Helen Coonan (NSW, Liberal Party, Shadow Minister for Finance, Competition Policy and Deregulation) Share this | Link to 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.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

As Senator Coonan has just outlined, the Guarantee of State and Territory Borrowing Appropriation Bill 2009 has the purpose of enabling the Treasurer to provide a guarantee to the states upon request for bonds or debt and if there is a need for it to borrow money for that purpose. The bill is about guaranteeing funding to the states for infrastructure spending. Bond markets have experienced liquidity problems in the last year or two but data from the Reserve Bank indicates that this is slowly recovering. As with the so-called Ruddbank legislation, we are being asked here to support another major spending program—and this could potentially be a huge spending program—by the Commonwealth on issues where the urgency of the matter seems to have retreated somewhat.

An example of my concerns is over the infrastructure spending by the New South Wales, Queensland and Victorian governments that indicates, in the case of the first two, they may be accessing the loan guarantee scheme. That could lead to Commonwealth guarantees of quite massive loans for such things as coal transport and port infrastructure for increasing export of coal to the rest of the world. Australia is already far and away the world’s biggest coal exporter in an age of dangerous climate change. The latest UN reports say that 300,000 people died in the last year as a result of climate change. So here we have the federal government using taxpayers’ money to support old polluting industries but passing up this great opportunity to ensure that there are green bonds that will be supported through this loan mechanism and a green new deal for the economy.

It is notable that the need for this guarantee arises from the guarantee provided to the private sector banks, because the imposition of the bank guarantee certainly made it harder for state governments to obtain debt funding. I foreshadow an amendment from the Greens in the committee stage. I will be asking the government about what guarantees it can give to the Senate and whether indeed there is any limit whatever on the Commonwealth guarantee being offered through this legislation to the states. The government has stated that this bill will create an unquantifiable liability on the budget, on the basis that it is unlikely that a state government will default on its outstanding loans. One could wonder immediately whether we ought not to be ready to deal with such an exigency when it occurs rather than in the general way in which this legislation offers to back up state governments before any such event of default or potential default has even come into focus.

If called into use, this guarantee could lead to billions of dollars more debt for the Commonwealth. The coalition has been consistently critical of that potential growing government indebtedness yet is apparently going to support the legislation. In that circumstance, the Greens amendment becomes very important. We will be seeking to ensure that any guarantee provided to a state government is supporting projects for infrastructure which is responsible and socially valuable. By ‘responsible’ I mean environmentally responsible. Our proposed amendment follows on from the concerns I mentioned earlier that the money could be used to fund coal ports, more tollways or more climate-change-unfriendly projects from state governments, which do not have the national responsibility that we have, as we approach Copenhagen, to ensure that this country is on a green trajectory to reduce greenhouse gas emissions and is not potentially, through the mechanism we have in this bill, putting billions into fostering greenhouse gas emissions in this country when there are better alternatives.

We can only speculate on the projects. Another one that would be of great concern to the Greens would be the seawater reverse osmosis desalination plant proposed for the Bass Coast in Victoria. As you may know, Acting Deputy President, the funding model chosen there is a public-private partnership—it was chosen by the Labor government in Victoria—which is creating a necessity to profit from water. Veolia, which runs Melbourne’s rail network, or another French company, Degremont Suez, will lead a consortium to implement and profit from this plant, I am informed. An internet search reveals that both of these companies have questionable corporate ethical and human rights records—and, indeed, environmental records, although the environmental projection may be something that quite a lot of money has gone into. Internationally, these companies have recently lost sizeable chunks of their business as a result of adverse publicity and boycott campaigns. The Victorian government is about to hand over a third of the water supply in Melbourne to one or the other of those consortia, in effect.

