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Wednesday, 16 October 2002
Page: 5266


Senator CONROY (1:17 PM) —I rise today to speak about this government's appalling record of fiscal waste and mismanagement. It was revealed today that the government has paid out $1 billion to banks in settlement of the Treasurer's foreign currency gambling losses. This might seem somewhat surprising since the Treasurer told us in February that there were no such losses. The Treasurer said:

No loss has been realised.

I am saying there are no realised losses.

In March the Treasurer became even more evasive, saying:

The difficulty is, you can not tell them the right amount (of the losses) without knowing the exchange rate on a particular day and the interest rate differential between then and now.

We now know from an answer provided by Treasury to a question on notice that $1 billion was paid to the banks in 2001-02 in settlement of the Treasurer's foreign currency gambling losses. During 2001-02, the Treasury has now told us, 14 cross-currency swap contracts matured. When the government entered into these contracts it agreed to exchange its Australian dollar liabilities for US dollar liabilities until 2001-02. It did so to take advantage of the lower level of interest rates charged on US dollar borrowings.

The only problem is that the Australian dollar had collapsed before these contracts had matured. So when the contracts did mature and the government and the banks had to swap back the liabilities, the government owed the banks $1 billion more than the banks owed it. That is the bottom line here. To be precise, when the contracts matured the government owed the banks $US1.4 billion. At an average exchange rate of US52.5c per Australian dollar in 2001-02, that equals $A2.7 billion. However, as I have said, the banks owed the government only $A1.7 billion. The billion-dollar difference is the cash the government had to pay to the banks to settle these contracts.

The Treasurer might try to argue that the contracts did not mature at the average exchange rate for 2001-02. Well, Treasurer, Treasury officials were asked at the Senate estimates for the actual spot exchange rate at which the contracts matured. They responded by saying, `The spot exchange rate varied depending on the day each contract matured.' Thank you very much, Treasury. That answer shows contempt for the estimates processes and for the accountability of this government. But consider this: even if all 14 contracts had matured in May 2002, when the dollar peaked at an average of 56.7c, the losses would still have been close to $800 million. At worst, if all 14 contracts had matured in September 2001 when the exchange rate averaged just 49.2c, the losses would have been $1.15 billion. So at best the Treasurer lost $800 million and at worst $1.15 billion.

However, this payment to the banks in 2001-02 was just the first instalment. During February estimates it was revealed that foreign currency gambling losses totalled almost $5 billion between 1997-98 and 2000-01. The government's own budget papers show that it expects to pay out billions more over the forward years to settle the Treasurer's gambling bill. And it does not stop there. Australian taxpayers will likely be sending cheques worth billions of dollars to these same banks until the last cross-currency swap contract matures in 2008.

The Treasurer may try to point out that these losses have no impact on the budget bottom line. This is an interesting issue in its own right. How is it that a government can pay $1 billion to the banks in 2001-02 and there be no impact on the budget balance? How can the government claim that its budget provides a true and fair reflection of its financial position when it can spend $1 billion and the budget bottom line is unaffected?

In the private sector, such a transaction would be treated as an expense and go straight to the bottom line. Why would the government not treat the same type of transaction in the same way as the private sector? Perhaps it is because if it treated the billion dollar payment to banks as an expense the budget deficit would have been $1 billion greater in 2001-02. The cash deficit would have been $2.3 billion in 2001-02. By understating expenses—just like Enron, just like WorldCom—they say, `Oh, that is going to look bad for us; we will hide that away over here; we just do not have to account for it.' The Treasurer has succeeded in boosting the budget bottom line. It is no wonder that this government has not taken the lead in raising the standards of corporate governance in the private sector—it is no wonder at all. How can it? How can this government expect private companies to raise their standards and tell their shareholders the truth about the state of their accounts when it will not tell the Australian people the state of Australian budget?

There are other losses that the government has sustained that do hit the bottom line. The Department of Finance and Administration lost $150 million of taxpayers' money on the mismanagement of the outsourcing of agency banking. The department also tried to hide their mistake by using—guess what— some creative accounting. They transferred the payment in 2001-02 out of their budget statement to a fictitious account called the `crown'. I challenge any member on the other side of the chamber to explain to this chamber or to any member of the Australian public what the `crown' is. Where is it in the budget statements? Where is the bank account called `crown'? At Senate estimates they admitted their mistake and they assured the committee that they would never do it again.

The Department of Finance and Administration also bungled the outsourcing of the Commonwealth car fleet to a subsidiary of Macquarie Bank at a $40 million cost to taxpayers. I hope that you are listening, Senator Campbell and Senator McGauran, because the Auditor-General noted in the report on the transaction that the Department of Finance and Administration did not even understand the contract that they signed with Macquarie. The Department of Finance and Administration thought that they had sold the business for $407.9 million and entered into a separate contract for fleet management services. Macquarie Bank thought that it had purchased the business for some $15 million and that the remaining $392.9 million related to the financing of the fleet under the sale and lease-back arrangements. Can you imagine the buyer and seller having a completely different take on the contract? What sort of incompetence does this demonstrate is going on in the Department of Finance and Administration and, through them, in this government through the Minister for Finance and Administration?

Then there is the mismanagement of property sales. The Auditor-General has warned the government about costly sale and lease-back arrangements of Commonwealth property, noting that just one sale—the Australian Geological Survey Office building—could result in a $95 million loss over the term of the lease. The Auditor-General has also issued a report highlighting the government's appalling mismanagement of its $15 billion defence property portfolio. The report revealed that the government is selling and then leasing back properties when it has no idea how much they cost to operate. How can the government make sound commercial decisions about these sales worth hundreds of millions of dollars when it does not know what it costs to maintain the buildings? How can it, Senator McGauran? The Australian National Audit Office also raised this issue in December 2000 but the government has done nothing to fix this problem.

