Good afternoon ladies and gentlemen and thank you for inviting me to address the Institute's convention here in Canberra today.
It has been a long week in Canberra and a big week for financial services, with the passage through the Senate yesterday of the revolutionary Financial Services Reform Bill.
The reforms in this Bill are groundbreaking and reflect the major changes facing the Australian financial services sector.
It is in this environment which credit unions are operating, and it is an environment that is making the successful management of a credit union increasingly challenging.
Like all businesses, adaptation is crucial for credit unions to survive and thrive from this change.
In fact, over a quarter of a million people joined a credit union between 1996 and 2001, and now, more than 3.6 million Australians are credit union members. So, I know that credit unions are taking up this challenge, and remain the preferred financial service provider for many Australians.
The Government has its own challenges in the face of rapid change in the financial sector.
The best way for Government to promote a growing financial sector is through economic and regulatory management that fosters economic growth.
The Howard Government has a strong record in this regard, and has since 1996 pursued a range of reforms including regulatory restructure, an overhaul of industrial relations and, of course, taxation reform.
Taken together our reforms have delivered a resilient economy which has remained strong in the face of instability in other parts of the world.
The changes made meant that we survived during the Asian economic crises, when 7 of our top ten trading partners were in recession or depression.
Along with sound economic management, there is always pressure on Government to do more to facilitate an internationally competitive financial sector and meet the challenges of globalisation.
We have been strong advocates for Australia as a global financial centre, and the changes we've made have helped achieve this goal.
In fact, Axiss Australia, the agency we established to promote Australia as a financial centre, has identified that in the last 2 years more than 60 financial services firms have set-up operations in Australia or increased their Australian presence.
The results we are enjoying now are due to the changes we made over the last five years.
This,of course, has involved the implementation of the recommendations of the Wallis Report in 1996.
As I mentioned earlier, the Financial Services Reform Bill is the final chapter of the Wallis reforms.
FSR is a revolutionary piece of legislation that fundamentally restructures an industry that contributes around 7 per cent to the Australian economy, and employs 330,000 Australians.
And, obviously, this includes the credit union sector.
I know the credit union movement had concerns about FSR and the definition of basic deposit products. And as you know,I have created a carve out for basic deposit products which include normal at-call accounts including term deposits for up to a period of two years.
I believe this address many of the concerns of small credit unions, but I understand that your industry is looking at the detail of the regulations.
I have also implemented streamline processes for obtaining a financial services licence by bodies which are already APRA-regulated ADIs.
I will be consulting with industry on the commencement date and I welcome further input from the credit union community.
Ladies and gentlemen, the financial sector must also be able to meet the financial services needs of Australian households. Traditionally credit unions would see their role primarily in this area. Credit unions are close to the communities in which they operate, owned by the members and focussed on providing good service.
In this regard, credit unions fill a niche which has been neglected by other institutions.
I have said publicly and privately that our financial institutions have social obligiations to the wider community and not just maxmising profits to satisfy their shareholders.
My approach has been to encourage and persuade the banks to live up to their obligations, and I think that over the last 18 months, there has been movement in this area.
The Labor Party, however, has a different approach and wants to reregulate banking.
But more regulation comes at a cost, and that cost will be borne by all customers.
Labor's reregulation is akin to a drift net: it will certainly catch the big fish, but it will also harm the little fish, as well.
In other words, the big banks of Martin Place or Collins Street might be able to wear more regulation. But a small credit union in, for instance, suburban Brisbane might not be so resilient.
And while Labor's plans may throttle the smaller players in our financial sector, we have put in place reforms to make sure these players can keep competing.
The transfer of regulatory responsibility for credit unions to the Commonwealth in 1999 implemented a major recommendation of the Wallis Inquiry and achieved a goal of the credit union movement, - a goal that it first proposed to the Campbell Committee in 1979.
Credit unions now hold the same licence as banks and are supervised on the same basis as banks. As part of this change, credit unions also became companies under the Corporations law.
This was followed up with a single set of flexible prudential standards was issued for all deposit-takers which are being implemented over a transition period.
These changes have helped to increase the competitiveness of credit unions and provide a safer and more stable financial sector.
