In a recent Senate hearing, I questioned the government on its decision to include a standing appropriation—an open-ended budget allocation—in its Pacific Banking Guarantee legislation. This approach bypasses the annual appropriation process, removing Senate oversight and public transparency.

The Pacific Banking Guarantee is a scheme whereby the Federal Government guarantees the operation of banks across the Pacific. If these banks encounter financial difficulties, the Federal Government will bail them out. Why this is the business of the Australian Government escapes me. Why banks such as the Commonwealth and ANZ require a Federal Government guarantee, despite earning profits exceeding $15 billion annually, is a question they refused to answer. The Guarantee itself is worth no more than $2 billion—even in the unlikely event of a total loss. This Guarantee has been provided to give the Big Four banks a competitive advantage over other banks and financial institutions. With this Guarantee, they can borrow money at lower rates, thereby increasing their profits and creating an “I owe you one” sense of obligation to the Federal Government. I assume Minister Bowen intends to leverage this influence to “encourage” investment in wind and solar energy, despite the questionable economic viability of such ventures.

This is how government operates: influence-trading using taxpayers’ money.

Standing allocations cannot be questioned, and the only way to halt this flow of money to our major banks is through legislation that overturns the allocation. Given that the Greens have supported big banking in this country throughout the Albanese Government’s term – alongside the Government itself – any effort to restore accountability to the Pacific (big) Banking Guarantee is going to fail.

This reflects the contempt of the Albanese Government. The ALP is proving to be even bigger corporate lapdogs than the Liberals were.

Transcript

Senator ROBERTS: The Standing Committee for the Scrutiny of Bills requested a justification for why this bill includes a standing appropriation rather than being included in the annual appropriation bill, which would give the Senate oversight. Please explain why a standing appropriation is required. 

Senator CHISHOLM: Thanks, Senator Roberts, for the question. A special appropriation is more suitable for meeting possible liabilities than annual appropriations. While the likelihood the Commonwealth will need to make a payment is very low, we may be urgently required at any time to meet liabilities arising under a guarantee, which may fall outside the usual budget cycle. This means the annual appropriation process may not be available within the timeframe any liability falls due.  

Without a special appropriation, it is possible parliament will be recalled to pass an urgent appropriation or the Commonwealth can risk defaulting on its liabilities. The special appropriation is not proposed to have a direct dollar limit, as this provides the Commonwealth with flexibility to ensure it achieves a significant national interest objective, securing an Australian banking presence in the Pacific over the long term.  

The Commonwealth would not provide an unlimited guarantee, however there may be circumstances where the maximum amount guaranteed under the appropriation could change. This includes if the Commonwealth entered into a new agreement with another Australian bank and the legislation limits on the types of guarantees the government can provide to guarantees—only from an ADI banking business in the Pacific region. Specifically, the legislation limits the guarantee to only the ADI’s Pacific operations. 

Senator ROBERTS: So it’s an open-ended budget allocation. The guarantees being provided by this government are commercial-in-confidence. This means the Senate will not have oversight on what the government is agreeing to. Is that correct? 

Senator CHISHOLM: In terms of reporting obligations, any Pacific banking guarantee, including the ANZ agreement, will contain mechanisms to ensure a bank’s compliance with its obligations. This includes regular reporting on the total amount of guaranteed liabilities and the compliance with bank commitments as well. 

Senator ROBERTS: The duration of the ANZ guarantee is 10 years, meaning this government is binding future governments. Can the federal government withdraw from a guarantee at any time in those 10 years? If so, is there any sunset clause or time limit to the guarantees? 

Senator CHISHOLM: It’s a commercial agreement that’s been entered into with the Commonwealth. There is no sunsetting clause. 

Senator ROBERTS: I am told the World Bank is also working on a plan to assist correspondent banking intermediaries in the Pacific. Why didn’t you join that international effort, and will you use what they come up with as a way of sunsetting this arrangement? 

Senator CHISHOLM: Any Pacific banking guarantee is expected to complement the World Bank’s Pacific Strengthening Correspondent Banking Relationships Project, the CBR project. The government strongly supports the World Bank’s work on this in terms of the work they are doing in the Pacific. 

Senator ROBERTS: If you have strong confidence in the World Bank, why not let the World Bank do it? 

