Joint Press Conference with
The Hon Andrew Fraser, Treasurer of Queensland &
The Hon Troy Buswell, Treasurer of Western Australia
Parliament House, Canberra
25 March 2009
SUBJECTS: Loan Council Meeting; Ministerial Council Meeting
SWAN:
I've just come from a meeting of state and territory Treasurers. I have Troy Buswell on my right, Treasurer from Western Australia, and Andrew Fraser on my left, from Queensland, and of course Queensland is chairing the Council for the Federation at the moment.
I think we've just had a very good meeting. As you would understand the global financial crisis, the global recession and its impact on Australia at the national level and of course at the regional level, was very much to the fore of our considerations. And I think the most important thing was that we acknowledged that it was in the national interest that we all work together, all work together to support jobs and to support growth in the Australian economy. I think there was a bipartisan commitment to that in the room today.
And of course one of the many issues we were dealing with in the room today was the capacity of state governments to borrow to support critical infrastructure in their states. And of course nothing could be more important to economic stimulus in the environment in which we find ourselves than the capacity of states to put in place critical economic infrastructure to support growth and to support jobs.
So, today we did take a hard-headed decision to provide a Commonwealth guarantee for state government borrowing. Now, this guarantee, I would stress, is time-limited and it's voluntary. We don't really want to have this guarantee out there for any longer than it is required to support important borrowings from state governments. It's a decision to support jobs and to protect infrastructure plans in our nation. It's a decision to support jobs and infrastructure effectively from the ravages of a global financial recession, because it is the case that it has become much more difficult for state governments to borrow in the environment in which we find ourselves.
And from my perspective as a Federal Treasurer, we must do everything within our power to support that investment and the jobs and the growth that comes from it.
Now, could I just take you through some of the elements of the guarantee. I said before it's voluntary. It will be available to cover state-issued securities, including semi-government bonds and commercial paper, but it will exclude foreign currency issuances. Both the existing stock of state securities and future issuances will be covered by the guarantee, and it will be available for a range of maturities.
Now, the most important thing about this guarantee is that a fee will be payable for the provision of the guarantee. That is very important. Now, the fee is in line with historical averages. The fees for new issuance will initially be set at 30 basis points for states with a AAA credit rating and 35 basis point for states with a AA+ credit rating. So, there's no free ride here. That fee will be charged. And of course, it is put in place to provide a disincentive for states to use it when financial conditions normalise.
Now, of course linked to this is the fact that states must invest in infrastructure for the future. So, it's very important that states continue to maintain their programs of investment in the environment they're in. And of course if they don't have the capacity to borrow to support those programs then it becomes very difficult for that infrastructure to be put in place. Now, the Loan Council does scrutinise these activities and of course that's what we've been doing today.
On top of that there were some other issues discussed. We had a discussion about the rollout of the Nation Building and Jobs Plan and a number of other matters. But the most important was the borrowing guarantee.
Now, this is a decision which is in the national economic interest. This morning I've spoken to the Leader of the Opposition, Mr Turnbull, and I've offered him a full briefing on this decision. I think it's important that all sides of politics recognise the importance of this decision to support jobs and to support economic growth. It is vital for growth and infrastructure investment.
Do you want to say a couple of words?
FRASER:
Sure. Thank you. The importance of infrastructure spend in supporting the economy is paramount at the moment. Clearly, what we've seen is credit market dysfunction for a long period of time now and it's important that this decision is recognised as assisting and providing functionality in bond markets. What that does is provide the capacity for states to continue to deliver infrastructure programs which support demand in the economy and which support jobs in the economy. For a state like Queensland, but all states alike, given the infrastructure effort being undertaken to roll our improved services, to roll out the infrastructure that's required, this decision taken collectively and unanimously today is an important step for the nation as a whole.
BUSWELL:
Just quickly, to add that I think you'll observe all states are willing to partner with the Commonwealth to do their bit to invest in the critical infrastructure that our nation requires and the people who live in our states require in moving through this difficult time. It is the case that states face challenges raising what I would term appropriate debt in the current environment, appropriate debt being defined as term of debt based around maturity issues and also pricing relative to historic relativities. It's my view, and indeed it was the unanimous view of all the Treasurers, that the solution put forward by the Commonwealth around this guarantee is a policy solution which addresses those concerns and which will enable the states of Australia to access appropriate debt on a voluntary opt-in basis where clearly that debt will be required to fund the massive infrastructure programs that state governments are currently embarked on.
