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

Continuing my discussion about why this Australian Business Investment Partnership (Consequential Amendment) Bill 2009 is needed, I want to say that one of the key issues is employment, and this has been a continuing mantra of the Rudd Labor government. The commercial property sector alone employs approximately 150,000 people. Treasury figures indicate that, without action, 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 jobs in other parts of the economy, such as the construction industry. Employment in the construction industry has dropped by 15,000 people in the six months from August 2008 to February 2009. This is a sector that is already being affected. The Senate Standing Committee on Economics heard that another 75,000 jobs may be lost in the construction sector if no action is taken by the government to support contingency measures such as the establishment of ABIP.

There are also implications for Australian superannuation funds should an artificial collapse in commercial property values occur. More than one-third of the equity in the commercial property sector is held by superannuation funds, representing 10 per cent of aggregate funds in superannuation overall. So a distorted decline in the value of commercial property assets would flow through to impact the wealth of over 10 million Australians through their superannuation funds. We all know that superannuation funds, for ordinary people, have been fairly adversely affected by the decline in the stock market already. The Rudd Labor government wants to ensure that funds are not further affected by an overcorrection in the commercial property sector.

The coalition, in their dissenting report, describe ABIP as ‘an unnecessary overreaction to an unlikely possibility’. This seems to be a fairly common reaction of the opposition regarding any and all measures the government is taking to respond to the global recession. I think the Treasurer, Mr Wayne Swan, put it well in his speech in the second reading debate on this bill. He said:

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 is also worth saying that the Reserve Bank governor’s response when asked about ABIP was:

I do not have any problem with there being a plan in the top drawer to do that should it be needed.

We hear from the opposition, though, that contingency measures such as ABIP are unnecessary to ameliorate abnormal economic disruption, protect jobs in the commercial property and construction sectors and prevent further declines in the superannuation incomes of tens of millions of Australians. The possibility of a foreign withdrawal of investment from the commercial sector is an unlikely possibility, they say, because no evidence was tendered to the committee of the intention of foreign banks to withdraw from the Australian market. But I utterly refute this statement. It is not what we heard in the Senate economics committee inquiry. The committee heard from a number of witnesses, via written submissions, in public hearings and in in-camera hearings, evidence raising concerns that foreign investment may be withdrawn, as well as evidence that this is already occurring. The procession of witnesses that we heard continued to raise these issues. We heard from the Property Council, from BIS Shrapnel, Mr Frank Gelber, from the Master Builders Association and from AMP that this was a serious issue of concern. They were unequivocal in their responses. And it is very interesting to me that the coalition has obviously stopped listening to people such as the Property Council and the Master Builders Association. But they continue to say this rather than provide support to a prudent government measure.

One of the issues of concern the coalition had was the withdrawal of foreign investment, the manufactured concern that ABIP may encourage the withdrawal of foreign investment. This was comprehensively shown to be based on a false premise. As explained in the majority report, the assumption that foreign banks could use ABIP to effectively walk away from Australian assets without losing money assumes that ABIP would step in to finance property assets at their original price. In fact, ABIP will only lend based on contemporary market values, not the original values of the commercial property. Put simply, there will be no financial incentive for a foreign investment bank to withdraw finance for a project in the Australian commercial property sector as a result of ABIP. In fact, the committee heard that ABIP could actually strengthen the security of investment in the commercial property sector by restoring confidence in the sector and increasing stability and liquidity in the sector. That means that banks would have much more confidence in the ability of the commercial property sector to remain stable and not to decline. Therefore they would be much more likely to keep their money in that sector rather than withdraw.

Another issue of concern was that the proposed board structure of ABIP lends itself to a conflict of interest and the abuse of market power by the major banks. However, again this argument is incorrect and indicates either a wilful or a genuine misunderstanding by the coalition as to what ABIP would do. ABIP would only be financing commercial property at the current market values and no incentive exists to sell out of investment in an unprofitable asset. Furthermore, not only can the major four banks not have their own loans refinanced; they cannot reduce the size of their investment in a syndicate either. The proffered argument that most syndicated loan arrangements, which notably did not specify commercial property markets, usually include one of the four major banks simply serves to demonstrate the highly unusual circumstances that would arise should ABIP be accessed. It also serves to demonstrate the lack of detailed analysis by the opposition of these bills.

In respect of protecting Australian jobs, the opposition arguments amount to the fact that ABIP does not create employment. The fact that the committee was told that if ABIP is required it could provide job security to more than 100,000 Australians is apparently inconsequential. The Rudd Labor government has said again and again that it is about protecting jobs in this global economic downturn.

The question of the scope of ABIP and why the government would need to establish ABIP to support the commercial property market and not other industries heavily reliant on foreign investment, such as mining, is a completely contradictory argument. On the one hand the coalition is saying we should not have a provision for the commercial property sector, and on the other they are saying we should include these other sectors as well. It is a completely nonsensical argument, and evidence tendered to the committee demonstrated that it was the commercial property sector that may be vulnerable to withdrawal of foreign finance and not in particular the mining or agriculture sector or any other sector.

