an agreement on the Doha Round through the World Trade Organisation this year.

Last week the Prime Minister returned from APEC. Further progress was made in relation to our commitment to free trade and our support for growth within the Australian economy and the world economy through getting an outcome from the Doha Round. It has been stalled for too long and the global financial crisis provides an opportunity for world leaders to come together and get a conclusion to that round. I look forward to the Minister for Trade, Mr Crean, continuing to work with his international partners to get an outcome from the Doha Round.

As those measures clearly state, the government are responding to the global financial crisis appropriately not only nationally but internationally. We have been endorsed by a range of different institutions. Whether it be the OECD or the IMF, they all support the measures the government have taken and the measures we are taking, working internationally with other countries. This is a serious crisis. We recognised that we needed to respond decisively, swiftly and responsibly, given the economic impact this could have on the Australian public.

In the last few weeks, as the Prime Minister outlined on his return from APEC, the situation has worsened. We have seen the share market fall further and it is now down by more than 50 per cent this year. We have also seen continual falls in housing prices, which have dropped for two consecutive quarters. Building approvals data released on 5 November showed that approvals had plummeted, to the lowest level since April 2001, indicating that housing investment is likely to be very weak over at least the next six months.

We have seen further declines in the share market and concerns about not only housing prices falling but also building and construction slowing in the foreseeable future. Falls in the housing and the share market draw confidence out of the Australian community. It is critical that the government respond appropriately. We have already responded appropriately, as I have said, with our budget measures, with our stimulus package and with our involvement and interaction with the global community. We will, if necessary, do more to stimulate the economy.

The government has said that if that is necessary it will go into a temporary deficit, and that is appropriate. This government, like the former government, has said that it will keep the budget in surplus over the economic cycle. We are going into very difficult times and, if it is appropriate for the government to go into deficit to keep the economy growing and to continue to support jobs, the government will do that and it is the appropriate action for this government to take. This is a government that acts responsibly and that delivers for working families and businesses in this country. It will continue to do that. I strongly support the measures this government has implemented. I am proud to be part of this government, which has responded decisively and responsibly to the global financial crisis.

Stuart Robert (Fadden, Liberal Party) Share this | Link to this | Hansard source

I also stand to note the document. It is always a joy to follow the member for Leichhardt, as he stands boldly to say that he agrees that it is appropriate for the budget to go into deficit and then has the audacity to roll out ‘economic management’ in the same sentence—spoken like a true Laborite when it comes to spend, spend and spend some more. It is interesting that, as the government moves on to a whole range of economic revisionism, the facts are dispensed with—they are getting in the way of a good story. So let us go back to the facts and have a look.

It began at the start of 2008. The government got hold of the Treasury books, Mr Swan and Mr Rudd opened the books and—in clear contrast to what Howard and Costello looked at in 1996, when the sheer hell of an economy with a massive deficit, with $10 billion in interest payments, revealed itself—there it was: everything that Howard and Costello said was in order was, indeed, in order. And the only thing the government could find was inflation rising towards three per cent—and they pounced. They needed to try and disprove the outstanding economic record of the Howard-Costello years, so they pounced on inflation. The rest of the world could see the looming effect of the subprime mortgage collapse, the inherent credit tightening that that led to and the mismanagement and mistrust that had crept into banks and led to that credit tightening. Whilst everyone else could see that, and other countries across the world were lowering interest rates, increasing spending and lowering taxes, what was the Rudd-Swan government doing?

Let us look at the facts—not the rhetoric from the member for Leichhardt and the cliches that he rolls out in ever-increasing volume. What were the facts? The facts—and they are undisputed—are that the Rudd-Swan government began an assault on the Howard government’s legacy, focusing on inflation. ‘The inflation genie is out of the bottle,’ our nervous Treasurer rolled out, and our Prime Minister followed with: ‘The inflation monster is wreaking havoc.’ Comments like these were made a day before the Reserve Bank met; consequently, interest rates increased twice.

The budget came down in May. Other budgets across the world, from real economic managers, were decreasing taxation and increasing spending. Not this one, which tightened spending and increased tax by short of $20 billion. Everything the IMF said not to do this government did. Why? Because it had to try and disprove the truth of the economic miracle of the economy left by Howard and Costello. So it increased tax, cut spending and talked up inflation, which led to increases in interest rates. They are the facts. They are undisputed.

