Scott Morrison (Cook, Liberal Party, Shadow Minister for Housing and Local Government) Share this | Link to this | Hansard source

The Australian Business Investment Partnership Bill 2009 and related bill deal with the establishment of Ruddbank. The Ruddbank is to be established under the Corporations Act. It is going to have shareholders in the form of the four major banks and the Commonwealth. The government will provide $2 billion and the major banks will provide $500 million each. Ruddbank will only be able to enter into new refinancing arrangements for commercial property assets for two years—a two-year prospect. The Ruddbank will be able to issue up to $26 billion of government guaranteed debt to create up to $30 billion of loanable capital. The Ruddbank will provide financing, it says, on fully commercial terms for commercial property that meets the Ruddbank’s lending criteria, determined by its shareholders, and where the underlying assets and the income streams from those assets are financially viable. Ruddbank will focus on completed commercial property investments and completed development projects with secured precommitments, but it is not confined to that. It says its focus will be that, but there is an open-ended blank cheque for it to extend to have sufficient flexibility to provide financing in other areas of commercial lending, which is incredibly vague and opens up the prospects for what this new Ruddbank might be involved in to literally anything.

It is the classic example of this government: it will go to any policy port during this economic storm, as the Prime Minister likes to describe it. It is prepared to do anything on these matters rather than focus on doing the right thing, on doing what needs to be done during the course of this economic crisis. The government’s philosophy is: ‘We need to kick up the dust. People need to see that we are doing something. We need to do something, anything. Any idea that is thrown at us, we will do it.’ It will not take the time to properly consider whether it is the right thing to do and whether it is going to have consequences that will cause all sorts of havoc within our economy, as we have seen with many of this government’s decisions. It will do anything rather than the right thing.

The common theme in all of the various ‘anything will do’ proposals from the government is at the core of every single prospect: they all involve transferring risk to the taxpayer and increasing our debt. They are going to put the government credit card out there and put on that credit card risk that would normally be looked after in other places. We saw that with the unlimited bank guarantee. We saw that in their rush to do anything—not the right thing but anything—when they came up with the unlimited bank guarantee, as it was first known. We saw the havoc that that caused in financial markets, the government not having thought it through and not having even bothered to get the Reserve Bank governor on the phone. There was far too much time to be spent rolling up sleeves for photo opportunities in the cabinet room on that Saturday or Sunday, whenever it was, back in October. As a result of that, we saw the funds of 270,000 investors frozen in their investment trusts and we saw all sorts of other consequences of money moving all over the place until eventually the government had to listen to what the opposition said. Sadly, they did not listen enough, because they did not take the cap on the guarantee down far enough. Nevertheless, with the unlimited bank guarantee we saw the government taking a rushed and bungled decision to put their credit card out there to be a receptacle for risk in the marketplace.

The other thing we have seen more recently is that they are not just prepared to take on these assets and debts from the com-mer-cial property sector as part of their own book in government; they are also doing it for the states. They have put the credit card out there on the table. Through this and other measures, the government have shown a preparedness to say to the New South Wales, Western Australian, Victorian or South Australian state governments—all of which had gov-ernment owned banks that got into a bit of difficulty, to put it mildly—that there is nothing to stop them using federal taxpayer credit guarantees to underwrite their performance. We are really on a very slippery slope now when it comes to the current government and debt. Their appetite for debt knows no limit and they are just getting started. We have a budget coming in a few weeks time and I am sure we will see more debt. We will see more debt and more of a defi-cit in that budget because they are a govern-ment addicted to debt, and debt will continue to grow as long as they remain in office.

Prior to coming to this place, many years ago I spent almost six years working for what is now known as the Property Council. From my time there I have a good knowledge of the policy areas affecting the commercial property sector and I have a great deal of sympathy for the sector. But my sympathies must first go to the taxpayers of Australia when I consider these measures. I am not surprised that the property sector, in particular, or the banking sector would be supportive of this proposal. If you were the beneficiary of this proposal, wouldn’t you be supportive of it, in terms of the sectional interest that is being looked after in this bill?

In Ruddbank we have a number of key themes, which the Leader of the Opposition and the shadow Treasurer have touched on. The one that concerns me most is that this is a vehicle to transfer property losses, lending losses, of foreign banks to Australian taxpayers at the face value of what those loans are in those syndicates. We are going to say to a foreign bank: ‘We will buy you out. If you are thinking of going, now is a good time to go because we will buy you out at face value. The other shareholders in Ruddbank will not be interested in a price any less than that because they will have to write down their own positions in each of those syndicates. So we will take you out, taxpayer funded. We will say to you and to banks all over the globe: we will buy you out at face value, and the people who are going to do it are mums and dads, self-funded retirees and pensioners and others right across this country. We are going to bail you out of the Australian market so you can go back home and, just to add insult to injury, we will pay for that privilege through this proposal.’ From that simple measure we are going to see losses, effectively—potential losses—for these foreign banks transferred onto the government’s taxpayer funded credit card and borne by Australians. I do not know who thought that up but I think that proposition would be offensive to most, if not all, Australians around the country.

The second theme is about collusion amongst the banks, which has been given the green light under these bills in terms of the Trade Practices Act. This means that a proposal from the four big banks will only get to Ruddbank if they are unable to source finance elsewhere. And who are the major sources of finance in this country? The four big banks. So the commercial property owner or lender, or whoever is involved in the matter, will go to those banks and say, ‘Can you extend your facility on these?’ And they will say, ‘Oh no, we cannot do that.’ Where are the projects that the banks reject—in true John West style—going to end up? They are going to end up at Ruddbank. Ruddbank is going to have the opportunity to invest in all of those projects which could not leap the hurdles of the private banking market. Yet the government say they are going to do it for projects that are apparently ‘financially viable and on commercial terms’. So the projects that cannot clear their own hurdles will actually be referred to a board, which the government will be a member of, that basically will take up the hospital passes from other lenders and other banks. Again: who is paying for it? Who is going to underwrite these debts if and when they go bad? Who will be the ones to suffer? It will be the mums and dads, our children, self-funded retirees and all the people forgotten by the government, who have been left to their own devices. It will be small businesses. It will be all those who have been denied while these sorts of systems have been set up to enable the government to once again do what they have always wanted to do as good socialists—that is, to set up a national bank owned by the government.

The third theme of it, which totally offends me, is that the government wants to add another $26 billion to the taxpayer funded Rudd credit card—as if $200 billion worth of debt was not enough. Frankly, the Australian people are already going to suffer an enormous burden of debt as a result of the actions of this government, and now it wants to add more and more. And, as I said, the budget is still to come.

In making their rationale for this bill, the government and those others who have supported this bill have said this. I read in today’s—or yesterday’s—Financial Review that the Minister for Finance and Deregulation said that 150,000 jobs would be at stake if this measure did not proceed. When the Prime Minister first talked about this, he talked about 50,000 jobs being at stake. It is not uncommon for this government to talk up the book when it comes to impacts on employment. Usually it talks up how many jobs it is going to create, like the 75,000 that were supposed to be created by the cash splash back in December. Now it is saying, ‘It’s not 50,000; it’s 150,000.’ That is the total number of people employed in the commercial property industry. Is the government seriously suggesting, through the Minister for Finance and Deregulation, that every single job—that is, the job of every single person who works in the commercial property industry—is at risk if this proposal does not go forward? That is a nonsense proposition. As usual, the government is overclaiming and overdramatising the circumstances to suit its political arguments and its own political ends.

Secondly, the government maintain that this is going to keep a whole raft of construction projects going. The truth that they refuse to utter in this place or anywhere else is that a minuscule proportion—that is, minuscule if any, but I grant it may be minuscule—of the projects and assets that will be subject to this proposal, those that are subject to syndicated loans which involve foreign banks, involve actual construction projects. These are existing assets that have a history and that have tenants. People come in and out of them every day. People do the cleaning, do the painting, do the maintenance and service the tenants. They do all of these things on a daily basis, and not one of those things is going to change as a result of this measure because they are existing assets. They are shopping centres that exist; they are office buildings that exist. In terms of construction projects it is fractional at best. The government’s claim that this is going to somehow support construction is hollow. They will know that supporters of this will also know it is a hollow claim. They know that this is about existing assets. I am quite sure they would like to see the argument on this proposal made on what they believe the merits of it are—that is, to keep property prices up. The government knew that this argument was not saleable to the Australian people, so they had to confect this argument about construction jobs—when virtually no construction jobs are involved or at risk regardless of whether this proposal goes one way or the other.

The third point I would make about that is this: the new projects that the government say are going to be abandoned because of a lack of availability of credit we know are being abandoned because of the economic circumstances that just plainly exist. The fundamentals for these projects to go ahead in the vast majority of cases are not currently in play. That is a sensible commercial judgment. The decisions to go and build these assets should be made on sound commercial bases. I remember my time in the tourism industry. They used to say that only the third owner of the asset ever made any money. The developer and others would go through the process. Fortunately in the tourism industry they have learnt many lessons over the last 20 years, and that prospect is no longer the case. But major investment decisions should be made on the basis of the investment horizon and the prospect that tenants or others are going to use the buildings, not on the basis of propped-up prices. That type of activity can distort markets and lead to very dangerous decisions. It can see developments proceed when they should possibly be left for another time, a time when economic circumstances will support them and the jobs they will create.

Also, we need to be mindful of the two other big things that are impacting on our economy and the investment horizon. The first of those is the emissions trading scheme of the Labor government. It is not just any emissions trading scheme but the Labor government’s emissions trading scheme. It will impact on the price of building materials and on all the other price inputs that go into building and maintaining these assets. The impact of that scheme will add costs that will make these projects less viable and even the existing assets, in terms of their returns, less viable. If the government want to talk about blockages to the performance of these investments and getting new projects going, they should scrap their current emissions trading scheme. They should scrap it because they know it is overworked, it is too complicated and it is going to add to costs while exporting emissions.

