Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Hansard source

I would like to thank all those members who have taken part in the debate on the Commonwealth Securities and Investment Legislation Amendment Bill 2008. This bill will strengthen the efficient operation of the treasury bond market by increasing treasury bond issuance and extending the collateral accepted for securities lending of these bonds. These measures will help maintain the role played by treasury bonds in the smooth functioning of Australia’s financial markets.

The treasury bond and treasury bond futures markets are used in the pricing and hedging of a wide range of financial instruments and in the management of interest rate risk by market participants. They thereby contribute to the lower cost of capital in Australia. That is why this is quite an important bill. Without these markets the financial system would also be less diverse and less resilient to the shocks that can emerge from time to time. This has been demonstrated particularly over the last six months when markets in this country provided important anchors for Australia’s financial system as it responded to the impact of credit and liquidity concerns sparked off by the subprime housing crisis in the United States. The government is committed to ensuring that the treasury bond market continues to have sufficient liquidity to operate effectively and therefore play this important role in the Australian financial system. There could be no time when it is more important than now.

This bill provides a new standing authority for borrowing through the issuance of Commonwealth government securities subject to a limit on the total volume of securities on issue at any time not exceeding $75 billion. This bill will allow an increase in the volume of fixed coupon treasury bonds on issue by around 25 billion over their current level. In 2008-09 the government will add around $5 billion to the treasury bond issuance of $5.3 billion that was already planned and detailed in the 2008-09 budget.

The increased issuance of treasury bonds will not adversely affect the government’s overall financial position since the increase in the bonds on issue will be offset by an increase in the financial assets on the government’s balance sheet. The returns on these assets also offset the interest costs for the increased issuance.

The bill will also provide for a modest extension in the range of eligible instruments—which the previous member was talking about before—that the Treasurer can make under the financial management to include investment-grade debt securities and provide for the Treasurer to give directions to delegates on the classes of authorised investments and matters of risk and return.

This will enable the Australian Office of Financial Management to improve the returns on Commonwealth assets whilst also better managing costs and risks. But I do take on board the comments of the shadow Treasurer and the honourable member opposite. It has been suggested that these proposals could lead to a significant increase in risk being taken on by the Commonwealth. This is simply not correct. The proposals contained in this bill were strongly recommended to the government by the Treasury secretary. They will support the efficient functioning of the Australian financial market. They will provide for a modest extension in the range of eligible investments that the Treasurer can make under the Financial Management and Accountability Act. This will allow the Australian Office of Financial Management to invest in grade debt securities in addition to RBA deposits—that’s true.

Investments in grade debt securities are considered by financial markets to be of high quality. This will enable the Australian Office of Financial Management to improve the returns on Commonwealth assets whilst also better managing costs and risks. The point—and this responds to the point made by the honourable member opposite and the shadow Treasurer—is that the policy of the government of investing in high-quality assets is more conservative than the mandate given by the previous government to the Future Fund—and that is deliberately so.

In conclusion, these various measures will strengthen the markets for treasury bonds and the futures contracts that depend upon them. They will therefore contribute to the effectiveness and efficiency of Australia’s financial markets more broadly and to the resilience and robustness of our financial system. So these measures demonstrate the government’s determination to ensure the efficient operation of Australia’s financial markets. I commend this bill to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.

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