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House of Assembly - Fifty-First Parliament, Third Session (51-3)
2009-02-17 Daily Xml
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STATE FINANCES

Mr HAMILTON-SMITH (Waite—Leader of the Opposition) (16:44): My question is again to the Treasurer. What impact will the federal government's increased bond market exposure have on the state government's ability to issue bonds to raise funds for major projects such as the Marjorie Jackson-Nelson Hospital and others?

The ANZ Bank expects the federal government's bond market exposure to increase in size from around $60 billion currently to $140 billion over the years ahead in order to fund its debt. Concern has been expressed that this will cause the state government's relative access to the bond market to reduce drastically.

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (16:45): That is an old story, but it is not as much a factor as the fact that the commonwealth is putting such a large borrowing program to the market. As I have said on a number of occasions, and I quoted my Queensland colleague on this very point, because the main commercial banks have received a AAA credit rating from the government, their need to go into the market to borrow, they are a better and more attractive option to clients in the global financial market because they are backed by a national sovereign AAA credit rating.

Subnational governments, that is, state governments, notwithstanding our AAA credit rating, are slightly less attractive than a national government and a national government's backing of those banks. We have flagged for some time now that this is an issue and it is a problem, but it is not a significant issue for this state because of our relatively low borrowings.

Over the forward estimates period we are expected to borrow around $2.2 billion, I think, from memory. That would be compared to a borrowing program of Queensland and New South Wales of somewhere in the order of tens of billions, I think. Queensland alone is probably in the $30 billion or $40 billion mark, and New South Wales is probably larger again.

I am briefed regularly by the head of our financing authority, Kevin Cantley, on this very matter and he advises me that we are able to place our debt into the marketplace, bearing in mind that up until this current round of the future borrowing program we have not been active in the international debt markets. We have been able to raise our money domestically, but it is our intention to go to the international debt markets, as well as some domestic borrowings. Those borrowings will be more expensive.

The spreads that we are now having to deal with, with our government bonds and borrowings, are significantly higher than what they have been before. As I said in a speech yesterday to CEDA, there are great problems in the world economy today, and as each day unfolds things get worse. Members may have read that Japan recorded overnight, I think, a 12 per cent reduction to GDP growth in the last quarter. That is the worst result, apparently, in 35 years.

Nothing will get the economies of the world working again until such time as the banking system returns to some degree of normality. The fact that governments will have difficulty accessing borrowings, as will our major banks, goes to show that there is a scarcity of capital out there.

I will conclude on this point: what we are seeing, to further complicate matters, is that many companies—and I am aware of some businesses in the member for Mawson's electorate—have taken out borrowings with large European banks, particularly the agricultural banks of the Netherlands, France, etc., and a lot of those banks are not rolling over their debt lines to Australian clients because they are under domestic pressure in their own markets with taxpayer protection to their banks to lend their money to their own constituents.

So, there is a very difficult time ahead in terms of accessing capital for the large borrowers. As I said, our program is relatively minor at this stage and I am confident, and am advised so, that we will not have any trouble raising the necessary debt.

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