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Tuesday, 24 February 1987
Page: 487

Senator MACKLIN —My question is addressed to the Minister for Finance. I refer him to the fact that, since 1982-83, Federal net borrowings have fallen from 3 per cent to 1.9 per cent of gross domestic product, while State net borrowings have remained at about 2.8 per cent, representing an increase of about 45 per cent for the States over that period. I ask: First, to what extent has the continued high level of State government borrowings contributed to Australia's overseas debt? Secondly, will a reduction of the Federal deficit to the levels demanded by some business groups; namely, at or below $2 billion, inevitably force continued high levels of borrowing by State governments? Thirdly, what would be the likely effect on State Budget and State borrowing requirements of a transfer of responsibilities back to the States?

Senator WALSH —I am not sure whether I noted all the parts of the question. The initial figures that Senator Macklin gave-that the Federal Government net borrowing requirement had fallen from about 3 per cent to 1.9 per cent, expressed as a percentage of GDP in the last few years-sounded correct to me. It is now apparent that the State governments have been borrowing in excess of their actual needs for a number of years and have accumulated a very large amount of money-a ball park estimate would be $5 billion lying around in hollow logs. It would appear that a significant amount of money will be withdrawn this year, thereby making the net State government sector borrowing requirement greater than the gross requirement.

I cannot, off the top of my head, give figures for all the previous years in the way that Senator Macklin has requested. He asked whether borrowing by State government authorities should be lumped in with that as well-whether they have made a significant contribution to the accumulation of overseas debt. The answer is that they have made a significant contribution. The Queensland State Electricity Commission alone has $1.1 billion in foreign borrowings and over $4 billion borrowing in total. Even if those State authorities do not borrow directly from overseas there is always the possibility-indeed, under recent circumstances, the likelihood-that ultimately the demands on the domestic market made by those authorities will cause somebody else to borrow a greater amount overseas than would otherwise have occurred.

State government and State government authority borrowings took off in the early 1980s when Mr Howard was Treasurer and Mr Fraser was Prime Minister, when all stops were pulled out for borrowing by State government authorities, including the green light for borrowing overseas. That was in response to the perceived needs of the resources boom which never happened. The Fraser Government effectively removed all financial discipline on borrowings by the States because it, too, had a vested political interest in trying to beat up expectations about the resources boom. Largely because of that, in the financial year 1981-82 the current account deficit as a proportion of gross domestic product hit more than 6 per cent, the highest level it has ever been, in expectation of the resources boom which did not happen but the hangover of which afflicts us still.