On 10 October, the Leader of the Opposition and the shadow Treasurer called upon the Rudd government to take three immediate decisions to further strengthen the economy: firstly, to increase the government backed deposit guarantee to $100,000; secondly, to increase investment in AAA based residential mortgage backed securities through the Australian Office of Financial Management purchasing the RMBSs from second-tier banks; and, thirdly, to announce an implementation schedule change of the ETS back to 2012 at a minimum. The coalition said it was committed to working cooperatively with the government to expedite passage of the bills. In fact Malcolm Turnbull, the member for Wentworth, had actually written I believe three times to the Prime Minister to say, ‘We’re happy to work cooperatively together,’ and I do not believe the Prime Minister has even replied to the letters.

Not to be outdone, our trusty Prime Minister on 12 October announced an unlimited deposit guarantee, to operate for three years, and a guarantee of wholesale term funding by authorised deposit-taking institutions in return for a fee which was unspecified at the time of the announcement. The Prime Minister told the Australian people that he was acting on the advice of the regulators. We now know, of course, that that was simply not the case. On 12 October the Prime Minister said, ‘My officials have done considerable investigation on the design of these arrangements and in developing these measures I have received advice from the Governor of the Reserve Bank of Australia.’ Well, surprise, surprise—the governor was not even in the room! You would think that, with something as monumental as an unlimited guarantee, the head of APRA would be in the room. Surprise, surprise—his chair was also vacant, swinging in circles. So who was in the room? The Secretary of Treasury was in the room. That was all. The other two were not.

In the parliament the opposition asked a range of questions regarding the detail and design of the scheme. The government was unable to answer even the most basic questions. On 21 October it was confirmed that the Prime Minister had not directly consulted the Governor of the Reserve Bank prior to announcing the unlimited guarantee. These are the facts. On 22 October, during Senate estimates, the opposition learnt that the decision to increase the deposit guarantee to an unlimited level seemed to be entirely a political decision directly in response to the Leader of the Opposition calling for a $100,000 scheme. Senator Coonan, when speaking to Dr Henry, asked:

Senator COONANWhen did you first have a conversation with any senior member of the government about the possibility of extending the proposal for a $20,000 capped guarantee to one that is unlimited in amount?

Dr HenryIt is hard to say. I suspect it would have been the day the Leader of the Opposition first suggested that the $20,000 capped figure may not be adequate.

The Labor Party is particularly good at political strategies and particularly poor at economic ones. The government had initially claimed that it had been working on the detail of its bank guarantee for over a week and that the weekend meeting was merely to finalise details. That statement and Secretary Henry’s statement are completely at odds with one another. So who is correct? If Dr Henry is correct, that would cast an aspersion of duplicity on the government.

The lack of policy detail underpinning these policy decisions has caused immense confusion for account holders, businesses and financial markets. Account holders were unable to find out for certain if their savings were covered by the guarantee or not. The government was unable to release a comprehensive list of institutions and accounts covered. To this day the list of accounts covered is only a sample and a comprehensive list is still not available.

With the savings of thousands of Australians frozen—270,000 Australian accounts were frozen—because of the market distortion of the guarantee, what did our Treasurer have to say? On 23 October the Treasurer, in a press conference, said—and I will quote it so we can all get the glory of the ‘insight’ of our nervous Treasurer:

So I say to the people who are adversely affected by some of these decisions that have been taken in these managed investment funds, do fully investigate your eligibility for income support through Centrelink, that’s what I say to them.

Thank you, Mr Treasurer, for your erudite insight! The Treasurer then went on to deny ever having made his callous and disrespectful remarks. On 25 November he said:

I did not say that all people in managed investment funds who were experiencing problems should go to Centrelink.

Really? You did not, Mr Treasurer? That is odd, because at a press conference on 23 October you did. One can only suggest there is something duplicitous about what the Treasurer remarked.

