Senate Rural and Regional Affairs and Transport Legislation Committee, , 6:08:52 to 6:20:12
Officials explain the transition from interest-free loans to repayment holidays, citing the need to manage application demand and ensure long-term business sustainability.
Topics: Drought and disaster support, Regional Investment Corporation
Speakers: Speaker 28, Speaker 35, Speaker 29, Speaker 12, Speaker 3, Speaker 2, Speaker 5
uh >> the cost of the the loan it doesn't also goes into the underlying cash balance to pay for the Rick to operate which was set up uh under the former government when the Rick was established and it was agreed in that legislation that we'd actually use a 10-year bond rate not a 5year >> what's the 10ear bond rate >> so the 10-year bond rate is so we've had it on hold so at the moment we've held it at 5.18% >> using the 10-year bond rate Okay. Be
that it's a May, it's still below. >> Maybe if I could just add to that quickly as well. Sorry, Laura Smith, assistant secretary. Um, so the way the interest rate is calculated for the Rick is based on a six-month average of the 10-year bond rate between a period of time and then that's applied. So the six month, um, the way it's currently calculated is based on the average between 1 May 2025 and 31st of October 2025, which was a 4.28% 28% and then on top of that it covers the Rick's admin cost which gets you to 5.18.
>> Sure. Um >> will it be reset and will you reaver
average that? >> So the next uh review period is 1 February um yes and sorry and the government has already announced that they're holding it for another 6 months until 1 August
>> because there's been a significant increase in bond rates. Is that why
they've held it? Um I think just recognizing the pressure on farmers at the moment.
>> Yeah. Okay. >> Okay. So you don't got an awful lot of detail around how the rates working. Um but you don't know when it changed from being interest free for a period of time to have the interest going back on. I mean, the clarity you had then, Miss Smith, about exactly how you were calculating the interest was quite detailed, and yet we don't know what the basis for removing the interest rate or putting it back on was.
>> I think we're very happy to take that on notice, Senator, but but um sorry, correct me if I'm wrong, Miss Brown, but I don't think any of the people at the table are here as part of that decision, whereas they have been obviously >> in recent times aware of that. So, I don't know. Did you have anything you
want to add, Mel? But, >> okay. So who who who has the government consulted with in relation to the loan support and particularly um around the the design of the loan product um the current loan product.
>> Yes. So this was a lot of the feedback that we received at the drought forum. We had I think it was 180 participants that attended that forum in South Australia. Uh and we discussed in length around what would be the most appropriate uh mechanism. The minister has been out on the ground I think around four times at least in South Australia visiting uh farmers on the ground and having discussions with
those. >> What was the feedback that you got in that in relation to the makeup of the product? Was there ever any
>> the farmers were quite clear as Mr. Low said that they they weren't looking for um a hand out. They were looking for a hand up.
>> Yeah, I was just trying to understand in terms of the feedback. Sorry, I should have been clearer and the feedback in relation to the interest free I mean everywhere we go um you know farmers are sort of concerned that you know what is really the value of this product um in a marginal sense in relation to probably you know a lot of these farmers have had long-term relationships with their bank. It's not really a drought loan. It's just a loan you're able to access when it's not raining. I mean like what what what is the the real value proposition in this and what advice have you received from droughtstricken farmers about the impact of the accumulation of interest on the loans that are available? So I mean do many people want
to take them up? >> Uh so we have the Rick does have actually have a uh register of interest at the moment opened for the new loans. Uh and for that register of interest we have 119 stakeholders have said that they would like to be considered for that loan once it's opened. Uh we do have uh in Victoria the uh a lot of the farmers that are in drought in Victoria in South W Victoria uh did come out in the media to say that it was a godsend uh to them to actually have this loan announced and it was exactly what they've been asking for in terms of not wanting to be given an interest free loan but to have a mechanism in place where they could >> in the hard times uh and get themselves back up and running to have that ability to have the uh kind of holiday as as Mr. Low described for the first two years of
that loan. >> Yeah, I find it incred incredible that a farmer would actually not want an interest free loan. But anyway, there you go. Um so how many farmers in terms of the ratio of those that would seek it and those that were able to access it um those that would qualify versus those would be excluded?
I couldn't actually answer the question in terms of uh who would qualify for that. Uh we're working through at the moment uh the guidelines and discussing those with the Rick. Uh and it'll be the Rick's responsibility to finalize those guidelines and provide them to the minister.
