HIH Royal Commission Bob McMullan - Shadow Treasurer, Shadow Minister for the Arts

Press Conference

Transcript - Parliament House, Canberra - 17 January 2003

McMULLAN: The important question today is, in the light of the new press revelations that the Treasury and the Treasurer were advised in 1999 that there were serious problems with HIH, what needs to happen is that Peter Costello needs to come clean about what he knew, when he knew it, prior to the collapse of HIH.

We now have reports that his advisory body, the Financial Sector Advisory Council, told the Treasury and probably the Treasurer that HIH was in trouble. There's no indication that any action was taken as a consequence. All the rumours that I've heard confirm that the advice was given directly or indirectly to the Treasurer. Australians need to know, what advice did the Treasurer receive from his advisory council, when did he receive it, what action did he take in response to that advice. The opposition called earlier this week for the government to release all the advice ministers received from departments and other advisers concerning HIH, and what the government's response to that advice was. All we've had is a cover-up.

This mounting body of evidence that the government ministers – not just departments, but ministers – knew well in advance of the serious problems in HIH raises important questions for ministers to answer about what they knew and what they did. And it also raises an important question to the Treasurer, about why, in that knowledge, he cut the resources available for the prudential supervision of the insurance industry, and prudential supervision generally. In the operative years we're talking about, 1999-2000 and 2000-01, APRA was operating on net operating expenditure on prudential regulation, $7 million less than it had operated on in 1998 -- $7 million. And it has been reported that they were operating on 150 staff fewer for this task than prior to 1999. And in their own annual report the prudential regulation authority said in 1999 that they didn't have sufficient resources to do the job that they wanted to do, or that government wanted them to do.

So we have here a mounting body of evidence that the government knew, it failed to act, and in fact it cut resources to the fundamental task of prudential regulation, just at the time that the demand for prudential regulation was at its highest. These are questions the Treasurer needs to answer. I'm calling on him to answer them today, as I repeat my call for him and other ministers to release all the advice they received, and what action they took in response to that advice.

JOURNALIST: The Financial Review article to which you refer says – the sources behind that story are quoted as saying -- the warnings were given verbally, and were not official advisory committee policy. In the workings of government anything that's verbal and un-minuted never really happened, did it? It certainly can't be traced.

MCMULLAN: Well, people know what was said. There may well be a minute. We don't know that yet. That's part of the inquiries we will conduct when the Parliament resumes, if we don't get the information before. But the Financial Sector Advisory Council is a council to the Treasurer. They meet with Treasury and the Treasury annual report makes it clear the line of reporting is to the Treasurer. He set it up, he appoints them, they advise him. We want to know what advice they gave him. If it was not in writing – and this is designed explicitly to be an informal advisory body, and I don't in principle have a problem with that, unless it leads to deniability where advice is given but the Treasurer can subsequently deny ever receiving it. Now, I don't believe the members of the advisory council would be a party to such a cover-up, and so I want the Treasurer to say what they told him, what they told his department, when they told him, and what action was taken as a consequence.

JOURNALIST: You said, ‘all the rumours I've heard', something to the effect that the information was given to the Treasurer. Does this mean that you have additional information on the newspaper quotes today?

McMULLAN: Yes.

JOURNALIST: From sources on the committee at the time?

McMULLAN: Well, people told me in confidence some time ago. I've done nothing about it because the information came to me in confidence, but what has emerged doesn't surprise me. It only confirms what I've heard before. But I don't intend to disclose who told me things in confidence, or else people won't be able to trust to give me such advice in future.

JOURNALIST: This story says that officials said HIH was undercutting premiums, not that it was having problems. Is that the same thing that your sources are telling you?

McMULLAN: Well, my understanding is that they expressed serious concern about HIH and about the state of the insurance industry as a whole. And we also know that advisers to HIH were speaking publicly, at forums where, the chairman of the prudential regulation authority was there, about their concerns that the way in which pricing of general insurance was being undertaken was causing serious problems about the viability of companies in the industry.

