Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

My question is to Senator Minchin, the Minister representing the Treasurer. I refer the minister to the turmoil in global markets as a result of the US subprime mortgage meltdown, and the widening debt crisis in Australia, specifically the impact on home lenders RAMS and Bluestone. Can the minister explain why, on 8 August, the Treasurer said:

Australian financial institutions are in a very strong position, very well capitalised, highly profitable, and our prudential regulator does not see any problems developing in relation to them.

Given that major problems for two major Australian institutions have already developed, can the minister now advise the Senate how the Treasurer could possibly have got it so wrong?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

Mr President, I reject the assertion that the Treasurer got anything wrong. The fact remains that, so far as Australia is concerned, we are blessed with a much smaller so-called ‘subprime’ or low-doc loan mortgage market than that of the US and we are therefore experiencing much lower levels of arrears. Subprime lending forms about one per cent of the Australian mortgage market. In April this year, securitised subprime arrears stood at approximately $996 million. The numbers of mortgage arrears remain very low for the total Australian mortgage market. Australian household balance sheets remain very sound.

Nothing has occurred that would suggest that the Treasurer’s reassurance about the strength of the Australian position is incorrect. Indeed, the opposition would be the first to leap to their feet were the Treasurer to do anything to suggest that there was reason for panic and concern. On the other hand, this is a reminder that global financial markets are always prey to instability; that it is essential that the Australian economy be managed carefully, tightly and responsibly; that we do ensure the continuing strength of the economy itself and of the financial institutions therein; that we do ensure that interest rates remain relatively low in this country; and that the economy remains strong.

The facts are that, while we are blessed with a much lower rate of subprime mortgage penetration than the United States—to the extent that the United States, having a much bigger subprime market than us, is experiencing difficulties—we all have to be very conscious of the potential for that to flow through to Australia. It can affect the price of money. Money is like anything else in the world—there is demand and supply and a price set in the marketplace. The RAMSs of this world are experiencing the effect of instability in the US market on the price of money. That is why experienced hands are needed at the wheel. Even when Australia’s position is looking as strong as it probably ever has, experience is critical to our capacity to sustain our economy and to ensure that Australia is able to weather those storms, as we did through the Asian financial crisis in 2001. We are trying to build a resilient and flexible economy that is capable of responding when it has to—an economy that can resist and be resilient to the international shock waves that can come at any time. The Treasurer is right to say that Australia has built an enormous resilience to these sorts of shock waves, but we must be constantly on alert to their capacity to affect the Australian economy.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. The Treasurer, further, on 10 August said:

... there is no reason why any Australian financial institution will be exposed.

Now two are highly exposed. I ask the minister again: how did the Treasurer get it so wrong? Was it that he was just too busy attempting to destroy the Prime Minister, Mr Howard, or is he like the rest of the government: simply stale, arrogant and out of touch?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

No, the government is not tired or out of touch. This is one of the most active and activist governments this country has ever seen. Indeed, the tragedy for this country is that the alternative government wants to roll back one of the most significant important reforms that we have introduced to ensure that the Australian economy is flexible and resilient. I speak, of course, of industrial relations. The most important thing we can do is to ensure a flexible labour market in this country so the economy is strong, flexible and resilient. The worst thing you could possibly do in the circumstances that the global economy faces is to reregulate the Australian labour market and expose us to all the potential flow-ons that can occur with instability in the global financial marketplace.