It was revealed on 21 October that the Reserve Bank Governor had written to Treasury Secretary Henry on 12 October informing him that there should be a cap on the guarantee and ‘the lower the better’. On 24 October the Treasurer announced that a $1 million cap would now apply. The exclusion of foreign bank branches from the guarantee resulted in a rush of transfers from foreign bank branches to banks covered by the guarantee. On 28 October the government finally sorted it all out. After the Treasurer, on the preceding Wednesday, had said it would cover all deposits—so it was a deposit tax—on the Friday he changed his mind again.

It is interesting to note, as we reflect on Australia’s response to the global financial crisis and as I have gone through a list of facts that are not disputed by anyone, that we are the only country in the developed world—the only one—that has gone backwards, that is worse off because of the government’s decision making. Fact: we are the only country in the developed world where government decisions in the last few months to deal with the crisis have had adverse impacts. I am sure Treasurer Swan is incredibly proud of that!

Then the government released its Mid-Year Economic and Fiscal Outlook, and at the same time Access Economics, in the Australian of the week of 24 November, made it clear that future Labor budgets would be in deficit, by about $1 billion next financial year, on current spending—preceding that announced by COAG—and by $4 billion in the following two years. And the member for Leichhardt stood here full of cliches, glibly saying that this government is shrouded in good economic management.

Look at the stimulus package of $10.4 billion. There was no economic modelling, no Treasury modelling, to see whether the stimulus that was put out there would indeed meet its stated intent. There was no regulatory impact statement—nothing. Look at the wholesale term funding guarantee the government rolled out. It said there was no need for legislation and then finally, under pressure from all quarters of the economy and from the opposition, it conceded that legislation was needed.

We are here today to take note of the government’s response to the global financial crisis. Well, we certainly take note and we certainly point to the blunders, the mishaps, the knee-jerk reactions, the policy on the run and the attempts at one-upmanship on the opposition leader, all of which have led to this government making errors and making the economy worse. That is its response to the global financial crisis.

At the announcement of the budget, the Treasurer said he expected the Building Australia Fund to receive $20 billion in instalments from Labor’s surplus over the next two years. The question is: where is the money coming from now that there are no surpluses, now that it is highly likely the budget is actually in deficit? We are not looking at funds that will continue to pay dividends—just at rapidly depreciating funds.

The Nation-building Funds Bill is very telling in that it establishes three separate financial funds: the Building Australia Fund, the Education Investment Fund and the Health and Hospitals Fund. The building fund will have initial capital of $12.6 billion—$7½ billion from the Howard-Costello surplus from 2007-08, plus the proceeds from T3 and the balance of the Communications Fund, all from the Howard-Costello years. The education fund will have $8.7 billion—$2½ billion from the 2007-08 surplus and the remainder from the now closed Higher Education Endowment Fund, all from the Howard-Costello years. The health fund will have $5 billion entirely from the 2007-08 Howard-Costello years surplus. So these funds have a total of $26.3 billion at their inception on 1 January next year, of which not a single dollar is coming from any surplus from the Rudd government in 2008-09—not one dollar, not a single dollar. Through you, Madam Deputy Speaker, I ask the member for Oxley, who is in the chamber, to throw in at least 10c so this government can say it at least contributed something to the $26.3 billion-and-10c infrastructure funds, because right now the Labor government has not put a single cent into the infrastructure funds—not a cent. These are funds that the Howard-Costello government built up, and the Labor government is just grabbing them to do what Labor governments do best. And we all know what that is: surprise, surprise, it is to spend.

So we certainly take note of the Australian government’s response to the global financial crisis. In many quarters, it is considered a poor response. They are now looking for a leave pass to go into deficit because they will not make the tough decisions. They say growth is at two per cent and then they say, no, growth is less than that, but they will not make the tough calls. They want a leave pass to go into deficit because deficit is easy. Yet the Canadian Prime Minister is forecasting growth in Canada of only 0.6 per cent and he is saying with confidence, ‘We will stay out of deficit.’ This government does not have the character or the confidence or the ability to keep out of deficit. This government wants a leave pass to plunge the nation into debt, and it will not receive it from the opposition.

