Helen Coonan (NSW, Liberal Party, Shadow Minister for Finance, Competition Policy and Deregulation) Share this | Link to this | Hansard source

I rise to speak in response to the proposed Australian Business Investment Partnership Bill 2009, called ABIP or colloquially called Ruddbank. ABIP will be established under the Corporations Act 2001 and will be a public company limited by shares. The members, or shareholders, of ABIP will be the Commonwealth of Australia and Australia’s four major domestic banks, Australia and New Zealand Banking Group Ltd, Commonwealth Bank of Australia, National Australia Bank Ltd and Westpac Banking Corporation.

This bill provides for the creation of the Australian Business Investment Partnership, which is a company established to address the potential risk of a funding gap in the commercial property sector due to a reduction of foreign banks’ level of financing. The objectives of this organisation are to provide refinancing for loans relating to commercial property assets in Australia in situations where finance relating to those assets is not available from commercial providers other than the organisation itself—that is, other than ABIP—and the assets would be otherwise financially viable. Its further object is to provide financing arrangements in other areas of commercial lending if circumstances necessitate and provided those arrangements are agreed upon unanimously by the members of ABIP. The board of the organisation comprises one nominee from each of the four major banks, and a Commonwealth nominee will chair the board. The Treasurer, Mr Swan, announced at 11.30 pm on Sunday, 10 May the appointment of a former senior public servant, David Borthwick, to be the chair of Ruddbank. Each member has a right of veto, and all decisions about lending need unanimous agreement.

How much will it cost? The government and the four major domestic banks, Commonwealth, NAB, Westpac and ANZ, will provide initial loan funding to ABIP and an amount of working capital. The government will provide $2 billion, and the four major domestic banks will provide $500 million each. On its establishment, ABIP will have access to $4 billion in undrawn loan facilities less an amount for working capital, which is expected to be $4 million. The financing provided by the major banks will not be government guaranteed. ABIP will relend the loan funding provided by the government and the four major domestic banks to commercial property assets that meet ABIP’s lending criteria, determined by shareholders. The organisation will only provide funding for commercial property where the underlying assets and the income streams from those assets are financially viable. If 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 that additional funding, subject of course to the unanimous agreement of shareholders. This could provide the bank with up to $30 billion in funds and financing. Debt issued by ABIP will, however, be guaranteed only by the Commonwealth.

ABIP is expressly exempted from the provisions of the Trade Practices Act. The Trade Practices Act is of course the key competition law in Australia and provides fair trading and the protection of consumers and prevents some restrictive trade practices of companies. As the government is proposing that ABIP be exempt from the Trade Practices Act, ABIP will not be subject to the laws promulgated in the Trade Practices Act regarding restrictive trade practices, unconscionable conduct or misleading or deceptive conduct.

The first issue here, then, is whether the foundation for the Ruddbank—namely, the potential for withdrawal of foreign banks—is likely. On 20 January 2009, the Prime Minister gave an address in Adelaide and spoke of how:

... cash-strapped foreign banks are scaling back their lending in foreign markets such as Australia.

The Prime Minister went on to say:

If foreign banks do not roll over their share of these loans, it would be difficult for Australia’s four major banks to fill the gap on their own.

The Prime Minister was insinuating, if not stating directly, that Australia could expect to see an exodus of foreign lenders in Australian credit markets, particularly where loans have been provided in the commercial property sector. Four days later, the Prime Minister took it upon himself to establish a solution to this scenario. On 24 January 2009 the Prime Minister announced through a media release the birth of the $30 billion policy project, the Australian Business Investment Partnership, through the bill which we are now discussing in the Senate.

Two weeks after Mr Rudd made this announcement, the Reserve Bank of Australia refuted the Prime Minister’s claims with regard to the possible exodus of foreign lenders from Australian shores. In its Statement on monetary policy released on 6 February 2009 it stated:

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.

So here we have a situation where yet again Mr Rudd has overreacted, created policy on the run and responded to a problem where the evidence was at least equivocal.

In evidence to the Senate Standing Committee on Economics, the Property Council of Australia said that of the 23 foreign banks in Australia only one, the Royal Bank of Scotland, had been withdrawn from the Australian market. It added that the US Citigroup faced some difficulties. These banks, of course, face unique solvency problems in their respective home countries. Perhaps their problems are not unique, but they are certainly pervasive. No specific evidence was given to the committee of further foreign banks planning to withdraw from Australia; only vague references were made to what appeared to be unsubstantiated possibilities that some foreign banks might be considering withdrawal.

In his submission from Concept Economics, respected economist Professor Henry Ergas disagreed strongly with the government’s pre-emptive concerns about foreign bank withdrawal. He said:

There seems to be little convincing evidence justifying the primary rationale for the proposal—bailing out distressed syndicated commercial property lenders and preventing fire sales—and even less evidence of a market failure in respect of the secondary purpose of financing commercial lending in general.

This points to one of the major problems with the proposal: the moral hazard that it creates. There is a material risk that the initiative could actually encourage the very actions it is designed to forestall. Faced with a one-way bet, developers have an incentive to play off their existing foreign lenders which, in turn, could accelerate their withdrawal from the Australian market.

ABIP, then, could potentially act as a counterproductive incentive for foreign banks, offering them the security of a taxpayer funded safety net that will allow foreign banks to exit at the full value of their investment. This will encourage them to reduce their Australian exposures and could harm Australia’s reputation more broadly in global markets. This very point was raised at the Senate Standing Committee on Economics hearing of 14 April 2009, which I referred to a little earlier, when Mr Peter Verwer, the longstanding Chief Executive Officer of the Property Council of Australia, said:

It is the strongest argument against ABIP.

               …            …            …

… we do not have the technical answer as to how we can make sure foreign banks do not try and use ABIP as their escape card from Australia.

If there were a prize for the most counterproductive legislation of the year, this mess before us, I think, would have to be in the running as a standout winner.

