The Federal Government has taken a number of measures in response to the developing global financial crisis since mid September 2008. In an address to the nation on the evening of 14 October 2008, Prime Minister Kevin Rudd described it as ‘the economic equivalent of a national security crisis’ and advised that growth is expected to slow, and unemployment to rise. The Prime Minister’s address made clear that the crisis has moved ‘into a new and dangerous stage’, prompting the Government to take responsible steps to maintain the stability of the financial system and provide practical help to Australians, specifically, the introduction of the Economic Security Strategy.
Macroeconomic Conditions
- More than 25 banks around the world have failed or been bailed out.
- Global stock markets have suffered significant losses.
- The International Monetary Fund (IMF) now expects growth of less than 1% in six of the world’s largest developed economies next year.
- All advice currently available to the Rudd Government is that the Australian economy will continue to experience positive economic growth (forecast at 2.5% in 2008 and 2.2% in 2009).
The Government has responded to the global financial crisis as it has unfolded by taking the following measures:
May 2008
The Government provided legislative authority for an increase in future Commonwealth Government Securities issuance of up to $25 billion to strengthen Australia’s financial system and reduce its vulnerability to adverse shocks.
June 2008
The Government introduced legislation to boost the range of assets the Australian Office of Financial Management (AOFM) could invest.
19 September 2008
The Australian Securities and Investment Commission (ASIC) announced a ban on short selling.
22 September 2008
The ASIC ban on naked and covered short selling of all securities, managed investment products and stapled securities quoted on licensed markets in Australia came into effect. ASIC also issued a clarification of those covered short sales that would continue to be permitted and introduced reporting requirements through the ASX. Minister for Superannuation and Corporate Law Nick Sherry said ASIC will review the ban ‘when conditions calm’ or on 22nd October 2008.
23 September 2008
Government released draft legislation on disclosure arrangements for covered short sales, which is open for public comment until 21 October 2008.
26 September 2008
Treasurer Wayne Swan announced that that the Australian Office of Financial Management (AOFM) would purchase residential mortgage-backed securities (RMBS) to support competition in Australia's mortgage markets. The AOFM will invest in AAA rated RMBS in two initial tranches of $2 billion each. Media release here.
1 October 2008
The Reserve bank took on $840 million of RMBS under its repurchase agreement. The RBA deal was part of its broader money market operations, which were ramped up to ensure liquidity remains available in the financial system.
2 October 2008
The Council of Australian Governments (COAG) endorsed an implementation plan for the national regulation of remaining areas of consumer credit (following from the 3 July decision to take over responsibility for regulating mortgage broking, margin lending and non-deposit lending institutions). The Prime Minister and Minister for Superannuation and Corporate Law Nick Sherry announced measures under the $71 million action plan to modernise Australian financial services with the Commonwealth taking responsibility for trustee companies, the existing key credit regulation, and the Uniform Consumer Credit Code (UNCC) by enacting it as federal law. Finance brokers, advisers and credit providers will be covered by a national licensing scheme which will roll out in 2009-10.
3 October 2008
The Government announces the implementation of the initial purchase of $4 billion of RMBS. Media Release here.
12 October 2008
The Government announced that it will guarantee all deposits of Australian banks, building societies and credit unions and Australian subsidiaries of foreign-owned banks for a period of three years, legislated as part of the Financial Claims Scheme (FCS). Furthermore, the Government will also guarantee wholesale term funding of Australian incorporated banks and other authorised deposit-taking institutions (ADIs).
The Prime Minister also announced that the Government had monitored the market and had determined that an additional $4 billion in funding was required for the purchase (by the AOFM) of RMBS from Australian lenders who are not banks, building societies or credit unions. Media release here.
14 October 2008
Economic Security Strategy
Prime Minister Kevin Rudd and Treasurer Wayne Swan announced a $10.4 billion Economic Security Strategy in response to the ‘worst global financial crisis since the Great Depression’. The Strategy will be funded from the surplus established in the 2008-09 Budget. The Prime Minister advised that the Budget would remain in surplus after these measures. The strategy includes five key measures:
- $4.8 billion for an immediate down payment on long term pension reform.
- $3.9 billion in support payments for low and middle income families.
- $1.5 billion investment to help first home buyers purchase a home.