Certainly the Senate and the national parliament ought to be very careful indeed that, if we are going to be offering state governments, including the Brumby government in Victoria, guarantees for potentially billions of dollars for polluting, disruptive, job-losing projects like the desalination project on the Bass Coast—where there are much more prudent and feasible alternatives for the supply of that water through proper use, for example, of the rainfall over the metropolitan area of Melbourne—we should have a debate about that in this parliament. The proposed Greens amendment is aimed at ensuring that there is some environmental record of the projects that the government is proposing to guarantee with billions of dollars of Australian taxpayers’ money. I foreshadow an amendment in the committee stage to page 3 of the bill to add clause 7, a schemes rules requirements clause, which will say:

Scheme Rules must include provisions that limit the Deed of Guarantee so that it cannot be applied to borrowings relating to projects that will have a significant negative environmental impact or result in significant greenhouse gas emissions locally or internationally, and for which there are … prudent or feasible alternatives.

Nick Sherry (Tasmania, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

Firstly, I thank senators who participated in the debate on the Guarantee of State and Territory Borrowing Appropriation Bill 2009. As I have said on many occasions in this chamber, the global financial crisis and the ensuing economic impact—that is, a world recession of a very deep and substantial nature, the worst in 75 years—continue to wreak havoc on economies around the world. Almost every advanced economy is either in recession or recorded a decline in GDP late last year, and the world economy is expected to contract in 2009. Despite all of this, of course, Australia is well placed when compared with economies around the world. However, Australia is not immune from this impact. Whilst Australia’s financial markets are strong, they have been affected by the global financial crisis.

The market for state and territory bonds has also been affected, and liquidity in semigovernment bonds has been severely constricted. This threatens the capacity of state and territory governments to deliver critical infrastructure projects that will support jobs in the face of this global recession. Again, Australia is not unique. From general observation, I am certainly aware of the impact on state governments in the US, for example, where a number of states are in extraordinarily dire circumstances. California is one that comes to mind.

It is crucial that states and territories are able to access the credit markets, and this guarantee of state and territory borrowing recognises that. Indeed, supporting semigovernment bond markets is critical to maintaining the capacity of state and territory governments to deliver nation-building infrastructure. Reducing such investment would hamper recovery from the global recession. That would, in turn, cause slower growth and higher unemployment. That is why the government is putting in place this guarantee. It is an initiative that will complement the government’s other wide-ranging and decisive initiatives to support the economy and protect jobs. The government’s actions have helped maintain confidence in domestic financial markets and enabled lending to continue to provide further support for economic activity.

As well as this guarantee, the government’s early and decisive action has provided certainty that bank deposits are safe. This has enabled banks to continue lending to households and businesses, providing vital support to our economy. State and territory government infrastructure spending, as supported by the guarantee, will work hand-in-hand with the government’s own infrastructure investment to build a stronger Australia and provide employment opportunities in the short term while providing economy-supporting capacity in the longer term. In particular, the government’s Nation Building and Jobs Plan includes a direct investment of $29.9 billion in schools, housing, energy efficiency, community infrastructure and roads as well as support for small business. This represents the largest annual increase in public investment on record and is very appropriate in the current serious world economic circumstances.

The assistance to states and territories through the provision of the guarantee and the recent reforms of the federal financial relations framework, agreed to by COAG in November 2008, have been vital in enabling the Australian government to work collaboratively with the states and territories to respond to the global financial crisis. Starting from 1 January 2009, the new framework has considerably improved Commonwealth, state and territory government collaboration by increasing flexibility to direct funding at the state and territory level. It clarifies roles and responsibilities and improves accountability.

Turning to the details of the guarantee, the bill is essential to providing investors with the assurance that state and territory borrowing will be supported by an Australian government guarantee and that potential claims under the guarantee would be paid in a timely manner. To do this, the bill provides a standing appropriation so that, in the very unlikely event that claims were made under the guarantee, they could be paid in a timely manner. A standing appropriation is also put in place to allow any borrowings made under the bill to be repaid. A borrowing power is also provided to allow timely payment of claims should there be insufficient funds in the consolidated revenue fund in the very unlikely event that a claim would need to be paid.

The government is working closely with the states and territories to finalise the guarantee so as to have it in place as soon as possible. I will clarify one thing. My advice is that all states and territories support this approach. I say ‘all’ because the Western Australian Liberal state government also supports this approach.

With those remarks, I further thank senators for their contributions and urge that the Senate support the legislation.

Question agreed to.

Bill read a second time.