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The Commonwealth's approach to the Premiers' Conference and Loan Council meetings



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TREASURER

EMBARGO

PRESS RELEASE NO. 62

EXTRACTS FROM AN ADDRESS BY THE HONOURABLE JOHN HOWARD M . P . ,

TREASURER, TO THE SYDNEY CHAMBER OF COMMERCE, WENTWORTH

HOTEL, SYDNEY, MONDAY, 2 JU LY, 1 9 7 9 .

LAST WEEK'S PREMIERS' CONFERENCE AND LOAN COUNCIL MEETINGS

WERE AN IMPORTANT PRELUDE TO THE 1 9 7 9 / 8 0 BUDGET.

THE COMMONWEALTH'S APPROACH TO THOSE MEETINGS CONTINUED THE

PATTERN OF RESTRAINT SET IN THE ECONOMIC STATEMENT I MADE ON

2 4 MAY.

APPROXIMATELY O NE-THIRD OF ALL COMMONWEALTH BUDGET OUTLAYS

GO TO THE STATES AND AS SUCH DECISIO N S REGARDING THESE

OUTLAYS ARE OF MAJOR IMPORTANCE TO BOTH THE COMMONWEALTH

AND THE S IX STATES.

IN ADDITION TO TH E ,D E C IS IO N S ON S P E C IF IC PURPOSE PAYMENTS AND

BORROWING PROGRAMS THE LOAN COUNCIL ALSO GAVE FIN A L APPROVAL

TO ARRANGEMENTS ESTABLISHING A FORMAL SYSTEM FOR THE TAP

ISSUE OF COMMONWEALTH BONDS.

THESE PROPOSALS HAD O RIGINALLY BEEN PUT TO A SPECIAL MEETING

OF THE LOAN COUNCIL BY THE COMMONWEALTH LAST A P R IL AND I

PARTICULARLY WELCOME THE FACT THAT ARRANGEMENTS HAVE NOW

BEEN F IN A L IS E D TO ESTABLISH A MORE FLE XIB LE SYSTEM FOR

MARKETING COMMONWEALTH S E C U R IT IE S . .

. . / 2

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ALL THAT REMAINS IN THE PROCESS IS FOR CERTAIN AMENDMENTS

TO COMMONWEALTH LEGISLATIO N TO PASS THROUGH THE .

COMMONWEALTH PARLIAMENT IN THE BUDGET SESSION.

MEANWHILE, THE RESERVE BANK W ILL CONTINUE TO OPERATE

WHAT IS IN ESSENCE A DE FACTO TAP SYSTEM FOR

COMMONWEALTH BONDS.

THESE NEW ARRANGEMENTS W ILL BRING TO THE MARKETING OF BOTH

COMMONWEALTH BONDS AND TREASURY NOTES A GREATER DEGREE

OF F L E X IB IL IT Y AND MORE S E N S IT IV IT Y TO MARKET PRESSURES.

IN APPROACHING LAST WEEK'S MEETINGS THE COMMONWEALTH

HAD TWO OBJECTIVES IN MIND.

F IR S TLY , IT WISHED TO CONTAIN THE CALL OF THE STATES ON

ITS OWN BUDGET AND SECONDLY, I T SOUGHT TO REDUCE THE

OVERALL S IZ E OF THE PUBLIC SECTOR'S CALL ON THE FINA NCIAL

MARKETS OF T H IS COUNTRY.

STATES RECEIVE MONIES FROM THE COMMONWEALTH BUDGET IN '

THREE AREAS. THERE ARE GENERAL REVENUE PAYMENTS WHICH

MAKE UP APPROXIMATELY 3 6 PER CENT OF THE REVENUE SIDE OF

ALL STATE BUDGETS. FOR 1 9 7 9 / 8 0 T H IS AMOUNT W IL L , UNDER

ARRANGEMENTS CONTAINED IN LE G IS LA TIO N , INCREASE BY

1 3 Λ PER CENT.

