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Thursday, 18 June 2009
Page: 3679

Senator SHERRY (Assistant Treasurer) (11:14 AM) —Firstly, I thank senators who participated in the debate on the Guarantee of State and Territory Borrowing Appropriation Bill 2009. As I have said on many occasions in this chamber, the global financial crisis and the ensuing economic impact—that is, a world recession of a very deep and substantial nature, the worst in 75 years—continue to wreak havoc on economies around the world. Almost every advanced economy is either in recession or recorded a decline in GDP late last year, and the world economy is expected to contract in 2009. Despite all of this, of course, Australia is well placed when compared with economies around the world. However, Australia is not immune from this impact. Whilst Australia’s financial markets are strong, they have been affected by the global financial crisis.

The market for state and territory bonds has also been affected, and liquidity in semigovernment bonds has been severely constricted. This threatens the capacity of state and territory governments to deliver critical infrastructure projects that will support jobs in the face of this global recession. Again, Australia is not unique. From general observation, I am certainly aware of the impact on state governments in the US, for example, where a number of states are in extraordinarily dire circumstances. California is one that comes to mind.

It is crucial that states and territories are able to access the credit markets, and this guarantee of state and territory borrowing recognises that. Indeed, supporting semigovernment bond markets is critical to maintaining the capacity of state and territory governments to deliver nation-building infrastructure. Reducing such investment would hamper recovery from the global recession. That would, in turn, cause slower growth and higher unemployment. That is why the government is putting in place this guarantee. It is an initiative that will complement the government’s other wide-ranging and decisive initiatives to support the economy and protect jobs. The government’s actions have helped maintain confidence in domestic financial markets and enabled lending to continue to provide further support for economic activity.

As well as this guarantee, the government’s early and decisive action has provided certainty that bank deposits are safe. This has enabled banks to continue lending to households and businesses, providing vital support to our economy. State and territory government infrastructure spending, as supported by the guarantee, will work hand-in-hand with the government’s own infrastructure investment to build a stronger Australia and provide employment opportunities in the short term while providing economy-supporting capacity in the longer term. In particular, the government’s Nation Building and Jobs Plan includes a direct investment of $29.9 billion in schools, housing, energy efficiency, community infrastructure and roads as well as support for small business. This represents the largest annual increase in public investment on record and is very appropriate in the current serious world economic circumstances.

The assistance to states and territories through the provision of the guarantee and the recent reforms of the federal financial relations framework, agreed to by COAG in November 2008, have been vital in enabling the Australian government to work collaboratively with the states and territories to respond to the global financial crisis. Starting from 1 January 2009, the new framework has considerably improved Commonwealth, state and territory government collaboration by increasing flexibility to direct funding at the state and territory level. It clarifies roles and responsibilities and improves accountability.

Turning to the details of the guarantee, the bill is essential to providing investors with the assurance that state and territory borrowing will be supported by an Australian government guarantee and that potential claims under the guarantee would be paid in a timely manner. To do this, the bill provides a standing appropriation so that, in the very unlikely event that claims were made under the guarantee, they could be paid in a timely manner. A standing appropriation is also put in place to allow any borrowings made under the bill to be repaid. A borrowing power is also provided to allow timely payment of claims should there be insufficient funds in the Consolidated Revenue Fund in the very unlikely event that a claim would need to be paid.

The government is working closely with the states and territories to finalise the guarantee so as to have it in place as soon as possible. I will clarify one thing. My advice is that all states and territories support this approach. I say ‘all’ because the Western Australian Liberal state government also supports this approach.

With those remarks, I further thank senators for their contributions and urge that the Senate support the legislation.

Question agreed to.

Bill read a second time.