The second area is that of changes to the industrial relations laws. If anyone wanted to be serious about trying to create jobs in the construction industry, they would not go light on the Office of the Australian Building and Construction Commissioner, as the government are. They are going soft on that agency over time, as it gets whittled away under the current government. Secondly, they would not talk about doing things with unfair dismissal laws and confine them to businesses with just 15 employees by headcount. They would not do things about greenfields sites, which tie up these businesses in their new laws. They would not do things which provide unions with unfettered right of access to sites. They would not do all that if they were interested in these projects proceeding. They would be trying to take costs out of the system. They would not put costs into the system, as they are doing with the emissions trading scheme and the changes to industrial relations laws. They should be doing something about supporting construction in the commercial property industry or, for that matter, the housing industry. But, no, they have come up with the Ruddbank proposal to artificially prop up property prices.

There is a fundamental question here on the wisdom of governments becoming involved in manipulating the repricing of assets in the market. This is a very dangerous business. It is risky for governments generally to get involved directly in the banking business itself. The shadow Treasurer made many very good points about the risks of going down that path, making reference to Tricontinental under the State Bank of Victoria, the State Bank of South Australia and even the State Bank of New South Wales. They as a government had to do due diligence on it to find out what Nick Whitlam and the others had been up to while they were in charge of the taxpayer-backed bank.

I would argue that the government has already put in place a wholesale funding guarantee, which has been supported by the opposition. That wholesale funding guarantee was to enable our banks to actually step up should a foreign bank pull out of one of these syndicates. These banks, which account for one-third of the top 12 banks by capitalisation in the world, are apparently the ones that are not able to go out there and extend further credit and so on. Well, they are finding plenty of opportunities to extend credit—as they should, I would argue—particularly in the housing sector and particularly for first home buyers. They are out there aggressively in that market. These banks have been capitalised and they have been supported with things like the wholesale term funding guarantee to enable them to access credit. This should enable them to step up. But, no, they do not want to do that; they want to go back to the taxpayer and ask them to underwrite their proposal. On this the government has been the sucker who has been quite prepared to stump up again and say, ‘Yes, we’re happy to put the taxpayers’ credit card on the table for you once more.’

Finally, there are those who are left out by what I would say is the focus of the Ruddbank proposal. Most significantly, there is the small-business sector. I have no doubt that there are small businesses who are facing far bigger challenges than those of the big banks. I am sure there are small businesses, literally hundreds of thousands of them, who are going to face far more difficult circumstances in the times ahead and who are facing them now. This is where the jobs are. But are they supported by this proposal? Has the government gone and created a Ruddbank for small business in this country? No, it has not. Small business, like self-funded retirees, are the forgotten people of this government in this crisis. They have been completely dismissed through this process. The government is quite happy to turn up and put the taxpayer credit card down for the big banks and for the big property owners but it is not prepared to do that for small business.

The housing sector is also not covered by these syndicated loans. While there is much talk of 150,000 jobs in the commercial property industry, there are 700,000 jobs in the housing construction industry; and 95 per cent or more of those jobs are in the private housing industry, which is not touched by these measures. The last thing the government did for that sector of the industry was to bring in the first home owners grant. As we know, that runs out on 30 June this year, and there has been no indication from the government that they will be continuing it or whether they have any idea how they would pay for it. The government should be listening to the opposition’s view on how that can be done. In closing, the government should not be allowed to use the current economic circumstances to pursue their social agenda of nationalising banks and a whole range of social programs while dressing it up as an economic stimulus.

Jason Clare (Blaxland, Australian Labor Party) Share this | Link to this | Hansard source

Never let it be said that the member for Cook ever goes over the top. The debate on the Australian Business Investment Partnership Bill 2009 and its cognate bill really encapsulates the way the Liberal Party think and really encapsulates Liberal Party philosophy. On 26 January every year most people wake up and think about what it means to be Australian, but for those of us with a political bent 26 January this year meant something different—we woke up, picked up our copy of the Australian and found on the front page the headline ‘Turnbull says let market decide’. It said, ‘Turnbull says let the market take its course.’ It is central to Liberal philosophy: let the market decide and let the market take its course. As the member for Cook just showed us, not just does it apply to the economy and not just does it apply to these bills; it applies to everything they say and do in this place—whether it is Work Choices, whether it is climate change or, for that matter, whether it is the collapse of ABC Learning. If the last few months have shown us anything, it is that this is the wrong approach.

Australia does not have the same problems with banking and with toxic assets that you will find elsewhere in the world, but that does not mean we are insulated from the problems that have beset the world. Some 40 banks around the world have already hit the wall and, as a consequence, some of those banks will stop lending here to focus necessarily on the home front. Australian businesses have exposure to these banks. Total bank debt in the commercial property sector is about $165 billion, and 18 per cent of this—or $30 billion—is financed by foreign banks. Some $70 billion worth of commercial loans have to be refinanced over the next two years and there is a real risk that some of these foreign banks could pull up stumps when commercial agreements are due for renegotiation.

An hour or so ago the Leader of the Opposition said that there was no evidence of foreign banks pulling out or reducing their exposure in Australia, but that is not what the Property Council of Australia says. Last week the Property Council said:

The Property Council has this week surveyed its members and they report that over 20 foreign banks from Europe (43%), USA (26%), and Asia (31%) have signalled plans to reduce their exposure to Australian commercial property funding, or have already withdrawn funding.

When you get information like that, you do not sit by and wait and see—you do not ‘let the market take its course’. I think it is important when you get information like that that you take action, because, as the Property Council said in the same statement, ‘Domestic banks in Australia can’t fill that void if it opens up.’

The Australian Business Investment Partnership Bill is designed to make sure that good commercial property projects do not fall over—and as a consequence people lose their jobs—for want of finance. Projects that are currently under construction fit within the scheme; so do projects that are already up and running. The bill establishes the Australian Business Investment Partnership—a partnership between the government and four banks that offers refinancing on commercial terms with a focus on commercial property investments like retail shopping centres, commercial offices and industrial property. Investment decisions are subject to strict criteria. Funding is only provided if there is the unanimous support of the board, comprised of all four banks plus the government. The banks also have skin in the game, which is different to the way schemes like this have been set up overseas, in Europe and elsewhere. They have to put in equity upfront and they have to continue their partnership in any loan facility that is extended as part of the scheme. Ian Harper from Access Economics, a noted leading conservative economist, had this to say about the scheme: it is an extraordinary bill for extraordinary times.

In normal times the government ought to have no business lending to property or anything else but these are extraordinary times. The great fear is that if owners cannot roll over existing borrowings they will be forced to start selling assets and that is the source of the conflagration that this initiative is designed to avoid. If there is a major collapse in asset prices in the commercial property market, that could feed through into domestic housing. Given the exposure of domestic banks to housing, that is what we are trying to avoid at all costs.

The important thing to stress is that this is a temporary contingency measure—it has a shelf life of two years—to avoid a fire sale of assets and a collapse in confidence. If you do not believe what I have to say, have a look at what the Master Builders Association said or, for that matter, what the Governor of the Reserve Bank had to say. They said the same thing: that this is designed to avoid a fire sale of commercial property and with it the potential cost of tens of thousands of jobs. This goes to the heart of the matter: should government be in the business of letting the market take its course or should it step in to protect jobs and protect confidence in the commercial property market?

My view is that, in these extreme times, the type of times that have been described so appropriately by Mr Harper, the government should act. The government should be involved. They should not wait and see. They should not let the market take its course. The opposition leader dismissed the need for the fund. He argued that others will swoop in and pick up property and everything will be business as usual. But, again, that is not what the Property Council had to say. In the same statement they said:

ABIP will safeguard:

• Construction jobs
• Australia’s superannuation wealth
• Housing and social investment

               …            …            …

• Mum and Dad investors—

and, quite importantly, because the member for Cook had something to say about this—

• Small business and employment in general …

The same people that the opposition claim to be defending in the Senate in the debate about unfair dismissal laws, they do not seem to care about in this debate.

Small business people are the people that the member for Higgins, in the party room last week, said were the ‘arms and legs of the Liberal Party’. They seem to be quite willing to cut off the arms and the legs of small business here in this debate. It reminds me a little bit of that old Monty Python skit—‘nothing but a flesh wound’. But this is more than a flesh wound. It can seriously harm jobs, not just in the bigger end of the commercial property market. As the Property Council says so appropriately in its statement, there is a risk that it could hurt businesses, confidence and jobs all the way through the economy.

The truth is that there are a lot of companies, both big companies and small companies, that are very worried about commercial projects falling over at the moment. You are not going to hear them speak out in this debate. You are not going to read about them in the newspaper, because they are concerned about a run on their share price—and appropriately so. But anybody who has been close to this bill or close to this debate would know that that is the case. That is why industry has been busy in this building lobbying the opposition, urging them to back this legislation. Unfortunately, they are banging their heads against a brick wall, because this is inconsistent with Liberal ideology. It is inconsistent with the idea that the market should take its course. That idea underpins everything that the Liberal Party stands for, whether it is this bill, tackling the global economic recession, Work Choices, climate change or, as I said earlier, childcare policy.

We have seen a lot of pretending over the last 12 to 15 months. The opposition have been pretending they care about pensioners—remember the days when the cans of fruit were held up at the dispatch box?—pretending that Work Choices was dead and pretending that they care about climate change. But slowly the mask is coming off around here. Slowly the Liberal Party is reverting to form. You see that from comments by the member for Warringah, who now says that we cannot afford to pay pensioners an increase. You see it in the statement by Senator Fifield that Work Choices should not be killed off, that it is an article of faith that the Liberal Party should defend to the death. You see it in what the Leader of the Opposition said himself when he stood before the party faithful on the weekend and said, ‘Government is the problem, not the solution,’ and when he said that the most effective economic stimulus is more freedom. It sounds a little bit like Ronald Reagan. It sounds a lot more like George W Bush before and after Lehman Brothers collapsed. Slowly the mask is coming off. Slowly the real Liberal Party is being revealed in this place again—the same old conservative party with the same old conservative values. It does not matter whether it is the global recession, Work Choices, climate change or industrial relations, the approach is the same: do nothing, do not interfere, let the market rule and let the market take its course.