- $187 million to create 56,000 new training places in 2008-09.
- Accelerate the implementation of the Government's three nation building funds and bring forward, the commencement of investment in nation building projects to 2009.
The measures will benefit many Australians, including those in rural and regional Australia.
$4.8 billion Down Payment for Pensioners, Seniors and Carers
The Government is closely monitoring the global financial crisis and its impact on pensioners, particularly the substantial reductions in the value of pensioner financial assets due to the fall in share values and the ‘increasing pressure on budget[s] already stretched by the rising cost of living’. The Economic Security Strategy will deliver:
- A lump sum payment of $1,400 to singles and $2,100 to couples for:
- Age Pensioners;
- Disability Support Pensioners;
- Carer Payment recipients;
- Wife and Widow B Pensioners; Partner, Widow and Bereavement Allowees;
- Veterans Affairs Service Pensioners;
- Veterans Income Support Supplement recipients;
- Veterans Affairs Gold Card holders eligible for Seniors Concession Allowance;
- Those of age pension age who receive Parenting Payment, Special Benefit, or Austudy; and
- Eligible Self Funded retirees holding a Commonwealth Senior Health Card (CSHC)
- Payments will be made through Centrelink and the Department of Veterans Affairs in the fortnight beginning 8 December 2008 and will be non-taxable and not included for income testing purposes.
- The payments are a precursor to long-term reform of the pension system to be delivered in the 2009-10 Budget.
$3.9 billion for Low and Middle Income Families
The Government has committed to support low and middle income families, during these ‘extraordinary economic times’ through the Economic Security Strategy.
- 2 million families (including 3.9 million children) will benefit from a one-off payment of $1,000 for each eligible child in their care.
- Those eligible include:
- 1.9 million families who receive Family Tax Benefit (A)
- Families of another 220,000 dependent children who receive Youth Allowance, Abstudy or a benefit from the Veterans Children’s Education Scheme payment.
- Families will receive their full payment automatically between 8 and 19 December 2008. Payments will be tax exempt and not included for income-testing purposes.
$1.5 billion for First Home Buyers
The Government recognises the need to strengthen the Australian economy by investing $1.5 billion in the housing market thorough the First Home Owners Boost. This initiative also responds to the ‘twin challenges’ of a subdued housing market and record low housing affordability to assist an estimated 150,000 first home buyers.
The measure includes:
- $14,000 grants to first home buyers who purchase an established home.
- $21,000 grants to first home buyers who purchase a newly constructed home.
All contracts entered into between 14 October 2008 and 30 June 2009 will be eligible for this additional assistance.
$187 million for new training places
The Economic Security Strategy will strengthen productivity and protect the Australian economy by supporting and training jobseekers. This complements the productivity and skills agenda which is central to the Government’s economic platform. The Government will invest $187 million to double the Productivity Places Program from 57,000 to 113,000 places in 2008-09. The new places will be available at Certificate II, III and IV levels.
Fast-tracking the Nation-Building Agenda
The Government will sustain Australia’s economic growth by accelerating its Nation-Building Agenda. This will secure economic activity in the short-term and expand growth potential in the medium to long-term. The agenda includes the establishment of three ‘nation-building’ funds totalling $26 million:
- Education and Research Infrastructure –$8.7 billion
- Health and Hospitals –$5.0 billion
- Building Australia Fund (transport and communications) – $12.6 billion
Prime Minister Rudd announced that the Government will:
- Speed up implementation of the above funds so projects can be funded as early as possible.
Note: The COAG Reform Fund Bill 2008 was introduced into the Parliament on 23 October 2008. The Nation-building Funds Bill 2008 and the Nation-building Funds (Consequential Amendments) Bill 2008 will be introduced to Parliament in the next sitting on 10 November 2008. - Bring forward interim Infrastructure Reports to December 2008 so that work can commence in 2009 on key projects.
- Accelerate the establishment of boards for the Health and Hospitals Fund and the Education Investment Fund (currently the Higher Education Endowment Fund). N.B. The HEEF Board has completed its review of first round Expressions of Interest and is recommending a short list of 14 to the relevant Ministers.