The committee did, however, receive evidence that the scope of the bill was in fact too broad and potentially allowed ABIP to enter arrangements outside of the commercial property sector, particularly the residential sector. This was in the case where there might be a bit of overlap in the investment, for example. However, in view of the fact that ABIP can only make loans with the unanimous support of the board, which the government chairs, and only has the temporary capacity to make loans for two years, sufficient protections should exist to prevent loans being abused in this way. ABIP will operate as a lender of last recourse, with a focus on commercial property projects and assets. I believe that is very important, because where a bank such as this is set up the government must of course keep that at arm’s length so that it does not have any conflict of interest. That means relinquishing some ability to keep control of that organisation, and those of us from South Australia are particularly aware of the dangers of this and are very sensitive to issues about whether ABIP would be able to broaden out from the commercial property market and go into other areas. I certainly would regard with extreme caution any ability of the bank to do that. But, because it is temporary, because it is a contingency measure, because it is a last recourse lender, I have some comfort in the way that this bill is structured that this bill is designed to deal with this particular area.

Exemption from the Trade Practices Act also has been raised, but I think there was convincing evidence that ABIP is not a cartel arrangement. The point was made by the Treasury that all shareholders would be subject to confidentiality arrangements and directors’ provisions under the Corporations Act and that again the short-term nature of ABIP and its function as a lender of last recourse require short-term certainty around its operations to ensure it operates effectively if required. The fact that this is coming to the parliament to be considered means that the government has been completely open about this, and I do not believe that there was any evidence that it would be a cartel type arrangement.

In conclusion, the vast majority of submissions and evidence provided to the Senate Standing Committee on Economics during the inquiry argued that ABIP was a prudent and effective contingency measure to counter a potential impact of the global recession on Australia’s commercial property markets. When considering international measures being taken to address similar proposed withdrawal of foreign investment, ABIP was described by the Property Council as being ‘focused’ and ‘elegant’ and far better than schemes being considered by any other country with a similar focus.

The full ramifications of the global recession are unfortunately as yet unknown. We are dealing with an unprecedented global economic crisis that requires us to be flexible and use our initiative in our approach to protect Australia’s standard of living, primarily through our protection of jobs. We have been told that, should a collapse occur in the value of commercial property through a withdrawal of foreign investment, unnecessary and harmful economic disruption will occur. In some cases foreign banks have already withdrawn from the commercial property sector and there is a possibility this may continue. It would be irresponsible to oppose any measure that has the potential to prevent unnecessary harm to our economy, and therefore I commend the bill to the Senate.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

The Australian Business Investment Partnership Bill 2009 is one of those bills that presents a dilemma for this parliament. That is because in legislation as in life wanting to help is not the same as actually helping. My main concern, one that I believe is broadly shared with my coalition colleagues, was that I did not want any new legislation to create unintended consequences. I did not want ABIP to create a cartel or another bank. I did not want ABIP to prop up ventures that should by any commercial standards not be propped up. I was concerned that the creation of ABIP might serve as an incentive for foreign and smaller domestic banks to withdraw from the market and, ultimately, I was concerned about what this means for taxpayers.

Taxpayer funds are not like shareholder funds. Shareholders choose to get into business. They assess the risks and decide whether to put the money on the table and take a risk. Taxpayers do not do that. They pay their taxes because they have to, which is why I believe there must be a higher standard for the way we use taxpayer money, particularly where there is a contingent liability and especially when the government enters into a business arrangement with businesses. Throughout this debate I have raised a number of concerns about this bill with the government and I am pleased that the government agreed to a Senate inquiry process by the Senate Committee on Economics, of which I was a part, because that was a very valuable exercise in getting more facts, in getting the information that I believe was necessary in order to make an informed decision on this piece of legislation.

I want to outline my concerns and put them on the record in the context of my discussions with government, but before I do that I want to outline the concerns expressed by Senator Bob Brown on behalf of the Greens and Senator Fielding on behalf of Family First. Senator Brown has maintained a long-term campaign on the issue of executive remuneration. I commend him for that campaign and, as I understand it, his position is quite straightforward. If you are going to have a situation where taxpayer funds will be used to assist the private sector, there must be a quid pro quo on the whole issue of funding of executive remuneration. Whilst I do not see that going directly to the core of this bill, I respect and appreciate the concerns of Senator Brown and I will be supporting the Greens amendments to curtail executive remuneration packages for those entities that are assisted in what ABIP is proposing to achieve. I think that is important and I think the government should take the concerns of the Greens seriously with respect to executive remuneration.

Senator Fielding has raised a number of concerns in relation to the issue of ensuring that there are safeguards in lending criteria. In his contribution yesterday, Senator Fielding said:

... ABIP must satisfy lending criteria which, at a minimum, are just as strict as the lending criteria applied by any other commercially competitive bank.

I commend Senator Fielding for raising that. These are my concerns also, and I look forward to seeing an amendment to the legislation that the government, I understand, is preparing or that Senator Fielding will be introducing on this, because I believe that is a legitimate concern in safeguarding shareholder funds.

I have also raised concerns with respect to the issue of the role of the Auditor-General. If I could put on notice to get a response about the role of the Auditor-General from the government either in their summary of the second reading stage or during the committee, the bill provides for the Auditor-General to have a role to audit the books, to have that supervisory role, if you like, in relation to the accounts of ABIP. I simply seek confirmation that the Auditor-General is unfettered in his role with respect to that and that if at any time there is a concern about the operation of ABIP the Auditor-General has the right and the role to, if not intervene, investigate any concerns—which is I think highly unlikely given the governance structure of ABIP. Similarly, as I understand it, ASIC will have a supervisory role here in the operation of ABIP, and confirmation of that from the government would be helpful.