What you see in their statement of 26 January applies to everything that this opposition say and do in this place. It is the merchant banker approach to running the country: ‘Let the market take its course. Don’t regulate carbon pollution, don’t regulate for good wages and conditions and don’t intervene when the market fails. Government is the problem, not the solution.’ Unfortunately, everything that we have seen over the last six months tells us that this is the wrong approach. There is a role for government. There is a role for government in cutting pollution. There is a role for government in making sure that workers have rights and conditions that are complied with. There is a role for government in acting when the market fails—and that is exactly what this bill does—to protect jobs and to restore confidence to the market. I support this bill, because that is exactly what it does. I commend the bill to the House.

Jamie Briggs (Mayo, Liberal Party) Share this | Link to this | Hansard source

I rise to very strongly oppose the Australian Business Investment Partnership Bill 2009 and related bill, because this legislation is an economic disaster in waiting. The member for Blaxland—a member who we will see step through the ranks of the government in the next few years to the frontbench; he is clearly on that train and one of the select few on that side who seemingly have a big future ahead of them—talked about our approach versus that of the Labor Party, the current government. In some respects, I agree with what he has to say, because the Liberal Party would never ever be associated with setting up a bank. This obsession that the Labor Party has with setting up banks is quite worrying. We hear constant references from the Prime Minister, the Deputy Prime Minister and the parliamentary secretary at the table, Ms McKew—and from the member for Blaxland just then—to the fact that the Leader of the Opposition was a merchant banker. The fact is that the government side all seek to become merchant bankers through this bill. They are obsessed with being bankers.

The Labor Party’s history with banks is quite extraordinary. I come from South Australia, a state that the Labor Party in government sent broke through a bank. Guess what they were involved in that sent them broke? Commercial building. It is quite extraordinary what is occurring here. As friends of mine know, I am a big fan of the Finn brothers, particularly Crowded House but also Split Enz, although they were a little before my time. I have to disagree with them, unfortunately: history does repeat. History is repeating here in this bill. It is an extraordinary development in Australian public policy that a federal Labor government would repeat the mistakes of history and delve back into not only banks but the commercial property sector. Let me remind the House what sent the state government of South Australia broke in the early 1990s. The State Bank of South Australia went under because of two major decisions by its government instrumentalities: the stunning, palatial 333 Collins Street, which the South Australian government decided to get involved in, and the Myer building in Rundle Mall, which it dropped a mere billion dollars on.

There is a great quote, from the time, from a senior executive at the State Bank of South Australia who I am indebted to—a very dedicated and hardworking author who wrote a book on the state bank. He said, ‘Well, we’ve just bet the bank on this one.’ He was dead right, and the bank went under and so did the state of South Australia for many years. They talk about jobs on the other side. Let us remind those on the other side that that resulted in double-digit unemployment rates in South Australia for many, many years. But history repeats and they are back in the business again. This is quite extraordinary.

These decisions by a Labor Party in government, in relation to banks, cost the state of South Australia $2.2 billion, cost Victoria $3 billion through Tricontinental and cost Western Australia God knows how much through WA Inc—which still has cases before the courts, as we were reminded this morning by Western Australian members. Labor governments do not make good merchant bankers and they do not manage banks well.

This bill seeks to shift the risk from the big four banks to the taxpayer. It is bad policy and it is trying to prop up the prices of commercial enterprises, and that never ever works. The member for Blaxland—again, someone in this place whom I have some respect for—commented upon the Liberal Party’s position on these matters. Let me remind him of his own Prime Minister’s com-plete and utter hypocrisy when it comes to the matter of the economy. We were reminded recently of a great segment in The Latham Diarieswritten by that former leader who some on the other side, more than half at one point, supported, particularly the Deputy Prime Minister, who was Mr Latham’s numbers man there for a while. Mr Latham says that, after the 2004 election, the Prime Minister, the then shadow foreign affairs minister, begged Mr Latham to make him the shadow Treasurer on the basis that he was a full-on economic conservative.

We then saw the ads—no doubt recommended by the Parliamentary Secretary for Early Childhood Education and Childcare, who is at the table, and by Senator Arbib—where Mr Rudd had to say that he was an economic conservative and cuddle up to the record of John Howard and the member for Higgins as close as he could in order to be elected. But, now he is elected, he returns to his true colours of being a democratic socialist. So do not stand here and tell us that we are all over the shop on these policies. The Prime Minister is the greatest hypocrite this country has ever seen.

This bill is a disaster. It is a disaster for the future of our country because what we will see is our country go into more and more debt, just as we have before. We already have a credit card with $200 billion available to it. This bill will add another $28 billion to be put on that credit card.

The government claims that it will only spend $4 billion—$2 billion of government money. But, truth be told, if you look at the bill it actually says—and I am indebted yet again to the Parliamentary Library and their hard work—that, if additional financing is required beyond this initial $4 billion, ABIP, or the Ruddbank, will be able to issue up to $26 billion of government-guaranteed debt to create up to $30 billion of lendable capital. So that is $28 billion in additional government debt that we will see because we know that, when Labor have the ability to borrow, they will borrow.

The Minister for Finance and Deregulation yesterday, in attempting to justify the Ruddbank in this House, said:

It does involve some exposure to risk on the part of the taxpayer …

Too right it does! Again, I refer back to my home state’s experience. The Labor Party sent the state of South Australia to the edge of bankruptcy by getting themselves involved in commercial property decisions. And where are we back to again? We are back to the same group of people making the same ill-fated decisions yet again. I wonder how many Myer buildings in Rundle Mall we will see through this bill. One billion dollars was sunk on that one building alone in South Australia, yet they come back—history repeats—and they are doing it again. It is quite an extraordinary thing for us to see.

In addition, the government claims that this can only be used to prop up commercial property. There is no way that it can be used for other purposes. Yet we see that clause 7(2) says:

A further object of ABIP Limited is to provide financing in other areas of commercial lending through financing arrangements of a kind agreed to by the members of ABIP Limited …

Anything! They will fund any state project which is falling foul. There will be $28 billion in government funding again whacked up on the credit card, to take us over $200 billion in government debt which we have to pay back at some point. It is quite extraordinary.

This is a group of people, I remind you, who for 12 years in this place and in the public arena made the point that you cannot trust the banks—you cannot trust the big four banks. The minister for finance was regularly out there telling people to switch banks to avoid fees—to go to smaller banks. The member for Makin on 5AA, I seem to remember, would quite often suggest to constituents, or those he sought to represent, that they should look at other options.

Yet what we see here is the government agreeing to be part of a deal where they will have one representative on the board out of five. The other four will be from the big banks—the big bogeymen. The other four will only have the combined risk of $2 billion compared to $28 billion of risk on behalf of the Commonwealth. This is hardly something they have not taken on trust. It is quite extraordinary. They are now trusting these big banks, even though for 12 years we heard how bad the banks were and how they colluded. Guess what they are excluded from? The Trade Practices Act! This is quite extraordinary. It is the Labor loan sharks. The desire of the Labor Party to get involved and become merchant bankers knows no bounds.

This is disastrous legislation for our country, for it puts our economy at risk. We saw states like Victoria and South Australia go through dark years in the early nineties because of the financial mismanagement of state Labor governments. The same people on the other side now seek to implement the Ruddbank, which will make the same mistakes and do the same things that got South Australia, Victoria and Western Australia into such trouble in the late eighties and early nineties. I remind the House that the decisions that were made by state Labor governments through their banks and through their instrumentalities to lend to commercial properties were the reason those banks went broke and sent the states to the edge. They involved 333 Collins Street, Melbourne and the Myer building, in particular—$1 billion on one building alone. I would like to see how the member for Makin explains that to his constituents, who spent 15 years paying off the state Labor government debt that was accumulated because of decisions made by those on the other side with a great desire to be merchant bankers.

I will not take any more of the House’s time this evening, because I understand we want to keep moving on, but I very strongly oppose this legislation. This will be an economic disaster now, tomorrow and in the future. History repeats itself. The Labor government do not bank well, and I oppose the bills.

Tony Zappia (Makin, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of the Australian Business Investment Partnership Bill 2009 and the Australian Business Investment Partnership (Consequential Amendment) Bill 2009, and I have a great deal of pleasure in doing so because these bills are very important, very essential and very worthy to be brought into this place. This legislation establishes a partnership between the federal government and the four major Australian banks—that is, the ANZ, the NAB, the Commonwealth Bank of Australia and Westpac—for the purposes of creating a $4 billion Australian business loans facility. Under the partnership, the Australian government will commit $2 billion and each of the banks will commit half a billion dollars towards the $4 billion that is being raised. The intent is for the Australian Business Investment Partnership to be a temporary contingency measure to provide finance to viable commercial property assets and therefore support Australian jobs. This bill is about supporting Australian jobs, but it is more than that—and I will get to that in just a moment. The $4 billion raised by this partnership could be extended to up to $30 billion by the issuance of a government guarantee debt of up to $26 billion.

The commercial property sector in Australia employs around 150,000 people. The commercial property sector is heavily reliant on finance made available by both domestic and overseas financial institutions. Even finance made available by Australian financial institutions is dependent on local banks securing funds from overseas. It is my understanding that around 50 per cent of Australian bank loans originate from overseas funding sources. The global credit conditions have tightened and are likely to remain tight in 2009. Under a weakening global economic outlook, foreign based lenders are likely to withdraw funds presently available to viable Australian businesses, in turn placing creditworthy, viable Australian businesses at risk. If there is a withdrawal of finance presently available to the commercial property market, the Rudd government understands the consequences of that on the Australian economy and on Australian jobs. The Rudd government will not sit by, as the opposition would have us do, and watch the sector be wiped out by global credit markets that are beyond the sector’s control. Many of those employed in the commercial property sector are small- and medium-sized business operators—people who generate employment for others and who are, as some would refer to them, the backbone of the economies of so many local communities around Australia. They are decent, hardworking Australians who are not asking for a handout but simply some temporary assistance during tough times.

