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Wednesday, 17 June 2009
Page: 6363

Mr ZAPPIA (5:48 PM) —I rise to speak in support of the Guarantee of State and Territory Borrowing Appropriation Bill 2009. I welcome the comments by the member for North Sydney. The opposition will be supporting this bill, albeit that there will be some amendments proposed. I am sure that the Treasurer will respond to those amendments in due course. We live in a period in which we are faced with the greatest economic downturn that any of us have probably seen in our lifetimes and certainly known since the Great Depression of the 1930s. We have seen something like eight of Australia’s top 10 trading partners already go into recession. We have seen over 30 banks around the world either collapse or require governments to bail them out. In the last quarter, we saw almost all other OECD countries report a negative growth in their gross domestic product figures. We have seen just about all other OECD countries go into deficit in order to support their budgets and sustain their economies. The story is very clear, and it is one that is well understood by members on this side of the House, although I am not sure that it is so well understood by members opposite because they never seem to acknowledge the fact that we are going through a global economic downturn.

This is an appropriate measure for the Commonwealth government to take in light of the global financial crisis and the constrained liquidity in semigovernment bond markets. Under this measure, the Commonwealth will be guaranteeing state and territory borrowings under a deed of guarantee. The member for North Sydney quite rightly pointed out that the states and territories fund most infrastructure projects. The funds that will be borrowed under this measure will essentially be used for state and territory governments to raise funds for infrastructure projects for which they are responsible and which will be critical to Australia’s recovery from the economic downturn and critical to supporting jobs around the country. They are funds that will be critical to building the foundations of a much more productive Australian economy.

I said a moment ago that governments around the world have increased government spending and in doing so have entered into considerable debt in order to offset the downturn in private sector spending throughout the world. But even governments trying to raise funds are faced with tighter financial markets and even governments have to compete for whatever funds are available on the global market. The Commonwealth guarantee provisions contained within this measure will provide greater access to finance for state and territory governments, who as we know have far less capacity to raise funds than does the federal government.

This bill has two main purposes. The first is to provide an appropriation to enable the Commonwealth to pay any claim made as a result of the Commonwealth’s guarantee of state or territory borrowings. The second purpose is to enable the Commonwealth to borrow funds to meet any shortfall of funds in the consolidated revenue required to meet a guarantee if required. While it is right to provide this guarantee, it is highly unlikely that the guarantee will ever be called in. In reality, this measure creates minimal risk to the Commonwealth while providing a major boost to state and territory borrowing capacities. I will again repeat something that the member for North Sydney said, because again I entirely agree with him: ultimately, the state and territory governments are managing affairs on behalf of the same Australian taxpayers as the Commonwealth government does.

The Rudd government has at a national level acted quickly and decisively to cushion the Australian economy from the global economic downturn. We have done that through a $10.4 billion stimulus package in December and another $42 billion stimulus package earlier this year as well as through additional stimulus measures in the May budget, including a $22 billion nation-building infrastructure plan for Australia, the single biggest investment in nation-building infrastructure that the Commonwealth government has ever made in this country. But we have also done that by guaranteeing the bank deposits and bank wholesale funding.

In his comments earlier on, the member for North Sydney made reference to the bank guarantees and suggested that they distorted the markets. What the bank guarantees did—and there is no denying this—was stabilise the financial markets here in Australia. They also enable Australian banks to source funds on the global financial markets. The evidence for them being able to do that is very clear. As a result of them having done that, they were able to use those funds to support the Australian economy and in doing so support Australian jobs. We can criticise that if we want to. But the reality is that that was a measure that was needed, and it had the desired effect. The evidence is there for all to see.

One of the outcomes from having done that, along with all of the other stimulus measures that the government has introduced, is that around the country around 35,000 construction sites are now underway. Those construction sites are supporting jobs for Australian people right across the country. We can perhaps disagree about the figures, but the reality is that on best estimates we are talking about in the order of 200,000 jobs across the country being supported as a result of the Rudd government’s economic intervention during this economic downturn.

While we are supporting those jobs we are doing two other things that are critical to this country. We are investing in nation-building infrastructure, which had been neglected for years and certainly neglected by the previous coalition government. We are also investing in the future of this country by lifting the productivity of this nation. If we invest in infrastructure and if the states invest in infrastructure and we have to guarantee their borrowings, it is my view that that is the reasonable thing to do. Ultimately, there will be some tangible assets and some tangible productivity growth that will justify whatever level of risk might be attached to these measures.

The Rudd government’s national infrastructure investments will be complemented by state, territory and local government infrastructure spending. If you look at the $22 billion that the Rudd government is investing in nation-building infrastructure, much of that will be invested on the basis that there will be supporting funds from state, territory and local governments. Therefore, it is in the national interest to ensure that the projects that have been initiated by the federal government proceed. For that to happen, the states, the territories and local government may well have to also borrow. Assisting them with that borrowing is the right thing to do. From my observations, the state and territory governments are in fact not shirking their responsibilities on this matter and are doing the right thing by taking out the necessary borrowings in order to ensure that they can commit to their fair share of the funding for these major infrastructure projects.

I was Mayor of the City of Salisbury and someone who was very much involved in local government—including in South Australia, having been an executive member of local government—and someone very much involved in discussions on local government managing its affairs. There was an inquiry carried out about three or four years ago in South Australia on behalf of the local government sector. At the end of the inquiry, there was a very strong recommendation that local governments across Australia had the capacity to and should increase their borrowings in order to fund the necessary infrastructure shortfall that local governments were responsible for. It is interesting to note that many local governments across Australia have operated on borrowed funds for years. Yet there has never been a problem with that being done. But as soon as state or federal governments start borrowing and end up with deficit budgets, there is something wrong with it—at least if you listen to members opposite. If it is wrong for federal and state governments I would have thought it would be wrong for local governments. Yet we not only had independent advice to say that local governments ought to borrow but, if I recall correctly, we also had similar comments being made by ministers at both state and federal level at the time.