Under Australian Corporations Law, companies are required to have a board which consists of members acting in the best interests of the company. Given that the board structure of ABIP consists of a representative of the four major banks and the government, the four major banks do expose themselves to a potential conflict of interest and abuse of market power. All four banks are involved in competitive financial commercial property developments, and each has a veto over any decisions of the board of ABIP. In his submission, Professor Ergas highlighted the concerns for good corporate governance and accountability in this particular part of the structure:

The majority of commercial property exposures in Australia are held by domestic banks. In particular, most exposures are held by the proposed shareholders of the new entity—the four major banks.

We are starting to get the picture here; unusually for a government agency there are no clear lines of accountability for ABIP either to a minister or indeed to the parliament. This lack of transparency and accountability offends just about every principle of good governance that I can think of and should not be countenanced.

Another significant concern with this bill is the broad nature of the lending criteria. The Australian Business Investment Partnership Bill 2009 fails to specify the criteria for the ‘other’ commercial lending that may be embarked upon by the bank. Section 7(2) of the Australian Business Investment Partnership Bill does not prevent the partners lending from this fund for whatever purpose they see fit. Concerns surrounding the broad nature of the lending criteria in this fund have also been shared by General Electric. In correspondence which I have received from their Vice-President, Government Relations, they stated their concerns: ‘The scope of the legislation is too broad and it goes beyond the government’s originally stated intention to cover just property.’ Here we have a bit of legislation creep.

The large gaps in this bill leave the door open for lending that would not be restricted to the commercial property sector, exposing the scheme to potential uncertainty and exposure to unnecessary debt. Of no small concern is the fact that Ruddbank has been given specific exemption from the Trade Practices Act. Some would claim that this is necessary for the structure to work. I can understand the thinking that would have surrounded this exemption, but such an exemption from the Trade Practices Act does smack of a potential for decision making by a cartel. The ACCC were not, as I understand it, involved in discussions of any significance with Treasury in formulating the scheme, and they were involved in no discussions about the implications of exemptions from the Trade Practices Act or the legal framework within which the bank would operate. We really have to ask: why not? We do not appear to have a cogent reason why, although, as I say, I can imagine in developing the scheme the reasons why it may have been thought the only way it would work would be to exclude it. But it does expose the scheme to risks.

The bill does not explain in what circumstances, for instance, finance is ‘not available’ in the definition or describe the circumstances where a viable project would become ‘unviable’—what does that mean?—due to the margin of the financing arrangement available other than that of the bank. It is a very circuitous definition. This bill structures the bank in a way that provides, of course, a disproportionate level of risk for Australian taxpayers. This is a critical factor. The four banks own half of Ruddbank, participate equally in the benefits of the bank but are not liable for the $26 billion in further borrowings. Guess who is liable for that? The good old Australian taxpayer. These borrowings are guaranteed by the Australian taxpayer.

What government, I ask, in their right mind would set up a company, contribute half the capital and bear all of the risk for billions of dollars worth of borrowings for a problem which is yet to emerge, let alone eventuate? If the size of the taxpayers’ contribution towards this mess was not enough, it is the composition and the unfettered powers of the bank which really beggar belief. Ruddbank is a rushed piece of legislation brought to the parliament to fix a problem which is yet to surface or emerge or manifest itself in any significant way. It is a problem which some may argue is a result of an earlier mistake made by the Rudd government, back in October 2008. Overseas lenders are finding it increasingly difficult to lend against the Rudd government—taxpayer funded—guaranteed banks. Foreign lenders are in fact being crowded out of the market.

Australians have witnessed billions of their taxpayers’ dollars used in frivolous cash splashes this year and yet are now facing the largest deficit in this nation’s history. The Howard government paid off $96 billion of Labor’s debt and left the Rudd government with a $22 billion surplus, lower taxes, record low unemployment and higher real wages. We had set up the Future Fund, the Higher Education Endowment Fund and the Communications Fund. There are expectations that tonight the Rudd Labor government will bring down a budget that will have a deficit of $60 billion and debt and deficit as far as the eye can see. From a surplus of $22 billion last year, the Rudd Labor government has made spending decisions in the order of $80 billion since the last budget that have been largely wasted on short sugar hits that have had no lasting benefits but have contributed to ballooning debt. Australia will have the largest deficit in modern Australian history and every Australian will now be paying for the Rudd Labor government’s reckless spending. The government has simply lost control of the nation’s finances.

The Rudd government now, in this legislation, wants to press ahead with a scheme that will increase Australia’s contingent liabilities, which some people in the chamber might not realise are currently running at about $1 trillion. With insufficient detail as to how this bank will support jobs in the commercial property sector, no real evidence before us of a pattern of withdrawal in financing, the government has spectacularly failed to substantiate the need for this new commercial vehicle. We need to keep asking ourselves the question: what is the government really doing to support small business and jobs, allowing the productive capacity of the economy to recover and pull us out of the rivers of red ink? Someone has to stand up for Australian taxpayers, and that is exactly why we are opposing this legislation. This is a poorly constructed bill and has the potential to make a difficult economic situation worse. The coalition will not support it.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

The Australian Business Investment Partnership Bill 2009 and the Australian Business Investment Partnership (Consequential Amendment) Bill 2009 confront us in the Senate with how we are custodians of some $2 billion upfront of public money that will be matched by an equal component coming from the four major banks together in Australia, at a time when there are other huge demands on the government to help people dealing with the recession—not least small business, which has nothing to gain at all from this legislation. The Commonwealth carries the majority of the funding requirements and also most of the risk. Where I say ‘Commonwealth’ there, I effectively mean taxpayers. This bill could potentially expose taxpayers to a $28 billion increase in debt. That is because, added to the initial $2 billion—which is seeding the loan to the entity which will be made up of the four banks and the Commonwealth to then ensure that developers and others who may face a default from an overseas lender are able to get the money to continue with their development—is a $26 billion loan guarantee. That $26 billion is a guarantee from the Commonwealth—that is, the taxpayers—and not from the big four banks. Moreover, the Commonwealth is funding up to 93 per cent of the loan facility, and therefore the risk, compared to 1.6 per cent of the debt funding carried by each of the four commercial banks. In other words, their risk is potentially tiny compared to the enormous risk that the taxpayers of Australia could end up taking under this legislation.

