Helen Coonan (NSW, Liberal Party, Shadow Minister for Finance, Competition Policy and Deregulation) Share this | Hansard source

I rise to speak on behalf of the opposition in response to the Guarantee of State and Territory Borrowing Appropriation Bill 2009. I will indicate at the outset our support for the legislation but also indicate that I will at an appropriate time be moving an amendment which I will get to a little bit later. The Guarantee of State and Territory Borrowing Appropriation Bill provides for a standing appropriation to pay for any future claims should any state or territory government default on loans that are guaranteed by the Australian government’s guarantee of state and territory borrowing. Money is to be appropriated from the consolidated fund and, if there is insufficient money in the fund, the bill provides for authority of the Commonwealth to borrow money to pay claims to creditors.

We are obviously hoping that the prospect of any default would be a very, very unlikely circumstance. In those circumstances, we do appreciate that this bill is more procedural in that it provides substance to the guarantee which has already been announced by the government and which the market is pricing into the issuance of government bonds. Even though state governments have declared that they will access the government guarantee, with the way in which events have unfolded, it may not in fact occur. I think New South Wales may have said that they will access the guarantee. But, quite understandably and appropriately, the market is already pricing into the cost of semi-government issuance the federal government guarantee.

It is estimated that the states will increase their borrowings from the existing $100 billion outstanding to about $160 billion in the next three years. I think one of the reasons is that, when you start to actually delve through the detail of state budgets, you can see the pressures that are already evident, and the windfall payments from the federal government are at the moment, I think, propping up state budgets. The net impact is that the states are in fact in some cases reducing and replacing their own capital expenditure with the money that is provided by the Commonwealth. That, I think, should certainly be looked at. If it is correct, it is alarming, but it also devalues the stimulatory impact of the Commonwealth government’s expenditure because it simply substitutes state government expenditure with Commonwealth expenditure.

The thing about this is that the states have traditionally carried—and still do carry—the great bulk of infrastructure expenditure in Australia, as is appropriate. Roads, public transport, schools and hospitals are all, in the main, run by state governments, and not only new capital work programs and the integration of those capital programs into existing infrastructure but also, significantly, the maintenance of those capital works programs are very much the domain of state governments. But obviously that in turn puts pressure on their capacity to actually raise finance.

This bill obviously addresses where there is insufficient funding in the consolidated revenue fund to pay a claim. The bill also allows the minister to borrow money to top up the consolidated revenue fund for the purpose of paying the claim. The borrowing must not be for a period exceeding 24 months and includes raising money or obtaining credit whether by dealing in securities or otherwise. The provision of this guarantee will only cover securities in which the states to choose to make subject to the proposed guarantee, as I said. Due to the recent economic conditions, and the deterioration in those conditions, we do note that state governments are finding themselves in a position where they are increasingly borrowing more money.

It does appear pretty obvious that state governments have found it increasingly difficult to compete against the federal government when it comes to the issuance of bonds. This is in part due to the attractiveness of the Commonwealth government’s triple A credit rating—which, mercifully, we still have—and the lower comparative risk associated with Commonwealth government bonds. It is also worth noting that ratings agencies generally do not allow subordinate governments or companies a credit rating above that of the sovereign. So a downgrading of the national government would likely raise costs for all Australian borrowers. As I have said, thankfully, that does not appear to be the case.

During the inquiry the point was highlighted about the states’ attitudes towards debt and the impact of their credit rating on their borrowing capacity. The states are looking to increase their massive amount of borrowings and, when added to the current government mountain of debt, which will peak at about $315 billion in 2013-14, it must give us all pause for thought as to the appropriateness of this guarantee. But, having said that, I do reiterate that the coalition will not be opposing this bill. We will, however, be moving an amendment at the committee stage. The amendment will allow for the establishment of a register of government borrowings. There are a number of reasons for this, and they were outlined by the shadow treasurer, Joe Hockey, in the House. He referred to the fact that it may not have been necessary to have a register of government borrowings when $55 billion—which is about the average from the Australian government over the last 10 years—was at issue. But as we are now going down the path of some $315 billion on issue, obviously different considerations apply. It is clear that with semi-government debt involved—that is, the state governments’ issuance—it could, as I said, be looking at least at another extra $160 billion. In our view Australia should follow the lead of other countries, particularly the United States, and have a full disclosure of who the major lenders to the Australian people are.

We realise that this can be a very complex issue. It might sound pretty complicated because these bonds are traded all the time. But, indeed, so are shares. As Mr Hockey also mentioned in the House, even in parliament we are expected to have full disclosure and we agree with that. There are registers of their shareholders that are run by companies, and the general public can go and check who the shareholders are. There is full disclosure in relation to millions of shareholders who own shares in Australia. On the other hand there are hundreds, and perhaps even thousands, of major entities that own Australian government bonds and who are not currently required to have their details disclosed. Questions were put in the recent estimates to the Australian Office of Financial Management about that and about how feasible it would be to have greater disclosure or to maintain a register. It is a fair summary, I think, to say that they said they obviously did not know who the ultimate owners of the bonds were but they did have a suspicion about who owned Australian government bonds. They referred those of us sitting on the Senate Economics Legislation Committee to the Australian Bureau of Statistics, saying that it does, in fact, collect data about share ownership. It goes to the custodians, of which there appear to be just six, and it conducts a survey.

Inquiries have been made of the deputy chief statistician as to why the Australian Bureau of Statistics could not disclose the domicile of the ultimate holders. My understanding is that the statistician was to get back to my colleague Mr Hockey but that the matter as to why it might be difficult to collect the data to at least reveal the domicile of the ultimate holders has not yet been resolved. It was put to the chief statistician that certainly there could be disclosure by regions but, as I said, that matter has not yet been resolved. The Australian Bureau of Statistics is obviously an independent entity and we in the coalition certainly hold them in high regard. We do think that it is not beyond their wit and will, if required to do so, to be prepared to work out ways that would allow much more information relating to the ultimate buyers of bonds and perhaps the regions from which they come to be put on a public register. So that is really the thrust of the amendment. There will no doubt be an opportunity to address it when I move it. As to the substance of the bill that we are addressing here, we indicate our support for the legislation.