Importantly, bringing credit unions under the national regulatory banner removed the special regulatory advantages of banks compared to other deposit taking institutions.
The Government's regulatory and taxation reforms have had a very significant impact on credit unions and, of course, those reforms were not easy.
But they provided credit unions with a solid base on which to build.
In fact, credit union membership has risen and the asset-base increased by more than 50% to $24 billion over the last five years. That is, your industry is half again as large as when the Coalition came to government.
The number of credit unions has fallen marginally, due mainly to mergers, and this consolidation has helped them improve services and become more competitive.
Credit unions may now issue and draw cheques against themselves, and this hasimproved services to members, not to mention, the symbolic importance in raising the status of credit unions.
Other modifications we've made concern the sending of annual reports to members. You told us that sending annual reports to every member is a considerable cost specific to credit unions. So, we changed the law, and now the right to receive annual financial reports is optional.
Similar relief was adopted for notices of meetings. This flexibility should also mean cost savings.
Under the new framework, the Government adopted improved legal mechanisms for facilitating the transfer of business. The aims of this was to help credit unions to either merge, restructure or demutualise.
I understand that there is already significant consolidation and restructuring taking place and this is likely to continue.
Of course, the Government continues to be mindful of the need to safeguard the interests of credit union members.
We know that mutuality is one of the hallmarks of a credit union - ownership and control by members - a different kind of institution from those driven by shareholder demand to produce the greatest possible profit.
Many of the institutions that transferred to the new ASIC-APRA regime held the fear that their mutual status would be eroded by the need to conform to the "normal" company type.
They also had a more immediate worries, that they would be more vulnerable to take over once they departed their institution-specific legislation and came under the Corporations Act.
We recognise the value of mutuality to members. But we also know that credit unions need the ability to raise capital to grow and to meet APRA's capital requirements.
So, with some ingenuity, in order to cater for these needs, we provided legislative protection for the interests of members of mutuals, in Part 5 of Schedule 4 to the Corporations Act.
Given the diverse histories and structures of these former societies and the different versions of mutuality their members held dear, it was not easy to devise an umbrella definition of mutuality and legislation to help preserve it.
So the legislation provides a mixed system. It sets out some of the generally recognised features of mutuality but sets the triggers so that any change in a company's constitution or share issue that could bring about a dilution of the rights of members must attract external scrutiny, in this case, ASIC 's.
Coupled with a broad exemption power given to ASIC, this was designed to provide sufficient flexibility for whatever circumstances might arise.
Our new tax system will also be providing benefits to credit unions and their members. On a macro level, tax reform has improved the incentives and the ability of Australian households to save.
The introduction of the GST last year enabled the Government to abolish several inefficient and outdated taxes. Along with wholesale sales tax and bed taxes, we have done away with Financial Institutions Duty, which will benefit some 12 million Australians and save them $1.2 billion a year.
And now the states are falling over themselves to abolish BAD tax.
The Australian GST is unique in providing reduced input tax credits of 75 per cent for a range of inputs commonly acquired by financial institutions.
Inputs that are eligible for a reduced input tax credit include cheque clearing, transaction processing and credit assessments. The purpose of these reduced credits is to reduce the bias that financial institutions might otherwise have to insource these inputs.
The Government has introduced a reduced input tax credit that is specifically aimed at benefiting credit unions.
Therefore, any service provided to a member credit union by a credit union service provider, such as CUSCAL, is eligible for a reduced credit.
This special measure verifies the Government's commitment to maintain the competitiveness of the Australian financial sector.
We have also introduced initiatives aimed at improving the level and quality of financial services in rural and regional Australia.
One such initiative is the "CreditCare" project. This is a $4.2 million partnership between the credit unions and the government that has restored project banking services to 60 communities in rural and regional Australia.
This has been a positive outcome and clearly shows the commitment of credit unions to the community.
Ladies and gentlemen, there is always more which can be done to improve services to households. Credit unions are well placed to continue to meet the challenges of a changing financial services sector.
The sector might grow and change, but I urge you not to lose the customer focus which has served credit unions and their members so well in the past.
I look forward to continuing to work with credit unions in the future.