Regulatory Measures
The Government has been active throughout the year in the Financial Stability Forum, the IMF and the G20 in forging consensus for consistent international regulatory responses to the financial crisis. In his address to the National Press Club on 15 October 2008, Prime Minister Rudd argued that ‘extreme capitalism’ and unregulated greed were the causes of the US financial crisis and that financial institutions need to have clear incentives to promote responsible behaviour. The Government and APRA will develop a template linking higher capital requirements with executive remuneration that could be adopted in Australia and also by international authorities.
The Government will ‘urge the G20 to commission an action agenda in collaboration with the International Monetary Fund, the Financial Stability Forum and the Basel Committee on Banking Supervision on the best means of implementing this initiative, preferably by the end of this calendar year’.
Support for Small Business
On 24 October 2008 the Federal Government launched a package of initiatives to support small businesses through the global financial crisis at a special Small Business Summit in Brisbane, including:
- Small Business Support and Advice during the financial crisis from Business Enterprise Centres and other registered business organisations, through a $4 million Government investment over 2008-09 and 2009-10;
- A guarantee of on-time payment for new small businesses contracts with Commonwealth Government Departments – up to $1 million, from 1 December, within 30 days – otherwise small business will have the right to charge penalty interest; and
- A commitment to developing standard procurement documents for co-ordinated procurement and standard approaches to make it cheaper and easier for small businesses to sell to the Government.
The Prime Minister also indicated that the Australian Tax Office is committed to working with small businesses that are having difficulty in meeting their tax obligations, including allowing for tax debts to be paid by installments over a period of time. The Government also noted the assurances provided at the Summit by banks about the availability of finance to small business.
The Prime Minister’s media releases are available here.
14-15 November
Washington G20 Summit on Financial Markets and the World Economy
On 14-15 November 2008 leaders of the Group of 20 nations (the G-20) as well as the heads of key international organisations met in Washington to discuss efforts to strengthen economic growth, manage the global financial crisis and to lay the foundation for reforms to ensure that a similar crisis does not reoccur. The meeting was significant as it brought together both developed and developing economies, representing around 85 per cent of global GDP.
Prime Minister Kevin Rudd addressed a press conference at the Summit, highlighting some of the key outcomes of the summit:
- Reforms to the global financial system
- Transparency of firms’ disclosures of their financial product, including the future of credit default swaps and the operation of over-the-counter transactions.
- Reform of executive remuneration rather than the rewarding of excessive risk.
- The strengthening of prudential oversight.
- The strengthening of the oversight of credit rating agencies.
- Action to prevent market manipulation.
- Cooperative economic policy action to support jobs and growth
- Including ‘immediate steps to use fiscal measures to stimulate domestic demands to rapid effect’.
- Coordinated fiscal stimulus packages.
- Strengthening the future of free trade
- Rejecting protectionism.
- Reaching a new global free trade agreement by the end of 2008.
The Prime Minister also noted:
- That the Doha Development Round of talks was the subject of extensive discussion at the Summit.
- That he had discussed adopting ‘a fresh approach to speeding up the conclusion of the Australia-China Free Trade Agreement’ in bilateral talks with the Chinese Premier Hu Jintao.
- That the Australian Prudential Regulatory Authority is in the process of developing a set of principles to regulate executive salary remuneration that specifies in terms of company risk profile and does not reward executives for taking excessive risks.
- That implementation of the the action plan identified in the Communiqué is to be completed by 31 March 2009.
- A concluding summit is to be held at the end of April 2009.
The Summit Communiqué presents five key objectives:
The leaders:
- reached a common understanding of the root causes of the global crisis;
- reviewed actions countries have taken and will take to address the immediate crisis and strengthen growth;
- agreed on common principles for reforming our financial markets;
- launched an action plan to implement those principles and asked ministers to develop further specific recommendations that will be reviewed by leaders at a subsequent summit; and
- reaffirmed their commitment to free market principles.
The leaders agreed that immediate steps could be taken or considered to restore growth and support emerging market economies by:
- continuing to take whatever further actions are necessary to stabilize the financial system;
- recognizing the importance of monetary policy support and using fiscal measures, as appropriate;
- providing liquidity to help unfreeze credit markets; and
- ensuring that the International Monetary Fund (IMF), World Bank and other multilateral development banks (MDBs) have sufficient resources to assist developing countries affected by the crisis, as well as to provide trade and infrastructure financing.