What is more, it is not very clear and has not become clear through the process of the Senate inquiry as to how necessary the Australian Business Investment Partnership arrangement is. It may have appeared, early in the recession, much more urgent. There was a lot of talk about defaults or bank closures overseas and the drying-up of foreign investment potential, but that has somewhat eased in the meantime. In its statement on monetary policy this month, the Reserve Bank itself had data showing that foreign bank lending in the private sector has been maintained throughout the economic crisis. So the alarm bells which were sounding and which triggered this idea from the government, and therefore the legislation, have not led to the crisis that may have been expected. While it is probably the case that some banks are reducing their lending activity, the industry stakeholders have not given convincing evidence to the Senate inquiry to provide for us here, who now have to deal with this matter, conclusive argument that other banks or other sources of funding cannot be found without putting the taxpayers’ dollar at so much risk.

The other problem the Greens have with this legislation is that the fate of the public money that is put up through this mechanism will effectively be decided by private sector bankers without parliamentary oversight. We know that there is an arrangement for a board to be made up of private sector representatives, one from each bank and one from the Commonwealth. I hasten to point out that, yes, we know that each member will have the right of veto on the money being used to facilitate loans to applicants. But really why not have at the outset a board made up of at least four Commonwealth representatives to match the four from the banks? After all, they are putting in $2 billion upfront, even though the banks at the end do not face near the risk that the Commonwealth does. Anybody familiar with boards will know that if you have a like-minded or like-interested fellow member on a board you can function much better very often than if you are there by yourself. So we have an amendment which would change that board arrangement to bring it up to eight: four representatives from the Commonwealth and one from each of the four banks.

The lending criteria have not been released for public comment and there is no parliamentary oversight on developing those criteria in this legislation that I can see. The immediate question is why there should not be. Why should we not in the Senate, for example, as watchdogs of the public interest, be able to be informed and keep an oversight on quite an enormous amount of public money and the decisions being made about it by the proposed board? The Australian Business Investment Partnership’s annual reports to parliament will not include details of who has applied for or who has been granted loans. We might read that in the financial press or we might not. The parliament therefore will not have a say in how the money is used or who is getting access to it—not even a retrospective say, unless we happen to read it in the press. That is unsatisfactory. I know that there will be some people crying commercial confidentiality. I notice that President Obama is giving that short shrift in the United States, this idea that the private sector, even when a recipient of billions of dollars of public money, can remain translucent at best, if not opaque, rather than transparent, as is expected of money going into the public sector. The quid pro quo for large amounts of money like this coming from taxpayers’ pockets and being directed, through parliamentary decision, to a board which then can allocate the money on to commercial firms is that those commercial firms have to be open about the business enterprises which are being facilitated in such a way.

At a time when we are expecting and the government is predicting eight per cent plus unemployment within 12 months, it is hard to get a handle, reading this legislation, on what sort of job generation, let alone what sort of job guarantee, comes with the apportionment of $2 billion of taxpayers’ money and a potential $26 billion further money put at risk. The Australian Business Investment Partnership has been developed to support investment in the construction sector, it is said, but it will be focused on refinancing projects which have already been built or which are under construction. This raises the question of which jobs are going to be saved or created through the use of these public funds, and indeed what weighting is being given to employment factors in making decisions about these loans. We are very used to the biggest of corporations presenting themselves as being in the business of job creation when in fact they are not; they are in the business of creating a maximum bottom line, a maximum profit, and very often at the expense of jobs.

The loans will be potentially available to all businesses which need refinancing of their commercial property due to the withdrawal of a foreign bank. But where are the employment benefits of providing loans to investment companies who may own those properties? They are hard to see. Certainly, I have seen nothing from the government to give us some feelgood outcome from this legislation with regard to the creation of jobs for Australians who may be desperately seeking them in the heart of a recession.

We are told that one purpose of the Australian Business Investment Partnership is to boost confidence in the construction sector and therefore investment and employment in new projects. But an easier and more transparent way to achieve this outcome is through direct government investment in public infrastructure. We do not have to go to a private sector with no report-back to parliament, where decisions are going to be made for the commercial good of some very large companies—some of them international corporations—without an eye on the social dividends and what comes back to the taxpayer for the expenditure of this money.

I flag that we Greens will move an amendment in the committee stage relating to the salaries of chief executive officers who are in companies—either the banks facilitating the use of this large amount of taxpayers’ money, or the developers, particularly in the construction industry, who may be the recipients of between $2 billion and $28 billion of public largesse. Some of those involved—I can give you the figures for 2008, Mr Acting Deputy President Marshall—include Mr Mike Smith of the ANZ Bank, who last year was paid $6 million; Mr Norris of the Commonwealth Bank, who got $8.66 million; Mr Stewart of the National Australia Bank, who got $4.28 million; and then, when we go beyond the banks to potential recipients of loans, Mr Frank Lowy from Westfield, who was reported, on 29 March 2008 in the Australian Financial Review, to be on $15.88 million annually. You can move from there right down to Mr Paramor of Mirvac who was on $2.8 million. I have also had my attention drawn to the Adelaide Advertiser of Wednesday, 18 March, with the heading, ‘Rio sacks 14,000 workers and pays a retiring boss $15 million’. This is, of course, Rio Tinto, the international corporation, which has drawn so much attention because of Chinalco’s interest in having a controlling interest in that particular company.