Then there is the bungling of the health insurance rebate. In only the first six months after the private health insurance rebate scheme commenced in January 1999, over 11,000 people had to make excess cash claims at a cost of $12.6 million. The reason for this, in the Auditor-General's words again, was that `arrangements were not adequate to detect persons inappropriately claiming the rebate through more than one delivery channel'. In other words, they were double dipping. They set up a system that was open to massive abuse and—guess what—it was abused. And so it continues. The government's mismanagement of the $5 billion IT outsourcing program has already been well documented in this chamber. I see you nodding over there, Senator McGauran.


Senator Ian Campbell —He's nodding off.


Senator CONROY —Yes, that is also possible, Senator Campbell. The IT outsourcing program was supposed to save $1 billion—that was the government's claim—but the Auditor-General found that, halfway through the program, only $70 million of savings had been achieved and that the cost of consultants had blown out by three times the original budget of $13 million.

More recently, the Auditor-General reported that promised savings of $20 million at the Department of Veterans' Affairs from IT outsourcing had turned into a cost—another cost—of $140 million. A government report shows that 16 major Department of Defence purchases are $5.1 billion over budget and, in some cases, years late on delivery. Twelve projects are years late, yet the government has taken no action against suppliers for failing to meet their contractual deadlines. The Seasprite helicopter project is at least four years behind schedule. The government has already paid out $800 million on this contract but withheld only $720,000. The most common cause of the blow-out in spending on these 16 projects is—would you believe it—the mismanagement of foreign currency risk.

In fact, if you look not just at these 16 projects but at all spending by the Department of Defence, you see that $4.1 billion has been lost due to currency mismanagement. This government has form in this area. The Auditor-General highlighted $3 billion of losses in the May 2000 report entitled Commonwealth foreign currency risk management practices. Since the Auditor-General's report was released, further losses of $1.1 billion have been sustained, according to answers to questions on notice from Senate estimates and from the budget papers. Is it any wonder, with these mounting losses, that the government delivered a cash budget deficit of $1.3 billion in 2001-02 and a fiscal deficit of $3.7 billion? If it were not for a few more budget fiddles, the government would be projecting another deficit in 2002-03. It is not a wonder but it is a scandal.

Why is there a budget deficit? The budget balance is inevitably influenced by cyclical factors. Revenues will rise and expenditure will fall during periods of strong economic growth and the reverse will occur when the economy slows. The Treasurer has waxed lyrical about the strong economic performance of the Australian economy. He has raved about the resilience of growth in the face of global weakness. Yet, despite the fact that Australia has enjoyed a decade of growth, despite delivering this budget in a year when the economy grew by four per cent, the Treasurer has delivered a deficit.

To achieve a deficit against a background of sustained growth is an extraordinary achievement. The deterioration in the cash balance has been remarkable. In 1998-99, the Treasurer, Mr Costello, estimated that the 2001-02 budget would show a surplus of $14.6 billion. Yet by the final budget outcome released a few weeks ago for that very year we were $1.3 billion in deficit. This deterioration is not cyclical. It is not the result of an unfavourable economic environment. Rather, it is the result of gross and endemic fiscal waste and mismanagement by this government.

The government has delivered a deficit despite the fact that it is the highest taxing government in Australian history. Peter Costello seeks to hide this fact by arbitrarily excluding the GST from his budget, in breach of Australian accounting standards. He has been qualified every year by the Auditor-General. When you add the GST back in, the real tax take in 2002-03 is around $200 billion dollars. Commonwealth taxes now account for 25 per cent of output in the Australian economy. In other words, one dollar in every four generated by Australians each year goes into the Treasurer's pocket. Taxpayers are paying more in income tax today than they were paying before the income tax cut that was meant to compensate them for the GST.

This government is now seeking to impose a range of new taxes. The government does not call them taxes, though; it is calling them levies, but the impact is the same: it is a slug to the Australian taxpayer. Australian working families will contribute even more to the Treasurer's coffers to make up for this government's fiscal mismanagement. Australians are paying an Ansett ticket levy and a milk levy now. Two weeks ago the government proposed a sugar levy. Now it is thinking about a tourism levy and an Iraq levy.

How does the government respond to revelations about its mismanagement and mounting losses? Apparently, its preferred reaction is simply to disclose even less information to the parliament. According to the Auditor-General, there have been a number of `major changes' to the reporting requirements issued by the Minister for Finance and Administration for the preparation of financial statements for 2001-02. In particular, the reporting of administered items will be by way of note only and will exclude the reporting of internal funding flows. I will return to this issue later. (Time expired)


Senator McGauran —I seek leave to make a personal explanation. I have been misrepresented.


The ACTING DEPUTY PRESIDENT (Senator Watson)—Is leave granted?


Senator O'Brien —Does he want to take a speaker's spot in this debate?


Senator Ian Campbell —You are not giving him leave to make a personal explanation?


Senator O'Brien —We will give him leave at the appropriate time. Senator Bishop is next to speak.


Senator Ian Campbell —You have to seek leave at the earliest possible opportunity. Are you refusing him leave?


Senator O'Brien —We are not refusing leave; we will give leave at the appropriate time, as we said.

Leave not granted.