Senator CHISHOLM: Phase 1 of the World Bank project will establish a correspondent banking relationship provider of last resorts, which countries can call upon should they lose their financial correspondent banking relationship in a particular currency. It is intended to be a fallback for when there is no other commercially viable option. 

Senator ROBERTS: This bill does not specify what is being guaranteed, so let me ask. Does the guarantee extend to the Australian government guaranteeing loans by Australian banks to the governments of Pacific nations? 

Senator AYRES: Senator Roberts, we’ve just had a small changeover. I’m just trying to ensure that I can give you accurate information. The Commonwealth provides a limited guarantee to ANZ, under this legislation, in connection with banking operations in nine markets across the Pacific and Timor-Leste.  

Those markets are Cook Islands, Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga and Vanuatu. The guarantee only covers certain eligible liabilities, and it is only triggered if certain trigger events occur and result in a loss to ANZ. The Commonwealth has only provided the guarantee for certain eligible liabilities in order to minimise the risks and potential costs of any Pacific banking guarantee to the Commonwealth and to mitigate any potential competition or market distortion risks in Pacific financial markets and the Pacific banking sector.  

To preserve the non-distortionary mechanisms in the guarantee, the government will not be disclosing the specific terms of the guarantee, including the types of exposures that are covered. If it assists Senator Roberts, the government was, of course, provided with extensive commercial advice on the guarantee, including around the risks, and commercial risk assessments found the likelihood of a default to be very low. 

Senator ROBERTS: I appreciate your statement that you’d like to give me accurate information, but you didn’t answer the question. I take it that you can’t answer the question of whether or not the Australian government is guaranteeing loans by Australian banks to the governments of Pacific nations. 

Senator AYRES: I’ll try and answer a little bit more directly, if it assists. The reason that I answer it in the way that I do, Senator Roberts, is that the advice that is provided and the terms of the guarantee are, of course, commercial in confidence, for policy reasons, in particular so that they don’t distort the banking and financial services markets in the Pacific. I’ll get the team behind me to correct me if I answer this incorrectly.  

The question about the support that the Australian government provides to Pacific island countries is quite different to this set of arrangements, which is about ensuring that banking services are provided and that there is trade, the free movements of goods, investment and all of the things that go with having banking services provided with the facilitation and support of the Australian government. I hope that assists; I’m not sure that it will. If you’ve got further questions, I’ll endeavour to answer them. 

Senator ROBERTS: It doesn’t answer the question, but I’ll come back to it later. Minister, Australian banks like the ANZ raise money to lend in the market, issuing bonds and debt securities. If the intended use of that capital is to issue government-guaranteed loans to Pacific nations, which this bill would allow, does that not give banks like the ANZ a competitive advantage in the capital market? And is any oversight intended of the capital raising of Australian banks to make sure they are honest in their representations to the capital market? 

Senator AYRES: Any banking guarantee in the Pacific, including this agreement, will contain mechanisms to ensure a bank’s compliance with its obligations, which include regular reporting on the total amount of guaranteed liabilities, and to ensure compliance with bank commitments. There are measures undertaken in order to deal with that concern, which is at present, I would argue, theoretical.  

I hope that the financial markets in this area lift to a point that is consistent with the kind of development, growth, investment and trade that the Australian government is working with our Pacific partners to facilitate. That is in their interest and in our interest for that to occur. The kinds of measures that you’re talking about—I’ll put that backwards—do not have a distortionary effect on capital markets or on financial markets.  

There is extensive work that sits behind this that has been directed towards achieving that outcome. ANZ has made a number of commitments to its Pacific operations in the Cook Islands, Fiji, Kiribati, Papua New Guinea, Timor-Leste, Tonga, Samoa, the Solomon Islands and Vanuatu in exchange for this guarantee that includes maintaining face-to-face banking services and enhancing the ANZ Bank’s services, including digital services. That is important for people and businesses and economic growth and investment in each of those states.  

It supports ongoing access to correspondent banking services in the Pacific and international money transfers, including the Australian dollar but also the New Zealand dollar and the US dollar. It will also maintain fee-free remittances for ANZ customers. That is important for facilitating more trade and more transactions. It will involve investing an additional $50 million to enhance the ANZ’s digital banking offering in the Pacific, excluding in Papua New Guinea, again, mobilised by some of the issues about making sure that the effect here is to support providing banking services where they are at risk.  