There is the issue of trade practices law that Senator Hurley referred to. The issue of exemptions from the act is one that concerns me. There has been an increasing trend to exempt, to have arrangements where an exemption is granted under the act. This is something that Associate Professor Frank Zumbo from the University of New South Wales Australian School of Business has raised, and I am grateful for his input into this. Some may not be as grateful as I am for the contribution that Professor Zumbo makes. I note that Senator Arbib is having a chuckle at that.

Mark Arbib (NSW, Australian Labor Party, Parliamentary Secretary for Government Service Delivery) Share this | Link to this | Hansard source

He’s back.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

Senator Arbib, I am grateful for the contributions that Associate Professor Zumbo makes in the field of trade practices law. The suggestion from Associate Professor Zumbo is that there ought to be monitoring and reporting by the ACCC on the exemption that has been provided to ABIP and that there should be a report, preparation of a competition impact statement and ongoing monitoring by the ACCC of this.

My impression is that the ACCC has not had enough input into this. I understand, given the urgency of the scheme and the intent of the legislation, why there is an exemption but I also think it is important to have a monitoring mechanism. That is why I will be moving amendments with respect to monitoring this. I am pleased that in my discussions with the government they broadly supported that principle. It does not stop ABIP doing what it is intended to do but it does have that level of scrutiny and transparency, which I think is important.

I have also raised with the government the broader issue, which is not directly relevant to this particular bill, of there being broader, systemic scrutiny by the ACCC of exemptions, and I look forward to the government’s response in relation to that, because I think it is overdue. We need to have a good look at the exemptions to the act that are granted. After all, the Trade Practices Act is intended to protect consumers, to enhance competition and to do so in the public interest. My concern is that there have been a whole range of exemptions without appropriate scrutiny by the ACCC. I look forward to what I hope will be the government’s comprehensive response in relation to that.

In the committee inquiry the issue was raised of the unintended consequences of this bill. There was an interchange between me and Mr Peter Verwer, the CEO of the Property Council of Australia, who raised a concern about moral hazard. He asked: could the legislation have the unintended consequence of encouraging foreign banks to get out of the market by virtue of the asset value being maintained? I understand that Mr Verwer has resiled from the position that he put to the committee. He has further reflected on that and he has made that very clear to me and publicly.

I have also had discussions both with Treasury and with Mr Ahmed Fahour, the interim CEO of ABIP. I am satisfied that the intent of ABIP is to be there as a last resort, as a contingency measure. Mr Fahour said in his evidence that he would hope this contingency facility is not used but that it is there to give a level of confidence to the marketplace so that we do not see a fire sale of assets. Mr Fahour made the point that liquidity is a key factor in decisions that are made by foreign banks or any other member of a syndicate in determining whether they stay in or out. I believe that, based on the evidence and on the structure that is proposed, there will be that level of confidence, which will provide a level of comfort so that we will not see fire sales and so that liquidity will be propped up. I think that that, on balance, is the right approach. The right thing to do is to ensure that we have, with appropriate safeguards, a mechanism to allow for lending of last resort on commercial terms if foreign banks pull out of the property market.

I want to comment briefly on Mr Fahour as interim CEO. Whilst the primary concern of this legislation ought to be the government’s structural mechanisms, it is interesting to note that Mr Fahour is involved. Even the critics of the ABIP proposal would have to acknowledge the contribution and the reputation of Mr Fahour as a former CEO of NAB Australia and his reputation in the banking sector. The government has been lucky to secure his services, given his track record in the banking system. I have had extensive conversations with Mr Fahour about the issues of governance, structure and the commercial viability of loans for commercial property. I have been reassured by the fact that Mr Fahour is interim CEO, and he has been helpful in providing information to me.

One of the issues raised by Mr Fahour was of administration, of making ABIP work. He expressed the concern to me that, if you outsource the administrative functions of ABIP, there could be issues. My concern is one of a potential conflict of interest in the decisions that ABIP makes. That is why I will be moving an amendment, following my discussion with Mr Fahour, that the Export Finance and Insurance Corporation be involved in assisting ABIP Ltd—as agreed to between the EFIC and ABIP—in financing arrangements, with respect to borrowing money and doing such things as are incidental to making ABIP work. Given the role of the EFIC and the fact that it has commercial expertise similar to that which ABIP will have, the EFIC would be the appropriate entity for ABIP to go to. You would not have the conflict of interest issues that you might if it were outsourced to the private sector, and EFIC is up and running and already in place. I would urge senators to support an amendment along those lines. To me that seems a very pragmatic and sensible way to deal with these particular concerns in terms of having ABIP up and running.

I indicate that—subject to seeing the amendments regarding the commercial viability of loans, the lending criteria being commercial and the safeguards for taxpayers, as well as indicating my support for the executive remuneration amendments of the Australian Greens—I support this legislation. I want to make it clear that I believe the government has, as a result of the Senate committee inquiry process, acknowledged the issues of competition policy and exemptions from the Trade Practices Act and the need to monitor that. With the government clarifying the issue of ASIC’s involvement, the Auditor-General’s involvement and governance issues with respect to ABIP, I believe that this is a prudent way forward. I hope that, as a contingency measure, ABIP is not used. It is a short-term measure whilst we go through these quite turbulent economic times. I support the second reading of this bill.

