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Tuesday, 21 September 1999
Page: 10139


Mr Tanner asked the Minister for Finance and Administration, upon notice, on 25 August 1999:

(1) Has his attention been drawn to an article in the Australian Financial Review on 29 July 1999 reporting that the Government is proposing to divest a further $188 million worth of commercial office property in regional and metropolitan Australia.

(2) Has his Department undertaken a study of the costs and benefits flowing from the further rationalisation of Commonwealth property holdings; if so, is the work available to Members of Parliament.

(3) In what year will rental outgoings become a net cost to the Commonwealth, over and above the proceeds from the sale of property.

(4) What are the estimates of proceeds from the property sales and rental outgoings for each year until the year referred to in part (3) is reached, and beyond.


Mr Fahey (Finance and Administration) —The answer to the honourable member's question is as follows:

(1) Yes.

(2) The Commonwealth Property Principles adopted by the Government in 1996 state that the Commonwealth should only own property where the long-term yield rate exceeds the social opportunity cost of capital (15%), or where it is otherwise in the public interest to do so. In reviewing the commercial office estate against the Commonwealth Property Principles, the Department of Finance and Administration has undertaken financial modelling of individual assets, assessed the implications at the aggregate level, and formulated

a divestment strategy accordingly. The Department discussed the issues in detail with the Senate Finance and Public Administration Legislation Committee in November 1997 and in a submission to the Senate Finance and Public Administration References Committee in February 1998. The same rationale and methodology applies to the continuing divestment program.

(3) The Commonwealth has deemed its cost of capital to be 15% (ie. the social opportunity cost of capital). The Commonwealth's decision to divest properties is based on the judgement that, over the longer term, it will continue to be cheaper to rent than hold property in Commonwealth ownership.

(4) $565 million from the sale of non-Defence property will be returned to the Budget in the period 1999-2000 to 2002-03. Under performing capital currently tied up in these properties will be freed up for redeployment to more important Government priorities.