Everybody was talking about this problem. It is inconceivable that the Treasurer and the minister directly responsible for financial services at that time weren't hearing these rumours, and they weren't asking advice from Treasury, and from the Financial Sector Advisory Council, and if they asked advice from Treasury there is no doubt that it would have communicated, amongst other things, the concern that had been communicated to it by the advisory council. So the ministers had ample opportunity to know. It is inconceivable they didn't know. But we want them to release what they knew, when they knew it, and then what they did about that information. Because this is not just some arcane matter. Hundreds of millions of taxpayers' money is being spent to fill the gap left by this collapse, and many, many Australians have been seriously disadvantaged by the collapse of HIH, and the loss of their insurance. So these concerns are substantial. They are affecting taxpayers and citizens. Responsible ministers -- under our system accountability stops with the ministers, and we want to know what they knew, when they knew it, and what they did about it.

JOURNALIST: The commission did hear that Joe Hockey sought some advice from APRA, and was effectively misled by APRA as to the nature of the problems at HIH. He did the right thing, surely?

McMULLAN: He asked some questions in 2000. In the Parliament we tried to pursue what he knew about the particular narrow matter about which he asked advice. It may be he asked after we asked him questions in Parliament, and there's nothing wrong with that. It doesn't seem he asked before, but he might have. APRA has denied misleading the minister. We'll have to wait and hear their response. If they did not mislead the minister, then the minister misled the Parliament and the public. But I can't make that claim until I hear APRA's response to what the counsel assisting the commission has said. There's no doubt the public and the Parliament was misled. But whose responsibility that was is not yet clear.

JOURNALIST: What about the duty of these high-powered committee members – Argus, Murray, Trowbridge – surely they carry some responsibility. They may have passed on something verbal. But do you think they should have been shouting louder and writing things down and knocking on doors a bit harder?

McMULLAN: The advisory council's role is different from the board of APRA. The advisory council is just that, it's a body that meets twice a year with Treasury officials and ministers and gives them informal feedback about what's going on in the financial industry. I think that's a legitimate function, and its not their role to take over the responsibility of the board of APRA and the ministers. In our system, the accountability ultimately lies with ministers and at the first instance with the officials and boards that supervise those officials in the case of an independent agency like APRA, and ultimately with the ministers. And the Australian people are entitled to know, if we are spending $640 million to fix a problem in HIH: which ministers knew about it in advance, and did they take any action prevent the collapse that's costing the taxpayers hundreds of millions of dollars. We don't know the answer, and every Australian is entitled to know, and Peter Costello should be telling them.

JOURNALIST: These rumours that you have heard, are they from credible sources, reliable sources, or are they just rumours?

McMULLAN: They are credible. I believe them.

JOURNALIST: Can you confirm that they are from that council?

McMULLAN: No, I would just be disclosing my source. I am not building anything on what I have heard. I state it because otherwise I would not be being fully frank myself. I have not said anything in public until it has otherwise been reported. Now that it has been reported I want the Treasurer to respond comprehensively to the report, and say what he knew and when he knew it. That's what people are entitled to know. It is what Australians want from ministers. It is what, in a Westminster democracy, ministers have an obligation to do, and I am calling on the Treasurer to do it now.

JOURNALIST: Did you have this information while the hearings were still running in the Royal Commission?

McMULLAN: Yes.

JOURNALIST: Did the opposition or anyone make a submission, any attempt to have this teased out by counsel assisting?

McMULLAN: I wasn't in a position to do that. But I did expect the Royal Commission – I was surprised the Royal Commission chose not to call ministers, that they interpreted their terms of reference so narrowly, that they did not look at the role of ministers and the advice they received. But I'll look at the final report of the commissioner about that. But if we wish to pursue our accountability our role is to do it in public and in the Parliament. Had I information I could make public I would have made it available to the Royal Commission. But that wasn't an option I had.

JOURNALIST: Did you have this information when Parliament was still sitting last year?

McMULLAN: Yes.

JOURNALIST: Is it not the responsibility of opposition to bring up these sorts of things?

McMULLAN: Rumours swirl around. You get information. If you can't back up information that comes to you, you can't use it in public. I don't go around making allegations without evidence that I can produce to support it. Therefore I have said nothing. Now that other people have reported it, from sources, not the same as mine, as far as I can tell, but even if they are, not through me, now I can comment. But it doesn't matter whether I have heard a rumour or not, we have now had properly reported, comprehensively reported, what appears to be an accurate report of concerns communicated to the Treasury, and as far as I know to the Treasurer, about warnings about HIH's position, and about the insurance industry in general, both of which have become major issues in public debate subsequently -- not just HIH, but the whole crisis in the insurance industry. And I and the Australian people want to know what the Treasurer heard, and what he did about it.

END