Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Hansard source

Markets fail, generally, for three reasons. Firstly, markets fail because they do not have perfect information. If they do not have perfect information they cannot properly price goods and services when they are produced. Secondly, they fail because sometimes we get externalities—that is, a negative or even a positive external benefit to production—that are not factored into the costs of the goods and services produced. An example that we often use in this chamber is climate change. If you believe that carbon dioxide, as a by-product of electricity generation, impacts global warming then you need to price that cost into the electricity market. Hence, we had a price on carbon to begin with.

The third reason markets fail goes back to discussions around property rights and what is called the 'free rider problem'—that is, people and businesses tend to take a free ride on the back of common property et cetera.

The GFC showed us that we were not necessarily managing our system. The system in Australia was managed much better than—as we saw with some of the collapses—other financial markets around the world. I do not know whether you can remember, in 2008, the week Lehmann Bros collapsed. I remember it very vividly. I was teaching Principles of Finance and International Finance at university at the time. It became a fantastic case study for my students, in the years following, on what went wrong and why it occurred.

I describe it a bit like the Y-wing fighters from Star Wars dropping a torpedo into that sweet spot of the Death Star, which set off this enormous chain reaction all around that world. But that sweet spot was the mortgage securitisation market in the US—a highly risky set of products that had been bundled. There were all sorts of failures around the pricing of risk and the derivatives that we use to manage those risks.

The problem was that we all lost confidence. We all lost faith in the system. Everybody panicked. There was a panic; people were rushing to take their money out of the banks. We had a shockwave that went around the world. Trillions of dollars were wiped off global stock markets, off the values of assets. Economies that had been chugging along nicely for hundreds of years—with hiccups along the way—actually looked as if they were going to go under. We saw four or five years of hardship in places like Greece and other countries, which were trying to pull themselves out of this mire. Some of them have not done that yet. So the repercussions of the GFC are being felt all around the world.

We have been through these crises before. We know how to react to them. There were a lot of good people around who suggested that we immediately moved to mitigate the risks. One of the things that we did in this country, as occurred in other countries, was to make a deposit guarantee in our financial system—not just on terms deposits and savings deposits, but also, at the time, on wholesale funding for banks. The government stepped in and said: 'Don't panic; it's not going to be the Pyramid Building Society all over again, where everyone is rushing to take money out of the banks and stick it under their pillows. We'll guarantee you. The taxpayer, if we have to, will foot the bill if you lose your money.' That helped calm the system, and there is absolutely no doubt at all—it is the reason that we are proposing this motion—that the banks benefited, as did depositors, creditors and the financial system itself. It restored confidence. Those who understand pricing risk, know that in finance it really is all about confidence. There is no magic wand when we look at pricing risk; if there is uncertainty we get higher risk, and when there is more certainty lower-risk premiums tend to change the prices of assets et cetera.

At the end of the day this worked well. It was brought in by the Rudd government. Acting Deputy President Sterle, you can correct me if I am wrong, but I am fairly sure that it was former Prime Minister Kevin Rudd who brought in the guarantee. Like some other things that Labor did, to their credit, they managed to stabilise the system during what was probably the worst financial crisis—certainly in living memory for us in this chamber and probably for all time.

If you went and asked people around the country, a lot of them would say: 'Why don't you take money off the banks? Why don't you tax the banks? They make billions of dollars in profits. In fact, the amount of money they make is ridiculous

They charge all these fees; we hate the banks making all this money.' Every time they release their profit figures, politicians from both the federal and state levels make comments about the banks. The average Australian is distrustful about the amount of money the banks make; nevertheless, there are also superannuation investments in those banks and they are important in terms of underpinning our own wealth. We do want a healthy banking system that functions effectively. However, we also want the banks to pay back the amount of taxpayer money that they benefited from when we stepped in to stabilise the financial system. The taxpayer in this country, the Australian voter, stepped in to foot the bill and cover their risk. That does not mean we had to physically put in the money, but we said we would. This has given the banks a margin benefit in terms of their wholesale and retail funding—they have been able to get funding at a lower rate because they have been a lower risk proposition. That is all about that risk premium thing I mentioned earlier.

This is not a Greens idea, although we are proposing this issue today—this was put up by the Reserve Bank in a discussion paper and also in a submission to the Financial System Inquiry that David Murray is conducting. It has been discussed in estimates—I remember asking Treasury about this at the last estimates. The Reserve Bank is saying that a levy would help pay for a fund that will protect their own depositors in the event of a banking collapse, and they have estimated the margin benefit at around 0.2 per cent, or 20 basis points. They have basically said that this should be paid back to the taxpayer—this is the benefit that has been conferred on the big banks in their wholesale and retail funding.

The United Kingdom has implemented a bank levy on the deposit guarantee. That is a very similar thing. We know that in the UK alone they are expecting to raise about $3 billion Australian this year from the collection of their bank levy. So this is not a radical 'let's tax the banks because they make too much money' Greens idea—this is a very sensible, rational proposition that government had a role to play in stabilising the banking system and we need to now get that money back. Taxpayers covered that risk and that led to a benefit for the banks, and it is only fair that that money should be used to spend on schools and hospitals and on policing and on all the issues we debate in this chamber.