Commercial property finance is finance that is required for completed commercial constructions for which refinancing is required; for completion of partly constructed projects; and for approved projects where, in many cases, part—or, in some cases, all—of the occupancy has been presold but commencement of construction has not begun. If those projects that are partly constructed or partly presold are not completed, not only will small or medium-sized businesses lose work but they are unlikely to be paid for work that has already been carried out. These small and medium sized businesses simply cannot carry those kinds of losses, so what we are likely to see is a domino effect right through the business sector. But there is an additional risk in such projects not being completed or not being commenced. Private investors in those properties are at risk of losing the money they have already outlaid. These are generally small investors or young couples who have placed their life savings into a commercial property investment or into their future home or future apartment. The crash of Australia’s commercial property sector would hit very hard and cause severe hardship to many of Australia’s small businesses, to many mum and dad Australian investors and to many prospective homeowners.

In recent weeks in my home state of South Australia more than $1 billion of major city developments have been put on hold or have been indefinitely suspended as a direct result of the global credit squeeze. These developments include commercial properties, residential apartment blocks and a whole range of residential estates. We are not talking about one single house here; we are talking about areas where a property developer goes in and develops an entire estate. These are projects that, under normal circumstances, would most likely have been funded by the banks, but they are now simply unable to secure the funding that is required for them. The projects stack up in every other sense of the word. The collective work and jobs that would flow through the South Australian economy if these projects proceeded would be huge—and much needed right now in the middle of the hard times many people in the building industry are going through. What is equally significant about these projects is that they create long-lasting assets for the state. Therefore, the government’s involvement can be justified in terms of the minimal risks associated with them and the extensive benefit to the community that flows from the establishment of this fund.

I heard speakers from the opposition talk about the risks associated with these investments and I want to highlight three things. Firstly, this legislation has been framed to minimise any risks associated with funds put up by the Australian taxpayers, and that has been done quite deliberately. The risks are minimal. Of course, you can never absolutely guarantee that there are no risks with any financial outlay, but in this particular case the risks are being minimised through the structuring of the loan arrangements that have been put in place. Secondly, if the risks were huge, why would 50 per cent of this fund be funded by the commercial bankers? These are people who you would expect to understand financial risks as well as anybody, yet they are prepared to put money into this fund and be represented in the decision-making process—again, minimising the risk to Australian taxpayers’ dollars that are also in the fund.

Thirdly, these funds will be used to build infrastructure. Whether it is commercial buildings or houses, it is infrastructure—infrastructure that will be there for decades and that will serve generation after generation. There would be few people in this House who would disagree with the general statement that when you put money into houses it is as safe as houses. Essentially, this money is going into properties. Property is probably one of the most secure forms of investment that anyone could ever make. Yes, it might have ups and downs, but in the long term it would be very difficult to argue that by investing in property and real estate you are putting yourself at any real risk.

This proposal complements a previous decision of the government to secure financing arrangements of around $2 billion for the automotive retail sector. It is the same kind of proposal with the same purpose and the same objective. The arrangements for that have been in place for some time and have proven to be a godsend for that industry. Had we not made those arrangements, the retail automotive sector would be in absolute strife today. But, again, this government understood that. This government was not prepared to sit back and do nothing; it was prepared to take whatever action was necessary to ensure that sector remained viable and that the jobs that go with it were sustained.

Just as that proposal has stabilised and brought certainty to the automotive sector, so this proposal will bring certainty and stability to the construction industry in Australia. I understand the commercial property sector currently has bank debts totalling around $165 billion, of which $30 billion is provided by foreign banks, according to figures provided by the Australian Prudential Regulation Authority. It is obvious that, given the tight monetary conditions around the world, those foreign banks are not likely to refinance or to continue to provide the finance that is required to sustain those loans. Yet those developments are already in place or proposed to be put in place. If nothing is done, those developments will obviously have to be sold in a fire sale, which in turn means that the people who invested money in them will lose their money, bringing down property prices across the board. Consider the domino effect that that would have for the property market and industry right across Australia should it start to occur.

These are serious matters; the government understands that and this is a serious proposal. It is an essential proposal and a sensible proposal and, quite frankly, I am absolutely dumbfounded and cannot understand why coalition members would oppose it. I say that quite sincerely. I do not understand why coalition members would oppose this proposal, given the security arrangements that have been put in place to minimise the risk, the importance of what the money is going to be used for and the current state of the global financial markets. Industry leaders across Australia have supported this proposal. They are not fools—they understand the industry as well as anybody and they support and appreciate what the government is doing for that particular industry. They know that Australians across the nation will benefit from this investment.

I conclude that coalition members are opposed to this measure because, in reality—I can only assume this is the case, but I would like to think it is not—they want the Australian economy to fail, they want the people in that sector to lose their jobs, they want to see small investors lose their money and they want to see construction firms collapse. The reason they want to see all those things happen is because they believe, wrongly, that it will help them in the polls. They believe that, if the economy of this country collapses, at the next election the Rudd government will be blamed and it will be beneficial to them in the polls. That is the only logic I can put to why coalition members would be opposed to this measure. If that is the case then it is clear that they are not concerned with the wellbeing of the Australian people. They are only concerned with the wellbeing of their own jobs. I commend these bills to the House.

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

I rise to consign the Australian Business Investment Partnership Bill 2009 and the Australian Business Investment Partnership (Consequential Amendment) Bill 2009 to the dustbin of history, to which they indeed belong. It would be nice to propose amendments, but these bills are so egregious in their thought, intent and principles that no amendment would suffice.

Let me tell the nation a quick story. I look at these bills and I see a bunch of banks with large exposure to commercial property—property that may well be losing its value. If they have exposure to unlisted property trusts or mezzanine finance firms, they know that syndicated loans form a large proportion of this property exposure. They know if one part of that syndicate pulls out at less than 100c in the dollar they are left wearing a range of exposure. I think they just went to Mr Dumb-Money Rudd himself and said: ‘How about a Ruddbank? How about a bank where the Commonwealth wears all the risk—where we are the beneficiaries and wear no risk and this bank helps us prop up commercial property prices on our balance sheets?’ A thinking government would simply laugh. Mr Dumb-Money has said yes; hence we have the spawning of this mongrel runt called the Ruddbank.

The Commonwealth will provide $2 billion and the four big banks will provide $500 million each. There is a contingency within this legislation for the Commonwealth to provide a further $26 billion, so the Commonwealth may provide $28 billion of funds for this, while the four big banks will provide only $500 million each. The Commonwealth money will all be borrowed from the international monetary markets through the raising of bonds and we will wear the liability for it—and this is supposedly a good idea.

When the Prime Minister issued his press release to explain his intent, it was about refinancing existing commercial property syndicated loans on commercial terms when the withdrawal of funding by a participant syndicate threatens a loan. The partnership will focus on completed commercial property investors. There are not a lot of jobs in completed commercial property investments and partially completed development projects. It will be structured to provide financing in other areas of commercial lending should the need arise and the government and the four big banks jointly agree. Yet the Reserve Bank’s February 2009 statement on monetary policy said:

Over recent months there has been some speculation that many foreign-owned banks will withdraw from the Australian market and that this will create a significant funding shortfall for businesses. While there is a risk that some foreign lenders will scale back their Australian operations, particularly if offshore financial markets deteriorate further, at this stage there is little sign of this, with most of the large foreign-owned banks planning to maintain their lending activities in the Australian market.

The Reserve Bank’s statement says there is no indication of foreign money pulling out, which is the basis of this foolish Ruddbank in the first place. So, if the foreign banks are not pulling out from their syndicated loans, what is the point of this ridiculous venture that will put $28 billion of taxpayers’ money at risk?

We know there is approximately $60 billion of foreign debt in commercial syndicated loans. So let us look at what will happen when the ‘Mr Dumb-Money’ Ruddbank is set up. The problems may actually be compounded. While the intent, albeit misguided, is to discourage foreign banks from exiting Australia, the proposal actually encourages any foreign bank that wishes to exit by allowing that bank to be paid out 100 per cent at face value. Right now, foreign banks can say: ‘This asset’s looking a little toxic. Its commercial value is going out. Mr Dumb-Money has stumped up a bank but we can get 100 per cent. We’re outta here.’ Rather than staying in there with the pressure the rest of the syndicate put on them to hold their money in, this will actually accentuate the flight of foreign currency from Australia. In an article in the Australian on 27 January, Henry Ergas stated:

In the short run, the scheme seems likely to induce developers to play off their existing foreign lenders against the safety net the scheme provides. This could accelerate the very withdrawal of foreign lenders the scheme is intended to guard against, while allowing developers to secure some free kicks on the basis of what amounts to taxpayer-funded insurance.

Ruddbank exposes the Australian people to a liability of up to $28 billion in what may well be toxic commercial assets, yet the Commonwealth only has a 50 per cent shareholding in the company. Does the Prime Minister really think it is a good bet to say to the four big banks: ‘You put in $500 million each. We’ll put in up to $28 billion. We’ll hold all the risk—so we’re holding 95 per cent of the funds and a hundred per cent of the risk—but we’ll only hold 50 per cent of the shares’?

There is a good reason. It is clear that no-one in the Labor Party has run a business. If this is the basis of their business acumen, may I suggest they get a big, fat, red ‘Fail’. It is no coincidence, with the Labor Party being the political arm of the union movement. They do not run businesses; as union thugs, they simply stomp all over them. This will add $28 billion in borrowed money to the $200 billion in borrowed money that the Rudd government is planning over the forward estimates.

Ruddbank is a response to a problem the government created. Large amounts of syndicated debt must be replaced in 2009 not just in commercial property but across corporations in general. One of the reasons for refinancing is that companies are being crowded out of debt markets by banks operating with a Rudd government unlimited guarantee, and one problem always accentuates and causes another. The major banks are already beneficiaries of the government’s bank guarantee. They run big, profitable companies, and with the benefit of the guarantee the balance sheets of four of the most secure banks in the world are well placed to handle any shortfall.