Janelle Saffin (Page, Australian Labor Party) Share this | Link to this | Hansard source

Before I call the honourable member for Bendigo, could I remind members on both sides that some speakers have been straying dangerously close to imputations and reflections, which are always disorderly.

Steve Gibbons (Bendigo, Australian Labor Party) Share this | Link to this | Hansard source

I rise to comment on the contribution of the member for Fadden to this debate on the global financial crisis. There is no doubt about it: he could get a job as a fiction writer or novelist as soon as he leaves this place, because he is a great storyteller. It would be fiction, of course. I would like to speak on the Prime Minister’s statement on the global financial crisis and the government’s response to it.

The world is in the throes of the worst financial crisis since the 1930s. Some economists estimate that the falls in share prices and property prices alone will wipe $15 trillion off the wealth of households in the United States. This is an enormous amount—equivalent to more than one year of America’s entire economic output. And the financial crisis is now spilling over into the real economy, where it threatens to cause a global recession that will cut growth and jobs in Australia and around the world. The economic slowdown has already hit our own region—including China—and I am seeing the effects of this in my own electorate of Bendigo. A mining operation in central Victoria that supplies gold and antimony to smelters in China has just laid off 80 per cent of its staff due to a collapse in orders.

But as we prepare for the tough times ahead it is important that we do not lose sight of the reasons for the situation in which we now find ourselves. Deregulation and unfettered free markets are delivering just what they always have in the past—chaos, concern and uncertainty for ordinary working people. Time and time again in our history, free markets have been found wanting. Time and time again the private sector has demonstrated that it cannot be trusted to exercise moral and social responsibility. It cannot be trusted to regulate itself and control its own excesses. It cannot be trusted to operate in anyone’s best interest except its own. And time and time again the private sector has had to be bailed out by government—bailed out by taxpayers, which, of course, means bailed out by the ordinary working people of the world.

The world’s largest economy has been brought to its knees by unscrupulous and incompetent bankers whose freedom to lend money to people who could not afford to repay, and to take on risks they could not manage, was encouraged by increased deregulation. And the Liberal Party, under the extreme economic policies of John Howard and the member for Higgins, tried to take this country down the same path as their neoconservative heroes in the United States. Deregulation and privatisation were the answer to everything, from telecommunications to teaching, from railways to roads, from highways to health care. If it was possible to divert investment away from public assets and services and into the hands of the private sector, the Liberals and their agrarian socialist sidekicks would find a way.

Fortunately, this madness came to a halt with the election of a Labor government. The Australian people are not stupid and, when John Howard forced through his extreme Work Choices legislation without an election mandate, voters said, ‘Enough is enough.’ They recognised that the coalition’s deregulation of the workplace was a step back to the freewheeling Victorian times. They did not believe the Howard government when it said that all this regulation to protect workers’ basic conditions and rights was not necessary. They didn’t believe the Howard government when it said employers could be trusted to behave ethically and honestly. They did not believe the Howard government when it said the private sector could be trusted to control the excesses of its more extreme members. And they were right. We are now seeing how that very same approach has led to the current global financial meltdown, and we are indeed fortunate that the Australian people saw through the coalition when they did.

Australia is in a good position to manage the effects of this economic turmoil. The Organisation for Economic Cooperation and Development in a report last week predicts that we will be one of the few countries to avoid a recession during the current global downturn. But we are not in this position by accident. We are in this position because of the great economic reforms of the Hawke and Keating Labor governments of the 1980s and 1990s. The economy that Bob Hawke and Paul Keating inherited in 1983 from the Fraser government and its Treasurer John Howard was a mess. There was a forecast budget deficit of $9.6 billion, which the former government had covered up during the election campaign. Hawke and Keating were left to find out about it from the Treasury after they won office.

As Treasurer, John Howard had presided over inflationary wages growth of 16 per cent and an unemployment rate of 11 per cent. And in 1982 John Howard gave Australia its highest cash rate since the Second World War—21.4 per cent. That is the same John Howard who for years misled voters with his claim that interest rates are always lower under a coalition government. This country badly needed economic reform in the early 1980s, yet almost none took place during John Howard’s five years as Treasurer. His sole positive legacy to his successor, Paul Keating, was a copy of the Campbell report on the banking system—even though the sun had faded it as it sat on a bookshelf in his office. So it was left to Labor to undertake the great economic reforms that this country is still reaping the benefits of today.

