Gerard Rennick (Queensland, Liberal Party) Share this | Link to this | Hansard source

I rise today to speak about the heady days of the 1980s and what was pretty much the cultural flavour of the day: neoliberalism. I had planned to make this speech anyway, but it's actually quite relevant in light of all the insults thrown at me by the other side over the weekend, calling me a 'cooker' because I want to help parents raise their own children. Unlike those on the other side, who seem to be incapable of rational debate, I think we do have a cost-of-living crisis in this country. More importantly, we have a parenting and stay-at-home problem. I totally agree that it is very difficult for a one-working-parent family to actually be able to pay a mortgage today.

That is why I rise to speak. I actually want to deal with the issue of house prices in this country and the issue of productivity. You may find it strange that a Liberal senator is getting up and speaking against the neoliberal ideology of the 1980s, but you shouldn't. If you read Robert Menzies's 1942 'Forgotten people' speech, you will see in his last paragraph that he says that we should not go back to the old and selfish notions of laissez faire and that there will be more control, not less of it. That's very important because the role of a good government and a good politician is to protect the people and their families. It is also the role of a good politician to stand up to the unrestrained authority of the institutions, whether they are superannuation funds, banks, politicians, bureaucrats or corporations. What we've seen in the last four or five decades is this rolling over to the institutions, who are basically unaccountable. How many times have I had, 'It's commercial-in-confidence,' thrown back at me about government money that's been paid to a company? I couldn't tell you, but it's too many times. Ultimately any taxpayer dollars that have been spent on contracts with the private sector should be totally transparent.

I want to talk about the financial deregulation of the 1980s and get very specific about some of the things that happened. What brought me to this is that I'm calling for the reestablishment of a public bank, and some of the blowback I get is: 'We can't have government's running banks. Look at what happened to the State Bank of Victoria in 1990.' I did go back and look at why the Victorian state bank collapsed in the late eighties and early nineties. It was because they went and bought a merchant bank, Tricontinental. It was the losses from the Tricontinental purchase that actually brought the entire state bank down. If you'd had proper banking regulations that had prevented the government bank from getting involved with a merchant bank, that would not have happened. If ever there was a time when you did not want to get involved with a merchant bank, it was the late eighties with the heady debt levels and gearing ratios. Who can forget the Bonds and the Skases of the world and some of the astronomical losses that occurred in the late eighties? That is very important to point out, because if we didn't deregulate the financial sector—and I just want to be careful here about what I talk about, because it is a question of degree—things like that wouldn't have happened.

Another aspect of the deregulation was that capital controls—foreign capital controls—were lifted. In 1985 the four major banks had $8 billion in foreign debt. By 2008 they had $800 billion in foreign debt because there are no restrictions on what the local banks could go out and borrow offshore. When they could go and borrow as much money as they liked, they did. What happened with that $800 billion that they borrowed was they lent it to people who wanted to buy houses. That sent house prices up to 12 to 13 times earnings from what was initially, in 1985, four to five times earnings.

When you put house prices up to 12 to 13 times earnings, or double the price of a house relative to income, you will invariably end up with two parents in a family going back to work. That's exactly what has happened over the last 30 or 40 years. We have had two parents having to go back to work. When two parents have to go back to work, that means we have to put our children into child care. I want to distinguish 'child care'. I'm talking about institutionalised child care. I'm not talking about kindergartens, five-day fortnights or anything like that when kids get to four or five. I've got no problem with kids going off to kindergarten for five or six hours a day for a few days a week. My own dad was the president of the kindergarten P&F for a number of years. He used to play Santa Claus. I well remember that as a childhood memory. But I believe there is no doubt that one of the declines in our educational standards—even in the wellbeing of our children—is because they're not establishing strong bonds with their parents.

I can tell you, having three children of my own, parenting is a full-time job. By the time you pick the kids up after school, run them around to their various sporting activities, get them home, get them in the bath and on the toilet, do their teeth, feed them, get them to do their homework and then read to them—that takes a lot of time and effort. The importance of the stay-at-home family means that the parent is very, very important. I don't care if it's the mother or the father; I, myself, volunteered to stay at home and did for a number of years.

But those capital controls, getting back to the finance side here—banks need to have capital controls. They should not be allowed to lend without any regulation to anyone they want at any time. I just spoke to a mining company this morning that wants to value-add its product here in Australia. They can't get finance from National Australia Bank, because it's too hard. The Big Four, our major retail banks, are very lazy. They would much rather lend against housing than business. That's another thing that got lifted—there were no restrictions or directions that said, 'For every dollar you lend against a house, you've got to lend a dollar against a business.' Our loan book today has gone from, say, 40-60, housing to business, to something like 70-30, housing to business. So a lot more money is lent against housing than actual business itself.

The last thing I want to touch on with this financial deregulation of the eighties, and something I've had a lot of experience with in my financial career, is the use of derivatives. If anyone gets the time, you should go back and listen to last week's The Country Hour. A guy was on The Country Hour on the ABC talking about the derivatives market. In particular, he was referring to the cotton industry. The total value of the cotton crop across the world is about $42 billion. As this guy went on to say, the value of derivatives on the cotton market is much, much more than that.

And it's not just the cotton market; its most other agricultural products and metals. The value of derivatives outnumbers the value of the physical market by a factor of up to 10 to one. The reason why that matters is that, when you have such a large derivative market—I'll be more specific here. When the deregulation occurred, what it said was: if you were going to take out a hedge, you no longer have to hedge it against the physical; you can basically take out uncovered hedges—you can call them naked shorts or whatever you like. What that meant was that you could now create a paper market in parallel with the actual physical market. Indeed, the biggest market in the world is the US Treasury bond market. But, when you create these paper markets, you put the power of pricing in the hands of the banks and the paper shufflers and you take the power of pricing away from the producers. That's not fair. If anyone understands the way markets should work—this is why don't believe in free markets. I don't believe in free markets for the same reasons I don't believe in fairies at the bottom of the rose garden—it doesn't exist. What I believe in is the risk-reward paradigm. That is actually in accordance with the coalition's values of reward for effort, because it's the people who get out of bed and put their nose to the grindstone that should be rewarded.

So what we really need is a Senate inquiry into the financial deregulation of the 1980s, in particular with regard to unhedged derivatives, with regard to what banks can and can't do and with regard to the way we go out and use foreign debt to basically inflate house prices whilst ignoring our underlying productivity issues. The financial deregulation of the eighties was accompanied by the Button plan, which sent our manufacturing offshore. It was accompanied by the Dawkins plan in 1990, which sent our children to university so they could graduate broke and brainwashed. It was accompanied later by compulsory superannuation, which centralised $3 trillion of wealth into the hands of fund managers. Yet again, these people that skim off $30 billion a year aren't actually risking their own capital. So, if we want to actually deal with the housing crisis in this country, if we want to deal with getting our children a loving home life and a good education, we need to deal with the financial misregulation that goes on in this country.