Tony Zappia (Makin, Australian Labor Party) Share this | Link to this | Hansard source

Mr Zappia interjecting

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

Ruddbank is not designed, I say in deference to the member for Makin, to make funds available to small businesses, as he tried to put it—small businesses in the community who are employing people. This is about the big end of town. This has nothing to do with small or medium sized business. Every dollar the government makes available to refinance large commercial projects is money not available to assist other areas of the economy.

The minister also states in the legislation that it specifically authorises the shareholders agreement and the activities undertaken by Ruddbank, its shareholders, directors, officers et cetera to be exempt from the competition provisions of the Trade Practices Act. This is being justified as necessary to remove any uncertainty. In fact, I suggest it creates an enormous amount of uncertainty as to how Ruddbank will operate. The exemption is somewhat extraordinary. It breaches any concept of good governance by having representatives from the four big banks and the Commonwealth, rather than an independent board, making decisions in the interests of the country. No matter how the government seeks to rationalise this, there will always be some suspicion that the bank nominees will represent their own interests rather than the interests of the organisation financing and wearing the risk—the taxpayers of Australia. Worse still, it will be hard to justify just whose interests are being served and, more importantly, who is ultimately accountable for decisions.

Whilst it may seem alarmist, the record of Labor governments in the 1990s when it came to major banking is not exactly the great resume that Labor would like to show. The State Bank of Victoria, under Labor’s watch, lost around $3 billion, mainly through its subsidiary Tricontinental. Other parts of the sorry tale are the Victorian Economic Development Corporation, where the final cost to taxpayers was counted at $4 billion; WA Inc., another great Labor brainchild; and the State Bank of South Australia, which had to be bailed out by the state government at a final cost to taxpayers of $2.2 billion. The Labor Party does not have a whole heap of form when it comes to banking. Then again, what would you expect from the union movement? Royal commissions were conducted into the debacles, and governments fell.

There is nothing positive about this legislation. The banks do not need it; they are just looking for an easy way out. It will cause a rush of foreign investment to leave—why would you hang onto a potentially toxic asset when Mr Dumb-Money himself will take it over for you? The legislation offends every principle of good governance. It is a significant and major retrograde step to put the taxpayers of Australia into a further $28 billion worth of debt just because Mr Dumb-Money was conned by big banking.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Sustainable Development and Cities) Share this | Link to this | Hansard source

I can see the ads for Ruddbank now: ‘Frontier financing—first in frontier lending, the Ruddbank will go where no-one else is prepared to go.’ That is what the ads will say: ‘Ruddbank—first in frontier financing, prepared to go where no-one else is prepared to go.’ That is really what we are talking about this evening—a proposition to create something that is designed to look like a bank but is not. You hear Labor members talk about all the safeguards, the governance arrangements and the prudential framework—all of which tries to make it sound like a bank, but it will not be regulated like a bank. It is a proposition where the Australian government and, through them, the Australian taxpayer will own 50 per cent, and the large banks will own 50 per cent. They will own 50 per cent for the princely contribution of 1⅔ per cent of the potential exposure and full value of the financing vehicle that is being discussed tonight.

This is a bad idea. It is a bad idea that has been badly designed. It is the heavy hand of government intervention actually looking for a problem to solve. It is a commercial risk hospital pass to the Australian taxpayer. The announcement was poor on 24 January 2008, because it sought to describe a crisis or a problem or an emerging threat that did not actually exist. There has been no evidence provided to substantiate the claim that there will be a mass exodus of foreign banks in the commercial property sector—none whatsoever. In fact, the Reserve Bank of Australia has said there has been little sign of foreign bank withdrawal. So the whole premise for the legislation we are discussing tonight, the Australian Business Investment Partnership Bill 2009 and cognate bill, is unproven. It is completely speculative in the worst possible character—one that may bring about a self-fulfilling prophecy. The premise itself is challenged by the Reserve Bank of Australia.

It was bad policy, poorly designed policy, seeking to try and provide an exit strategy for foreign banks in the commercial property sector, not in return for some better gain for the Australian public or some improved condition in the commercial property sector—no, just to let them get out, to let them go. This is Kevin Rudd being the foreign commercial bank concierge—he is carrying their bags to the airport while they take off with 100 per cent of their investment, regardless of what the asset was that they were investing in. Free of any obligation, free of any need to consider a market adjustment, they can take off with their cash and go home. What we are left with is then the Australian taxpayer, at the behest of the four big banks, who are so convinced that these investments are worthwhile that they will not lend to them. This is like, ‘Have we got a great proposition for you!’ This is such a viable commercially attractive proposition that the four big banks will not pick it up. There is no requirement on them to pick it up. But so attractive are these projects that they will be laid off to an Australian government guaranteed taxpayer backed funding vehicle—the Ruddbank.

What have we learnt from tonight’s contributions from the Labor members opposite? What we have learnt is that what is actually before us bears very little resemblance to what Labor members of parliament think we are discussing tonight. This is not about the original announcement that was made on 24 January 2009. The proposition has morphed into something much greater than that. It has morphed into things that we Victorians would more familiarly recognise as Tricontinental mark 2.

This law is drafted in such a way that it offers very little in terms of actual delivery of some of the comforting words that you hear from the Labor members opposite. In fact, it will turbocharge the very financial disease the Ruddbank is designed to inoculate against. It actually provides a financial supervirus that induces the departure of these foreign commercial banks investing in commercial property. It is creating a very speculative environment that will actually bring about the problem it is supposed to remedy, and this is what worries the opposition.

This is why we stand against this proposition. This is why—when it induces the departure of those foreign banks in the commercial property sector and then leaves the risk with the Australian taxpayer, and when it can now go beyond the original proposition, which was for the commercial property sector, into a whole range of nebulous and wildly described provisions in the legislation—we are here asking: why should the Australian public bail out banks? Why should the Australian public pay $75 a year in stealth bank fees for every man, woman and child in Australia? That is the cost of the interest bill alone for the debt that the Rudd government is putting us into in the name of this so-called Australian Business Investment Partnership. It is $28 billion of debt. There is a $2 billion contribution, of half a billion dollars each, from the four big banks—1⅔ per cent of the total lending vehicle for a 50 per cent say—and then there is a proposition that allows them to have not a golden share but a golden speck. For a 1⅔ per cent commitment to this project, those large Australian banks will get first cut at any resources that come out of this lending facility. So you can see how troubling this is.

But let us go further. Let us look at what the legislation will do. It is designed to deceive investors and to create the illusion that commercial property, and potentially other investments, are of a value that they are not actually able to bring about in the marketplace. The fear here is that, as the foreign commercial bank leaves a commercial property project or something similar, it will be paid out 100c in the dollar on its investment, regardless of whether the value of the investment has declined so that it, as other investors should, would take its share of the pain of that reduced value. It is masking that point. It is artificially propping up those values. It is designed to deceive—to make it seem as though there is 100c in the dollar of value still within those projects regardless of what the economic circumstances might mean for the actual value of that project.

It permits collusion between the major banks. It actually says that collusive behaviour is not something that this Ruddbank needs to be concerned with. It does not even do what that shambolic National Broadband Network tender does. That tender said to competitors in the telecommunications industry, ‘Provide your material about your broadband network and we will work out how to make a bid for further investment in that marketplace, but don’t use that commercial information for any other purpose; don’t gain a broader commercial advantage out of the disclosure of different competitors’ activities.’ There is not even that safeguard in here. There is not even a proposition that says that, once the Ruddbank board sits around and decides whether the taxpayer should stump up the money, they cannot go and use the material that was before them for some other purpose—maybe to offer to the person seeking the finance an attractive deal on what might be the most secure part of a portfolio of assets, while the part that is the dud is shunted off in a hospital pass to this Ruddbank and left as the exposure of the Australian taxpayer.

It tries to look like a bank, but it is not one. It does not have the safeguards, but it says it will lend to creditworthy, viable projects. If they are so creditworthy and viable, why are they going to the Ruddbank? Maybe they are going there because the banks might argue that they themselves do not have the funds to lend. That is interesting, because the banks have a government guarantee backing them. They should be able to attract money. We heard one of the earlier speakers talk about how it is hard to get finance for projects that are not backed by some assets. Then we were told by the member for Makin that these are as safe as houses—that these are assets that have some recoverable asset value to them and therefore are not a big risk. If they are so safe, why are they going to the Ruddbank? They talked about the property ups and downs. If there are ups and downs in asset values, isn’t it in our interest to see that adjustment take place sooner rather than later so that our economy can move onto a sustainable, productive footing and look forward to the future, rather than carrying these deceitful asset values into the future and wondering just what is going on in the marketplace?

This is a really disturbing proposition. It is designed to deceive. It induces the departure that it is supposed to be stopping, it creates a bank that is not actually a bank, it permits collusion and it has very little hurt money in it from the major banks, who will each put in $500 million—1⅔ per cent of the total value that this legislation seeks to provide in a finance facility. You can see why the banks would like it. You can see why those involved in commercial property would like it. It is very much in their interests. But the parliament is supposed to concern itself with what is in the national interest, and, if you look at that proposition, it fails that test comprehensively. It is not contained to refinancing viable existing commercial properties; it has moved on from that. It does not look anything like the 24 January 2009 announcement. It impedes the market adjusting to asset values. We have heard about the property price bubble and how unhelpful that has been in this global economic circumstance we find ourselves in, yet this is actually designed to perpetuate that bubble by maintaining a value base for assets that might not be justified if they were genuinely exposed to the marketplace.

If you are wondering why this is even more confusing, just read some of the explanatory memorandum material that the government has produced to support its proposition. It says that this intervention is crucially needed because:

The highly leveraged nature of the commercial property sector makes this sector particularly vulnerable to liquidity constraints.

I seem to recall that highly geared, highly leveraged activity is what brought us to where we are now. I thought that was the proposition. Isn’t that what the Rudd government has been telling us?

