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Monday, 29 November 2004
Page: 36

Mr SWAN (2:52 PM) —My question without notice is directed to the Treasurer. I ask him whether he recalls making the following statement when he was shadow Treasurer and a young member for Higgins:

Australia has high foreign debt and because Australia has a current account problem, that puts premium on Australian borrowings, that flows through and every Australian pays for the consequences.

Treasurer, do you still agree with that statement?

Mr COSTELLO (Treasurer) —I have already answered this question. Firstly, comparing the current account deficit in 2004 to the current account deficit in 1994: as I have already indicated, in 1994, when the current account deficit was 6½ per cent of GDP, the budget was in deficit to 2.8 per cent—that is, the Commonwealth government was a borrower and a large reason for the run-down in savings. Now the Commonwealth government is a saver. The Commonwealth government is making no impact at all on foreign borrowings. Secondly, as I have already pointed out, the home mortgage variable interest rate was 10½ per cent compared to 7.05 per cent today. Interest rates were higher.

I do want to make one other point. Back in 1994 Australia's foreign currency borrowing credit rate had been downgraded not once but twice. It was downgraded in 1986 at the time of `banana republic' and it was downgraded again in the late eighties. Since this government was elected, Australia's foreign currency borrowing credit rating has been revised upward not once but twice—that is, Australia now enjoys a AAA credit rating on foreign currency borrowings. What determines a premium on your borrowing is your credit rating. A credit rating allows a lender to trade off risk against margin. So, if your credit rating is down, the risk premium which a lender will want in turn to lend to you is higher. This is the government that recovered Australia's AAA credit rating in the international markets. That has made all the difference. That is one of reasons why mortgage interest rates today are 7.05 per cent rather than 10½ per cent, which they were in 1994-95.