The Hawke and Keating governments opened up the financial, manufacturing and labour markets of Australia. They floated the Australian dollar, they cut tariffs, they opened up competition among the banks and they introduced enterprise bargaining. Removing tariffs meant lower prices for consumer goods—whitegoods, televisions, hi-fis, computers and motor vehicles—for all Australians. Enterprise bargaining removed a century of centralised wage fixing and boosted productivity and real wages for working Australians. By the mid-1990s, productivity growth was averaging 3.3 per cent a year and real wages were growing at two per cent a year. It was the flexibility brought about by these reforms that prevented our economy from collapsing after the Asian financial crisis of 1997 and kept it growing during the recession in many Western economies from 2000 to 2003.

The Governor of the Reserve Bank, Glenn Stevens, told Asian investors in 2006 that Australia was much better equipped to cope with the hazards of global capital flows after the sweeping economic reforms of the 1980s—reforms introduced by the Hawke and Keating Labor governments. And former Reserve Bank Governor Ian Macfarlane said that the decision to float the Australian dollar was ‘one of the most important ever taken by an Australian government in the field of economic policy’. Australia is now well placed to ride out the coming economic storm, as the OECD re-affirmed this week, as a result of these structural changes by successive Labor governments—not, as we hear so often from members opposite, because of the so-called economic management of the Howard-Costello government.

John Howard and the member for Higgins rode on the back of a resource driven economic boom; the Chinese did more for the Australian economy than they ever did. For 11 years John Howard and the member for Higgins ran the highest taxing and highest spending government in our history. John Howard used taxpayers’ money to buy electoral success and, in doing so, undermined the sound economic management of the Treasury and the Reserve Bank. Even his own Treasurer, the member for Higgins, questioned the fiscal responsibility of Howard’s spending.

I have to foot the bill and that worries me—

he told John Howard’s biographers. He went on:

... I start thinking about not just footing the bill today but in ... five and 10 and 15 years, and you know I do worry about the sustainability of all these things.

That is what the member for Higgins told the Howard biographers.

Productivity growth also collapsed under the Howard government. I mentioned earlier that, largely due to the introduction of enterprise bargaining by the Keating government, productivity growth was running at 3.3 per cent a year in the early 1990s. Treasury data shows that 80 per cent of the improvement in the living standards of Australians over the past 40 years has come from increased productivity. Yet between 1998-99 and 2003-04, under the coalition, productivity growth went down to 2.1 per cent, and after 2003-04 it fell further to just 1.1 per cent. The Reserve Bank governor has noted that this long-term decline in productivity is now the long-term economic challenge for Australia. But John Howard’s answer to productivity was his ideologically driven Work Choices and individual employment contracts. As Paul Keating pointed out last year, if you reach agreement to improve productivity with 200 or 300 people in a workplace and share the results between wages and profits you have got a good chance of it happening, but if you take one person at a time, bring them into the boss’s office and cut their wages then there is no chance of getting any productivity improvement. The fact is that the Howard government blew the benefits of the resources boom.

‘I hate the fact that we have wasted so much money,’ Access Economics director Chris Richardson has said of the Howard-Costello era. Richardson calculated that more than half of the government’s China driven revenue windfall was blown in personal income tax cuts and increased government spending. And this was after the government’s own 2002 Intergenerational report made a strong case for budget restraint. Small wonder that John Howard’s biographers speculated that the member for Higgins squirreled away money in the Future Fund not to keep it out of the hands of a future Labor government but to keep John Howard’s hands out of the till.

Now, in a time of economic disorder and uncertainty, Labor has once more been left to deal with the consequences of John Howard’s irresponsible economic management. As Michael Stutchbury, the economics editor of the Australiana journalist hardly renowned for his radical views in a newspaper that is hardly a cheerleader for this side of politics—wrote in November:

Rudd’s problem is that the spending programs John Howard and Peter Costello embedded in the budget during the boom are now unsustainable.