And then we look for guidance about how we might measure this proposition. I encourage people to look at Kevin’s plan to save the world. This is his seven-point plan to solve the global financial crisis. Not content with saving Australia, or trying to look like it, our own dear leader has come up with a seven-point plan to save the world. If you look through that seven-point plan, where he describes what everyone else should be doing, he talks about weak and systemically significant strains in the financial institutions and how they should be subject to a ‘stress test’—a reality check of the asset values. That is his proposition for the rest of the world, yet in this parliament tonight we are talking about a proposition that is designed to artificially inflate asset values, so it has failed the Rudd save-the-world plan.

He goes on to talk about ‘toxic assets’ on bank balances that ‘must be neutralised’. These are not toxic assets; this is real property that has a value. The issue is: what is that value, and should there be some adjustment? Again, he fails his own save-the-world test by foisting this proposition on the Australian people and the Australian parliament. The fourth prong of his seven-point plan is that ‘the prices of bad assets should be derived from a transparent and simple formula that is consistent across jurisdictions’. I do not think some dodgy Ruddbank to artificially prop up values meets that call that our Prime Minister, our dear leader, is making on the rest of the world. His own plan fails his own blueprint for saving the global economy.

Where does that leave us? It leaves us with a deeply troubling proposition. I heard the member for Corio talk about the Edgewater project in Geelong, saying that it is a very attractive project and that maintaining high values is in everyone’s interests. It will not be in the interests of the tenants occupying those retail spaces downstairs who are paying artificially high rents to prop up artificially high values.

I heard the member for Makin talk about how strong this is when there is a 50 per cent funding commitment from the commercial banks. No, there is a 50 per cent start-up commitment, but for the whole value of the $30 billion facility the banks have stumped up one and two-thirds of a per cent. He talked about the assets being safe as houses, but properties will have their ups and downs. They should be safe as houses in that these assets have a residual value, but this is designed not to allow property values to go up and down. Then he talked about infrastructure.

Isn’t it interesting: now we start to see what this is really on about. I imagine that after this debate Labor members of parliament will run around their electorates rekindling some nostalgic idea that we need a government backed development bank and this is it—that there is somehow discounted finance available to help build the country. I am sure that will be the spin they will put on it. We know that is not what this is about. The member for Wakefield and the member for Makin talked about developments of a residential kind that would not get going without this facility, yet I seem to recall one of them also saying that that is not what this is designed to do.

And then they called on the lessons of the global Depression. That is the first time I have heard a Labor member talk about some comparative analysis between where we are now and the global Depression. They had a very poor lesson out of history. They talked about a contraction and asset values being adjusted where the available funds went into savings and were not available for commercial finance. That is what this is designed to do. With government guaranteed deposits in banks, with the government itself out there crowding out the finance market on its debt binge, with $75 for every man, woman and child in bank fees by stealth to pay for the interest on this debt facility—and that is at the current bond rate for 269 tender—you wonder why people are wondering where the money is for commercial finance.

Where will the money come from for the small businesses that are being told that they are being re-rated for risk and now their cost of funds is going up, in some cases by 1.4 per cent and beyond? Where will the money come from for those businesses that had an overdraft facility to help buy supplies to help them continue with their work and that are now told by the banks, ‘You haven’t fully exercised that; let’s call it in and refinance it’? Where will the money come from for the farming community to rebuild, to plant in the fields, to restock? They will not have a commercial property to wave around to make them more attractive.

Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

They’ll have the baby bonus!

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Sustainable Development and Cities) Share this | Link to this | Hansard source

They have to take their chances. And, as my colleague and friend says, they will have the baby bonus. I do not know how much that will go into the field, but it worries me greatly. The Rudd government is crowding out the finances. It is not learning the lessons of history, but it will have a slogan: ‘Ruddbank, first in frontier financing. We’ll go where no-one else is prepared to go.’ This is not only a shambolic proposition; this is a wretched remedy to a problem that has actually been created by the Rudd government, and it deserves to be thrown out. Whoever dreamed up this idea should go and find something else to do with their lives.

Robert Oakeshott (Lyne, Independent) Share this | Link to this | Hansard source

I rise to speak on the Australian Business Investment Partnership Bill 2009 and cognate bill. Whilst acknowledging the substantial problem that not only the national economy but the world faces, I express concerns that this response has enormous problems attached to it, so much so that, as much as I have looked for a reason to support this legislation, I cannot do so on behalf of the communities of the mid-North Coast or in what I consider to be the best interests of the country.

Without doubt Australia faces a significant problem when you look at the actual dollar figures. As a relatively new member of this chamber getting used to the ‘billion’ word, the collapse in the global investment market of $152 trillion is really confronting, as I think it is for all of us, as the size of the problem that confronts policymakers in response to the issues in play. However, I do not think this response satisfies some fundamental principles and some pillar principles that we would expect in a response that we want to be adequate. I think the concerns raised by previous speakers about the speculative nature and the unsustainable nature of the commercial property sector are real concerns. To put it in layman’s terms, I think it would be very hard for the man on the street to understand—as it is for me to understand—why we should be allowing the white shoe brigade, for want of a better term, the opportunity to buy more white shoes through basically a grant from government in an incursion into property lending and finance.

Commercial property development, particularly over the last decade, has been boosted by its speculative nature and by high gearing, which we have heard referred to by other speakers. It was a bubble that at some point was bound to burst. It is obviously disappointing that the timing is now. However, if it is unsustainable in its foundations—as we have seen in the recent high gearing in various structures and from companies trying to invest in this field and get money from various investors—people will get their fingers burnt. Many people in my area have. The speculative nature of high-risk investments—by the very logic of the words used—is high risk. What goes with that in investment is the principle of ‘buyer beware’. As hard as that is, it is a reality of high-risk investments that you roll the dice when you invest in areas such as speculative commercial property.

So it is of concern that this bank—for want of a better term—is being developed to bail out those who have been speculating for over a decade and those who have been living high on the hog over the good times. Now that we see the crunch come, they are going, cap in hand, to government. This Australian situation would be akin to US car company bosses flying in, cap in hand, to the President of the United States and asking for money. Here we have the commercial property sector, cap in hand, after some very good years, now asking for a bailout from government. I think the type of business we are being asked tonight to essentially bail out has reached levels of unsustainability. The gearings were getting stupid and getting to a point that was clearly unsustainable. Therefore, it is extremely uncomfortable for me to be put in a position to be trying for some reason to bail out these high-risk speculative investors.

And I do not buy the argument—which I think was put by the Prime Minister himself—about the flow-on impacts for the small-business community. I would just like to report from the mid-North Coast that, while certainly there are impacts on the ground in regard to what we are seeing with the global financial crisis, those impacts are nowhere near what is being reported in national media—the crisis of confidence that there might be in various other sectors or locations. The small-business community on the mid-North Coast is holding up pretty well. Yes, there are some issues. But, essentially, we are defending our territory pretty well, and the local economy is still kicking along. I do not, therefore, buy the argument, from my region’s perspective, that the commercial property sector is critical to the future of small business. In fact, I think what we have seen emerge on the mid-North Coast, as a high-growth community, is concern about speculative property development and concern that it was going over and above the expectations and wants for growth within our region.

So, on the question of small business and on the question of confidence, I think there will be more confidence if we see a re-aligning of the moons in regard to more highly geared speculative property development. I would have greater confidence in the small-business community, and in commercial property development generally, if the high-risk, highly geared speculative arm were brought into line—as it should have been, sometime long ago. Unfortunately, it has been allowed to run and it has got out of control. And we are now seeing a correction in the market—which I do not think needs government intervention to try to prop up an unsustainable model for the future of the commercial property sector and the various equities and debt options that are attached to it.

Specifically with regard to the response, the detail of the bill leaves a lot to be desired. We are yet to have clear detail about who exactly the directors are, their status as independent directors and the actual directorship model that would be in place with regard to ABIP. I think the objectives are too loose on the detail. The first objective is relatively clear, in that it is:

… to refinance loans for commercial property when finance is not available from other lenders and the assets would otherwise be financially viable.

Whilst that has a speculative element to it, which I have already referred to, at least as an objective it is relatively clear. The second objective, however, I think should spark the concern of this chamber. From a policy response point of view, we should be demanding more detailed work from government with regard to the development of a response to the problem. The second objective is:

… to provide finance in other areas of commercial lending through financing arrangements of a kind unanimously agreed by the shareholders.

I think, for us to make decisions we would want to see a little bit more detailed work with regard to that second objective. The flow-on from that is the question about the limits on lending. I do not think those limits are clearly defined in this legislation—and that has been picked up by others. There is a question left as to exactly what those limits on lending are and whether the statement of the shareholders agreement actually covers that or whether there are still questions left wanting.

The third reason for opposing this legislation is my concern about corporate governance. The government is taking an extraordinary step into the free market system that is the Australian welfare capitalist state. The Corporations Act in Australia is quite clear that, if you are a director of a company, you must act wholly and solely in the interests of the shareholders of that company. It is legally questionable as a response that this may not be able to achieve what government wants to achieve because the five directors who shall be appointed to this entity will have to operate wholly and solely in the interests of that entity. They cannot take into account global financial issues. They cannot take into account national economic issues. They cannot take into account particular issues for the commercial property sector. They as directors of the entity have to take decisions to operate purely in the best interests of this entity. It is no coincidence that four banks and the government are forming a partnership. Four plus one equals five. It is I think fair to assume that we will see five directors acting in the best interests of an entity that acts in the best interests of the four major banks and the government. Does that pass the test of the man or the woman on the street? I do not think it does. It will be an entity working in the best interests of the big banks and government.

As well, I am concerned about the consequential amendments bill. We have being formed a body that does not have to play by the rules that everyone else in Australian corporate law and financing law does. It is not required to get an Australian financial service licence under the Corporations Act. It is in breach of some standards that we as a parliament and as a nation have set for some time. The safe port in a storm rule would apply here. We have the Constitution of the nation and the rule of law, which we have developed over a long period of time. At times like this we should not go outside those foundation structures unless we have very clear and detailed rules and reasons why we would do that. This is loose on the detail. It is slipping outside the law and setting a standard for those who do have to follow the Corporations Law quite closely and clearly to operate in business in Australia. It is not the right message for this chamber to send—that is, that there is one rule for businesspeople outside of government and another rule for those inside government or inside the four major banks.