President Obama has moved to limit the executive payments where public largesse is involved to half a million dollars. Germany and Sweden have legislated for similar arrangements, and other countries are continuing to look at clipping the wings of some of the more, to quote the Prime Minister of Australia, the Hon. Kevin Rudd, ‘obscene’ payments being taken by some of the more greedy of CEOs in Australia. I, for one, do not want to see taxpayers’ money—potentially hundreds of millions of dollars of it—being lent to or facilitating corporations which, by the very nature of getting such largesse, may not have managed their affairs as well as they could have and who have CEOs on multimillion-dollar packages which will be draining some of that taxpayers’ money straight into their Rolls-Royces or their newly purchased multibillion-dollar homes or whatever.

Opposition Senator:

Opposition senator interjecting—Million-dollar homes.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Yes, million-dollar homes, says my fellow senator. It is a serious matter. I have brought before the Senate, on behalf of the Greens, at least four times in the last six months—although this has been a Greens policy matter expressed in the Senate since 2005, at least—the need to cap some of the more extreme so-called salaries. I do not think they are salaries; I think they are the purloining of public money—by the heads of some companies only, because most CEOs, like most people in the private sector and like most people in the public sector, are good-hearted and civic-minded people. But some cannot help but be engaged in a decision-making process which benefits them. I do not need to explain to the Senate that, no less than in the public sector, when money—tens of millions of dollars—gets taken out of the private sector and put into the hands of CEOs, it does not come out of thin air; it comes out of the pockets of ordinary Australians. It either comes out of forgone profits which should go to the shareholders of those companies, or it comes out of the goods and services rendered by those companies, in added costs, higher costs and higher prices, passed on to the person in the street, the average householder. There is no magic about that. It is simply unfair that some CEOs are taking home salaries hundreds of times above those that the workers at the lower income end, who work just as hard in those corporations, get to take home.

We are proposing that, where corporations or banks are facilitated by this use of $2 billion of public money and the potential $26 billion loan guarantee that comes with it, the CEO packages should be limited to $1 million, taking into account all entities, all ways of payment. I would be very confident that if we went out to the street and asked, ‘Do you think that any CEO in Australia would be doing very well indeed on a million dollars a year, or three times the Prime Minister’s income?’ people would say, ‘Yes, that’s a maximum.’

There are those who feel that, with reports of severance payments of over $80 million to one CEO in Australia last year and ongoing payments of $10 million, $20 million or $30 million to certain CEOs going into this year, we have all become a little bit blase about it, but a reality check is required here. People are in Struggle Street in Australia due to the recession. People are having a hard time of it. A lot of small businesses are running very close to the line if not imploding. Bankruptcies are up. It is not that people are working less; they are working harder, but they are having a very, very tough time of it. We have seen hundreds of thousands of people added to the unemployment queues, not least in my home state of Tasmania, in just the last few months. I, for one, with my fellow Greens, am not about to say, ‘No strings attached,’ to the captains of industry, with this money coming out of the public purse at such a time.

I can guarantee that, if the Greens were given $2 billion to invest in small business in this country or to invest in local government, we would get a huge jobs dividend. We did with the stimulus package. In the $500 million that we got through reducing the one-off payments to taxpayers from $950 to $900 through the good services of the government, we were able to create a package which was job rich, with more than double the job creativity of the stimulus package itself—and so we could do with this.

The proposed amendment is a serious one. We are not in the business here of putting forward an amendment like that and saying, ‘But we’re quite happy for it to be knocked down.’ I want to hear a serious response from the government. That does not mean fobbing it off or putting it off to some other time or place for discussion. Now is the time to discuss CEO salaries. Now is the time to act on it. I put that to the Prime Minister. We are not about to just pass this legislation without some dinkum response from the government on these amendments.

Gavin Marshall (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

Senator Brown, was that a second reading amendment you were referring to?

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

No. I am flagging those amendments in committee.

The Acting Deputy President:

Thank you, Senator Brown.

Doug Cameron (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I am pleased to support the second reading of these bills. The Australian Business Investment Partnership Bill 2009 introduces measures to establish the Australian Business Investment Partnership Ltd and to create appropriations for the government’s investment in ABIP and the government’s guarantee on any additional debt-ABIP issues. The Australian Business Investment Partnership (Consequential Amendment) Bill 2009 amends the Corporations Act by listing the Australian Business Investment Partnership Ltd as exempt from the requirement to hold an Australian financial services licence.

On 24 January 2009, the Prime Minister and the Treasurer announced the establishment of the Australian Business Investment Partnership. ABIP is a temporary contingency measure to provide support for viable commercial property assets where there is a withdrawal from financing arrangements due to the abnormal conditions in global capital markets. It seems to me from listening to some of the contributions here this afternoon that people do not understand that there is a global financial crisis, that people do not understand that workers’ jobs are at risk and that people do not understand that finance is drying up all around the globe. And these people who do not understand it are putting Australian jobs at risk. It is about time that the opposition had some financial credibility in dealing with the global economic crisis and understood what governments around the world are dealing with: the biggest financial collapse since the Great Depression. Yet all the opposition want to do is say no—no to every initiative that the government brings forward to assist the community and to assist business against the economic tsunami that is coming in the shape of the global economic crisis.

This is a temporary contingency measure to provide support for viable commercial assets. The announcement that Kevin Rudd made followed a range of discussions with the major banks regarding actions the government may take to address potential liquidity problems that may emerge as a result of foreign banks withdrawing funding within Australia due to commercial and political pressures within their countries of origin. Make no mistake: these big banks are not only under commercial pressure; the foreign banks that are here are under political pressure in their countries of origin to withdraw overseas funding and put that funding in their countries of origin. Yet here we have the opposition carping and criticising, with no intellectual analysis, with no critical analysis, of the problems that this country is facing and the problems that building workers face in maintaining their jobs in the face of this crisis.

ABIP will operate in a market gap. It will not be creating a market. It will operate in that market gap with other commercial providers who are not able to provide finance due to the global crisis. Accordingly, ABIP is not taking business away from existing financiers. This is buttressed by a pricing policy which will charge a small premium to the market. ABIP is a contingency measure. It may ultimately not write any loans at all. The government is not subsidising ABIP or any of the four major banks which are co-shareholders. The shareholders agreement prevents ABIP directors from passing confidential information back to the shareholders. ABIP will operate on commercial lines and hence is not taking on poorly performing assets to the benefit of other financiers.

