To achieve this bootstrap economy, this Australian sideshow of perpetual motion, or the revival of dead spirits, the PM has invented something called the Australian Business Investment Partnership (ABIP). It's a public-private partnership between the Federal government and the commercial property sector. The Developers and the big four banks think it's just great - so that's okay ... isn't it?
Reanimators Rudd & Swan
Treasurer Swan and Prime Minister Rudd are peddling a new brand of snake oil for our absurd, terminally ill, real-estate economy. It is a bit like keeping a semblance of life in the corpse of some poor overdosed addict by hooking it up to a lightening rod and waiting for a storm. They may be about to create a public-private monster, stitched together from the necrotic remains of Keynesian economics, economic irrationalism and shock-doctrine.
Sure it will create a market for heroin - I mean housing - but do we really want a zombie economy?
The Keynesian solution of public schemes to build infrastructure and cause the employment of masses of people who would otherwise be unemployed worked fine when energy, materials and vital resources were in abundance and populations were relatively small. But, even if the first world were still rich in materials and fuel - which it is not - this isn't about the government putting taxpayers to work for their country; it is about the government propping up corporate property development, banks and their shareholders. The shock-doctrine element refers to Naomi Klein's term for disaster-economics where big-business moves in with government accomplices and hostages and loots injured national economies.
The Government budget 2009 prediction is that we are in for a couple of years of dwindling growth, including one (2010) at negative growth (-0.5%). After that the public are told to expect a return to more growth, leading to economic growth of somewhere round 4.5% in two or three years!
Pull the other one, sir, and the whole thing will fall to bits.
To achieve this bootstrap economy, this Australian sideshow of perpetual motion, or the revival of dead spirits, the PM has invented something called the Australian Business Investment Partnership (ABIP). It's a public-private partnership between the Federal government and the commercial property sector.
A ghastly alliance
Now most of our readers knew that the government was in bed with the property development sector and some of us realise that the property development sector is clandestinely running the country and the newspapers and even the ABC. But we are just a bit shocked, even now, to see that they are going to try to make this travesty official.
Looks like the private-public partnership government so long hidden away like Dr Frankenstein's monster is going to come out of the closet and the rest of us will have to run for cover. But there is nowhere left to run!
The Financial Review describes the "ABIP, known as the RuddBank," as "designed to provide liquidity support to the commercial property sector". That is, an institution is going to be created through parliament to funnel tax-payer money into the pockets of property developers. The legislation has not yet been passed and a number of senators have already objected. Nonetheless, according to the Financial Review, the government is relying on the passage of this law for the success of this budget. And, we would add, on some miraculous intervention to avoid severe energy and materials shortages world-wide. We think that the idea of a 'recovery', let alone 4.5% growth in two or three years is just whistling in the dark.
Australian taxes will fund shortfalls if foreign banks pull plug on developers
The APIB legislation is to cover Australian property developers if foreign banks stop financing them. Then you and I are supposed to finance these private property developers. Perhaps not surprisingly, in the parliamentary enquiry about the government's Australian Business Investment Partnership (ABIP), opposition, and cross-bench senators, were not terribly impressed. Actually, you would think that this kind of legislation is the kind of thing an investment banker like Turnbull would dream of, but perhaps only if his party and his favorite property developers were in control of it.
One still unofficial political sector is totally in favour. That is the property industry and the four big banks.
What the Senators have to say so far about the 'RuddBank bill'
In a debate in the Senate on 12 May 2009, Senator Xenophon asked for an Australian competition and consumer commission assessment of the partnership's exemption from the Trade Practices Act. [Note contains speech in parliament]
The Greens, who have the uncomfortable role of remaining in a hot kitchen in order to be able to use the stove, have asked for a cap of one million dollars per annum to executive salaries in organisations which would receive ABIP bail-outs. They have also asked that the proposed ABIP board of directors be expanded from five to eight, with half composed of government representatives.
We ask, in a public-private government run by property developers, what difference would that make?
Senator Steve Fielding, from Family First, suggested sensibly that the terms of ABIP loans be no more liberal than those of ordinary competitive banks and that they be limited to only three years.
Senator Coonan, speaking for the opposition, said the opposition didn't think the bill was necessary.
What do the public have to say?
The public have not been asked. But they will be told (not asked) to pay for this $26 billion commercial property guarantee!
Our money will be guaranteeing the security of the very property developers and their financiers (often the same thing) that most of us hate for destroying our democracy and creating an ecological and financial deficit. Already we are paying more for power, more for water, more for land, more for housing, more for food, because of the inflation caused in Australia by the population growth demanded by the property development sector. There are bizarre, extreme and cruel impacts, like the massacre of thousands of kangaroos to make way for housing estates.
Now the property development growth lobby has managed to so corrupt our economic and political system that they expect the government to create a new public (and private) institution, which will shelter them, unelected, at public expense.
An alternative strategy: a democratic public developer
There is another way:
1. Disconnect the private property development sector from the public purse. Remember, the private property sector is addicted to growth. Let it try to rehabilitate itself independently, through modest and honest behaviour. If it fails to thrive then at least it won't take the whole country down with it.
2. Reconnect the government with the electorate. Remember, the government only has authority because it is supposed to represent the electorate. Without the electorate it would not exist. Establish a public works sector to develop land cheaply for the social and commercial activities of the current population and to reclaim land for generous wildlife corridors and for forests to promote rain, reduce carbon gas output, and make us happy through their beauty. Fund this body with taxes, but without increasing the taxes. Put the unemployed to work for it. Don't go for growth though, of development or population. We already know that the fast returns of a housing based economy cannot last and cost even more than money. They lead to economic addiction and an Absurdistan economy with monsters in parliament.
 Naomi Klein, The Shock Doctrine,See Review of Naomi Klein’s "The Shock Doctrine"
 John Kehoe, "Projects lead way to fast recovery", Investment, Australian Financial Review, 13 May, 2009, p.89.
Tracy Sutherland, "Senators seek checks, balances on RuddBank loans", Australian Financial Review, 13 May, 2009, p.5.
Senator Xenophon comments from Federal Hansard Reports, (Senate) Wed. 13 May, 2009
Source pp20-21 Hansard: http://www.aph.gov.au/hansard/senate/latesthansard/shansard.pdf (Note that this is not the complete debate)
Senator XENOPHON (South Australia) (11.45 am)—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.
Senator Arbib—He’s back.
Senator XENOPHON—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 stopABIP 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 theACCC 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 theexemptions 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 publicinterest.
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 CEOof the Property Council of Australia, who raised a concern about moral hazard. He asked: could the legislation have the unintended consequence ofencouraging 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 positionthat 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 alast 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 levelof 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 byforeign 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 isproposed, 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 lendingof 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, itis 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 MrFahour 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 thebanking system. I have had extensive conversations with Mr Fahour about the issues of governance, structure and the commercial viability of loans forcommercial 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 administrativefunctions 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 willbe moving an amendment, following my discussion with Mr Fahour, that the Export Finance and Insurance Corporation be involved in assisting ABIPLtd—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 ABIPwork. 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 appropriateentity 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 upand 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 todeal 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 fortaxpayers, as well as indicating my support for the executive remuneration amendments of the Australian Greens—I support this legislation. I want to make itclear that I believe the government has, as a result of the Senate committee inquiry process, acknowledged the issues of competition policy and exemptionsfrom 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 thatthis 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 quiteturbulent economic times. I support the second reading of this bill.