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Legislative Council - Fifty-Second Parliament, Second Session (52-2)
2013-04-10 Daily Xml
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PUBLIC FINANCE AND AUDIT (DEBT CEILING) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 20 March 2013.)

The Hon. CARMEL ZOLLO (16:43): I rise to respond on behalf of the government in relation to the Public Finance and Audit (Debt Ceiling) Amendment Bill 2013. Concerning the fiscal position of the state, I think it is important to, firstly, consider this government's record and remember that, when the economy was performing more strongly, we regularly delivered surpluses. We delivered these surpluses each year from 2002-03 to 2007-08 and again in 2009-10. These surpluses allowed this government to pay down debt such that there was no general government sector debt in 2005-06, 2006-07 and 2007-08. In fact, we accumulated net financial assets and had negative debt in those years.

The government also, during this period, delivered significant taxation relief in both land and payroll tax. In fact, the total cumulative value of payroll tax relief provided by this government since 2004 is estimated to exceed $1 billion to 2012-13. The total cumulative land tax relief, including the rate and threshold adjustments, provided by this government is estimated to total nearly $950 million by 2012-13. However, it was not possible to shield the state's finances from the severe impacts of the global financial crisis, which resulted in a widespread loss of consumer and market confidence. The economic downturn translated into significant and successive revenue writedowns. Taxation and GST revenues have been revised down by over $3 billion since the 2011-12 budget and this impact is incorporated within our current debt numbers across the forward estimates period.

In response to the global financial crisis, we made a conscious decision to continue our record capital investment in the state's social and economic infrastructure with the clear intention of supporting South Australian jobs and boosting the economy. We also introduced a significant package of fiscal sustainability measures in an effort to restore the budget to surplus. These measures will reduce the level of our debt by $6 billion by 2015-16 compared to what it would have been in the absence of those measures. We have met our savings target to date and we are currently on track to deliver the remaining savings despite some challenges in Health.

Although there has been a lot of focus on the level of debt in isolation, it is important to assess the debt against the size and growth of the economy. Having said that, the current level of debt as a proportion of gross state product is relatively low compared to the level of public borrowings through the 1990s. Also, it should be remembered that our current debt position is only temporary. We are projecting a surplus in the near future and we are committed to delivering this and using it to repay our existing debt.

In relation to parliamentary oversight of public finances, the member's bill proposes amendments to the Public Finance and Audit Act 1987 to introduce an additional parliamentary control over the state's finances in the form of a debt ceiling. There is no doubt that parliament already exercises a significant degree of oversight and control over the state's finances through the provisions of the act. In particular, no money can be paid out of the government's Consolidated Account without the approval of parliament. Parliament is also responsible for the approval of the Appropriation Act each year and only this act allows the expenditure of public money. Before approval is given, parliament has the opportunity to scrutinise and examine the Appropriation Bill each year through the estimates committees.

In addition, the Auditor-General provides a comprehensive report to parliament each year on the government's finances. The report contains the Treasurer's statements which detail the transactions of the Consolidated Account and includes information on the state's debt. The parliament allocates specific time for members to question the relevant ministers on the Auditor-General's Report into their own areas. We hold the view that the approval, monitoring and reporting mechanisms currently in place are sufficient and we are doubtful that the implementation of a debt ceiling would benefit the management of the state's finances.

In relation to the views on the United States' debt ceiling, as we are all aware, the issue of debt ceilings has been discussed at great length in the United States, and I would like to share the views that some credit rating agencies have expressed. In 2011 Moody's credit rating agency issued a report suggesting that the US debt limit be eliminated. Fitch credit rating agency has referred to the US debt ceiling as 'an ineffective and potentially dangerous mechanism for enforcing fiscal discipline'. In addition, the US Congressional Budget Office stated that 'By itself, setting a limit on the debt is an ineffective means of controlling deficits because the decisions that necessitate borrowing are made through other legislative actions.'

Concerning the impracticality of the proposed debt ceiling, we agree with these views and do not believe that debt ceilings are a practical mechanism for managing debt. Even if further significant savings measures are implemented in addition to the $6 billion that have already been introduced, the timing and magnitude of future economic shocks are unknown and cannot simply be predicted.

I previously mentioned that taxation and GST revenues were recently revised down by $3 billion in the space of only 18 months, which flowed directly into our debt numbers. Therefore, in order to manage any further downside risk in economic conditions, we would have to introduce legislative amendments to lift any proposed debt ceiling by a further arbitrary amount to provide a buffer for fluctuations in the economy. This is obviously impractical.

When the government enters into a contract involving the expenditure of public money, it has an obligation to honour any payments under that contract, even if there is no appropriation funding authority. Also, the government has authority to make payments through the Crown Proceedings Act 1992, which provides for automatic appropriation funding to meet judgement debts.

The proposed debt ceiling could therefore result in a situation where the government is unable to make a payment because of an arbitrarily imposed debt cap despite the expenditure already being scrutinised and approved by parliament. As a result, legislative changes would be required to lift the debt ceiling, which would have the effect of delaying payments to the government's creditors.

We oppose the proposed Public Finance and Audit (Debt Ceiling) Amendment Bill 2013 on the basis that—if I can recap—parliament already has significant oversight and control over the state's finances and particularly the expenditure of public money; the implementation of an arbitrarily imposed debt ceiling could have a detrimental impact on the government's ability to meet its payment obligations and therefore create financial uncertainty for the state's creditors; and the imposition of such a debt ceiling has proven both cumbersome and dangerous in the United States, contributing to economic uncertainty and needlessly damaging the country's economic recovery.

Debate adjourned on motion of Hon. J.S. Lee.

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