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House of Assembly - Fifty-First Parliament, Third Session (51-3)
2008-11-13 Daily Xml
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SOUTH AUSTRALIAN GOVERNMENT FINANCING AUTHORITY

Mr HAMILTON-SMITH (Waite—Leader of the Opposition) (14:23): My question is to the Treasurer. How much of SAFA's investments are comprised of bonds and what impact has the federal government's guarantee of bank deposits had on state government bonds and future capital raisings? Financial experts are publicly raising concern that investors are abandoning state government bonds in preference for federal government guaranteed bank deposits.

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (14:23): The government primarily puts paper into the domestic market and, at present, if we do have any paper offshore, it would be a very small amount because of the very small funding requirement. As you would be aware, as at 30 June this year, we have no state budget debt; in fact, we have built up assets. The last figures I saw were of about $200 million as at 30 June but, obviously, the world has changed quite a bit since then.

SAFA manages, through the mandate which I put in place when I came to office, the borrowing program for SA Water and other government trading enterprises. Going forward, we clearly have a substantial borrowing program. The size and the duration of that program is currently under review, given the collapse in financial markets, as to how we will reprofile that capital expenditure. Having just returned from overseas, I can say that the issue of subnational issuance of bonds or paper into European or United States, or Asian markets for that matter, is proving problematic for state governments. That is because, through the decision of the commonwealth—understood and supported by most if not all people in our banking system—and notwithstanding state governments, a AAA credit rating and sovereign governance in our own right, the buyers of this paper, buyers who want to take up bonds, prefer national government sovereign bonds and bank bonds that are guaranteed by the commonwealth government.

My advice is that we do not have a major funding requirement until about September next year, I think, when we are looking at going into the market for about $A1.5 billion. We have started to source some borrowings through the issuance of bonds, and I am not quite sure where we are at; when I was away I was with the general manager of our financing authority, who at that point was looking at a placement. However, the problem we are facing as a state government is more acutely faced by other state governments—and by that I mean Queensland and New South Wales, which are long participants in foreign debt and the raising of debt in the issuance of overseas bonds. My understanding is that they are having similar problems.

My colleague Andrew Fraser, the Queensland treasurer, has taken up this matter at the commonwealth level on behalf of all state treasurers, and we are meeting formally as treasurers ahead of COAG to attempt to sign off on arrangements with the commonwealth government on SPPs and national partnership payments for the premiers to endorse the following day. Hopefully we will get agreement and not leave too many things undone. At that time we will also have a meeting of the Loan Council, where this matter will be discussed. Indications are, and we are more than confident, that the commonwealth will assist with some form of back-to-back issuance of bonds or some arrangement that will allow us to access foreign capital through the support of the commonwealth. So in terms of the price of the debt we raise and its availability, the commonwealth will clearly ensure that state governments are not impacted upon.

Yet again, this shows the extraordinary financial environment in which we are all operating. With the complexity and problems associated with the world's financial markets, there is a new story every day, and I hear that overnight the governor of the Bank of England said that in his opinion this financial crisis is the worst financial crisis the world has faced since the First World War. So he puts it—

Ms Chapman interjecting:

The Hon. K.O. FOLEY: Since the Somme. If you read the business section of today's Australian the reality is—

Mr Williams interjecting:

The Hon. K.O. FOLEY: He says to get on with my drivel. I am trying to answer the question and giving as much information as I can, and the member for MacKillop says it is drivel. If those opposite want to bury their heads in the sand and imagine that nothing has changed in the world, so be it. Just because their federal leader is one of those guys who got us into this trouble does not mean they can be oblivious to what happened. Those merchant bankers—

Members interjecting:

The Hon. K.O. FOLEY: Malcolm Turnbull of HIH fame and his good mate Larry Adler. What did he get from Goldman Sachs when he walked out? About $50 million, I believe. So, their federal leader is one of the reasons the world is now confronted with this type of financial crisis. Those new money merchant bankers—

The Hon. I.F. Evans: Don't take donations.

The Hon. K.O. FOLEY: From whom?

Members interjecting:

The Hon. K.O. FOLEY: Yes, do it on the same day. The reality is that we are in an extraordinarily difficult time, and the raising of capital by the private sector is proving incredibly difficult. I have had a number of meetings this morning about the lack of ability for good quality corporates, good quality blue-chip companies in some cases, to raise capital. It is very alarming. The world's pipeline of funding and liquidity is just a logjam. We are not seeing the freeing up of capital globally, and I think that is something that should have us all very concerned.

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