Senator RYAN (Victoria) (5:40 PM) —I rise tonight to join with my colleagues and oppose the Australian Business Investment Partnership Bill 2009 and related bill, known these days as the Ruddbank, joining the Ruddnet, all funded by the Rudd debt. This is a reckless proposal that represents a significant backward step for our nation. One would think that 1949 would have taught the Labor Party that government and banking do not mix. But they are not quick learners. They should have also learnt from Victoria, South Australia and Western Australia in the early 1990s that government going into banking, particularly commercial banking, especially if it involves the Labor Party, leads some to benefit at the expense of many, to the cost of Australian taxpayers now and into the future. It is nothing less than a recipe for economic disaster. Indeed, unlike in other nations, the Australian government have not been required to step into bank management over the past 18 months. This is the direct result of the actions of the former coalition government that ensured our banks did not get themselves into the trouble that we have seen develop overseas.
This was the result of two specific actions. The first was the regulatory regime put in place by the former coalition government that ensured our banks and other authorised deposit-taking institutions did not overextend themselves as they have in other countries. Similarly, the strong economy delivered by the previous government and, in particular, the elimination of government debt ensured that there was confidence in the markets for Australian debt. Australian taxpayers today are billions of dollars better off due to these measures. But there are myriad problems with this bill and, indeed, with this proposal in general.
Firstly, this bill is simply the result of government mismanagement. The fact that corporations may have trouble refinancing in the short and medium term is the direct result of this government’s unprecedented borrowing spree. It is no surprise that a government borrowing more than $2 billion a week is crowding out the debt markets. Despite this government believing that it can suspend the basic principles of economics, a government wading into debt markets and soaking up record amounts of liquidity and unprecedented amounts of debt must directly impact the ability of other, non-government bodies to refinance and gain access to the debt markets.
Similarly, the impact on property lenders of the ill-thought-out unlimited bank guarantee put in place by this government has been well outlined elsewhere. In essence, this reckless measure is attempting to fix a problem that the government itself is partly responsible for creating. The alleged threat of foreign banks exiting the Australian market—yet another example of this government intentionally running a scare campaign to justify its own desires to intervene in Australian life—has been repudiated by the Reserve Bank, as was outlined by my colleague Senator Macdonald.
This proposal also creates a significant moral hazard. It effectively underwrites that very action which the government claims it is trying to address. It rewards those seeking to withdraw with the full value of their investments and it may even accelerate that very problem. Why should taxpayers underwrite those financiers who wish to exit with a government-backed guarantee so that they can exit investments at no cost, with the cost borne by the Australian taxpayer? There is simply no justification to underwrite corporate and banking balance sheets, whether domestic or foreign, with the resources of Australian taxpayers now and into the future.
There are also many issues of governance with this bill. There has been no sufficient explanation of why Ruddbank should be exempted from the competition provisions of the Trade Practices Act. While there are many specific problems, including how this may lead to anticompetitive actions or prevent a ban on anticompetitive action by the Ruddbank, there is a more general principle at stake here. Why should this body, alone in the market in which it operates, be exempt from the legal provisions that impact on and restrict the actions of everyone else? It is a very poor principle to exempt one organisation in a market from general laws that apply to every other person in that market, especially when a body operates with a government mandate and a government guarantee of its funding.
As a taxpayer it is legitimate to ask in whose interests the directors of Ruddbank will act. Will it be the banks who appoint them? Will it be the government who appoints its own member? This lack of independent board members leads us to ask whom they represent—taxpayers and shareholders or the bodies who appoint them. Furthermore—and this is particularly important—does the government appointee represent the government or the taxpayers? We have had no answer to that question. While this difference may be too subtle for this government to notice with its reckless squandering of taxpayer funds now and in the future, it is a critical question for those who are underwriting this bank—the current and future taxpayers of Australia. Without sufficient checks and balances, this bill represents a massive opportunity for political patronage.