JOURNALIST:
Treasurer, how much state issuance in dollar terms (inaudible)?
SWAN:
Well, I think the Loan Council performs the role of ticking off on borrowing programs at each of its meetings. So, in terms of new issuance, we ticked off, I think, on $13 billion for 08/09 and I think $26 billion for 09/10.
JOURNALIST:
Does this mean legislation? And given that we are in some ways moving back to an old system of the Commonwealth effectively being the primary borrower in the (inaudible) guarantee, does that mean that you should be looking at putting some kind of public cap on overall issuance by the people in state governments?
SWAN:
Well, first of all we're keen to see the semi-government bond market continue and we don't want to stay in this groove, if you like, for any longer than we have. But it is important, and this was discussed this morning at the meeting, for the Loan Council and for the Commonwealth to have a view about the total of borrowings and how that sits with the macroeconomic environment at the time. And when the Loan Council met last year to look at borrowings we stressed that we think the level of borrowings at the moment are appropriate for our environment. And that is why we are so serious about ensuring the states have the capacity to borrow to deliver on the vital investments.
So, we have a view that we do need to keep an eye on how appropriate programs are in terms of their size, and that's what we're doing through the Loan Council. And you're right, we are going back to an earlier era, if you like, and I think all Ministers, all Treasurers around the table, thought that was entirely appropriate.
JOURNALIST:
Can I clarify whether that's funding or whether it's an indicative figure (inaudible)?
SWAN:
We ticked off and therefore if there are to be adjustments it requires an adjustment by the Council itself, okay. Secondly, it does require an Appropriation and we will be moving for an Appropriation in the House.
JOURNALIST:
Mr Swan, now that you are taking steps (inaudible) what about private sector funding? What's your long term infrastructure view (provides) provides some kind of money (inaudible)? What's your attitude to that?
SWAN:
The Government has taken no decision to move in that area. Unlike many other economies, credit is still flowing in this economy courtesy of the bank guarantee and the term funding guarantee put in place by the Government last October. That doesn't mean to say that it's not a difficult environment for private companies trying to raise finance for infrastructure projects. That's why we have been so active, internationally as well as domestically, in trying to deal with these issues of the flow of credit. So, if we can get some breakthrough in terms of the Geithner plan, for example, in the US then that can have a dramatic impact on the flow of credit around the world. This is the primary problem here. It's not primarily a domestic problem. It is primarily a problem caused by the global financial crisis, its impact on the international banking system and therefore the availability of credit that's available for many things for which it was freely available previously. So, getting some breakthrough there is very important. We are still in the process of working through the issues of infrastructure regarding our investment funds. All of those things are on the agenda. But there is no further proposal before the Government to provide further guarantees in that area.
JOURNALIST:
Why are you not putting a fee on this at the same level as the fees you applied to the banks...
SWAN:
A very simple reason.
JOURNALIST:
Can I get a response on that?
SWAN:
Sure.
JOURNALIST:
From Mr Fraser or Mr Buswell in terms of the level - just seeing why you should not be paying the same fees as the banks?
SWAN:
Well, they shouldn't be paying the same fee as a bank. That is absolutely the case. This fee reflects the traditional distance or gap between Commonwealth Government securities and semi-government securities. It has been determined, looking at that gap, over time. That's how we've set upon this fee, and that is appropriate because in normal times our rating and the semi-government rating and then the banks basically.
FRASER:
As the Treasurer says, and if you look back over, I suppose historically over the last decade, then you'll find that the fee being charged the basis point differential entirely reflects the nature of the market pre-dating dysfunction, which you're right, in late 2007 and grew from there. So, this is appropriate given that, as you look back through those spreads, you find that banks access at a different part of the curve, and this reflects the nature of being a semi-sovereign.
SWAN:
Exactly.
JOURNALIST:
Treasurer, (inaudible) states are going to avail themselves of this guarantee immediately. What do the other states say about (inaudible) putting forward (inaudible), and also, keeping an eye on what the states are borrowing the money for? Is there some capacity to look at that (inaudible)?
