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Thursday, 30 June 1994
Page: 2508

Senator COULTER (6.12 p.m.) —I would like to begin where Senator Short left off and point out that our principal criticism of the Financial Agreement Bill 1994 and the National Debt Sinking Fund Repeal Bill 1994 relates to the fact that the government has really not followed due process. It has before it a carefully considered report by a Senate select committee which looked at these matters. One would have hoped that, had it proceeded correctly, it would have responded to those recommendations well within the time; and having responded to those recommendations, it would have incorporated those recommendations in this legislation. It is a source of some criticism of the government that that did not happen. I believe it is a failure of the process which the government should have followed.

  Having said that, I simply remark that the Financial Agreement Bill 1994 gives effect to the 1994 Commonwealth-state financial agreement, and it codifies the new Loan Council arrangements which have been evolving since 1990. It codifies the present practice under which the responsibility for states' borrowings has been devolved from the Commonwealth to the states. The Loan Council makes resolutions on the level and nature of borrowings, but has no power over them. The ACT and the Northern Territory are Loan Council members.

  The National Debt Sinking Fund Repeal Bill 1994—which has a lovely acronym of NDSFRB—abolishes the Commonwealth's central borrowing fund through which most public sector borrowings were once centralised. The Financial Agreement Bill establishes a debt retirement reserve trust account for the transitional purchase and repayment by the states of Commonwealth security debt on allocation to them.

  The 1990 Loan Council arrangements were amended in 1992—and this point has been made by the two previous speakers—as a result of the so-called Victorian loans affair in which the Victorian government went way outside its limit. This also led to the establishment of the Senate Loan Council Committee, or the select committee inquiring into the Australian Loan Council. The new arrangements amounted to a deregulation of public sector borrowing, with market discipline taking the place of formal Loan Council controls.

  The provision of better information to the markets is regarded—and a great deal of evidence was given to the committee in this respect—as the cornerstone of that discipline. Loan Council decisions will be reported after each meeting. Public sector financing requirements—that is the total deficit/surplus for each jurisdiction, and the national figure for all jurisdictions—will be reported quarterly. One of the quarterly reports will include an annual report giving the year's financing requirement, and a comparison with the Loan Council target for that year. The financing requirements for each jurisdiction will also be reported annually in the respective governments' budget statements.

  It is generally agreed that the national deficit/surplus represents the best available measure of the public sector's net call on private sector funds. The committee generally supported the reforms, but it concluded that accountability mechanisms should be improved and incorporated in the proposed new financial agreement which had not been finalised when the committee made its final report.

  Specifically, the committee recommended that the financial agreement provide for quarterly and annual reports of public sector financing requirements—this is currently only required by agreement of the Loan Council—and the adoption of accrual accounting, and I think Senator Gibson has mentioned this. This means reporting revenue/expense when earned/incurred, rather than reporting cash transactions. This would make it difficult for governments to manipulate cash flow to meet annual targets, and is expected to be adopted by governments over the next few years. In that respect, let me point out in passing that the movement to accrual accounting—that is taking into account contingent liabilities—would also help to move the states and the Commonwealth towards proper environmental accounting because the contingent liabilities relating to environmental damage would have to be taken into account in a proper system of accrual accounting. That again should have been more strongly emphasised in the move towards this legislation.

  The third recommendation of the committee was for full auditing of relevant Loan Council statements/reports by the state and federal auditors-general. There is a difference of view as to the auditors' capacity to fully audit Loan Council reports incorporated in annual budgets as currently proposed. The auditors believe that they have full powers to do so, but the Loan Council has expressed doubts. This recommendation would presumably put the matter beyond doubt. Again, one would have liked to have seen that question of auditing included in this legislation.

  The final recommendation concerned a separate national annual Loan Council report audited by the Commonwealth Auditor-General, to be tabled in all parliaments. This again would have aided in the matter of transparency and accountability to which Senator Short was referring.

  The federal government has not responded to the committee's report even though the three month time limit has long passed. The financial agreement reflects none of these recommendations although, with the exception of accrual accounting, they are largely in effect as a result of the new Loan Council procedures.

  I conclude by saying that we are not opposing this legislation. We are criticising it on the grounds that it fails to implement all the committee's recommendations. As chairman of the Senate select committee I am critical of the government because it has not responded to the report of the committee before this; had it done so it would have been able to incorporate its response to these recommendations in the legislation. We believe that, at the very least, the inclusion of the auditing and accrual accounting mechanisms would have been an improvement in this new state-Commonwealth financial arrangement, but we are not intending to move any amendments and we are supporting the legislation.