>> So has the government done any analysis or are you aware of any analysis that's been done about comparing previous drought loan products and the current
drought loan product? One thing I might um add is that the recent U Rick Act review did talk about the um interest free loans that were offered at the time. um including some of the um constraints with having that interest free period in terms of the number of applications that came in, but also the unintended consequences of some of those loans um being approved um when um you know they didn't meet the criteria or or it wasn't the sort of intended cohort. Um so
>> can you just unpack that? So you just said the unintended consequences of people not meeting the criteria. So I'm not quite sure how that works in terms of interest free or not interest free.
Yes, it was just about the number of applications that came in. So there was an overwhelming number of applications that came in during that period because of the interest free offer. >> So basically >> the ability of the REIT to manage those number of applications at the time.
>> So basically what you're saying to me is that you're using the interest rate to control demand.
>> Um the interest now the interest rate is set in the legis has always been set in the legislation as um the 10-year bond rate plus the ability to cover the
Rick's cost. It would be a decision of government to change the interest. >> To be fair, you just said to me that, in your words, unintended consequences of the overwhelming number of loans was the reason why you didn't consider going. >> That's what the was. >> No, no, I'm just trying to understand.
>> I understand that. I'm just I don't think that wasn't my recollection of what Smith said. Sorry, there was just
one of >> one of the um one of the bits of information that came through the Rick Act review and then in um the government's response um one of the kind of outcomes of that is looking at an interest repayment holiday rather than interest free to meet both the needs of farmers but also the needs of the government and managing the risks costs.
So interest rate holiday. So interest rate holiday or
interest rate >> repayment holiday. Yes,
>> repayment holiday. But aren't you already giving them an interest rate repayment holiday because you're not asking them to repay for a period of
time? >> That's right. That's a new loan that's been announced.
>> I'm not quite sure what the difference
is. >> I think it might be getting a bit confusing. So there's drought loan that was the pre-existing product that's been in place for some time and that is the main attraction of that is the concessionality and the way in which it can be repaid is interest only. Is that correct? uh for five years >> and then the the new announcement is a drought hardship loan and that is the one to which the um the interest rate the interest holiday is applied uh as
>> and senator one of the other benefits of the of the drought loan that the secretary mentioned is the ability for farmers to refinance up to 50% of um of of the value of the loan against that concessional rate as well.
>> Okay. Okay. So, I suppose all I'm trying to get to the bottom to is um the analysis of the comparison between the schemes um of previous hardship loans versus the ones that are in the marketplace at the moment. Um because it appears to me that there has been a reduction in support that's been provided by these loans with prior drought responses. and just would be keen to understand what the process was in terms of determining that with the exception obviously you've obviously the response you gave me that said that you had an overwhelming demand for it and so that's why it wasn't continued so is that the only reason why there hasn't been consideration for interest um free loans for a period of time
>> Senator I think one of the other aspects that was spoken to in the Rick review was um the the potential for interest free free loans to have um to have unintended consequences in terms of supporting businesses that were would not be um not be sustainable in the
longer term. >> But isn't that up to the analysis of the situation the person finds themselves in? I mean, I'm sure the bank must have robust guidelines around the long-term viability of the operation of the
business. >> That's I think that's what I'm saying,
Senator. So, >> but but I don't I can't understand your logic in that. I mean, if somebody is going through extreme hardship that has been >> brought upon them by drought, um, there is a difference between them being long-term viable, whether they're paying interest or not. I mean, like I so I don't understand what the difference would be, whether they paid the interest or they didn't pay the interest, you should be assessing them for their long-term viability. The interest shouldn't make
any difference to that. So that so did you want to so so my understanding is so that that we review the Rick and um and its approach to and the programs that it provided and as part of that review there was um commentary made about the interest free loan program and as part of the learnings of that review it identified one to my colleagues point about overwhelming demand but also um loans that went to businesses that were marginal um and not necessarily sustainable in
the longer term. >> Don't you think overwhelming demand probably speaks to overwhelming need?
>> I think it speaks to the to the product and it speaks and and obviously those that product was available nationwide as
well. >> Okay. Look, sorry I don't buy your argument, but I appreciate your answers. Thank you, chair. Um, I've only I don't know what the in terms of the programs. I've got some wine industry questions, but I I'm not sure whether that's >> I'm I'm sorry, missed that. >> I've got some questions around the wine industry, but I'm I'm not sure it's now