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Wednesday, 25 February 1987
Page: 567


Senator GARETH EVANS (Minister for Resources and Energy)(10.09) —I move:

That the Bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-

COMMONWEALTH GUARANTEES (CHARGES) BILL 1986

The purpose of this Bill is to provide for the imposition, from 1986-87, of an annual charge on borrowings or other raisings of money by Commonwealth semi-government authorities which are guaranteed by the Commonwealth.

This charge, which the Treasurer announced in the Budget Speech, has regard to the favourable interest rates paid by Commonwealth authorities due to the fact that their borrowings are guaranteed by the Commonwealth. The main consequence of the charge will be to ensure that the effective cost of borrowings to authorities is more directly comparable with that faced by private sector borrowers, thus ensuring that authorities take full account of the cost to the community of their investment decisions.

Similar loan guarantee charges have recently been announced by the New South Wales and South Australian governments in respect of semi-government authorities in those States.

This Bill provides that when a Commonwealth authority borrows money, or raises money otherwise than by borrowing, and the Commonwealth guarantees that borrowing, the Treasurer may determine that a charge, not exceeding 0.5 per cent per annum of the amount borrowed or raised, is payable to the Commonwealth for the guarantee. The authority may also be required to provide to the Treasurer information relating to the amount of the charge for which it is liable.

The authorities which may be liable for the loan guarantee charge may be considered in two groups, Commonwealth financial institutions and other Commonwealth business enterprises.

In relation to borrowings or raisings of money by Commonwealth business enterprises-other than financial institutions-while there are some instances where Commonwealth guarantees are provided automatically by force of laws of the Commonwealth, in most cases the Treasurer is empowered, at his discretion, to provide Commonwealth guarantees. It will be open to these authorities, where guarantees are provided at the Treasurer's discretion, to decide whether it is in their financial interests to seek the provision of a Commonwealth guarantee in respect of a particular borrowing or raising.

The Government has decided that in respect of these authorities, the Commonwealth guarantee charge will be set at 0.5 per cent of the outstanding amount of gua-ranteed borrowings or raisings undertaken on or after 1 July 1986.

Special arrangements will apply in the case of Commonwealth financial institutions-the Commonwealth Bank of Australia, Commonwealth Development Bank of Australia and Commonwealth Savings Bank of Australia-the Commonwealth Banks-and the Australian Industry Development Corporation-AIDC. At present, all moneys payable by these authorities to any person other than the Commonwealth are automatically gua-ranteed by the Commonwealth.

Under the Australian Industry Development Corporation Amendment Bill 1986, to be introduced by the Minister representing the Minister for Industry, Technology and Commerce, it is proposed that the AIDC itself will be empowered to determine whether any borrowings or raisings of money made by it after 8 October 1986 are guaranteed by the Commonwealth. Where borrowings or raisings of money by the AIDC on or after 1 July 1986 are subject to a Commonwealth guarantee, the Government has decided that the Commonwealth guarantee charge will be set at 0.5 per cent per annum.

All moneys payable by the Commonwealth banks-other than to the Commonwealth-will continue to be guaranteed by the Commonwealth. However the Bill provides that in the case of the Commonwealth banks, the Commonwealth guarantee charge will be payable only in respect of borrowings or raisings of money which in the opinion of the Treasurer are overseas borrowings. This reflects the Government's intention that the Commonwealth guarantee charge should be confined to borrowings or raisings of money in which the provision of the Commonwealth guarantee confers an interest rate benefit on the bank relative to other major Australian banks. It is considered that this only applies when the banks undertake long term borrowings or raisings of money in overseas financial markets. Having regard to the size of the interest rate benefit, the Government has decided that the Commonwealth guarantee charge will apply only to long term overseas borrowings by the Commonwealth banks at a rate of 0.25 per cent per annum.

It should be noted that while this Bill provides for authorities to provide information to the Commonwealth relevant to the calculation of the Commonwealth guarantee charge, it would not permit or require any information to be provided which would breach the present fully confidential relationship between Commonwealth financial institutions and their customers.

The Commonwealth guarantee charges to be imposed under this Bill are estimated to raise revenue for the Commonwealth of $3.4m in 1986-87.

I commend the Bill to the Senate.

AUSTRALIAN INDUSTRY DEVELOPMENT CORPORATION AMENDMENT BILL 1986

This Bill will amend the Australian Industry Development Corporation Act 1970 by providing for the current Commonwealth statutory guarantee on borrowings and raisings by the Corporation to become optional at the Corporation's discretion.

The guarantee was provided to the Corporation as part of this Government's amendments to the Corporation's charter in 1983.

The proposed amendments arise from the Government's intention to levy a charge in respect of the guarantee on borrowings or raisings by Commonwealth business enterprises.

The levy would have had an adverse impact on the Corporation as a financial institution if the levy had applied to all the Corporation's borrowings or raisings.

Therefore, in consultation with the Corporation the Government decided that all new borrowings and raisings made by the Corporation on or after 8 October 1986 will only be guaranteed by the Commonwealth if the Corporation decides that the Commonwealth guarantee should apply to those borrowings and raisings.

The statutory guarantee by the Commonwealth will of course continue to apply to all borrowings, raisings and other liabilities of the Corporation entered into prior to 8 October 1986.

This new initiative acknowledges the commercial strength of the Corporation and its ability to stand on its own two feet as a successful government-owned development bank.

Despite the difficult economic environment the Corporation has recently reported a record after tax net profit of $19.1m.

This demonstrates the Corporation's continued effectiveness in financing industries vital to the Australian economy.

The Corporation has responded well to the Government's 1983 initiatives and, since the Government came to office, the Corporation has grown very rapidly.

For example total assets at 30 June 1986 amounted to $2167.4m compared with $768.1m at 30 June 1982, an increase of 180 per cent.

The corporation is to be congratulated on its achievement and the Government looks forward to continued strong growth in the Corporation's activities.

Of course, this growth was made possible by the Government's 1983 initiatives to increase the Corporation's authorised capital to $150m and to provide regular contributions of capital.

Paid up capital now stands at $100m compared to $62.5m at June 1983.

The Corporation's gearing ratio was also increased to 15:1.

The passing of this Bill will further enhance the Corporation's ability to respond positively to Government initiatives in industry policy.

Mr President, a detailed explanatory memorandum has been circulated to honourable senators.

I commend the Bill to the Senate.

Debate (on motion by Senator Reid )adjourned.