The Leaders Agreed On Common Principles To Guide Financial Market Reform:
- Strengthening transparency and accountability by enhancing required disclosure on complex financial products; ensuring complete and accurate disclosure by firms of their financial condition; and aligning incentives to avoid excessive risk-taking.
- Enhancing sound regulation by ensuring strong oversight of credit rating agencies; prudent risk management; and oversight or regulation of all financial markets, products, and participants as appropriate to their circumstances.
- Promoting integrity in financial markets by preventing market manipulation and fraud, helping avoid conflicts of interest, and protecting against use of the financial system to support terrorism, drug trafficking, or other illegal activities.
- Reinforcing international cooperation by making national laws and regulations more consistent and encouraging regulators to enhance their coordination and cooperation across all segments of financial markets.
- Reforming international financial institutions (IFIs) by modernizing their governance and membership so that emerging market economies and developing countries have greater voice and representation, by working together to better identify vulnerabilities and anticipate stresses, and by acting swiftly to play a key role in crisis response.
A list of delegations to the Summit is available here.
The Declaration of the Summit on Financial Markets and the World Economy is available here.
Further details on the outcomes of the Summit are available here.
18 November 2008
$300 million Regional and Local Community Infrastructure Program
The Federal Government announced the $300 million Regional and Local Community Infrastructure Program to boost local economic development, support jobs, meet urgent needs in communities and create long-term infrastructure.
This $300 million down-payment will be delivered as follows:
- $250 million
- A one-off grant of $250 million allocated to councils and shires for local community infrastructure;
- Each council will receive a minimum payment of $100,000;
- Councils above 30,000 people in areas of high growth, as classified by the state and territory local government grants commissions will receive an additional $300,000 growth component;
- Allocations would range from $100,000 for councils with fewer than 5,000 people to $2.9 million for the largest council, based on population growth and needs;
- Councils would be required to submit proposals that meet the program's guidelines in order to claim their allocation.
- $50 million fund
- $50 million strategic projects fund for larger-scale community infrastructure to help deliver an additional injection of investment in communities; and
- This will be competitive, application-based, accountable and open to only those projects seeking a minimum Commonwealth contribution of $2 million.
Some examples of community infrastructure that would be eligible for the $300 million funding include:
- Social and cultural infrastructure, such as town halls, community centres, libraries, parks, public squares;
- Sport and recreation facilities, such as sporting grounds, stadiums, pools, walking tracks and playgrounds;
- Tourism infrastructure, such as walkways and tourist information centres; and
- Access facilities, such as footbridges, bus shelters, jetties and boat ramps.
The announcement was made at the inaugural meeting of the Australian Council of Local Government (ACLG) held in Canberra, which marked a significant milestone in the history of local and federal government relations and was one of the biggest gatherings of elected representatives in Australia’s history, with over 80 per cent of Australian mayors and local council presidents attending.
The Prime Minister outlined three goals for the meeting: to establish a “stronger and more coherent” relationship between the federal and local spheres of government; to discuss constitutional recognition of local government; and to begin work on planning reform to improve local infrastructure. He noted that a new relationship between the federal and local spheres of government was critical in dealing with the global financial crisis.
“Just as the G-20 meeting was critical to the future of the global economy, today’s meeting of the Australian Council of Local Government is also important to our national economy,” Mr Rudd said. “You cannot have a strong national economy if you don’t have strong local economies, because local government has an important role in strengthening and stimulating local economies, local business and local jobs.”
12 December 2008
$4.7 billion Nation Building Package
The Government announced $4.7 billion nation building package to strengthen the Australian economy and create Australian jobs.
The key infrastructure elements in the package include:
- Inject $1.2 billion in new funds into the Australian Rail Track Corporation
- Bring forward $711 million in road spending to this financial year and next and more than double funding for the Black Spots program
- Invest $1.6 billion in critical university and TAFE infrastructure
As well as two significant tax changes:
- A 10 per cent temporary investment allowance to encourage capital investment by Australian businesses
- A 20 per cent cut in the next quarterly pay-as-you-go (PAYG) tax instalment for 1.3 million small businesses with an annual turnover under $2 million, which will total $440 million.