I also find the audit process unusual. Here we have government slipping into the territory of free market lending. I think it is an unusual merging and morphing of the government and non-government sectors for the entity to then come back and be audited by the Auditor-General. The exemptions to part IV of the Trade Practices Act and the issues of collusion and cartels, which have been raised by others, are very real issues of concern. Again, that is not the message to send from this chamber. I spoke a couple of weeks ago quite genuinely about how abhorrent cartel behaviour in Australia was and how happy I was that government legislation on upping the ante on cartel behaviour was being passed through this chamber. This is a disappointing message for this chamber to send. We have government on the one hand slapping business and coming down hard on the business community in creating a free market and in clamping down on cartel behaviour—which is good—but at the same time when this involves a government entity a different set of rules is applied. Again, that is a corporate governance concern.

The other corporate governance issue I would like to relate is this. I welcome the Prime Minister’s comments with regard to executive remuneration. A $2 billion injection into this public-private agreement between the government and non-government sectors begs the question: what skin in the game is coming on executive remuneration from the four bank entities? What sorts of commitments have government had with regard to those issues if there is going to be such a large commitment given to a bank bailout? How do we know that is not going to end up in the wrong pocket and slap everyone for the goodwill and good faith shown? I refer to the comments and frustrations of the US President on the US government’s bailout of AIG and the continuation of the payment of some high executive salaries paid. There is a lead example that should be of concern to us. I would be interested to know if some commitments have been achieved by the executive government with regard to executive remuneration and, if so, what those commitments have been. What skin is in the game with regard to the give from those four major banks?

Finally, I will go to some other issues of concern. I have raised several times in this House the lack of an accountability trail with regard to the public sector losses of the last 12 months on the back of the subprimes, the CDOs and the Lehman Brothers. That ball has continued to roll during the last 12 months and is predicted to roll for some time more.

I have yet to see one person shown to have been in breach of investment guidelines in regard to substantial amounts of taxpayers and ratepayers money in this country having been lost. Hundreds of millions of dollars of taxpayers and ratepayers money have been lost and still the public sector, at local, state and federal level, has not fingered one single person in regard to those losses. I continue to raise this question: either we have one person or many people in breach of public sector standards with regard to investment guidelines or, of more concern, we have some substantial problems with regard to investment guidelines we are setting in this country. It is one or the other. If no-one is going to be held to account for being in breach, I am left only to assume that this country has a structural issue and the investment standards for public sector dollars are incredibly weak.

I raise this issue again in this context because, once again, we are seeing bailouts happen. As a starting point we have some fundamental issues but I would hope that, in a parallel conversation to this, there is an accountability trail of the past 12 months—what on earth has gone wrong and why? I have yet to have that answer from government. I hope that if we are talking about national leadership then that answer comes soon.

I am opposed to this legislation. I certainly recognise the problem and the starting point for it. I think the response, however, is weak. I do not think it has worked through the conceptual details and the principles that are attached to such a substantial move into private sector financing. I think there are fundamental corporate governance issues. I think the commercial property sector has some issues of its own to address about the unsustainable nature of its core business over the last decade. I do not feel comfortable in fundamentally bailing out the white shoe brigade. I think this legislation specifically is too loose on the detail and, as I said, the accountability trail on public sector dollars still remains unanswered.

Nola Marino (Forrest, Liberal Party) Share this | Link to this | Hansard source

I rise to speak against the Australian Business Investment Partnership Bill 2009. Put simply, it is bad public policy. Corporate governance and accountability are certainly not part of this bill. The Australian Business Investment Partnership (Consequential Amendment) Bill 2009 will exempt Australian Business Investment Partnership Ltd from the requirement of holding an Australian financial services licence under the Corporations Act 2001. It is inconceivable that, under this legislation, the major banks will have the Labor government’s protection to collude and potentially engage in cartel behaviour because activities under this bill will exempt ABIP from any scrutiny under the Trade Practices Act. It will be exempt from ministerial and parliamentary oversight. The Trade Practices Act applies to Australian businesses and commercial entities except, in this instance, the major banks. The Labor government is placing the banks and the Ruddbank above Australian law, above ministerial oversight and above the parliament and scrutiny by the taxpayers who are funding and guaranteeing the $28 billion in funds.

Every taxpayer dollar allocated to funds for the Australian Business Investment Partnership, potentially $28 billion, removes initiatives and assistance that should be applied to the engine room of the Australian economy, the small businesses that employ nearly half the workers in the nation. It detracts from initiatives to assist exporters—keeping in mind that the only reason Australia has not been in technical recession is the strong performance of our exporting agricultural sector, made up primarily of small, family owned and run Australian businesses—initiatives for small business that will help them retain their highly valued and trained employees. Australian jobs should be the priority.

The Ruddbank reminds those of us from Western Australia of another Labor government initiative, WA Inc.—the infamous WA Inc. years of the WA state Labor government of the 1980s, when the state Labor government put big business interests above the accountability and scrutiny of the parliament and people of Western Australia. Between 1983 and 1991, in Western Australia, state Labor governments conducted quiet deals with private businessmen and their companies. The Bond Corporation, through the state government superannuation board, acquired major holdings in Bell Group. Rothwells was given a $150 million government guarantee by the then Labor Premier Brian Burke. The petrochemical plant joint venture, which was the cover for manipulating fundraising, collateral transactions, development proposals and of course the payment of management fees, turned a $100,000 outlay into a return of $400 million, $175 million of which was provided by a state Labor government agency, WA Government Holdings. Those are just some examples of Labor’s WA Inc. deals. These public scandals saw Perth entrepreneurial opportunists manipulate Labor ministers and commercial transactions, walking away with millions of dollars of taxpayers’ funds, provided with the full consent of the state Labor government.

But these funds were taxpayers’ funds and, in some instances, ultimately private investors’ funds. There is nothing in this bill to stop the Ruddbank funds from being used for other state government purposes, for other types of property investments or to prop up debt financing for large commercial projects—again without any scrutiny or accountability to the minister, the parliament or complying with the Trade Practices Act. It is bad public policy. Ruddbank will have access to $4 billion—$2 billion from the Labor government and $500 million each from the four major domestic banks.

When additional financing is required beyond the initial contribution of $4 billion, ABIP will be able to issue up to $26 billion in debt to raise the additional funding. Debt issued by ABIP will be government guaranteed, $28 billion of which is guaranteed by the Australian taxpayer—taxpayers who will be guaranteeing decisions, expenditure and debt decisions made by the four major banks. And this is of course on top of the $200 billion of taxpayer funded credit card borrowings of the Rudd government. How much more debt will this Rudd government leave for our children to pay off, and where are the checks and balances to prevent collusion by the big four banks in this process? There is a very clear conflict of interest. Jennifer Hewett reported in the Australian on 28 January:

Contrary to the impression deliberately created by Canberra, the new commercial property fund will do virtually nothing to directly protect jobs in the construction industry.

On the same day, in the Australian Financial Review, Stephen Kirchner reported that, once again, the Rudd government’s intervention puts the ‘needs of business and financial institutions ahead of consumers and taxpayers’. He wrote:

… the Rudd government is constructing a corporate welfare state that will ultimately hold back, rather than support, the economy.

Debate interrupted; adjournment proposed and negatived.

ABIP is counterproductive for Australia. There is no existing threat that foreign banks will withdraw, apart from the Royal Bank of Scotland, which is subject to a takeover. While supposedly designed to discourage foreign banks from exiting Australia, ABIP will actually encourage banks to exit and to demand their money back to the full value of their loan.

Anthony Klan, from the Australian, stated on 28 January that the Ruddbank was expected to ‘mask sloppy lending practices’ undertaken by the major banks during the property boom with their ‘reliance on overstated property valuations—or “friendly valuations”’. But taking over commercial property loans from foreign banking institutions must not be based on old valuations. The Financial Review agreed in an article on 3 February, which said:

Lending must be done on new, not old, valuations. Loans that were written on aggressive boom-time criteria should be allowed to fail.

Again—this is bad policy. Once again, the taxpayers will take all the risk. We certainly do not want a repeat of the WA Inc. scandal. This is bad policy, and it should not be passed through this parliament.

Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

I rise tonight to discuss the initiatives that are being put forward by the government. Before voicing my opinion on the Australian Business Investment Partnership Bill 2009 and cognate bill, I would like to place on record that I have supported the government’s initiatives in relation to the various stimulus packages that are out there, mainly because I have some sympathy for the logic underlying why these packages have been produced. As I understand it—and I know the opposition has been opposed to these particular packages—the government are of the view that, due to global circumstances, there will be a period of time during which the economy will slow. Obviously, with a slowing economy there will be some employment impacts. To overcome those particular impacts, the government’s logic—which, as I said, I have voted for—is to stimulate the economy to such a degree that it can essentially fill that gap in terms of what would happen normally and what they perceive will happen due to the global slowdown. In recognition of that period of slowdown, they have injected fairly large amounts of money to try to plug that growth crisis, as they perceive it. As I said, I have supported those initiatives.

But I cannot support this current initiative before the House. I think the member for Lyne outlined a number of issues in relation to this legislation. I listened with some degree of interest to the contribution earlier of the member for North Sydney, who is in the chamber at the moment. I heard him talking about the role that he played in relation to the privatisation of the State Bank of New South Wales. I was in state parliament at that particular time and, it being a hung parliament, I had some knowledge of what went on. I probably have more now than I did then but I nonetheless had some knowledge. One of the things I was very interested to hear the member for North Sydney say was that, even though the state at that time was the major shareholder—

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

The only shareholder.

Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

the only shareholder—there had to be an independent audit process of what was actually going on within the system. I was privy to some of that audit process. As tends to happen with hung parliaments, certain demands were made in relation to the probity issues and how all that was going to be worked through. So there is some history of government moving in and out of banking activities.