With the private sector unable or unwilling to spend enough to keep the Australian economy growing, the government has no alternative but to step in. The Rudd government is taking decisive steps to stimulate the economy. It has already announced $10.4 billion in an Economic Security Strategy to underpin growth. Other governments around the world have resolved to take similar action, even if it means taking their budgets temporarily into deficit.

Labor has also taken strong and decisive action to stabilise our financial system. Bank deposits have been guaranteed to maintain confidence in our banks and protect people’s savings, and wholesale funding for the banks has also been guaranteed so that credit can continue to flow. A $4.8 billion down payment on long-term pension reform and $3.9 billion of additional payments to families will help stimulate consumer spending. Increases in the First Home Owner Grant scheme will encourage new house construction. Labor’s $6.2 billion New Car Plan for a Greener Future will support Australian automotive manufacturing and Australian jobs. The Australian government was one of the first in the world to adjust its fiscal settings to the new global economic conditions. The government remains determined to take whatever action is necessary to maintain the stability of the economy into the future.

Rowan Ramsey (Grey, Liberal Party) Share this | Link to this | Hansard source

I rise to my feet a little less prepared than I would normally be to speak on this issue, as I am waiting for my colleague to appear. The financial crisis which is sweeping the world is of great concern to all of us. We are in unprecedented times. Not since the 1930s have we seen the kind of meltdown in global markets that we have seen in the last six months. However, many of these changes were largely telegraphed. In fact, Peter Costello said in launching the Liberal Party campaign last year that the biggest concern facing the Australian economy was the subprime meltdown in the American market.

As the election result became a reality and we installed the Rudd government, in the very first days of the parliament, when I came to Canberra to sit in my first parliament, it became obvious that the government were intent on finding fault with the previous government—a government that had paid off $96 billion worth of debt, saved $60 billion and left us with a $20 billion surplus. The new government focused on the problem of interest rates. They said that was the thing the Costello treasurership and the Howard prime ministership had, mishandled showing that Australia was in such poor economic health. They picked wrong. They made a bad mistake. They tightened spending. They increased government taxes and we had a two per cent blow-out of interest rates at a time when there was no need to do so at all. It would appear now that the best advisers in the country also got it wrong. The Reserve Bank made an error and the government were only too happy to go along with them. Rather than actually resisting the push to raise interest rates, they agreed.

The government has become a government of its time. The times suit Labor. Labor have a reputation for spending every time they get into office. Labor have a reputation for running up deficits. Labor are very good at what they have been doing in the last six months. Since the tabling of the budget in May we have seen the total erosion of a $22 billion surplus. A $22 billion surplus is completely gone in six months. One would have to wonder just whether we can keep on doing this. I guess that is the question we have to ask ourselves. What happens with the next six months and the six months after that? At this rate, if the government keep spending $22 billion worth of savings every six months, in 18 months the $60 billion that was squirrelled away by the former Treasurer and by the former government will be completely eroded and not only will we have a deficit but the Australian government will also have a net debt again.

Bernie Ripoll (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

They were spending like drunken sailors before they left office.

Rowan Ramsey (Grey, Liberal Party) Share this | Link to this | Hansard source

I hear references to spending like drunken sailors from the government benches. I refer to the government’s record in this area: $10.4 billion in six months—in fact, in a week—is an extraordinary performance. I have heard a lot of talk too about the big spend being good for the pensioners. Unashamedly it is good for the pensioners, but the opposition had been calling for a genuine across-the-board increase to pensioners’ rates for a period of some weeks before the government suddenly discovered that it would be a good thing to spend money in the economy so that, in that case, they could pass on their largesse to the pensioners. You have to wonder whether the pensioners would have received any relief at all if the financial crisis had not come along and given the government an excuse to spend the savings that the previous government had accumulated.

We have seen an extraordinary performance from the previous speakers as they went on a ‘hunt down John Howard’ case, dredging back over 20 years. Goodness me! They must be desperate to try and divert attention away from their mishandling of the global financial crisis.

The point I am trying to make here, amongst others, is that the government have jumped on this financial meltdown in world markets with great glee. They are now using that to justify every movement they make in government and they have abandoned the fiscal conservatism that the Prime Minister used to clothe himself with during the election campaign, when he said on no fewer than 10 occasions that he was a fiscal conservative and he would deliver a surplus to Australia. That surplus has been totally eroded, as I said, in a matter of weeks. I look forward with some trepidation to the future and wonder what this government will do under pressure during the next 12 to 18 months.