David Bushby (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I rise today to speak on the Australian Business Investment Partnership Bill 2009 and the Australian Business Investment Partnership (Consequential Amendment) Bill 2009, which together seek to set up what has become known as ‘Ruddbank’. These bills are said to be needed as a direct consequence of the impact of the global financial crisis on the commercial property market in Australia. Last night we had the first budget from the Rudd Labor government since the financial crisis hit, and I would just like to make a couple of points about that in the context of the ongoing effects of this crisis on the Australian economy and the dismal failure of the budget to set up Australia to come out of it well at the other end.

The budget shows we will have a cumulative deficit over the next five years of some $220 billion. International ratings agencies have overnight said that this level of deficit and debt will not threaten our AAA rating, and that is good news because that would be a disaster for Australia. But the very fact that they had to consider this is itself damning. In less than half a term this Rudd Labor government has taken us from a strong healthy surplus into a position where we are recording record deficits and accumulating debt faster than at any other time in our nation’s history. And, yes, this is happening in the context of a massive international financial shock. But one simple fact highlights that the government cannot shift all the blame for this massive debt accumulation onto the financial crisis. That is, around two-thirds of the projected net debt, or over $120 billion of it, is accounted for by new discretionary spending by the Rudd Labor government. Put simply, despite the effects of the international crisis, our projected net debt could have been only one-third of what we are facing if the Rudd Labor government had not been so profligate in spending the money of Australian men and women and their children. It is worth noting that the projected net debt arising from this massive spending increase will lead to a debt of around $9,000 for every man, woman and child in Australia and, further, that every man, woman and child will have to pay $500 in taxes every year just to cover the interest bill before they pay taxes to be used for services like health and education.

These bills create a partnership between government and the private sector through the big four banks, ostensibly as a contingency measure proposed to cover the possible need for the refinancing of viable commercial property projects just in case the foreign banks decide to withdraw from the Australian commercial property market. It is yet another Rudd Labor government policy announcement accompanied by extraordinary and alarmist suggestions regarding the number of jobs at risk if this particular government policy is not adopted. Indeed, the Prime Minister has claimed that up to 50,000 jobs could be lost in the event of the rejection of these bills by this place, our democratically elected Senate.

This claim that it is necessary to implement ABIP as a job-saving measure, as opposed to an attempt to stabilise the financial system, has generated confusion and mistrust, as Mr Rudd has once again attempted to parade around like a knight in shining armour, single-handedly saving Australia and its people from the global financial crisis. However, the reality is that the proposal contained in these bills is bad and irresponsible policy for a wide-ranging array of reasons. The stated purpose of the bills is to protect the Australian commercial property market from the withdrawal of foreign banks. However, no evidence was presented to the Senate Standing Committee on Economics of the intention of any foreign bank to withdraw from this market. In fact, there is a very solid case to suggest that the establishment of the ABIP will encourage foreign banks to withdraw from the commercial property market in Australia and actually fuel the problem that the bills have been proposed to deal with. The only conclusion that can be drawn is that this is an unjustified overreaction to an unlikely possibility.

Professor Henry Ergas from Concept Economics, in his submission to the committee, stated:

Treasury has not presented any compelling … evidence of the need for the interventions that are contemplated in this Bill. Taxpayers have been provided with no guidance as to exactly which foreign banks are contemplating exit from Australia, how much money is actually involved, which assets might actually be affected, which syndicates and domestic banks are actually affected, the actual commercial terms under which these agreements have been made, or the precise nature and size of the economic effects that would ensue should withdrawals occur.

This would indicate that the legislation is simply just precautionary. If this particular line of economic reasoning of the government’s was applied more widely or taken more seriously, it would set a very dangerous precedent, given that Treasury has developed no framework to limit future allocation of taxpayer funds for precautionary reasons in this or any other such cases where comparable precautions could be justified. Henry Ergas gives the recent decline in world commodity prices as a potential example of a situation where this new precautionary approach could be justified. Given that global commodity prices have fallen and they affect Australia’s terms of trade, exchange rates, gross national income, gross domestic product and employment, would Treasury also favour precautionary government measures to combat such movements? Maybe there will be a return to the bad old days of inefficient quotas, widespread tariff protection and commodity price stabilisation schemes.

The government is selling ABIP as being necessary to support jobs in the commercial property sector against significant withdrawal from the Australian market by foreign banks. So how real is the threat of foreign banks withdrawing? The Reserve Bank’s February 2009 statement on monetary policy states:

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.

Advice from Treasury is that there has been no indication from foreign banks of possible withdrawal from the Australian market. Suggestions of an intention by the Royal Bank of Scotland, the only bank that I have heard any suggestions about, to withdraw have also been scotched completely in a letter from that bank to Senator Hurley dated yesterday, which said:

RBS—

the Royal Bank of Scotland—

has not withdrawn from the Australian market. In fact, on 26 February 2009, RBS announced the outcome of the Group’s global strategic review alongside its annual results. As part of that announcement, the Group confirmed that Australia not only remains a primary focus for the business going forward, but it is one of our six trading hubs situated across the globe.

So even the Royal Bank of Scotland, the only bank I have heard any rumours about at all, have denied that the rumours are true. If we look at the total score of how many foreign banks are looking at withdrawing from Australia, we come to zero.