I will not be supporting this legislation. I think it is very dangerous and I think it is misplaced. I think the government is trying to trade on the other initiatives—the stimulus packages, which I have supported. I think they are trying to link the two together, in a sense: ‘Because we have done this, we need to do that.’ In fact, I do not believe we have to. I agree that we need to plug the gap that is there at the moment and try to stimulate the economy. But artificially inflating values, or maintaining values, of commercial property that, in a lot of cases, is very highly leveraged—very highly geared—for the sake of saving jobs is a very, very thin line that we are walking. In fact, I would argue that, if the stimulus packages that are in place at the moment do not deliver the appropriate outcome, this sort of package will not make any difference at all—because we will see the overseas economic meltdown far outweigh anything that we can possibly do here.

I think we have got to start sending some appropriate messages, particularly in relation to the commercial property market. We have seen, on the stock exchange, a commercial message go through to the investor that this was overheating and we were starting to overvalue assets. And we have seen trading activities and profits being made, by people who were really doing very little in terms of productive activity, out of some of those assets.

In fact, it would be very interesting, if this did get through the Senate, to watch who became the recipients of the money and which of those recipients had, in the past, made substantial donations to political parties—to see whether there is some payback being hidden behind this veneer of saving jobs in the commercial property market. In fact, if we are to learn anything out of what is happening around the globe at the moment, we have got to be able to transmit some of those messages back through to the community—that you cannot continually create productive effort out of a trading mechanism.

I also have some comments in relation to what we are attempting to do in terms of the emissions trading scheme. I am not opposed to doing something about climate change or to fairly stringent activity to try to cut emissions. But I think that this insinuation that if it does not fit within a market framework you discount it or rule it out is completely inappropriate in some of those areas.

Here, again, we are seeing what was essentially a market about to be funded by the four major banks and the government. Other members have made some very pertinent points in relation to this. There has been $2 billion from the government, and $500 million from the ANZ, Westpac, NAB and the Commonwealth. So that makes a $4 billion arrangement. But the legislation allows for a $26 billion debt capacity to be put in place. That means that the Commonwealth, as I understand it, has, or could have, a liability of up to $28 billion.

The legislation says that this is for two years. But a lot of things pass through parliament at the start as only interim measures. Look at the first home owners scheme—an interim measure. Look at the baby bonus. Look at what happened in the seventies and I think the early eighties in terms of the investment allowance. A lot of these things were put in place as temporary measures. It may be that governments believed that they were good ideas at the time. But I do not believe that the first home owners scheme is a good idea. I fought against one of the most ridiculous pieces of legislation in terms of monetary outlays that I have ever seen—the baby bonus. For Peter Costello—a man whom I admired in terms of his economic acumen—to defend that and try to put some logic to it in terms of population loss was, I thought, an appalling piece of social manipulation, and I think all members would be seeing some of the detrimental effects of the baby bonus and the impact that it is having. So these things that are put in place, often for the short term, can become part of the mechanisms of governments, and not all of them are positive. Occasionally, some of them are removed. But my message to the current government and to the Senate is that I believe there are some very substantial risks in this legislation. There are risks to the taxpayer and risks in terms of the commercial property market. And, as I said earlier, if the global economic crisis continues, the risks to those businesses anyway will be substantive and will possibly leave the nation and the taxpayer in a much worse situation, rather than accepting some of the messages that need to be sent.

So, as I said, I will not be supporting the Australian Business Investment Partnership. As the member for Lyne has said, and as I think the member for North Sydney and others have said, there are some governance issues here that really do need to be clarified. I do not believe that—just because we have an economic crisis, and just because there may be some liquidity problems with some very highly geared businesses, and just because some of those people may employ some people, and just because some of those people may be friends of the political process and have been quite substantial donors in the past—that is a good enough reason to create what really becomes a people’s bank for commercial activities. I think there are some very high risks.

I am pleased to see that the Treasurer is here in the chamber and, in conclusion, I will just reiterate my position. I supported the government on all the stimuli packages because I believed that there was some logic in terms of what they were attempting to do—to plug a pothole in terms of growth within the economy and to try and stimulate the growth that the normal economic activity, in their view, was going to be unable to achieve. I supported that. I supported the government in relation to the transfer of the $2 billion that was set up by the previous government as the Communications Fund, the interest of which would be spent over the next 20 years to achieve some pothole maintenance of our telecommunications system. I supported the concept of transferring that into a National Broadband Network. And I look forward to seeing those things come forward in the next few months. But I cannot support this structure. It is set up, essentially, to form a government bank. It is a government bank that rules out more people than it rules in, in terms of who can access the system. It leaves it slightly open-ended, so that others can be brought in at a future date. But it is essentially about propping up those—many of whom, as the member for Lyne said, have gone into these activities with their eyes open—who have made massive amounts of money, and who have become very highly geared with a view to making more and more money, when all of a sudden there are some storm clouds on the horizon. I do not believe that you remove those clouds for this particular sector within our economy. In fact, if we do remove those clouds, we do not really address the message that the globe is actually sending us—that you should be rewarded for a productive effort, not just for financial investment and margins at the end of that investment process. So I oppose the legislation.

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

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

Treasury could not name one.

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

The opposition had their say; the government is now replying. The shadow minister wants to engage across the table. This is one decision that the opposition will regret for a very long period of time, because in this environment there is absolutely no guarantee that foreign banks are maintaining their commitment to the Australian commercial property sector. The Governor of the Reserve Bank was asked about this by the member opposite.

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

He said, ‘Last resort; top drawer.’

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

He said, ‘I don’t have any problem with there being a plan in the top drawer to do what should be needed.’ That is what the Governor of the Reserve Bank said. In the House again today the opposition have tried to suggest that there is too much risk, but they know that we have incorporated safeguards in this legislation and governance arrangements.

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

No you haven’t.

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

We absolutely understand that. The opposition claim that the collapsing commercial property prices will have no impact on a broader economy. How out of touch can you become with a sector that employs up to 150,000 Australians—150,000 Australians who do not matter at all to those who sit opposite. As I have already outlined, 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. Of course, that will have tremendous flow-on effects to employment in other sectors.

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

How? It is existing real estate.

Gary Gray (Brand, Australian Labor Party, Parliamentary Secretary for Regional Development and Northern Australia) Share this | Link to this | Hansard source

You can add up, Joe.

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

The shadow Treasurer reveals his ignorance yet again.

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

It is existing real estate.

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

It comes as a surprise to nobody, of course, that the Liberal Party wants to play politics with the livelihoods of something like 150,000 Australians who are tied up in the commercial property sector. The Leader of the Opposition is such an opportunist. He would rather see the commercial property sector fail than see the government’s plans succeed.

Gary Gray (Brand, Australian Labor Party, Parliamentary Secretary for Regional Development and Northern Australia) Share this | Link to this | Hansard source

Absolutely.

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

That is the case. It is really that simple. They would rather see the country fail than see the government succeed. We have seen this on display in this House day after day in recent weeks: opposing the stimulus package and opposing the bank guarantee—two initiatives which are absolutely fundamental to supporting the Australian economy, to supporting growth and to supporting employment. They were opposed in toto by those opposite.

When I was at the G20 finance ministers meeting on the weekend I learnt that these are measures which have been implemented by conservative governments around the world. They have not been condemned for being risky. They have implemented them because they are prudent, because we are in extraordinary circumstances. But there is not one measure this government has put in place that those opposite have seen fit to support in order to support Australian jobs. It simply shows that they do not understand the magnitude of the challenge and they have no positive solutions to that challenge. That ignorance has been on display in the House again today as it has been on display since we produced the Nation Building and Jobs Plan some weeks ago, because they would rather see the country fail than see the government succeed. That is the truth of it. They cannot support fiscal stimulus, they now cannot support the Economic Security Strategy and they cannot support the Nation Building and Jobs Plan despite the fact that conservative governments around the world are supporting such initiatives. Everyone sitting around the table at the G20 in London over the weekend was supporting substantial fiscal stimulus, they were supporting measures to stabilise the financial system and they were supporting bank guarantees, but the only people, just about in the world, who cannot support these measures are the Liberal and National parties in Australia. That just shows how out of touch they have become because they are not concerned about Australians losing their jobs; they just want to score a political point.

In the face of potential job losses in the commercial property sector, what has the opposition had to say? This is what the Leader of the Opposition had to say on 26 January. He said, ‘Let the market take its course.’ That is a recipe for lower growth; that is a recipe for higher unemployment; that is a recipe for higher debt; and that is a recipe for human tragedy. That is what it is a recipe for. There were political parties at some stages in this country many years ago who argued that, and it was those sorts of policies that promoted the deepest downturn in the history of this country and the globe. They are at it again, because they would rather see the country fail; they do not want to see the government succeed in dealing with these extraordinary circumstances as we are. So their policy is just to sit and wait and do absolutely nothing. Well, this government will do everything within its power, everything that is responsible, to support jobs and growth in this community.

I have been away for two sitting days. Watching them in the House today I could not believe how embittered those opposite have become. The type of tactics deployed in the House here today were tactics that are really foreign to this parliament. We have an opposition that is so embittered, so consumed by its hatred of the government, that it will not engage in a decent debate about the future of policy and about what we are doing to cushion this country from the effects of a global recession which is growing more savage day by day and week by week. They have a strategy that would simply let tens of thousands of Australians go to the wall.

The Australian people expect more from the opposition and it is not too late for them to see sense. If they do not support this legislation and projects fail and jobs are lost, it will be entirely on their heads. If they do not support this bill and if, in the weeks ahead, jobs are lost as a result of their opposition, that will be entirely on their heads. ABIP is an important part of the government’s response to cushioning Australia from the effects of the global economic crisis. The government is acting responsibly in supporting Australia’s commercial property sector. We are doing it because it is important and because it is a measure that is required by the circumstances of the day. We are acting prudently, with a range of safeguards in place, to help protect the interests of Australian taxpayers. I commend the legislation to the House.

Question put:

That the motion (Mr Tanner’s) be agreed to.