It is fair to say that the ALP and property developers need no introduction and, if the government were serious about allaying concerns about political patronage, it would put in place provisions to prevent this happening. It would pledge that it will not be used to support those who make donations to the Labor Party—but I am not going to lie awake tonight awaiting that promise. There is also no guarantee whatsoever that this bank—and it is a bank in the common meaning of the term, despite its typically Orwellian title of ‘partnership’—will ever be wound up. There is no specific commitment or time line from the government in this regard. It is not unreasonable, therefore, to assume that this betrays the lack of commitment to ever winding this body up.
In regard to the specific provisions of this bill, there is no detail about what the so-called test of ‘financial viability’ entails. It is not defined and it strikes me as a paradox. Apparently, along with government, people who represent organisations which have presumably declined an opportunity to participate in a financial venture will sit around a table and deem something to be financially viable when no-one else will—indeed, when their own organisations have likely refused such an opportunity. It is like heading to the casino with someone else’s money, but that is no surprise with this government.
This leads me to my in-principle objection to this bill. It is simply wrong to gamble with the money of taxpayers, both those of today and those long into the future, in commercial arrangements such as this. Taxpayers’ money should not be put at risk to support a specific, government nominated industry. As I mentioned earlier, it is a sad sign of the lack of memory in this government. Just as they have forgotten the pain caused by the excesses of Whitlam, they have also forgotten the pain of Victorians and South Australians due to the reckless actions of banks under John Cain, Joan Kirner and John Bannon. The government simply should not be in the business of banking and it should specifically not be in such a volatile sector as the commercial property market. The Treasurer’s office admitted the risk of undertaking this in a report when it said:
The commercial property sector can be particularly vulnerable in a downturn in the economic cycle.
All the best wishes in the world cannot protect such an entity from making bad decisions. Such decisions should be undertaken by those best positioned to do so, those who will bear the risk and the reward of the activity in question. I doubt whether the managers of Tricontinental and the state banks of Victoria and South Australia thought they were making bad decisions at the time. Some will say comparing this to those banks is alarmist, but the final cost to taxpayers in those states of those ventures came to over $6 billion and the end of a century of a stable banking business focused on depositors and home lending. It is the figure that is alarmist, although to this government $6 billion is merely trifling these days. It is clear the Labor Party has not learnt these lessons and the cost of those poor decisions was borne by the taxpayers of Victoria and South Australia for years. Indeed, it is still borne today through the opportunity cost of services not delivered, roads, hospitals and schools never built. We have private banks for a reason. They risk shareholders’ money. To those who raise the issue of the government guarantees, I hasten to add that those measures protect depositors and lenders, not shareholders, and those measures are—many of us hope—temporary ones.
The Ruddbank gambles with taxpayers’ money in an extraordinary fashion. While the government and four major banks each contribute $2 billion in capital, it is authorised to borrow a further $26 billion. But the risk is all with taxpayers with these borrowings while any upside is shared between the partners. No wonder the banks think it is a good idea for them and their shareholders—heads I win, tails you lose. It is extraordinary that a government would propose to risk that amount of taxpayers’ funds with a business partner, but that business partner shares none of the risk. To do this in a vain attempt to artificially hold up asset prices is futile. The government can no more hold up asset prices than it can change the direction of the wind. It has not worked and it will not work in the future.
Most alarmingly, this proposal is not limited to commercial property, as is often stated by the government, as bad an idea as that is. There is no detail around what other spheres of activity the Ruddbank may venture into. The bill could see loans to state governments, companies and projects in other fields completely unrelated to commercial property. I fear that this is yet another example and another means by which a headline debt figure is artificially lowered through moving it into off-balance-sheet corporate entities away from the government budget but still carrying risk for taxpayers. Labor is well practised at this art through its behaviour across Australia in the eighties and over this past decade at the state level.
This bill represents a retrograde step. It is a very simple issue that many of us thought resolved over a decade ago—that governments should not be in the business of banking. It is a bad idea, poorly executed by an incompetent government. The coalition will defend the interests of taxpayers across Australia in rejecting this bill.