BY ANY MEASURE T H IS IS AN EXTRAORDINARILY GENEROUS

INCREASE. ITS S IZ E OUGHT TO BE BORNE CONSISTENTLY IN

MIND BY THOSE WHO MIGHT OTHERWISE BE MINDED TO BELIEVE

SOME OF THE THINGS WHICH HAVE BEEN SAID BY STATE PREMIERS

CONCERNING THE CONSEQUENCES OF OUR DECISIONS IN OTHER

AREAS WHICH AFFECT THE COMMONWEALTH PAYMENTS TO THE STATES.

THE STATES ALSO RECEIVE OVER $ 4 , 0 0 0 M ILL IO N FROM THE

COMMONWEALTH BY WAY OF S P E C IF IC PURPOSE PAYMENTS FOR VARIOUS

AREAS OF EXPENDITURE, E .G . HEALTH, EDUCATION, ROADS. TH IS

AREA OF PAYMENTS W ILL INCREASE BY 5 . 3 PER CENT IN 1 9 7 9 / 8 0 .

. . / 3

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FIN A LLY, THE COMMONWEALTH' S BUDGET ALSO CONTAINS THE STATE

LOAN COUNCIL PROGRAMS. THESE ARE IN EFFECT BORROWINGS FOR

S P E C IFIC STATE GOVERNMENT CAPITAL WORKS. THE AMOUNT IN

QUESTION ALWAYS INCLUDES A DIRECT GRANT FROM THE

COMMONWEALTH OF ONE-THIRD OF THE TOTAL SUM. FOR 1 9 7 9 /8 0

THESE FUNDS HAVE BEEN REDUCED BY 1 3 . 2 PER CENT.

OVERALL, FUNDS GOING TO THE STATES FROM THE FEDERAL BUDGET

W ILL INCREASE BY 6 . 8 > E R CENT. T H IS INCLUDES AN AMOUNT

OF $219 M IL L IO N REPRESENTING LOCAL GOVERNMENTS' SHARE .

OF THE COMMONWEALTH TAX COLLECTIONS.

T H IS AMOUNT HAS BEEN INCREASED BY SOME $40 M ILLIO N AS

A FIRST AND S IG N IF IC A N T STEP TOWARDS IMPLEMENTING THE PRIME

m i n i s t e r ' s 1 9 7 7 ELECTION UNDERTAKING TO INCREASE THE

LOCAL GOVERNMENT SHARE OF TAX COLLECTIONS TO 2 PER CENT.

QUITE SEPARATELY FROM PAYMENTS TO THE STATES WHICH AFFECT

OUR OWN BUDGET THERE ARE THE SEMI"GOVERNMENT BORROWING

PROGRAMS BOTH OF.-A NORMAL KIND AND THOSE UNDER THE '

INFRASTRUCTURE GUIDELINES APPROVED LAST YEAR.

IT IS NOT ONLY THE S IZ E OF THE BUDGET D E F IC IT WHICH AFFECTS

THE PAYMENTS MADE BY GOVERNMENT UPON THE CAPITAL MARKETS

AND THUS THE LEVEL OF INTEREST RATES. IT IS ALSO THE S IZ E

OF SEMI-GOVERNMENT BORROWING PROGRAMS. I THINK THERE IS

GENERAL AGREEMENT THAT IN RECENT YEARS THE WHOLE PUBLIC

SECTOR BORROWING REQUIREMENT HAS GROWN AT MUCH TOO RAPID

A PACE.

TOO MANY GOVERNMENT OR SEMI"GOVERNMENT SECURITIES HAVE BEEN

UP FOR SALE AND AS I OBSERVED LAST WEEK THERE IS A L IM IT BEYOND

WHICH PRIVATE INVESTORS ARE NOT PREPARED TO STUFF FURTHER

BUNDLES OF GOVERNMENT PAPER INTO THEIR ALREADY SWOLLEN

PORTFOLIOS.

