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Commonwealth contemplates new government bank.

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2CN AM Commonwealth contemplates new government bank


PETER CAVE: There's speculation that the Federal Government is set to get back into the banking business in order to help the states get the billions of dollars they need to fund capital works.

AM has obtained correspondence between the states and Federal Treasurer about the difficulties they're having in raising funds. The states suggest the Commonwealth should help out with borrowing money.

The Opposition leader Malcom Turnbull says the Labor Government's policies have created the problems and wants to know if the Prime Minister will set up a national infrastructure bank as a result.

Our chief political correspondent, Lyndal Curtis, reports.

LYNDAL CURTIS: In the correspondence obtained by AM the Queensland Treasurer Andrew Fraser on behalf of the states tells his federal counterpart, that the semi-government bond market has effectively ceased to operate as a consequence of the wholesale funding guarantee.

He says conditions are unlikely to improve in the short-to-medium term. And that having an impact on the states' planned capital programs.

He says treasurers can't be confident that the bond market will improve before the money they have as a buffer runs out.

The states asked for help, suggesting a financing scheme between the states and Commonwealth.

Wayne Swan has told the states the Commonwealth is committed to exploring what can be done to help and he writes to them that the treasury secretary Ken Henry would discuss options with them.

One option, the subject of rumour in the states, was raised by the Opposition leader in parliament.

MALCOLM TURNBULL: Is the Prime Minister planning to establish a national infrastructure bank which would see the Commonwealth Government borrow billions of dollars to on-lend to state governments?

LYNDAL CURTIS: Mr Rudd didn't reject the idea, saying the Government's continuing to examine all appropriate measures to properly support infrastructure investment into the future.

PETER CAVE: Lyndal Curtis.

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