The uplift that is engaged there will impact the ANZ’s retail banking operations everywhere, except for Papua New Guinea, where ANZ today currently only offers institutional banking services that play an important role for the mining sector and other parts of the Papua New Guinea economy. Alongside this, there are efforts to continue to support and promote financial inclusion and literacy, and ANZ will continue to support Pacific countries in terms of their infrastructure financing, in line with the bank’s credit risk policies.  

That is the nature of the impact of the guarantee, in terms of capital markets. It should not be conflated, of course, with the efforts that the Australian government engages in through EFA and various efforts to support infrastructure development and economic development more broadly in the Pacific. This is about supporting the banking infrastructure—maybe I shouldn’t say ‘infrastructure’, because it’s confusing—the banking retail network and digital services that sit alongside that throughout the Pacific states.  

Senator ROBERTS: I noticed that, in starting that answer, you used the words, ‘I hope that the financial markets lift’—I hope—to the trade, yet, in Australia, we had severe breaches of the law by senior banking and financial institution officials and no-one went to jail—no-one! You also said that you’d like to maintain face-to-face banking services in the Pacific islands, yet we can’t get that here in Australia. Minister, is this bill just putting more money in the pockets of the big four banks by lowering their borrowing costs relative to other banks? 

Senator AYRES: The short answer to that question, Senator Roberts, is no. It does not achieve that objective in any practical way. It’s not one of the principles that’s engaged here. Australia does have a very well-regulated banking sector, and that is a national asset for Australia. That is important for our capacity to deliver investment and growth and financial transactions and security for borrowers and lenders and projects.  

In times of financial stress, our well-regulated banking sector is a fundamental part of Australia’s economic resilience in what is a pretty challenging world that we live in. That is not related to what is being provided for here. There will always be, as you’ve alluded to, bad actors, bad things happening, malfeasance, errors, omissions or whatever in any system. I have no argument with that. That is what the regulatory sector is designed to deal with. This situation is about extending banking services that might not otherwise be extended to a part of the world that needs banking services, and it is in Australia’s interest for those to be provided.  

This ensures that, through arrangements supported by this legislation and also by the commercial and non-distortionary measures, it’s provided in a way in which there is no disadvantage to the Australian banking sector—and, when I say ‘banking sector’, what I mean is the kind of services that customers and businesses would need and expect from the Australian banking sector. Quite the contrary to the final suggestion in your question, this is not a matter of the government paying an amount to the ANZ; in fact, it’s quite the reverse.  

The ANZ pays an annual fee with respect to the guarantee, and the Department of Finance and the Commonwealth’s commercial advisor have provided advice on the annual fee. That fee amount, for some of the reasons that you’ve alluded to in some of your previous questions and in order to ensure that it doesn’t have a distortionary effect, is commercial in confidence and cannot be disclosed publicly. The guarantee isn’t a subsidy. It’s not a bailout. The government will not be providing any direct funding to Australian banks for their Pacific operations. 

Senator ROBERTS: That sounds like a protection fee. Let’s get this straight. Banks have no risk—they have a guarantee if they have any losses—so banks cannot lose, so that sounds like a protection fee. Minister, who drafted your bill for you? The banks? 

Senator AYRES: Certainly not. That is certainly not the case. This bill is drafted, this arrangement has been struck, in order to support regional communities in Australia and Pacific nations to access banking services. That is in Australia’s national interest. That is fundamentally what is engaged here. For Pacific nations, remaining connected to global finance is one of their highest priorities because it supports their own economic development and their economic resilience. Investment in capability; investment in new businesses; microfinance for small businesses; and making sure that project finance can be accessed for the kinds of mining, development, manufacturing and other projects that deliver good jobs, stable investment, national economic growth, regional interdependence and economic resilience in the region—all of that is in Australia’s national interest.  

Those are the questions that are being engaged here. In terms of regional Australia, this government has secured commitments from the banks that previous governments have failed to secure—a moratorium on regional bank closures from the four major banks, as well as an agreement to increase their commitment to, and their investment in, Bank@Post. I grew up in a little country town. I know how important those services are. And I know you would not be so mischievous as to suggest that there is a relationship between the services provided to regional Australians through their banks and the government’s determination to protect that— 

CHAIR: Minister, I hate to interrupt you, but it’s 1.30. 

Progress reported.