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Thursday, 30 September 1971
Page: 1736

Mr PEACOCK (Kooyong) (Minister for the Army and Minister assisting the Treasurer) -I move:

That the Bill be now read a second time.

The main purposes of this Bill are to authorise the payment of interest-free capital grants totalling $209.8m to the States to meet part of their 1971-72 works programmes, and to authorise the borrowing of funds up to that amount to assist in the financing of these grants. The Bill also authorises the payment, at the same annual rate as for 1971-72, of similar grants in the first 6 months of 1972-73 pending the passage of comparable legislation in that year. At the June 1970 Premiers Conference the Commonwealth agreed to provide greatly increased funds to the States under new revenue assistance arrangements to apply over the 5 years 1970-71 to 1974-75.

This increased assistance took 3 forms - additional financial assistance grants, new grants to meet debt charges on a portion of existing State debt, and the replacement of part of the loan funds received by the States from their annual Loan Council borrowing programmes for works and housing by interest-free capital grants. This Bill is concerned with the third of these forms of assistance. At the June 1970 Premiers Conference it was agreed that the amount of the interest-free capital grant to be provided by the Commonwealth would begin at $200m in 1970-71 and would increase in future years in proportion to the total of the States' works and housing programmes approved by the Loan Council in those years (excluding any special allocations to individual States in particular years that do not form a part of the basic programmes).

At its meeting in June 1971 the Loan Council decided on a total programme for State works and housing of $860m. In accordance with the arrangements agreed in June 1970. $209. 8m of this is to be paid in the form of interest-free grants and the remaining $650.2m will constitute that part of the programme for the States to be met from borrowings. The capital grant is to be distributed between the States in the same proportion as the total works and housing programmes. I should like here to outline to the House, in general terms, the attitude taken by the Commonwealth in relation to the States' Loan Council programmes for 1971-72. We took the view that, in the light of economic conditions then prevailing, the Commonwealth should support borrowing programmes for the States and their authorities such that, when these programmes were added to the estimated level of specific purpose capital payments being made by the Commonwealth in 1971-72, the total funds from these sources in 1971-72 would represent an increase over those in 1970-71 not greatly in excess of 6 per cent. The programmes decided on by the Loan Council were broadly consistent with this objective. With the concurrence of the House, I shall have incorporated in Hansard a table which compares the capital funds estimated to be available to the States and their authorities from these sources in 1971-72 with those in 1970-71.


Honourable members will note that specific purpose capital payments to the States, excluding natural disaster relief payments, are estimated to increase by 12.7 per cent in 1971-72, compared with an increase of 7.8 per cent in 1970-71. This large increase is in spite of the fact that, as indicated in the Treasurer's Budget Speech, the Government has, with relatively minor exceptions, avoided entering into any significant new commitments this year involving additional specific purpose capital payments to the States in 1971-72. The decision to limit these payments was in line with the general budgetary aim to restrict Commonwealth expenditures as far as possible. But, more particularly, it was recognised that any increased capital funds made available to the States for specific purposes would have reduced the Commonwealth's ability to support the States' works and housing programmes, including the interest-free capital grant. The funds which the States obtain from these programmes, unlike those deriving from the specific purpose payments, can of course be spent by the States as they themselves determine.

We believe that the estimated increase in total capital funds from these sources in 197 1-72 of 6.6 per cent, while lower than the States would have wished, is reasonable, particularly when regard is had to the strong probability that, partly as a result of the additional revenue assistance being provided by the Commonwealth and addi tional State revenues made possible by the transfer to the States of payroll tax, the States' revenue budgets will rquire considerably less support from their loan funds in 1971-72 than they did in 1970-71. In other words, it can reasonably be expected that the scope for State capital expenditures to increase will be appreciably greater than the increse in funds available from these sources might suggest. It must also be borne in mind that about one-third of the capital outlays of the States and their local and semi-government authorities are financed from sources other than Loan Council borrowing programmes and payments from the Commonwealth.

I turn now to the specific provisions of the Bill. Honourable members will note that, besides authorising the payment of grants totalling $209. 8m in 1971-72, the Bill authorises the Treasurer to make advances in the first 6 months of 1972-73 up to a maximum of half the grants payable to each State in the current financial year. The purpose of this -provision is to enable advances to be made to the States in 1972-73 pending the passage of comparable legislation in that year. The Commonwealth's undertaking to pay portion of the States' works and housing programmes to them as grants has continuing effect and it seems reasonable to ensure that advances can be made to the States on a regular basis from the beginning of 1972-73. A similar provision wasincluded in the equivalent legislation last year. Clauses 4 and 5 of the Bill authorise the Treasurer, within 1971-72, to borrow funds, up to the total amount of the grants in 1971-72, for the purpose of financing these grants. It is the Government's intention to apply the proceeds of any public borrowings made overseas in 1971-72 (other than those raised to finance purchases of civil aircraft) to this purpose.

The level of overseas borrowings which might be made during the period up till 31st December 1972 obviously cannot be predicted. However, it seems wellnigh certain that it will fall short, and probably far short, of the total grants payable to the States under this Act. To the extent that the grants cannot be met from the proceeds of such loan raisings, therefore, they will be met from the Consolidated Revenue Fund, and clause 6 of the Bill provides accordingly. The purpose and effect of these grants is not, of course, to add to the capita] funds available to the States. Rather, by substituting grants for what would otherwise be loan funds the effect is to relieve the States of interest and sinking fund charges which they would otherwise have had to meet from their revenue budgets and thus to free funds for expenditure in other directions. For example, the effect of the $200m capital grant paid to the States in 1970-71 was to reduce the amount of the special loan which the Commonwealth had to raise from its own resources on 30th June 1971 to meet the shortfall between the States approved Loan Council borrowing programmes in 1970-71 and net loan raisings from the public in that year.

Since interest and sinking fund charges on the (thereby reduced) special loan did not become payable until 1971-72, there were no savings in debt charges to the States in 1970-71. The savings in 1971-72 as a result of the capital grants paid in 1970-71 will total nearly $ 12.8m. The approximate amounts by which each State will benefit are as follows:

Similar savings will, of course, accrue to the States in 1972-73 as a result of the grants proposed under this Bill to be paid to the States in 1971-72. Whether there will be any further savings in 1971-72 as a result of the capital grants being paid this year and, if so, how large they might be, depends on the amount and timing of public loan raisings during the year and cannot be predicted in advance. As for subsequent years, the savings to the States will depend on a number of further factors at present unknown, including the level of the borrowing programmes to be approved by the loan Council (which will in turn determine the future level of the interest-free capital grants) and the level of interest rates prevailing in those years which would otherwise have been payable by the States on the amounts in question. However, on the arbitrary assumption that interest rates were to continue at their present levels, and that the borrowing programmes were to increase at much the same rate as in recent years, it is estimated that the savings to the States will have totalled about $135m by the end of 1974-75. However uncertain such calculations must necessarily be at this stage, I am sure that honourable members will agree that that will constitute a very significant contribution indeed to the States' revenue budgets within that period. I commend the Bill to the House.

Debate (on motion by Mr Crean) adjourned.

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