24 January 2009
To help support Australian jobs the Rudd Government will establish a $4 billion Australian Business Investment Partnership.
This $4 billion Partnership is a temporary contingency measure to provide liquidity support to viable major commercial property projects in Australia.
The Partnership will support the commercial property assets of viable Australian businesses which, without financing, would be forced to retrench thousands of employees.
Commercial property projects that could be supported by this initiative include shopping centres, office towers and factories under construction, as well as existing properties of that nature.
The commercial property sector employs about 150,000 people in Australia.
Many of the 150,000 workers employed in the commercial property sector are tradespeople, such as plumbers, electricians and carpenters.
Without action, a combination of weak demand and tight credit conditions could see up to 50,000 people in this sector lose their jobs, according to Treasury, with flow-on effects to jobs in other parts of the economy. Small and medium size businesses which service the commercial property sector could also be devastated by weak demand and tight credit conditions in the sector.
The Government will not sit idly by and watch these jobs and small and medium size businesses be wiped out by fluctuations in global credit markets.
The Partnership will be structured to minimise the exposure risk to Australian taxpayers. It will not allow the major banks to pass on any underperforming assets to the Australian Government. Safeguards will ensure the banks continue to finance the projects to be supported, and that projects will only be considered where a member of a syndicate has actually decided to exit.
The full text can be read here.
The media release states that “It will not allow the major banks to pass on any underperforming assets to the Australian Government?”
First point is the Australian Government is not wearing the risk, the burden of that rests with the taxpayer, and their children.
The second, and most important point, is the obvious question; when does a performing asset become a non-performing one? Answer? In the future.
No one can tell the future but the fact that : a member of a syndicate has actually decided to exit” should be a warning sign that the asset is looking to under perform according to that member. Who drops solid assets?
The property industry is, in the context of the current economic climate, overheated. To restore a timely reality it is necessary to write property values down, wear the paper loss, adjust the balance sheets and cut into the bottom line.
Yesterday, Westfield, the world’s largest shopping centre owner did just that as they wiped $3b off their asset worth. And analysts say that could be just the start of it with further write downs expected. The upside is an increase in capitalisation rates for owners, but at the expense of a decline in net worth.
This scheme, the ‘Rudd Bank’ will not allow the banks to write down their asset holdings and this will result in severe dislocation in the property industry.
As property values globally are slumping this is the worst that could possibly be done and this government will pass this disastrous decision to the next government, the taxpayers and the taxpayer’s children. It is a guarantee that the crisis will extend far further than it need and affect far more people than it presently is.