So the quantity of taxpayers’ funds to be put up to fund the ABIP represents an enormous sum of money to address a problem that is yet to have been proved to exist. It represents a new precedent by taking precautionary action against what in legal terms would be referred to as a mere spes: a possibility based purely on speculation rather than fact. However, rather than save jobs, the Rudd government, through this bill, may actually provide the catalyst for turning this mere spes into a reality. One of the biggest flaws in the ABIP bill is that it is highly likely to actually cause the very problem it was designed to prevent. Highly respected economist Professor Henry Ergas has 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.

Whilst the ABIP is seemingly intended to dissuade foreign banks from exiting Australia, it actually provides an incentive for any foreign bank that wishes to exit by allowing easy repayment of their commercial paper at 100 per cent of face value, regardless of whether this would be available commercially. This effectively means that, through the ABIP, the Rudd Labor government is proposing to use Australian taxpayers’ money to encourage foreign banks to withdraw from the Australian commercial property market by paying them out in full.

How does letting ABIP be used to prop up the balance sheets of foreign banks protect 50,000 Australian jobs? How is this being a responsible custodian of billions of dollars of taxpayers’ money, particularly given that, according to the Australian Financial Review, foreign banks increased their loans to non-financial corporations in Australia by a double-digit percentage over the past year? The bottom line is that this proposal will make it much easier for foreign banks to exit the Australian market because they will be able to circumvent heavy losses on the loans. This also brings up another interesting facet of the ABIP debate—the vested interest of local banks in having the government take over loans of foreign banks. National Australia Bank chief executive Cameron Clyne said in February that there is little evidence yet that the foreign funds exodus is happening, and it seems that to date not one destitute real estate investment trust has testified to being abandoned by the departure of a finance syndicate member. In fact, in a great many cases it is the Australian banks driving the tough deals in refinancing.

There is concern from many of the bankers involved in refinancing that giving an easy exit to foreign banks will create an inequity between them and domestic banking institutions, further complicating already tumultuous refinancing negotiations. Despite the comments by the Reserve Bank and the lack of evidence of foreign banks withdrawing, the fact is that there are refinancing pressures in the Australian market, and, to a significant extent, these pressures have been exacerbated—and even, in part, caused—by the decisions of the Rudd Labor government. It is a fact that significant amounts of syndicated debt will need to be turned over this year, not only in commercial property but also by Australian corporations in general. It is also true that many small and large Australian businesses are facing challenges in securing refinancing, but it needs to be acknowledged that, to a large extent, this is as a result of the crowding out of debt markets that was caused by the Rudd government bank guarantee which was introduced in October last year.

The question we should be asking here is whether the Australian taxpayers should bear the burden of averting a possible fire sale of Australian commercial property if the reason for this possibility being transformed from a mere spes into a reality is this poorly-conceived piece of Labor government legislation which is, ironically, intended to prevent that very outcome? The ABIP will expose the Australian people to a potential liability of $28 billion. The Commonwealth will have a 50 per cent shareholding in the ABIP company, a $2 billion commitment, with the other half being provided by the big four banks. But, if the ABIP requires additional funds over and above the initial $4 billion, it will be able to issue loans up to an additional $26 billion at the Commonwealth’s risk alone—a potential addition of another $26 billion to the already gargantuan $200 billion debt legislated by the Rudd government, which, in the context of last night’s budget, is clearly now going to be exceeded.

This piece of legislation has been sold to Australia as a job-saving measure, with the Prime Minister stating that it will prevent the loss of 50,000 jobs. But it quite simply will not. During one of the Senate Standing Committee on Economics hearings in the inquiry into the bill, in Sydney, Peter Verwer from the Property Council said:

ABIP does not put new money into the system and therefore is not a source of funds for new investment.

Put simply, this means that ABIP will not play a role in starting any new projects that would create employment, and it would appear on the basis of the evidence given at the committee hearings that employment in the commercially viable projects ABIP is authorised to invest in is unlikely to be at risk. It was made quite clear by Mr Verwer that they were not going to be investing in anything that was not absolutely top shelf, and if you have a top-shelf proposal, you are not going to need ABIP anyway.

It stands to reason that the only commercial property projects in which job losses might occur would be projects which were not commercially viable to begin with and would not qualify for the refinancing assistance offered by ABIP as a result. This would suggest that, once again, the Prime Minister’s claims about protecting employment are completely lacking in credibility. Not only is the ABIP likely to be harmful in creating market distortion and putting taxpayers’ funds at risk; it is also anti competitive and unaccountable. The Minister for Finance and Deregulation states that the bill:

… specifically authorises the shareholders agreement, and the activities undertaken by ABIP, its shareholders, directors, officers, agents and employees in the furtherance of ABIP’s objectives, to be exempt from the competition provisions of the Trade Practices Act.

This is justified by the minister as being essential ‘to remove any uncertainty about the operations of ABIP’. This, in fact, creates huge uncertainty as to how ABIP will actually operate.