There are two key benefits resulting from this guarantee of the borrowings of state and territory governments. The first is that the states and territories will be able to access funds for those important infrastructure projects that I referred to earlier—funds which they might not otherwise have been able to access. The second is that because of the Commonwealth government’s guarantee they will be able to access those funds at a much better rate. If they can do that, there has to be some real benefit to the taxpayers of Australia, for whom the states and territories govern. Firstly, if you can access the funds at much better rates it means that your net debt position will be lower. Secondly, if you are able to save money, you can use it for other purposes, again to benefit the people whom you represent. So it makes absolute sense—and it makes good sense—for the Commonwealth to enable the states to access those funds and to access them at a better rate.

Until the latter part of the last century—I believe it was in the 1990s—the Commonwealth government because of its greater borrowing capacity would borrow on behalf of the states. Then that practice ceased, to be replaced with states undertaking their own borrowings and establishing their own borrowing authorities. There was some sense in that. It enabled the states to source funds on the global markets as they saw fit without being constrained in any way by the Commonwealth. The option to this particular proposal could well have been to reintroduce the proposition whereby the Commonwealth borrows on behalf of the states. It is my view, however, that it is better for the Commonwealth to guarantee the borrowings than to borrow on behalf of the states because doing so ensures that the states and territories are still essentially responsible for their borrowings and accountable for them in every sense of the word. At the same time, it allows the states and territories the flexibility and freedom to use their respective finance authorities to source the funds that they require. It serves the purpose of the states and it serves the purpose of the Commonwealth.

This measure to guarantee the borrowings of the states and the territories is somewhat similar to the bank wholesale funding guarantee provided to the banks by the Rudd government. It is a similar proposition—you provide the guarantee to the banks and allow them to access funds. You do the same for the states—you allow them to access funds. The measure also complements the government’s Australian Business Investment Partnership proposal, which the member for North Sydney also talked about. What the member for North Sydney did not say when he spoke about that proposal is that it is not purely a government proposition but a proposal whereby the four major banks will be putting funds on the table in order to create the funding facility required. The four major banks will also have a say in whether that funding is in fact loaned out. It is a proposition that is needed across this country at the moment, because we do face unusual circumstances. The decision by the opposition not to support the Australian Business Investment Partnership proposition is, as was pointed out today in question time, a betrayal of so many of the small businesses in this country and so many of the Australian families that were depending on those small businesses for their employment.

Mr Deputy Speaker, as a fellow South Australian, you may well know that there are over $1 billion in construction projects that have been put on hold in recent months as a result of companies being unable to source the funding to proceed with those projects. A billion dollars worth of projects would sustain a lot of jobs, and that is only in South Australia. Across the country, I am sure it would run into tens of billions of dollars. In fact, we know that the commercial property sector in Australia employs about 150,000 people and has debts totalling around $165 billion, of which about $30 billion is sourced from overseas banks. They now need support in accessing that $30 billion. Through the Australian Business Investment Partnership, they might have been able to do that.

The DEPUTY SPEAKER (Mr PD Secker)—I remind the member for Makin that we are debating the Guarantee of State and Territory Borrowing Appropriation Bill 2009, not the bill that was defeated in the Senate last night.

Mr ZAPPIA —Mr Deputy Speaker, I thank you for your ruling. I was simply responding to comments made by the member for North Sydney in his address to the chamber just prior to mine where he went to great lengths to speak about the Australian Business Investment Partnership Bill. I also draw the parallel between this bill and that proposition. I simply make the point that in guaranteeing funding for the states I see a very strong parallel with the Australian Business Investment Partnership Bill, yet the opposition comes into this chamber and says that it will support one measure but not the other. I believe that the opposition is doing the Australian community a great disservice by not supporting the Australian Business Investment Partnership Bill and I know for a fact that there are jobs that would have been created as a result of that measure having gone through.

We have certainly seen some real changes in the Australian financial systems since Federation in 1901. Things have moved a great deal since the Australian Constitution came into being. As a result of that, the Commonwealth has a much greater capacity to raise taxes and to raise revenue than have the states. We have seen in recent times a reduction in GST revenue, and this will be faced by the states as a result of the downturn in economic activity across the country. Similarly, a reduction of $210 billion in federal government revenue is predicted to occur over the next few years.

However, even prior to the economic downturn it was clear that the states were having difficulty funding all their responsibilities. One of the reasons for that was that in the previous 12 years of the coalition government we saw a substantial reduction in funds to the states under the Commonwealth-state funding agreements. We saw about $1 billion cut from health and about $1 billion cut from housing during that period alone. For all those reasons, states were having difficulty through their own taxation systems raising the finances that they require in order to operate their governments. Not surprisingly, therefore, they will need to rely on overseas borrowings. If they have to rely on those overseas borrowings, it is my view that the Commonwealth should provide whatever assistance it can in order to ensure that those borrowings are sourced at the best possible rates in terms of both fees and interest.

I will finish on this note. The member for North Sydney spoke about the fees that are being charged by the Commonwealth to guarantee these funds. He said that you should not need to use the fees in order to control the behaviour of the states—or words to that effect. I would have thought that there are much more powerful forces that would have controlled the behaviour of the state governments, whether Labor or Liberal, than the use of the fees. I commend the bill to the House. (Time expired)