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Legislative Council - Fifty-Fourth Parliament, Second Session (54-2)
2020-06-18 Daily Xml
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State Economy

The Hon. D.G.E. HOOD (15:27): My question is to the Treasurer. Given the COVID-19 induced increase in state debt, can the Treasurer outline details of the interest payable on recent state borrowings?

Members interjecting:

The PRESIDENT: Order! Treasurer, sit down, please. Minister, the honourable Leader of the Opposition, the Treasurer has been asked a question and he will be heard in silence. Treasurer.

The Hon. R.I. Lucas: My early-onset dementia—I have forgotten the question.

Members interjecting:

The PRESIDENT: Order!

The Hon. R.I. LUCAS (Treasurer) (15:28): The honourable member's question related to interest rates and state debt.

An honourable member: Are you sure?

The Hon. R.I. LUCAS: I think I am. The member rightly pointed, in my ministerial statement, to the significant increase in state debt and I have been asked today in the media, by various sections of the media, about interest borrowing rates on state government debt to help fund this. The only slightly silver lining on the otherwise gloomy debt deficit projections as a result of COVID-19 is that we are in a historically low interest rate environment.

The South Australian Government Financing Authority (SAFA) has advised me that this financial year—we are almost at the end—we the state, on behalf of the taxpayers, have borrowed $5.26 billion in the market and our average interest rate has been 1.3 per cent.

Depending on the length of the borrowing, in the current market some of our longer term borrowings are up to 12 years and the average interest rate on some of those tranches of borrowings have been as high as 1.8 per cent and 1.9 per cent. But some of our borrowings over shorter periods of two and three years have been as low as 0.695 per cent, which was a borrowing of almost half a billion dollars over a much shorter term, and 0.91 per cent, which was a borrowing of $628 million for a period of about four years.

Depending on the length of the bond or the borrowing, the interest rate clearly has varied. I will say two other things. I give credit to Andrew Kennedy from SAFA, who is a very hardworking public servant in SAFA, and the members of his team. They have been at the forefront of a bond called AONIA, which is an acronym for Australia overnight interbank average. I am sure everyone is aware of that; I even had to double-check.

That innovative borrowing rate varies on a quarterly basis and has been taken out for three years. I think we borrowed $1.26 billion only recently on that and the first quarterly interest rate on that was at 0.4 per cent. The estimate over the duration of the bond—at this stage it is only an estimate because it varies on a quarterly basis and will depend on the overnight rate between banks—is that it will average somewhere between 0.4 per cent and 0.6 per cent for $1.26 billion of funding, to help fund the state's debt.

Clearly, the state, given its credit rating—and the credit rating of all states and territories will be, I suspect, closely scrutinised and potentially placed on negative watch as a result of the significant increases in the level of state debt. Nevertheless, it hasn't prevented the market from recognising the quality of the offerings that the South Australian government, through SAFA, puts out into the marketplace. The innovation of the product offering through this AONIA product, as I said, is being closely monitored by other equivalent bodies in other state and territory jurisdictions, but in that respect it helps keep what would otherwise be much more significant increases in interest payments on our significantly increased debt at much lower levels than they might otherwise have been.

The final point I will make is that in a recent either Board of Treasurers teleconference or the Council on Federal Financial Relations (CFFR) teleconference, which does include the federal Treasurer, Josh Frydenberg—so I suspect it was probably the CFFR teleconference—the Reserve Bank Governor, Philip Lowe, participated and made a presentation. He made clear in that private forum very much the same views he has made clear in a public forum, which is that he and they envisage, for the foreseeable future, the historically low level of interest rates that we are currently enjoying.

Whilst one can't ever dictate decades hence, and clearly over the long term this state—for those of you young enough to last beyond the election of 2022, says he looking around the chamber at the younger members of this particular group, because I will not be here—there will be a long-term challenge to slowly pay down the level of the state's debt. Hopefully, none of you younger members ever have to confront a global pandemic like COVID-19 again and that the health costs and the economic and budget costs are not inflicted upon those of you young enough to survive beyond the 2022 state election.

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