ABIP has broad support, both from independent economic experts and the industry. The Urban Taskforce, a not-for-profit organisation representing large urban property developers, fully supports the bill. It understands the crisis that the industry is facing, and it supports the government’s position. General Electric supports this bill. Though it has raised some minor concerns, it generally supports the bill. Eureka Funds Management, a super funds manager, is supportive and has suggested some minor amendments. AMP Capital Investors supports it and has actually suggested broadening the scope of the lending in this bill. The Property Council of Australia—the biggest organisation around in the industry, and whose members are the people actually in there helping create the jobs and build the infrastructure in this country—supports this bill. Frank Gelber, the chief economist of BIS Shrapnel, just destroyed the arguments that were put by the other economists appearing before the committee’s inquiry into the bill. He supports ABIP as preventing a financial crisis and not on the basis of trying to stimulate development. The Master Builders Association, the peak building and construction association in the industry, supports the bill. This is what it has to say:

Master Builders agrees that ABIP should not be used to provide finance for those commercial building projects under construction that are not financially sound but should only be used to provide last resort finance where other sources of finance cannot be obtained.

Mr Harnisch said “Availability of finance and business confidence are the two critical factors that need to be addressed in responding to the challenging economic period facing Australia”.

The proposed ABIP Bill therefore is an important circuit breaker in meeting those challenges.

The industry understands the need for ABIP even if the opposition cannot understand the need for this approach. The opposition has come from the usual suspects. It has come from ‘Mr No’, the Leader of the Opposition, Malcolm Turnbull: no on every initiative; just reject every initiative the government takes to try to assist Australia to manage the global economic crisis. It does not matter if it saves the jobs of building workers; just say no. It does not matter if we are faced with global warming and the need to deal with it—something that the opposition refused to do for 11½ years; just say no. This is an opposition leader with no vision and no leadership for this country. This is an opposition leader whose first reaction to every piece of legislation to assist this country is to say no. Those opposite are the cheer squad for the negative. You sit there and you stick your hand up to say no to helping ordinary Australians deal with the effects of the biggest economic crisis since the Great Depression. You are not interested in jobs; you are only interested in short-term politics and trying to get your eye on the next headline in the Australian. That is your position. You are consumed by negativity, you are consumed by ideology and you are not interested in dealing with the key issues for this country during the global financial crisis.

Who do we then see let loose on the Senate Standing Committee on Economics in support of the government’s negativity? One Dr Henry Ergas—

Alan Eggleston (WA, Liberal Party) Share this | Link to this | Hansard source

Brilliant!

Doug Cameron (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Malcolm Turnbull’s tame economist; Malcolm Turnbull’s paid economist. I heard the word ‘brilliant’. Well, I challenge anyone to look at the submission that Dr Henry Ergas gave to the economics committee and describe it as ‘brilliant’. In fact, it was sloppy, it was biased and it did not go to the facts of the matter that was before them. You do not have to pay Dr Henry Ergas to come to the economics committee anymore. What you should simply do is pick up his articles in the Australian and table them as your opposition report, because that is what you have basically done. You see, the Prime Minister announced this initiative on 25 November last year. On 27 November, Dr Henry Ergas wrote an opinion piece in the Australian without understanding the details of the legislation, without seeing the legislation and without understanding what was going on. It was typical of Dr Henry Ergas. He rings Malcolm up, and Malcolm says: ‘Say no. Find me a story so that I can justify saying no.’ And Dr Henry Ergas goes back to Concept Economics and says, ‘Build the story for no,’ and out it comes to the economics committee and the Senate. The Liberal and Nationals senators on the economics committee sat there in raptures, clapping their hands at the negativity of Dr Henry Ergas. What a joke! What an absolute joke you lot are. You really do not have the interests of this country at heart; you are simply into negativity and saying no whenever it counts.

Unlike other people who came to the committee and tried to deal with this issue, Dr Henry Ergas did not deal with this in a rigorous and independent manner. And Henry Ergas has form on this. He is not seen as independent. He is not seen as rigorous. The whole case from the opposition rests on a sloppy submission from Dr Henry Ergas to the economics committee. Dr Henry Ergas is the guy who has had 64 articles or quotes in the Australian since 11 August. Twenty-three of those articles are negative about the government. The guy is an absolute, serial oppositionalist. He is a bit like Malcolm Turnbull—‘Just say no.’ He is the paid apparatchik of the Liberal Party, yet you have the hide to come here on an issue of such importance to the construction and building industry in this country and use Dr Henry Ergas as the reasoning for why you oppose this. You should be absolutely ashamed of yourselves. How about putting the building workers of Australia before your ideology? How about putting the 50,000 building workers who could lose their jobs if foreign investment is removed from this country before your ideology and your dogma? For once, stand up for the workers in this country and look at this legislation on the basis of what it is about. It is not, as Senator Bob Brown tried to put it, standing up for big business. Sometimes you have to actually analyse the issues, and the key issues here are 50,000 jobs that could disappear unless we do the right thing in the face of the global economic crisis.

The Labor plan is to fund this proposal to put a safety net in place if that foreign investment disappears. As we understand it, close to $30 billion will need to be refinanced over the next three years in the building industry. Close to 70 per cent of this is bank debt controlled by foreign banks. This is not simply an issue where the opposition should say, ‘We don’t like the government legislation,’ because the coalition do not want any government involvement in the markets and their ideology will not let them do it. They should get over that. Senator Brown should get over simply targeting the issue of executive pay. No-one on this side supports the terribly high pay that is provided to some of our executives, but the issue here is not executive pay; the issue here is to get the financial backing for our commercial construction industry. It is about ensuring that 50,000 jobs do not disappear if that funding is removed.