SWAN:
Well first of all, Andrew's here because Queensland's chairing the Council for the Federation and Troy's here because it demonstrates bipartisan support, and we think that's very important given the environment that we face. Second part?
JOURNALIST:
Well no, the first part was asking whether all, whether the states indicated (inaudible).
SWAN:
All states strongly supported the initiative. One or two states are yet to determine whether they will utilise this nor not.
JOURNALIST:
And the second part was whether you will be looking at what the states are borrowing the money (inaudible).
SWAN:
I think it's pretty fair to say that we have a concern, over time, not only with the quantum of spending, but the quality of spend, and going back to the question that Laura raised before, the Loan Council is an appropriate place to deal with those issues. But we've ticked off on the borrowing program for the remainder of 08/09-09/10, and in ticking off on that we're indicating our agreement.
JOURNALIST:
Previous guarantees have been criticised for creating market distortion, and part of this is a reflection or recognition of that...
SWAN:
No, it's not. I'm sorry, it's not.
JOURNALIST:
Are you confident that there will be no unintended consequences, market distortions or (inaudible)?
SWAN:
Can I just say this? The primary problem we are dealing with is the global financial crisis and the dysfunction in capital markets that has come from that crisis, and that is the primary problem and that is the problem we are dealing with. People will seek to make a number of assertions about the bank guarantee, and they have done that from the day we introduced it. There would not be the stability in the Australian financial system that we have today if it wasn't for the bank guarantee both in terms of deposits on the one hand, and term funding on the other.
JOURNALIST:
Can I just ask the state Treasurers about whether they agree with the view that the banks have been gouging their (inaudible) margins they're charging on (inaudible) funding to you?
BUSWELL:
Look, our issue all along has been that in a very volatile financial climate we are having difficulty accessing, as I said earlier, appropriate credit - appropriate credit in terms of maturity and in the terms that we're being able to be locked into and what we consider to be appropriate credit in terms of historical relativities. Our view is that this guarantee will help address those issues, it will help us access the appropriate credit that we need to move forward with and implement our infrastructure program. I think there's one other point that needs to be made, and the Treasurer has indicated the need for the Loan Council to maintain a watching brief in terms of levels of state debt and that is an issue that is shared by all State Treasurers. Now, it is not our view that this policy is a green light for state governments to go out and irresponsibly engage in borrowings and it is in our mutual best interests for all states to behave responsibly. And I think one of the outcomes of this morning's meeting is that between the Commonwealth and the States it is something that we intend to monitor very closely because it is in no state's best interests for any one state to use this as a green light for any form of inappropriate borrowing.
JOURNALIST:
Mr Swan, if I could ask you, in your home state today, the Bligh caucus has suggested that far from having complete autonomy in selecting her new Ministry, Anna Bligh's new Ministry is spectacularly representative of factional influences. Is that right?
SWAN:
No.
JOURNALIST:
What's the true situation?
SWAN:
The true situation is that there's been a tremendous injection of new talent, vigour and energy into the Queensland Cabinet. It's a great thing to see, and of course we've got part of that story here.
JOURNALIST:
Nothing to do with factions?
SWAN:
No.
JOURNALIST:
Mr Swan, I'm sure that's a pesky topic, that the Commonwealth Grants Commission formula came up today...
SWAN:
It did. Always on the agenda. Troy had something to say and Andrew had something to say.
JOURNALIST:
WA's share will fall to about 5.7 per cent despite it being 10 per cent of the population. The allegation being that WA will only be returned 50 cents in every dollar it's earned in GST. Is this fair or is it punishment for former (inaudible)?
SWAN:
The Commission takes its decisions independently. It's always been thus, and I know Troy has a view about this. And I can well recall many meetings where Queensland was under vicious attack by other states for being the beneficiary of support. Of course, Queensland now supports other states. So, over the years, including now, there have always been swings and roundabouts.
JOURNALIST:
Mr Swan, does that mean that your position is the same as the previous Federal Treasurer's position that there'd be no change for the horizontal (inaudible)?
SWAN:
That was the decision of the meeting today. Thank you.
