Sid Sidebottom (Braddon, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Prime Minister. Will the Prime Minister outline the government’s response to developments overnight on global financial markets?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

The Australian economy faces tough global economic times. The developments in US financial markets during the course of this week have underlined that fact. There was more uncertainty in financial markets in the United States overnight. Stocks fell in the US, with the S&P 500 down nearly five per cent. Financial stocks were particularly weak, with the S&P financial index losing nearly nine per cent. Approximately US$4.4 trillion of market value has been erased from global stocks this week.

This is a very significant global financial crisis that we are in the midst of. Honourable members will be, in part, familiar with the US regulators’ response, including the action by the Federal Reserve to lend up to US$85 billion to the American International Group, AIG, the significant global insurer which was the subject of some discussion in the House yesterday. The Fed said:

The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduce household wealth, and materially weaker economic performance.

The US Treasury also issued a statement overnight announcing that it will sell more debt to enable the Federal Reserve to expand its balance sheet to accommodate any subsequent bailouts. The program will start immediately with a US$40 billion auction of 35-day bills. The proceeds will provide cash for use by the Fed as it seeks to boost liquidity in credit markets.

Furthermore, in another development in the last 24 hours—and the government welcomes this particular development—the US Securities and Exchange Commission has taken action to strengthen investment projections against naked short selling. The SEC actions apply to the securities of all public companies, including all companies in the financial sector. The SEC chairman, Christopher Cox, has said:

These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling.

The IMF managing director, Dominique Strauss-Kahn, has said in relation to future developments in global financial markets, ‘We continue to anticipate a gradual global growth recovery in 2009.’ I note, in particular, that the IMF’s managing director has been very, very balanced with his remarks about the state of US and global financial institutions over the course of the last 12 months.

Australia is not immune from these developments in the global economy, but we are better placed than most to weather the current economic and financial storm. I have been in contact with our regulators, including APRA, the RBA and the Treasury. We are, in fact, closely monitoring the situation on a daily basis. APRA today advised me of their assessment of developments around AIG, HBOS and other relevant financial institutions. Their advice is as follows:

Australian deposit taking and insurance companies supervised by APRA are well-capitalised, profitable, and well-regulated, and are weathering the turmoil well. Australian depositors and insurance policy holders can be confident in the soundness of Australian financial institutions.

That was from John Laker, the chairman of APRA.

The government has already taken action to advance the financial claims scheme, which was recommended by the Financial Stability Forum in April this year and had also been the subject of domestic recommendation here in Australia five years ago. The government has also been actively implementing other Financial Stability Forum recommendations concerning strengthening the prudential oversight of capital, liquidity and risk management; enhancing transparency and valuation; implementing changes in the roles and uses of credit ratings; strengthening the authority’s responsiveness to risks; and establishing robust arrangements for dealing with stress in the financial system. It is not just Australian national action which is required in these areas but also appropriate international action.

The Australian government and the Australian economic regulators have been in daily contact with their American counterparts in recent days, given this most recent spate of developments in financial markets. Earlier this year, in March, I met with Secretary of the Treasury, Hank Paulson; the Deputy Secretary of the Treasury, Robert Kimmitt; the Chairman of the Federal Reserve, Ben Bernanke; the Chairman of the Securities Exchange Commission, Christopher Cox; and the Managing Director of the IMF, Dominique Strauss-Kahn. Also on that occasion, when in the United Kingdom, I met with the Governor of the Bank of England, Mervyn King. When I am in the United States next week my intention is also to continue contact with the US regulators at this difficult time. I will be meeting with the head of the Federal Reserve Bank of New York. I will also be meeting with the President of the World Bank and other representatives of the critical regulating agencies of the US financial system.

These levels of contacts are necessary in the current environment for the simple reason that we face a series of global developments in global financial institutions which are, of themselves, significant in terms of confidence across the global economy. For our regulators and for the government to be aware of likely future actions on the part of the US regulators is of paramount importance to the continued health of Australia’s financial institutions as well. If I could conclude with this remark, it is important at times like this—

Opposition Members:

Opposition members interjecting—

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

This seems to be the subject of some hilarity on the part of various members on the front bench. We do not regard these developments as faintly unserious; they are of a deeply serious quality. It is important on occasions such as this that, in fact, we have a responsible economic and political commentary from the heads of political parties in this country.

I noticed earlier today some loose commentary on the part of the alternative Prime Minister of Australia concerning the Governor of the Reserve Bank of Australia and remarks which he had made. I say to the Leader of the Liberal Party that, whether he approves or disapproves of the language of a particular speech given by the Reserve Bank governor, the most important thing is that, at times like this, at times of great global financial crisis, no-one—repeat: no-one—including the Leader of the Opposition, cast any doubt over the authority of the public statements by the Reserve Bank governor about the health of this nation’s financial institutions.

Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

My question is addressed to the Prime Minister. I refer to my remarks made this morning, to which he was referring in his previous answer, where I said, ‘I would say our economy—

Government Members:

Government members interjecting—

Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

I am putting to the Prime Minister—

Honourable Members:

Honourable members interjecting—

Anthony Albanese (Grayndler, Australian Labor Party, Leader of the House) Share this | Link to this | Hansard source

Mr Speaker, on a point of order: is it in order for the Leader of the Opposition to ask himself a question?

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! There is no point of order. I will judge whether or not the question is in order.

Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

My question is addressed to the Prime Minister. He referred to some comments of mine earlier today and I ask the Prime Minister whether he agrees with these comments:

… our economy … is stronger, it is more resilient. Our lending practices have been more prudent, our banks are profitable and better capitalised than those in other markets, in particular than in the United States. Having said that we are not immune from the impacts of this crisis and it has already had an impact on interest rates, on the availability of credit, on business activity around the world, including within Australia.

Does the Prime Minister agree with those remarks of mine and, if he does, why did he leave them out of his press conference today?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

The honourable member, the Leader of the Opposition, has drawn my attention to his remarks earlier today, and I indeed will respond to his remarks earlier today where, in commenting on the Reserve Bank governor’s statement about Australia’s strength and resilience, the Leader of the Opposition said, ‘It’s just a question of language.’

Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

Mr Speaker, a point of order on relevance: I have put to the Prime Minister propositions about the stability of the Australian economy and he is not prepared to respond to them.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

The Prime Minister has commenced his response. I am listening carefully.

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

The honourable member’s question referred to his remarks this morning. The question he was asked this morning was as follows:

Do you take comfort from the words of the Reserve Bank Governor yesterday that ‘… conditions in Australian banks are light years away from what’s happening in other banking systems around the world?’

Mr Turnbull said:

Yes, I do take comfort from that. I don’t know that I’d use the word ‘light years’, I think.

He was asked:

Is he wrong?’

Mr Turnbull said:

… I’d express it slightly differently.

My point is that, at a time of significant, global financial crisis, the challenge here is not to provide rolling literary commentary on the content of the Reserve Bank governor’s speech but is this: either you support the authority of the governor’s statements on the robustness of Australia’s financial institutions or you seek to separate yourself from them. You chose the latter, trying to make a political point, and you are rightly condemned for so doing.

David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Treasurer. Will the Treasurer update the House on the importance of responsible economic management at this time of global economic turbulence and on developments in global markets?

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

I thank the member for Lindsay for his question because honourable members would be aware that it has been a very difficult week in global financial markets. Of course, stock markets have fallen substantially in the last few days. We have seen the fourth largest investment bank in the US go bankrupt and the third largest bought out by the Bank of America. And, of course, we have seen that lifeline given by the Federal Reserve to AIG. Overnight we have seen the UK’s fifth and sixth largest banks in merger talks. So this is a serious time in global financial markets—a very serious time—and that is why the Prime Minister and I have been in regular contact with our regulators. And, of course, we have been in regular contact with our counterparts internationally as well. As the Prime Minister said before, we have been advised by APRA that Australian deposit-taking institutions and insurance companies, supervised by APRA, are well capitalised, profitable and well regulated, and they are weathering this storm pretty well. It is the case that our banks are well capitalised; it is the case that our banks are well regulated.

Let us consider this one fact. Australia’s largest four banks are among only 12 of the world’s top 100 banks with a AA credit rating or more. That is what we mean when we say that our banking institutions are well regulated and well capitalised. What it does mean is that the situation in this country, when it comes to our banking sector, is light years away from what is happening in the United States. What the Leader of the Opposition did today, when he was commenting on the speech of the Reserve Bank governor, was to fundamentally question the Reserve Bank governor’s assessment of our banking system. That is what he did. It is not a very smart thing to do; in fact, it is an unwise thing to do in the circumstances in which we find ourselves. He will begin to learn that this motormouth approach to politics does not serve him well in these circumstances. This was the Treasury spokesman who, before the budget, said inflation was a fairytale. This was the Treasury spokesman who, before the budget, said there was no need for spending cuts and no need for a significant surplus. This was the Treasury spokesman who, after the budget, said that we had not cut hard enough. This was the Treasury spokesman who said we should have had a bigger surplus—and this is now the Leader of the Opposition who was raiding that surplus. He is consistently inconsistent, because he is out there all the time promoting himself. He is not out there promoting the national interest.

All members could see it here before, when he asked the question of the Prime Minister. You could see his sense of self-satisfaction just waft out; he was quoting himself. The problem is that when you are the Leader of the Opposition you have to be responsible. I say this to the member for Wentworth: the Leader of the Opposition has to be responsible in the language they use. And they have an obligation to be even more responsible at a time of global financial turbulence. That is why those opposite should not be raiding the surplus to the tune of $20 billion. It is a surplus we need, at a time of global uncertainty, to act as a buffer against that global uncertainty. What we do not need is those irresponsible statements from the Leader of the Opposition undermining confidence in our banking sector.