What would a bank levy be worth? There are different estimates, and the Greens have had their own estimate prepared. Recently a submission by the Customer Owned Banking Association to the government's Financial System Inquiry included an independent analysis and it put the annual value of the effective subsidy the banks have received through the deposit guarantee at between $2.9 billion and $4.5 billion. If we work out the number of years the banks have had this subsidy and find a value that we are comfortable with, we are talking about pretty serious money. The Greens sought advice from the Parliamentary Budget Office—and I give a plug to my predecessor, Bob Brown, who worked with Senator Milne here in the chamber to get a Parliamentary Budget Office for those in opposition to price their policies. The Greens have made significant use of that service. The numbers we got back indicated that a 20 basis point levy, or 0.2 per cent, on all assets valued at over $100 million held by the big four would raise $16.8 billion over the four years to 2018-19. That would not allow deductibility of levy payments against company tax by the banks. That is our view of what a straight payback would be. Let us be honest, $17 billion is a lot of spondulicks. We could all do with some of that to help run this country. We have been arguing over much smaller amounts in individual policies in this chamber in the last few weeks. This will be coming from banks that make, collectively, tens of billions of dollars each year in profit, which goes back to their shareholders. Remember, the Reserve Bank, obviously the UK government and their institutions over there, as well as submitters here have said the banks have benefited from taxpayers in this country and they should pay them back. It is that simple.

The question is, do we have the political courage to stand up to lobby groups like the Australian Bankers Association, who have had some recent additions, I have noted with interest in the last week, including an employee from Mr Hockey's office. They are unashamedly saying they lobby hard for the benefit of their members—that is what they do; they are out there to protect the banks and make sure the banks make as much money as possible. It is black and white. We need conviction in here to say to the banks, 'Listen, you blokes do pretty well—give us our money back.' That is the proposition we are discussing here today. Although there is a lot of detail around it, it is not really a controversial or remarkable suggestion unless you understand how effective the banks are at lobbying this government. I notice Senator Dastyari is in the chamber, and he would well understand the lobbying power of the banks and the Australian Bankers Association following the Senate's FoFA inquiry and its ASIC inquiry. Once again, the Australian Bankers Association said that they had a deal, which is probably one way to describe it, but certainly numerous discussions, with this current government before it came to office about amending the FoFA regulations before 30 June, and of course if that was not done it would have impacted on the bottom line of the big banks and the big financial services companies and would have impacted on their vertically integrated business models. The government did deliver that for them, as did the Palmer United Party.

What we also are going to have to discuss in here is whether we are prepared to stand up to the banks and say, 'Give some money back to the taxpayer—money that benefitted you—so that at the end of the day you are cost neutral. You made this money and got that extra margin because of the guarantee. It lowered your risk and helped price your risk. It is time to give it back to the taxpayer.'

The levy drives competition and stability, without hitting customers, and would make a significant yet fair boost to national revenue. There has been a lot of work done around the changes to the competitiveness of the system, but we believe that it would be a win-win. We also believe it is fairly and squarely in line with economic theory, in this case because the market has failed. I want to make that very clear. The GFC was a market failure. The whole system lost confidence and the government had to step in to restore that confidence. If you believe there is a role for government in correcting for market failures, and the Greens do—that is why we wanted to price carbon and we are happy with regulations—the government needs to calculate what benefit they conferred onto the banks and the banking system and ask for it back.

I think the too-big-to-fail concept is something that everyone is familiar with. If the banks had failed, the consequences would have been dire, not just in this country, but all around the world. Luckily, we got through this crisis—or we are nearly through this crisis. I would say that it is still well and truly washing through even the US economy today. Certainly, consumption and investment has not seen the giddy heights it did pre the GFC, and unemployment is still very high. This is probably because people still feel gun-shy. There is still a confidence crisis around investments in some asset classes. I think the damage it did to the mortgage market and housing market in the US has severely impacted a lot of places in the US, particularly the low-income parts. And, of course, if it impacts your wealth it impacts the way you consume and the way you invest. The US economy was heavily reliant on consumption—it was nearly two-thirds of US GDP when the US went into the crisis.

At the end of the day I hope that we have learnt from the GFC. We now know that these types of bank levies can work to stabilise the system. If we do not ask the banks to return the benefit we gave them, I think that is unfair. The principle of this is well and truly in line with fairness. It can be supported by rational economic theory. It has been supported by a number of stakeholders in financial markets. It makes a lot of sense. I would hope that everyone in this chamber would see the benefits of it and understand that sometimes we do have to find revenue. It is not just about cutting costs, like we have seen in this budget. What we have debated in this chamber is the fact that in the current budget we have taken money off those who can least afford it—we are talking money off pensioners and the sick. We have talked about this a lot. Let's take some money off the big banks. Let's take some money off them in line with sound, rational policy, which is exactly what this is. I recommend that everyone agree with this.