/4 i ·

I T WOULD MAKE A MOCKERY OF THE COMMITMENT OF T H IS

GOVERNMENT TO RESTRAINING THE S IZ E OF THE PUBLIC SECTOR

I F I T WERE TO IGNORE THE IM P LIC A TIO N S OF THE GROWTH IN

THE PUBLIC SECTOR BORROWING REQUIREMENT OVER RECENT YEARS,

WITH THESE CONSIDERATIONS IN MIND THE NORMAL SEMI-GOVERNMENT

BORROWING PROGRAMS OF THE STATES IN 1 9 7 9 / 8 0 W ILL BE HELD

AT VIRTUALLY THE SAME MONEY LEVEL AS 1 9 7 8 / 7 9 .

BORROWINGS W IL L TAKE PLACE UNDER THE INFRASTRUCTURE PROJECTS

APPROVED LAST OCTOBER. IN A D D IT IO N LOAN COUNCIL HAS

APPROVED FOR INCLUSION IN THE INFRASTRUCTURE BORROWING

PROGRAM FOR THE F IR S T ELEMENT OF A PROJECT FOR E L E C T R IF IC A T IO N

OF THE BRISBANE R A IL SYSTEM.

THE SAME DEGREE OF RESTRAINT W IL L BE EXERCISED IN RESPECT

OF THE COMMONWEALTH'S OWN SEMI-GOVERNMENT BORROWING PROGRAM -

WHICH IS TR ADITIO N ALLY VERY MODEST WHEN COMPARED WITH THE

STATES. INDEED THE AMOUNT APPROVED T H IS YEAR IS S IG N IF IC A N T L Y

LESS THAN THAT APPROVED LAST YEAR ALTHOUGH A L IT T L E ABOVE

THE AMOUNT ACTUALLY BORROWED IN 1 9 7 8 / 7 9 . - .

WHILST THE CUMULATIVE EFFECT OF ALL OF THESE D E C IS IO N S W IL L

OBLIGE A GREATER DEGREE OF RESTRAINT BY THE STATES, THE

COMMONWEALTH'S APPROACH TO LAST w e e k ' s MEETINGS WAS ENTIRELY

APPROPRIATE IN OUR PRESENT ECONOMIC CIRCUMSTANCES.

THERE HAVE BEEN SOME PREDICTABLE RESPONSES FROM CERTAIN

STATE PREMIERS.

MR WRAN REALLY DOES STRETCH CREDULITY WHEN HE TALKS

ABOUT MASSIVE UNEMPLOYMENT RESULTING FROM THE FEDERAL

GOVERNMENTS D E C IS IO N S .

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HAS HE FORGOTTEN THAT HE STOOD ON THE STEPS OF FEDERAL PARLIAMENT

LAST YEAR AFTER THE PREMIERS' CONFERENCE AND SAID THE COMMONWEALTH

PACKAGE WOULD RESULT IN UNEMPLOYMENT OF TEN PER CENT?

WE HAVE NOT IMPOSED A GREATER BURDEN UPON THE STATES THAN

WE HAVE IMPOSED UPON OURSELVES.

MUCH HAS BEEN ACHIEVED IN BRINGING ABOUT MORE A C T IV IT Y IN

THE AUSTRALIAN ECONOMY. OUR IMPERATIVE IS TO PRESERVE WHAT

HAS BEEN ACHIEVED. ALTHOUGH ECONOMIC MANAGEMENT IS THE PRIME

R E S P O N SIB ILITY OF THE COMMONWEALTH GOVERNMENT THE BURDEN CANNOT

BE CARRIED ALONE.

ALL GOVERNMENTS MUST PLAY THEIR PART IN EXERCISING RESTRAINT.

THE QUESTION OF WHETHER OR NOT STATE GOVERNMENTS IMPOSE PERSONAL

TAX SURCHARGES OR GIVE REBATES IS SOMETHING FOR EACH OF THEM

TO DECIDE. ,

ONE THING, HOWEVER,:- IS CLEAR.x THERE IS NO WAY THE PRESENT

FEDERAL GOVERNMENT IS GOING TO INCREASE IT S OWN TAXATION TO .

PAY FOR THE SPENDING P R IO R IT IE S OF STATE GOVERNMENTS.

SYDNEY

2 J u l y 19 7 9