It is about time the opposition took the blinkers off. It is about time they stopped looking at their toes and looked around, not only within Australia but at the rest of the world, and started to understand that we have a global financial crisis facing this country. That financial crisis will cost workers their jobs. We must do everything in our power to buffer ourselves against the failure of the financial system. What do the Liberal-National coalition do? They go back to what they always want to be—neoliberals with small government, with no involvement for government. They think it does not matter if workers lose their jobs and if communities go backwards, just as long as the government does not intervene in the market. All the Liberal-National coalition understand is to try to be internationally competitive on ripping away workers’ wages and conditions. That is why we saw the nonsense that we saw in relation to the Fair Work Bill, where those on the other side were clinging to what they see as the only economic way forward—that is, to be competitive by reducing workers’ wages and conditions.

You can be competitive and smart and you can do it by government involvement in the economy. The market should serve society, not the other way round. That is what you lot do not understand. Your opposition to this legislation is an example of saying that the market should be let rip and that it does not matter about jobs as long as the economic theories of Hayek are there, as long the pure neoliberal approaches are in there. ‘Do not let the government intervene, do not let the government support this industry, do not let the government support 50,000 jobs’—that is the nonsense that we have from those on the other side. It is the lack of economic credibility that left this country ill-prepared to face the global economic crisis—ill-prepared on training, ill-prepared on infrastructure—

John Williams (NSW, National Party) Share this | Link to this | Hansard source

Debt free.

Doug Cameron (NSW, Australian Labor Party) Share this | Link to this | Hansard source

We hear the interjection ‘debt free’. You mean debt free but with crumbling infrastructure, debt free with no education policy of substance, debt free but unable to deal with a global financial crisis. What a lot of economic incompetents you are. No wonder you were tossed out on your neck. The public will never accept this type of rabid nonsense from you lot again because they know that there is a role for government. The public know there is a role for intervention in the economy. (Time expired)

Alan Eggleston (WA, Liberal Party) Share this | Link to this | Hansard source

I must say, in response to Senator Cameron, that I am very proud to be part of the cheer squad for the ‘no’ case for this legislation, the Australian Business Investment Partnership Bill 2009 and the Australian Business Investment Partnership (Consequential Amendment) Bill 2009, which we consider to be an unnecessary overreaction to an unlikely event. And the unlikely event is, of course, the withdrawal of foreign banks from the Australian commercial property market. This whole legislation is predicated on the concept that foreign banks that are heavily involved in the commercial property market—not as heavily involved, I have to say, as our four major banks; the four domestic banks hold 63 per cent of the investment in the commercial property market, but I will come back to that—will all withdraw from the Australian commercial property market.

In giving evidence to the Senate Standing Committee on Economics, the Property Council of Australia said that of the 23 foreign banks in Australia, only one, the Royal Bank of Scotland, has actually withdrawn from the Australian market. The other bank that had a question mark over it was Citibank. It faced some difficulties in the United States but has remained in Australia. So in fact only one bank, the Royal Bank of Scotland, has withdrawn from the commercial property market, and it appears that it is very unlikely that any other foreign banks will withdraw from the Australian commercial property market. In fact, 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.

In other words, there is no evidence of foreign banks withdrawing from the Australian market, and yet this is the underlying rationale of ABIP, or Ruddbank, as it is more commonly known. This means, in effect, there is no reason to establish the ABIP, or Ruddbank, because the possibility that it is being set up to deal with is not occurring—namely, the foreign banks are not withdrawing from the Australian market at all. That is a very important point that Senator Cameron should take on board. This is a totally unnecessary proposal that could cost Australian taxpayers up to $28 billion—if, in fact, this is being set up for the purpose that Prime Minister Rudd has said it is being set up for. There is the question of whether there may be a wider agenda here than just dealing with the withdrawal of the foreign banks from this country.

We have other concerns beyond the fact that the rationale for the establishment of this proposal, this bank, has no basis. These concerns deal with the fact that, as Professor Henry Ergas said, there was a very real possibility that the very act of establishing Ruddbank, or ABIP, would in fact encourage the withdrawal of foreign banks from the Australian commercial property market—and Senator Cameron referred to Professor Ergas in his speech. In fact, if there is a safety net there willing to guarantee 100 per cent of the investment of these foreign banks in commercial property, the banks will probably avail themselves of it; they will take the money, get 100 per cent of their money and the poor old Australian taxpayer will be carrying the can. Under the buyback proposal, it is possible that ABIP can guarantee up to $28 billion of loans.

Senator Cameron was very critical of Professor Ergas, when in fact Professor Ergas is a clear-thinking and highly regarded economist. The point he makes that ABIP could create the situation which it is supposed to be preventing is one which the coalition senators on the economics committee found to be very convincing. There is a very real danger that, if ABIP is set up, foreign banks will avail themselves of the guarantees it offers and withdraw from the commercial property market in Australia. That is another reason why it is a very bad idea to set up ABIP, because at the moment there is no suggestion whatsoever that foreign banks will be withdrawing from the Australian commercial property market.

We in the coalition were also deeply concerned about the structure of Ruddbank, or ABIP. We were very concerned about the fact that this bank is exempted from the Trade Practices Act. The exemption of ABIP from the Trade Practices Act means that there is real scope for anticompetitive market activities, which, again, means that this bank is a very questionable entity if it is set up. It is very interesting that there was no consultation with the ACCC, the Australian Competition and Consumer Commission, about the exemption of ABIP from the Trade Practices Act. The ACCC was obviously concerned about this, because setting up a bank of this kind with the kind of market power that it could have could create very serious distortions in the Australian market. We were very concerned about this, but we were supportive of some amendments.

Another professor—whom we regard highly but I doubt that Mr Cameron does—Professor Frank Zumbo of the University of New South Wales, made a submission in which he suggested three recommendations which would require legislation to establish that any section 51 exemptions be accompanied by a competition impact study so that, in future, the government at least could not simply exempt an entity such as ABIP from the jurisdiction of the ACCC. Secondly, he believed that the ACCC should be empowered and required to systematically review all section 51 exemptions currently in effect, including a requirement that a competition impact study be prepared and tabled in the Senate within three months of the ABIP Bill coming into force and every year thereafter.