David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

I rise to take note of and to support Australia’s response to the global financial crisis. I wish to take this opportunity to put on record my support of the very strong and decisive action that has been demonstrated by the government consistently now over a period of months in trying to respond to what are enormous challenges being faced by countries right across the world, whether they be in the developed world or the developing world. This international financial contagion knows no limits.

A division having been called in the House of Representatives—

The global financial crisis has been sweeping right across the world, and no country has been safe from its impact. This international financial crisis has now been occurring for over a year, although the most severe effects of the crisis have been felt most recently. In assessing the extent to which the government has been able to confront these challenges, to prepare the economy and guide it into these headwinds, one really needs to look at some of the history of what has occurred over the last year.

Clearly the pressures that were being felt in the credit markets just over a year ago have taken some time to flow through into other sectors of the economy. Some time earlier this year we were beginning to see the more severe effects on our credit markets, with widening spreads having an impact on the funding costs particularly of our banks. That manifested itself in increases to mortgage rates that were outside of the Reserve Bank official cash rate cycle. Indeed, since there have been movements in the official cash rate cycle, banks have not always acted in lock stead with those movements, principally because of the funding pressures they have been facing as a result of the global credit crunch.

A division having been called in the House of Representatives—

I will not cover any of the ground already covered and I will move straight into the rest of my contribution to this debate. When we consider the extent of the government’s contribution to steer the economy into the headwinds that we are facing internationally we really have to go back to the budget. The budget set out the government’s plan for securing and reinforcing a budget surplus. The proposed surplus handed down in the budget in May was over $21 billion over the life of the budget—$21 billion. In large part, many of the measures that have been thwarted in the Senate—principally by those on the other side—have whittled away that surplus, so the surplus is not the $21 billion that it was when it was handed down by Treasurer earlier this year.

The first thing that the government has done is to run a strong fiscal policy. Notwithstanding its better efforts, some of the edge of that fiscal discipline has been taken off by the obstructionism of those on the other side. If we look at some of the measures that have since been taken, we see that on 12 October the Prime Minister announced the government’s response to the issue of bank guarantees. This was the first clear demonstration and it became very characteristic of the very decisive action and the way in which the government has sought to respond to this crisis. In making the announcement on 12 October the Prime Minister announced three things. Firstly, he announced an unlimited guarantee on deposits. Secondly, he announced a guarantee on term funding for authorised deposit-taking institutions. Thirdly, he announced that the government would be directing the Australian Office of Financial Management to purchase an additional $4 billion in residential mortgage-backed securities.

The Leader of the Opposition is very fond of claiming credit for suggesting that there should be a purchase of residential mortgage-backed securities. In fact, I went back to the interview that he cites as evidence that he was out there, acting ahead of the curve—to use an expression that we have heard elsewhere—advocating this course of action before the government had announced it. It was an interview with Laurie Oakes, on 22 September, where the Leader of the Opposition said:

We know that it has been very, much harder for banks, particularly the second-tier banks and financial institutions, to refinance mortgages and that’s one of the reasons why the cost of mortgages has gone up, why interest rates have gone up. Now, in other markets, the government, particularly in the US, the government is taking a role, proposing to buy back, buy some of these securities, in effect to provide additional liquidity to take the pressure off mums and dads.

Let it be clearly understood that the references there to what was occurring in the United States are fundamentally different from what was proposed by the Prime Minister in the form of acquiring residential mortgage-backed securities. The course of action that had been taken in the United States was in the nature of a bailout, buying up bad securities, bad mortgages. There has never been any suggestion from the Australian government that taxpayers would take on the liability of bad mortgages. So even the very interview that the Leader of the Opposition cites as being evidence of him out there, advocating for this policy initiative before anyone else, demonstrates a lack of understanding about the key measure that is in question here. That is the first point I make.

