State Debt

The Hon. D.W. RIDGWAY (14:42): My question is to the Treasurer. Given the significant increase in state debt to deal with the COVID-19 pandemic, can the Treasurer please update the house on the latest advice on the cost of servicing that debt?

Members interjecting:

The PRESIDENT: Order!

The Hon. R.I. LUCAS (Treasurer) (14:43): There has been much recent discussion about governments being encouraged to incur ever-increasing levels of debt, from the lofty heights of the Governor of the Reserve Bank, Dr Philip Lowe, through various national commentators and, indeed, the federal government from the Prime Minister and the Treasurer themselves. Consistent with that overwhelming advice, all state and territory governments are significantly increasing both the levels of their ongoing deficits in the short and medium term, more particularly the level of state debt over the short, medium and long term.

I have previously indicated, when I gave an economic update a number of months ago, that we were looking at a level of state debt by the end of the forward estimates of around $30 billion. Consistent with the advice, as I said, that all and sundry have been providing, this state government recognises the ongoing need of maintaining a record public sector infrastructure program of building schools, hospitals, roads and other public sector facilities to try to maintain jobs and jobs growth in our South Australian economy as we combat the impacts of the COVID-19 pandemic on our economy.

We are likely to see, when the budget comes down in November, a total debt figure by the end of the forward estimates of more than $30 billion. The exact number will be publicly announced during that budget process. It is consistent with the fact that we are actively engaged in significantly increasing what was already a record public sector infrastructure program.

There will be significant announcements over the coming weeks and in the days leading up to the state budget in November. There are ongoing negotiations going on with the commonwealth government in relation to jointly funded federal-state infrastructure programs, and there will be more to say in relation to those negotiations in the coming weeks.

I am pleased to say, in response to the member's question, that the consistent advice of the Reserve Bank Governor is that now is the best time for governments and businesses to be borrowing, and that the Reserve Bank will continue to maintain a monetary policy which continues to drive down or keep low interest rates in the Australian economy. The Reserve Bank has been active in the markets to ensure that that is the case. Consistent with that, the average interest rate at which SAFA bonds over this year are likely to be borrowed is around 1.4 per cent.

As I have previously indicated, for shorter term debt—debt which might be SAFA bonds over perhaps three years or so—the average interest rate of our borrowings can be as low as approximately 0.4 per cent for debt of that short-term duration. Clearly, with total debt of $30 billion or more, you cannot structure your debt profile all on the basis of short-term debt of two, three or four years.

SAFA has been actively engaged, as have other state and territory governments, in longer term debt, and we recently put to market some 20-year bonds or borrowings. The interest rate for the longer the term of the debt is higher than the average figure, but some of that 20-year SAFA bond money has been borrowed at just over 2 per cent in the financial markets.

With some of the more substantive debt we have had, which is 10 to 12 years in duration, with maturation dates in and around 2030-32, the average interest rates SAFA has put away have been in and of the order of 1.2 to 1.5 per cent. Whilst ever-increasing debt levels are essential in terms of trying to protect as many jobs and businesses as we can, it is nevertheless going to be an ongoing cost for our children and grandchildren for many years to come. The fact is that, for the foreseeable future, the borrowing profile of SAFA on behalf of the taxpayers of South Australia is geared to trying to keep that interest rate cost to as low a level as possible.