In a situation where a law applies to the wider Australian community but not to this particular Rudd government quango, one must have misgivings as to how or even whether anticompetitive practices could be prevented in its absence. Evidence was given at the committee inquiry that the Australian Competition and Consumer Commission was not involved in discussions of any significance with Treasury about the implications of its exemption from the Trade Practices Act or the legal framework within which ABIP would operate. This is astounding given the ACCC’s role as the competition watchdog of Australian business. To make things even worse, good corporate governance is breached by having a board composed of representatives of the big four banks and the Commonwealth as opposed to independent board members who would act in the best interests of the company. It will be very difficult to remove perceptions of board members acting in their own interests—the representatives of the banks acting in their commercial interests and the representative of the Commonwealth, the government’s appointed nominee, acting in the government’s political interests. This mistrust will be further compounded by the clear lack of ministerial or parliamentary oversight. As outlined, this bill proposes what can only be viewed as bad policy. It will deliver outcomes contrary to the stated intention. It creates a new ‘precautionary’ principle that could have very broad consequences, and it should be rejected.

Sue Boyce (Queensland, Liberal Party) Share this | Link to this | Hansard source

I would also like to speak about the Australian Business Investment Partnership (Consequential Amendment) Bill 2009 and the related bills we are discussing today. The Australian people have decided that this is actually known as ‘Ruddbank’, not as ABIP, and we need to examine the very intelligent take that Australians tend to have on government actions and government finances. This bill will provide refinancing of loans for commercial property assets. This will be limited to existing commercial property loans when a commercial provider of loans has withdrawn funding or is threatening the availability of refinancing by making that withdrawal. The Commonwealth will, in fact, end up providing an initial $2 billion—if this legislation is passed—into the ABIP fund in conjunction with the four major banks. ABIP will be able to issue up to $26 billion worth of debt. The debt will be guaranteed by the Commonwealth—not by the banks and the Commonwealth, but by the Commonwealth—and could leave Australian taxpayers liable for a minimum of $30 billion worth of debt. In the context of the debt that has been discussed ad infinitum since 7.30 pm last night and even earlier, I think we need to examine the very strong concerns of Australians about what Ruddbank actually means in terms of exacerbating the potential for debt in Australia.

We already have a budget that is $58 billion in debt this year. The government has actually blown $80 billion in 12 months and completely undermined the strong financial position that they were left by the former Howard-Costello government. We need, as a parliament, to be extremely careful about authorising this government—with its current record—to lend out another $26 billion, because it is Australian workers who will need to pay this debt on top of the $58 billion and the $220 billion to come. The coalition will be working to protect the interests of Australian taxpayers by opposing this legislation. Someone earlier referred to it as ‘precautionary’ legislation. We have no evidence whatsoever that foreign banks and others are pulling out of the market in any way, shape or form. So why do we need legislation to assist the government to raise yet more debt?

The Treasurer would have you believe that the ABIP fund would be part of their concept of building the nation. In fact, it is a part of the Labor Party’s non-stop efforts, when in government, to bill the nation. It is not about building the nation; it is about billing the nation for generations to come. Let’s look also at the fact that this legislation is meant to apply only to commercially viable properties. These will be the only ones eligible to access the ABIP fund. What does ‘commercially viable’ mean in the Australian economy? The government has a very strange idea about it. If it is commercially viable then wouldn’t funding be commercially available, rather than the company needing to rely on public finance? There needs to be very strong evidence that there has been a complete drought of private finance before the idea that this group will only lend to commercially viable projects makes any sense at all.

We have no evidence whatsoever to suggest that the finance for commercially viable commercial properties is not currently available or that there is any intention on the part of the financiers to withdraw from this market. I wonder sometimes what particular line of communication the big four banks that are involved in this project—the Commonwealth Bank, Westpac, ANZ and the National Australia Bank—have with the Treasurer. We have instance after instance of this government favouring the big four Australian banks at the expense of a sensible, functioning commercial market in Australia. They are sending out a signal right now to foreign banks with this attempted legislation.

They have created huge problems already for other organisations that borrow and lend money which were not initially covered by the $1 million guarantee. Of course they had to change that because the unintended and unforeseen consequences got up and bit the government yet again. The big four banks did not explain to the government what the consequences of the initial $1 million guarantee were going to be. I am not sure why the big four banks are the ones who have been favoured in this area by the government. But, once again, we have a government project that is going to cost a lot of money and is going to skew the functioning of the market, and this government has no idea whatsoever what the outcome of this is going to be. Why do the banks need taxpayer help to provide loans to what the market considers to be commercially viable? Where is the evidence that they cannot do that? If the properties were commercially viable, would not the banks provide funding through their normal business operations?

As I have mentioned, there is no evidence to date that the foreign banks are intending to withdraw in any meaningful way whatsoever from the Australian market. We just have not had that evidence. I note that the big four Australian banks, the ‘in-crowd’ banks, are still profitable. Westpac, the Commonwealth Bank, ANZ and the National Australia Bank generated a combined $8.83 billion profit in the first half of the 2008-09 financial year. If the commercial properties that would be the beneficiaries of this fund were commercially available then surely these banks, if they are to be the favoured children of the Labor government, are not struggling to the point of needing public money to lend for properties that will give a viable return on investment.

It is very concerning that we do not have any criteria, other than what one presumes will be developed by the government appointee and the appointees of the four banks, for what constitutes ‘commercially viable’. Why can’t the current lending criteria, at least, be included in this legislation so that we have some transparency around who decides and what they are deciding? We all know that every loan, irrespective of its assessment as commercially viable or not, has some degree, however slight, of risk, and in a free market—the market that this government is now attempting to skew—the market rewards those who take that risk with an appropriate return on investment. We have no idea what the returns will be and how the risk will be assessed given that the government’s involvement will change the attitude towards that risk, skewing the market.