There are very real concerns that ABIP, if set up in its current form, could exercise undue market power. This is because the board of ABIP consists of the Commonwealth government and the four major banks in Australia. Between them, these four banks in fact control some 63 per cent of the commercial property market, with an investment valued at $103.8 billion. The other banks and financial institutions in Australia are responsible for only some 18.5 per cent of the commercial property market in Australia. So here you have the four banks that, as I have said, are responsible for 63.1 per cent of the commercial property market sitting on a board, along with the Commonwealth, and each of the four major banks has the power of veto over any decision that ABIP might make. We believe that this certainly gives them a very broad range of powers and, at the very least, opens ABIP up to concerns about conflict of interest. We believe this is a quite undesirable situation to exist. Accordingly, we think that the board of ABIP, as Senator Bob Brown has suggested, should, if it is set up, at least have some independent members on it. Senator Brown suggested four independent directors. In their report, coalition senators also thought that, in addition to the four major banks—if they are to remain on the board, each with the power of veto—there should be four independent directors so that there is some balance and a reduction in the possibility of conflict of interest.

Coalition senators are also rather concerned about real purpose of ABIP. In his early statements, the Prime Minister said that ABIP was being established as a precautionary measure to deal with the impact of the withdrawal of, as I have said, the foreign banks from the commercial property sector in Australia, but, as I have also said, there was no evidence given confirming any intention of any foreign bank to withdraw from the commercial property market. In the actual bill, the scope for entering into refinancing agreements by ABIP appears to be broader than just commercial property. In fact, proposed section 7(2), dealing with the objects of ABIP, or Ruddbank, reads that it should be:

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

That is, the four major banks. Considering the broad wording of this clause, coalition senators are rather concerned that ABIP might have a broader objective than the Prime Minister has actually conceded in public. We believe that the Prime Minister has an obligation to clarify the proposed extent of ABIP’s activities so that the possible impact on the Australian economy and in particular on government debt can be evaluated, given that ABIP has the authority to guarantee debts up to $28 billion. We find that this is a matter of serious concern because the Rudd government have shown a great propensity to increase the debt of the federal government. At the present time they have a credit card limit of $200 billion. While adding another $28 billion may not be a matter of any concern to the Treasurer, Mr Swan, or to the Prime Minister, we in the coalition certainly feel that potentially adding another $28 billion in debt to the Commonwealth’s already high debt is something that we as Australians should all be gravely concerned about.

It took the coalition 10 years to pay off the Keating government’s debt of, I think, $94 billion. One has to wonder how many years the people of Australia will be paying off the debt left by the Rudd government, including the addition of another $28 billion for ABIP to that debt when it seems there is no need for this bank to be established. The very rationale of it has been proved to not exist—that is, the foreign banks are not withdrawing from Australia. It is very hard indeed to see why this organisation should be guaranteed an additional $28 billion by the Commonwealth government. We certainly believe that this is not in the public interest, and that it is a very strong reason, even if there are no others—and there are plenty of other reasons, as I have said—for ensuring that this legislation is not passed.

Coalition senators were also concerned that ABIP was being set up as a semigovernment agency but, unlike most government agencies, it is unaccountable and unregulated. It has a board, whose independence of judgment could be open to question, yet there are no lines of responsibility to the government. There is no overseeing of the activities of ABIP by a minister or by the parliament, for example, through the Senate estimates process. We in the coalition see it as a very serious defect in this legislation that there is no oversight of the activities of ABIP, and we think that there should be some accountability mechanism put in place if this legislation is passed, although, as I have said, we certainly do not think it should be passed, because it is not in the public interest.

One of the rationales which Senator Cameron referred to for the establishment of ABIP, or Ruddbank, is that it would prevent the loss of 50,000 jobs. This is a line that Prime Minister Rudd has used consistently in seeking to justify the establishment of this curious little agency. We have to ask where the 50,000 jobs would be lost. There is no evidence at all that foreign banks are withdrawing from Australia. So, in other words, the commercial property sector is not under threat. The charter of ABIP states that it can only invest in financially viable commercial properties, so if the commercial property sector is not under threat where is the ABIP money going to protect jobs?

This is where we come to those vague additions to the purpose of ABIP under clause 7(2). ABIP, according to its charter, will not be investing in projects which are not commercially viable. But is it possible, if the government finds that the commercially viable sector is not collapsing that, in fact, ABIP and its $28 billion might be used to prop up non-commercial property investments and developments? That is an interesting possibility which the coalition feels deeply concerned about. As I said, we really believe the Prime Minister should clarify the meaning of clause 7(2) in this legislation because it does appear to open Ruddbank up to a whole range of other possible investments, which certainly is a cause for concern. No-one has actually said that this bank will be used to invest in developments which are not commercially viable, but the Prime Minister has said that this bank will be used to protect 50,000 jobs. That could mean that the area where jobs might be lost might be in developments which are not particularly financially sound. That is a possibility which we in the coalition regard very seriously and regard as a very strong reason for not supporting this legislation.

In conclusion, I repeat that the coalition members of the economics committee could find no justification whatsoever for the setting up of ABIP on the grounds given, that the foreign banks were going to withdraw from the commercial property market in Australia. We think this is very bad legislation and should not be passed because there are too many questions about the structure of this organisation.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

The global financial crisis is upon us. It is an insidious disease which is spreading to every part of the economy and requires urgent treatment to contain it from spreading further. This treatment so far has come in the form of two major stimulus packages—one in December last year and another one in February. The government has drawn down into billions of dollars of debt to try and shore up the economy and prevent the crisis from affecting Australians further.

