Bills: Australian Business Growth Fund Bill 2019 - Second Reading

27 February 2020

Senator Patrick: I rise to speak on the Australian Business Growth Fund Bill 2019. The bill is designed to increase investment in Australian small- and medium-sized enterprises by establishing a fund to provide patient capital to SMEs across a range of industries and locations. I must say that the bill's aim is noble, and I don't think I've heard anyone in the chamber saying that they don't want to assist small businesses in making investments. The difficulty comes with the implementation of the bill. I will walk through some of the concerns and reservations that I have in relation to it.

Firstly, if the bill is passed into law, the government will be partnering, using $100 million of taxpayers money, with the big four banks—ANZ, Commonwealth, NAB, Westpac, along with Macquarie Group and HSBC—to establish the $540 million fund. After the royal commission into misconduct in the banking, superannuation and financial services industry, one would have thought that the government would be a little more cautious about who they jump into bed with and, indeed, would want to be very meticulous in laying down very clear rules of engagement. But the memory of the federal government appears to be very short. We recall the abhorrent conduct—facilitating sexual exploitation of children, fees charged to dead people and money laundered for criminals. These are the organisations that we are jumping into bed with, to the tune of $100 million.

During the committee stage I asked the department who they consulted with in the setting up of this proposal. The Treasury has come back with a list of people who were consulted: the Treasurer; the Minister for Employment, Skills, Small and Family Business—these are the people involved in a round table—Westpac, NAB, Commonwealth Bank, HSBC, Macquarie Bank, Australian Super and so forth. But in amongst that list are none of the small banks—none of the co-ops and mutuals. I put it to the chamber that what we should be trying to do is perhaps create more competition in the banking sector. What we're doing here is actually feeding into the bigger banks, making it harder for the smaller, hungrier community based banks to compete. The question that I have, and I will ask this in the committee stage, is: why did we not engage some of those smaller players? Why didn't we give them an opportunity, because the more we grow the smaller banks, the more competition we will have for the bigger banks?

What will happen in this instance is that the government will end up owning 19 per cent of the fund and the banks will own 81 per cent. Indeed, clause 13 of the bill prevents the government from having control over the board. So we're going to pass $100 million of taxpayers money across to the banks, with no control, or very little control, over what happens thereafter.

People have talked about the UK and the Canadian funds. Of course, those funds exist, but the interesting thing is that in the UK and Canada the taxpayer didn't contribute a cent. The banks simply went off and did that. So one has to ask the question: why are we spending $100 million of taxpayers' money in circumstances where we probably could have simply encouraged the banks to set up a regime, as occurred in the UK and Canada?

The other interesting point is that, right now, there is a resolution before the Commonwealth Bank which will be voted on at the AGM which will prevent or prohibit the Commonwealth Bank from engaging in this particular scheme. So there is a risk that one of the partners may not actually be able to be involved, by direction of the shareholders. I asked the department: 'What happens if that $100 million doesn't come?' And they said: 'Well, that's okay. The fund can operate on $440 million.' That begs the question: why do we need to put taxpayers' money in there? There must be lots of it just floating around, except for, perhaps, some of the social services that are required.

The other problem I have is that no governance details—nor, indeed, an investment mandate—have been laid before the Senate. Think about that for a moment. What entity in their right mind would commit to spending $100 million of their own money without having an understanding of the governance arrangements or the investment mandate? I make it very clear that the Senate goes into this blind, and the government could have taken a different approach, just as the banks are. I can absolutely assure you of what's happening with the banks at this point in time: preliminary approval has been given to negotiate and talk. I can guarantee you that final board approval will not be given to committing their $100 million until all the details are on the table. So, in that sense, the government is reckless.

The next concern I have is about competitive neutrality. The government has a policy of competitive neutrality, and it's been in place since 1996. The idea is that governments don't engage in the market in a manner that in some way biases or advantages another player in the market. The economics committee wrote to, and received advice from, the Australian Government Competitive Neutrality Complaints Office, and they confirmed that the growth fund is organised so as to bring it within the complaints jurisdiction of their complaints office. I can almost guarantee you that there will be a complaint raised in respect of this fund, and the government may well find that this fund is in breach of its own policy—a longstanding, bipartisan policy. The difficulty there is that the government may simply choose to ignore the policy, but that will undermine the policy for all future circumstances.

The final point I'll add goes to one of the amendments, and I foreshadow that I will move two amendments in the committee stage. It goes to the fact that this fund is being set up to be only operated by the banks. Consider what that means. Let's say there are 20 companies that are seeking funding, of which 10 are really good—they're almost sure-fire things that deserve investment—and the other ones are a bit questionable but worth a punt to an investor. The difficulty with this arrangement is that the best 10 companies will simply go to this fund, which can offer cheaper money than any other funding entity or organisation. That simply means that the banks will fund these better options and leave, perhaps, the more risky options to the mum-and-dad investors. That's one of the problems with this: we are cutting out the opportunity for there to be mum-and-dad investors, which would not occur if this were an underwriting fund. If we could have this as an underwriting fund where someone wanted $10 million and we invited mums and dads in, they may take up the entire $10 million. They may supply or invest up to that $10 million or they might fall short by $3 million, so only $7 million would be covered off and the underwriting growth fund would cover the difference. That would be a fairer arrangement, and that is what one of my amendments goes to in setting up some underwriting arrangements or having the fund as an underwriter. That's about fairness and allowing mum and dad investors to participate in the market.

I just wanted to rise and state some clear reservations that I have in respect to the implementation. Again, I repeat that the aim of this is very noble, and I don't think anyone in this place has any difficulties in setting up regimes that will help small to medium businesses. It simply comes down to the way in which this is being set up. I ask the Senate to consider the points that I've made.

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