The government acted decisively, based upon the findings of the House of Representatives Standing Committee on Economics inquiry into competition in the banking sector. Certainly the government acted before those findings were handed down in a formal way, but the discussions that occurred in that committee hearing and indeed the evidence that was taken from the various submissions pointed very much in the direction of taking this course of action and, at the first opportunity, the government took that form of action. Once again, we see an example of decisive action, preparing the country and responding to the global financial crisis.

In relation to the guarantee of term funding for institutions, I note that those on the other side are very fond of criticising the process that was undertaken. Let it be understood by the House that the action that was taken and the timing surrounding the taking of that action, in large part, was the most significant reason why we have now seen a liberalisation, if you like, on credit markets. We have seen a thawing of those credit markets that have previously been clogged up. The best evidence of that was the broadening spreads on those markets.

What we have seen since these announcements on providing guarantees is a greater degree of confidence in the marketplace. We have seen a greater degree of lending going on between banks and all of the interbank lending rates have demonstrated the improvement in that regard. As a result, funding costs for banks have improved and, with that improvement in funding costs, we have now seen not only cuts from the Reserve Bank but also that the private banks, the commercial banks, have the capacity to pass on those interest rate cuts, and they have been doing that.

In relation to the Reserve Bank’s actions, we have now had, for the first time in a very long time, fiscal policy and monetary policy acting in harmony. It has been a long time since that has been the case. For far too long we had the Reserve Bank putting its foot on the brake whilst the previous government was throwing more fuel on the fires of inflation. So, in achieving that harmony between the fiscal and monetary policy, we have seen further evidence of a competent and decisive response to the challenges that have emerged.

I also wish to comment in relation to the Economic Security Strategy, which is the next link of the government’s response to the global financial crisis. In particular, there was the $4.8 billion which was the immediate down payment on long-term pension reform. In addition to that we had the $3.9 billion in support payments for low- and middle-income families, as well as the $1.5 billion set aside for the amendments to the First Home Owner Grant. We have also seen the $187 million invested in productivity places and, most significantly, we have seen an acceleration of the government’s proposals in relation to its nation-building agenda. I know that the nation-building bills are in fact before the House at the moment combined with the COAG reform bill. The nation-building initiatives that were previously announced by the government will now be brought forward and accelerated under the Economic Security Strategy. They have been combined with the efforts of the government in its recent meeting with the Australian Council of Local Governments and its commitments in relation to the regional and local community projects fund. The government has announced a $300 million fund, with $250 million already allocated to councils and all councils receiving some funding. The key emphasis of that funding is that it go towards programs that are not in the ordinary course of the councils’ financial activities, programs that are not already planned for, but also the programs are to be delivered in an expeditious way to ensure that this money comes into the economy as quickly as possible to keep the economic wheels turning over.

In addition to that, we have seen more recently, over the weekend, the government progressing its COAG agenda at the Council of Australian Governments meeting. An additional $15.1 billion is to be invested in the key services of health, education, housing and disability services—not to mention better aligning things to produce the seamless national economy, breaking down the barriers that have existed, the vestiges of Federation, where the duplication of laws across the nine jurisdictions could sometimes impede business growth and development.

All of these measures when combined demonstrate that the government has been well and truly up to the job of responding to these challenges—indeed, as has been said before, it has been acting ahead of the curve. The government has been very proactive. These are measures that have been taken. The Prime Minister has been talking about these things well and truly in advance of other countries actually acting, and has always been acting on the advice of the council of economic regulators, notwithstanding what the opposition say. That group has been providing key advice to the government, and there is no suggestion from anyone that any of the advice provided by the council of economic regulators has not been acted upon. Acting on the best advice, the government has implemented decisive measures which will, in large part, really start to make their way into the economy in the next week or so. The government will be monitoring the impact of that injection of funds through the fiscal stimulus, and the government does stand ready to act in the event that that does not provide sufficient stimulus in order to help us continue to run a strong economy against these headwinds in international finance.

Steve Georganas (Hindmarsh, Australian Labor Party) Share this | Link to this | Hansard source

Order! The debate is interrupted in accordance with standing order 192. The debate is adjourned and the resumption of the debate will be made an order of the day for the next sitting. The member will have leave to continue speaking when the debate is resumed on a future day.