Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Hansard source

I would like to thank the senators who have participated in the debate on the Commonwealth Securities and Investment Legislation Amendment Bill 2008. The bill will strengthen the efficient operation of the treasury bond market by increasing treasury bond issuance and extending the collateral accepted for securities lending operations. These measures will help maintain the role played by treasury bonds in the smooth functioning of Australia’s financial markets. The bill will also provide for the safe investment of the proceeds of increased issuance in conjunction with management of the government’s cash balances, using a wider range of high-quality investment instruments than at present.

The treasury bond and treasury bond futures markets are used in the pricing and hedging of a wide range of financial instruments and in the management of interest rate risks by market participants. They thereby contribute to a lower cost of capital in Australia. Without these markets, the financial system would also be less diverse and less resilient to the shocks that can emerge from time to time, such as the credit concerns that have resulted from the subprime housing crisis in the United States. The government is committed to ensuring that the treasury bond market continues to have sufficient liquidity to operate effectively and therefore play this important role in the Australian financial market.

This bill provides a new standing authority for borrowing through the issuance of Commonwealth government securities subject to a limit on the total volume of securities on issue not exceeding $75 billion. This bill therefore allows an increase in the volume of fixed coupon treasury bonds of up to $25 billion over current levels. As a result of this new cap, in 2008-09 the government will add around $5 billion to the treasury bond issuance of $5.3 billion that was already planned and detailed in the 2008-09 budget. The increased issuance of treasury bonds will not adversely affect the government’s overall financial position since the increase in the bonds on issue will be offset by an increase in financial assets on the government’s balance sheet. The returns on these assets will also offset the interest costs from the increased issuance.

The bill will also provide for a modest extension in the range of eligible investments that the Treasurer can make under the Financial Management and Accountability Act to include investment grade debt securities. It will also provide for the Treasurer to give direction to delegates on classes of authorised investments and matters of risk and return. It has been suggested that this proposal will lead to a significant increase in risk being taken on by the Commonwealth. That is not correct. This proposal will enable the Australian Office of Financial Management to improve the returns on Commonwealth assets while also better managing costs and risks. This policy of the government investing in high-quality assets is more conservative than the mandate given by the previous government to the Future Fund.

Following consultations with financial market participants, the government has also decided to allow a wider range of collateral to be accepted by the AOFM through its securities lending faculty. This will increase access to the facility and further help the efficient operation of the treasury bond market. These various measures will strengthen the markets for treasury bonds and the futures contracts that depend on them, which will in turn contribute to the efficiency and robustness of our financial system. These measures demonstrate the government’s determination to ensure the efficient operation of Australia’s financial markets. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.