We have a very good example in Queensland currently, with a company called BrisConnections creating the airport link, where people made assumptions about the safety and lack of risk in that product because there was state government involvement in it. We need to get upfront very early and easily what the risk is, how it is to be assessed and who, other than the government appointed and government favoured minders, will decide. I think we have seen quite enough already, particularly in the current debt-ridden situation, of what can happen when the government starts risking taxpayers’ money—Australians’ money—by lending to companies in order to prop up banks or commercial property lenders.

We saw what could happen when the government got involved in lending practices in the subprime crash in America, but I think we can come much closer to home to look at the sorts of things that go on when governments, particularly governments that have very little experience of how business operates, get involved in private enterprise. We could start, I think, with WA Inc. The Labor government’s involvement there continues to be a matter of shame and a paragon of ineptness and corruption. Between 1983 and 1991, the Western Australian Labor government lost millions of dollars by lending to companies that have gone into the Australian lexicon as shonky, such as Rothwells. There was also Westralia Square—and who can forget the Central Park property redevelopment? The Western Australian government made secret deals with the Bond Corporation to acquire Bell Group from Robert Holmes a Court. But none of this was sustainable and it all ended up in bankruptcy. Rothwells collapsed after being loaned $408 million by the Western Australian government. Bell Group received $155 million that they happily took off to the liquidators with them. There was $74 million that went to Westralia Square and $100 million that went into Mr Burke’s Central Park property redevelopment. Conservative estimates suggest that the Western Australian government lost $877 million of Western Australian taxpayers’ money by making those deals—and we are talking eighties and nineties dollars, not 2009 dollars. The royal commission in Western Australia said:

Some ministers elevated personal or party advantage over their constitutional obligation to act in the public interest.

Their motives ‘derived in part’ from Premier Burke’s established relationships and ‘his desire to preserve’ Labor’s standing with ‘the business community from which it had secured much financial support’. So we had a Labor government in Western Australia making unscrutinised, secret deals with business that were not accountable to parliament. The result was a disaster for the state of Western Australia and its citizens.

Let us have a look also at the Cain government in Victoria between 1982 and 1992, which thought it knew a bit more about how to run business and make a state rush ahead with development than the market and the experienced businesspeople of Victoria. The government thought it knew that. It cost $65 million in debt. It destroyed the banking system of Victoria and led to $65 million just in government debt that the Victorian taxpayers took years and years to pay off. That is to ignore the people who were damaged by the collapse of the Pyramid Building Society, which, just as with BrisConnections, the government’s support had led people to think was far more secure and far less risky than it was. The State Bank of Victoria eventually had to be taken over by the Commonwealth Bank, and dozens and dozens of Victorian government programs such as WorkCare, the Victorian workers compensation scheme, went unfunded for years whilst people worked out how to climb out of the crisis that John Cain caused for them in Victoria.

We already have quite enough examples of why Labor governments are not exactly the people you want to be handing the mortgage papers to. They have a very, very poor record. We already have a huge level of debt and now we have the potential for this to be added to—potentially added to in an unlimited way. Let’s have a look at the financial impact proposal in the explanatory memorandum attached to the bill. It points out that initially the government would be putting in $2 billion and paying $2 million towards the administration of the fund and that the government guarantee on any ABIP issues would be a maximum of $26 billion plus any interest that might be payable in relation to the principal debt. But let’s look further at this. It says:

The final financial impact of the arrangements will depend on a range of factors including: the value of loans approved;

Who is going to decide that? How transparent is that? Does the ACCC get to have a look at that? No. Does any governance body get to have a look at that? No, because the government have removed it from the entire governance system. It says:

The final financial impact ... will depend on a range of factors including: the value of loans approved—

unknown, and—

... the extent of defaults ...

and that should send shivers down the spine of every Australian taxpayer—all the people who, somewhat sarcastically, coined the term Ruddbank. We have looked at WA Inc. and we have looked at the efforts of the Cain government. I do not even have time to touch on the South Australian Labor governments’ efforts of the past, but the extent of defaults on loan is again an unsupervised, unmonitored effect. It goes on:

... the amount of dividends paid by the company to shareholders;

Let’s hope there are dividends to pay to the shareholders. The banks of course are in there. The system that will be used, I am sure, will be a good one, but again we have no idea what it looks like. It could also include:

... the guarantee fee and interest costs on the Commonwealth borrowings—

if a guarantee is required. The final financial impact of these arrangements is completely unknown, as is the governance arrangements that this system would have.

The coalition believe that this bill is ill-conceived and reckless. We believe that Australian taxpayers must be protected from even further rushed spending from this government. There has been no evidence given as to why this bill is needed. There is no current evidence whatsoever that foreign banks en masse are intending to withdraw from the commercial market. There are no governance procedures that would give anyone any satisfaction as to how this will survive, and there is also the fact that it applies to commercial property assets only. They specifically take out any rural development. So it is not about building a nation; it is just another part of the Labor government’s attempts at billing the nation.

Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern Australia) Share this | Link to this | Hansard source

If we needed any evidence after last night that Labor simply cannot be trusted with money, we could have seen a precursor to that by having a look at this bill before us today. Again, it is one of Labor’s ill-conceived, rushed, panicked pieces of legislation which clearly demonstrates something that we on this side of the chamber—and I think a good majority of Australians—have always known, and that is that Mr Swan is simply incapable of managing Australia’s economy.

We now know that last night’s budget clearly demonstrates that Labor has lost control of public spending. They are burdening every man, woman and child in Australia with huge debt that will take decades to pay off—and we on this side of the chamber know about paying off debt. It took us 10 years to pay off the legacy of Labor’s last term in government.

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

You did nothing else!

Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern Australia) Share this | Link to this | Hansard source

Thank you for the interjection, Senator Cameron. It is typical of Labor governments that they simply cannot manage the economy. Last time Labor was in power there was a debt run up of some $96 billion—a huge amount—although I might say it pales into insignificance when compared with what the Rudd government has run up in two short, terrible years. You only have to look at Labor’s administration the last time they were in government. Not only did they run up a debt of $96 billion but they had unemployment over the double-digit figure. Inflation was well up around 11 per cent. Young people will not believe me—although I daresay in the not too distant future they will well understand—but I still remember paying 17 per cent interest on my housing loan.

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

And you got out of it cheaply!

Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern Australia) Share this | Link to this | Hansard source

I did get out of it cheaply, Senator Williams. I remember businesses getting money from their banks—if they could—at 22 per cent interest. When they could not get it from the banks they got it from money lenders at about 28 per cent interest. You cannot conceive of that nowadays.

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

Senator Cameron interjecting—

Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern Australia) Share this | Link to this | Hansard source

With all due respect, Senator Cameron would not understand. I do not think he has ever been in business or ever had to worry about paying the wages bill, paying off the bank loan and trying to meet the commitments that one has when one is in the productive part of the community.

Back in those days we understood about Labor’s control of the economy and their inability simply to manage money. Last night we had a repetition, multiplied by about 10, of the ineptness of the Labor governments of the past. It makes me wonder why it is that the Labor government seems to be turning us back into the socialist state that even Mr Whitlam could only have dreamed about. We now find that the Labor government is taking us back to the Telecom days of owning the communications system in Australia. Those of us who are a little older than you, Madam Acting Deputy President, remember what the communications system was like when the government ran it, when it was run by political patronage and dependent on which seats the Labor Party wanted to favour this time. That is how the communications system was run in those days. Since telecommunications have been privatised, the world has opened up to all of us who are interested in rapid and innovative communication. But Labor want to turn back the clock to socialism, a philosophy that not even Russia considers these days. Even communist China, the last remaining major—

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

Senator Cameron interjecting—

Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern Australia) Share this | Link to this | Hansard source

You know all about communist China, Senator Cameron. I guess you are like many of those opposite who were pretty close to the communist Chinese back in the days when they were not as open as they are today. We wonder about the Minister for Defence and his association back in the days, as I say, when we were not quite as open with the Chinese and the Chinese were not as open with everyone else as they are now.

As a reader of history, this arrangement where the government gets involved in big business and in big unions and starts to control big business reminds me of the fascist regimes in Italy, Spain and Germany back in the twenties and thirties. Have a look at this bill—propping up the four major Australian banks. As Senator Boyce quite rightly pointed out they have been doing pretty well. She mentioned that their profits last year were somewhere near the $8 billion mark—and good on them. But why is the government coming in and propping up these major Australian financial institutions? Earlier in the term of this government we heard that it guaranteed the deposits of the Australian banks to what I understand was a contingent liability of some $600 to $700 billion. On top of that, we have this very strange bill before us today where the government is getting involved in protecting the banks from an eventuality which most think is unlikely. The Reserve Bank governor threw doubt on Mr Rudd’s reason for establishing this bank. Why is the government doing it? Do you think it is perhaps that the government will, more and more, nurture major Australian enterprises so that it can manipulate them to its political will, as it does the trade union movement and an increasingly un-independent public service around Australia? It is not too bad in the Commonwealth at the moment—

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

Picking on the public servants!

Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern Australia) Share this | Link to this | Hansard source

But you only have to look at some of the state public servants, Senator Cameron—and you would be well aware of this. Without maligning you, I daresay that in your very significant role in running that fabulous Labor government in New South Wales you would have ensured that one or two top public service jobs went to old mates of the union movement or the Labor movement.

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

Where is Peter Reith now?

Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern Australia) Share this | Link to this | Hansard source

Have a look at Queensland. Goodness me! I am sure the Premier’s husband is a very competent and well-qualified person, but putting him in charge of a major state government public service organisation was going a bit beyond the pale, even for the likes of Senator Cameron and others in the Labor movement.

I do not want to be alarmist and I do not want to see conspiracies that are not there, but you do have to wonder why it is that the Labor governments are getting their sticky claws into every aspect of Australian business, government, unions and way of life. This bill leaves us all wondering why it is there. What is the reason for it? Mr Rudd suggested that where loans had been provided in the commercial property sector there would be an exodus of foreign lenders. So, on the spur of the moment, he had this great idea for the government to become involved to protect against that. But the Reserve Bank refuted the underlying principle with this statement from 6 February 2009:

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 …

So why bother with this? I know why the foreign banks would be worried: because of the stupid emissions trading scheme that this government wants to introduce, but I will talk about that when I next get the opportunity.

Debate interrupted.