Family First has voted for both of the stimulus packages. We have supported the government because the financial security and welfare of Australians is something which we believe demands bipartisan support. We have not, however, at any stage agreed to write the government a blank cheque. On each occasion Family First has scrutinised the packages to ensure that the best outcome was being delivered for all Australians. We fought tooth and nail with the government in February because we did not believe the stimulus package did enough for the hundreds of thousands of Australians who were forecast to lose their jobs. This led to the government incorporating our Get Communities Working scheme into the package, which will invest $200 million into creating jobs for local communities. This is just one example of where proper scrutiny of the government has led to better outcomes for everyone.

There is little question that government intervention is required if we are to soften the impact that this recession will have on Australian families. But the money available to be spent is not infinite. And the money should not be spent recklessly. That is why it is crucial that, for every dollar we spend, we make sure we are getting the best bang for our buck. The government has again come before parliament, this time asking for a cheque of a whopping $28 billion. This money, we are told, is intended to provide loans to the commercial property sector where foreign banks are no longer able to provide money for refinancing. The $28 billion is to be used by the big four banks in partnership with the government as they create a new corporation, which is to become the bank of last recourse, commonly referred to as ‘Ruddbank’.

This proposal raises enormous concerns. First and foremost, it will expose Australian taxpayers to an even greater debt than we are already facing. Twenty-eight billion dollars is a lot of money. It is not $28 million; it is $28 billion. Future generations have already been saddled with a multibillion-dollar debt, and the prospect of adding another $28 billion to that amount poses an incredible risk. We have already been told that the future interest repayments on our enormous debt alone are expected to reach $3 billion a year. That is $3 billion that Australian taxpayers need to fork out just to service our debt, and the government is asking us to potentially increase this even more, by another $28 billion. This is not something that Family First takes lightly and it is not something that Australians should take lightly.

The government has sought to give assurances that ABIP, or the Ruddbank, is only a temporary measure, that there are strict controls over how money will be lent and that the money is only intended to be for the commercial property sector. But, looking at this legislation, I cannot see any of this. In fact, what the government has said and what the government has actually contained in the bill are two entirely different things. The government told us that the creation of ABIP is for the purpose of refinancing commercial property assets in the event that there is an exodus of foreign banks from the marketplace. This has been the government’s message from day one. But, when you actually take a closer look at the bill, you will see hiding in there clause 7(2), which allows ABIP ‘to provide financing in other areas of commercial lending’. In essence, this gives ABIP a licence to lend money in the commercial market for almost any reason it sees fit. Has the government been deliberately misleading?

It is for these reasons that I have put forward my own amendments. There need to be greater safeguards on how taxpayers’ money can or should be spent if the legislation does get up. Quite frankly, the Rudd government’s ‘trust me’ approach just does not cut it, especially when the other members of ABIP whom we are expected to trust are the big four banks. Family First is proposing three amendments. Firstly, ABIP will be limited to providing refinancing only for loans relating to commercial property assets in Australia. This will ensure that taxpayers’ dollars are spent only for the purpose for which ABIP was created and are not used by the government and the big four banks for whatever purpose and in any way they choose.

Secondly, any loans made by ABIP must satisfy lending criteria which, at a minimum, are just as strict as the lending criteria applied by any other commercially competitive bank. In other words, if no other bank wants to pick up the loan because it looks as if it is going sour or down south, ABIP should not be giving them money either. The question of whether or not to give a company a loan needs to be based on solid fundamentals like LVR and the interest coverage ratio and not whether or not it is good politics. Without these amendments, there is a greater risk of something going wrong, and if the government in partnership with the big banks gets it wrong then taxpayers will end up footing the bill. We need to be sure that the companies asking for the money are genuinely cash-strapped because of a genuine liquidity crisis and not because they are mismanaged or bad investments. We need to make sure of these things before we dole out billions of dollars. We have seen in the past decades the terrible losses endured by the states when they gambled with the public purse on investments that lost heavily and put them horribly in debt. This led to the collapse of the State Bank of South Australia in 1991 and put the state $3.15 billion in debt. Now we are talking about $28 billion, almost 10 times the amount in South Australia. The last thing we can afford is for the Ruddbank to turn into the ‘Dudbank’.

Finally, Family First is seeking to ensure that the term of any loan will be limited to a maximum of three years. The government has clearly stated that ABIP is only a temporary measure, and this amendment will certainly confirm this. Whether or not funding from ABIP will be genuinely needed or will artificially prop up an oversupplied marketplace still remains a huge question. There is still the question: is there a real need for the Ruddbank and why should taxpayers end up footing the bill to prop up commercial ventures? What we can say with certainty is that a failure to impose proper controls on a proposed bank is reckless and irresponsible. It is a risk that Australians can ill afford. Family First cannot support the ABIP bank in its current form.

Annette Hurley (SA, Australian Labor Party) Share this | Link to this | Hansard source

The Australian Business Investment Partnership Bill 2009 and Australian Business Investment Partnership (Consequential Amendment) Bill 2009 provide for the establishment of the Australian Business Investment Partnership, ABIP, an incorporated company under the Corporations Act. ABIP will be financed at $4 billion, with the government financing of $2 billion to be matched by a half-billion-dollar contribution from each of Australia’s four major banks. This could be extended via the issuance of government guaranteed debt of up to $26 billion to create a $30 billion financing fund if required, but only if required. The board of ABIP will comprise five directors, one appointed by each of the shareholders, with the government-nominated director being the chairperson. The issuing of any debt by ABIP will be subject to the unanimous agreement of ABIP shareholders. The government guaranteed debt would only be issued if the initial $4 billion is exhausted and would attract an appropriate fee having regard to risk and liquidity factors and general market conditions. Refinance by ABIP will only be available to financially viable commercial property assets and will not be used to refinance loans from the four major banks. ABIP will only be able to make loans for two years from its establishment, with the maximum term of loans being three years. Therefore, ABIP will only temporarily operate, for a period of five years, and I believe that this has been underemphasised in the debate to date. This is only a temporary measure of five years to see us through this period of a global economic downturn. It is by no means a permanent measure.

Debate interrupted.