The Fin Review today published a big feature article on the financial plight of the state governments. And yes, Virginia, they’re all in a bit of a hole, with Victoria possibly an exception depending on whether the VTC head’s claims either hold water or won’t start sinking soon. Unsurprisingly, Queensland Treasurer Andrew Fraser has written to Wayne Swan asking for federal help, and handed the letter to the Fin. No doubt Fraser would like the help before March 21, which, of course, is when Queenslanders vote.
There’s currently a spread of 136 points between Commonwealth bonds and the bonds issued by the Queensland Treasury Corporation. NSW’s spread is 120. The normal spread is around 30 base points.
Earlier this year, there was a bit of chat about whether the Australian Office of Financial Management could invest in state bonds, and/or structure things such that effectively it offers state debt to the market as sovereign debt. Legislative authority for this strategy already exists. While there are a number of options for assisting the states to borrow for infrastructure, this is the neatest. A number of worthies from the big banks and financial market types are urging the Feds to go down this route. Andrew Fraser and Anna Bligh will be hoping for a quick decision from their Queensland Labor colleague Wayne Swan.
6 Comments
Mark
It makes sense for the Commonwealth to take this action, I think it was the way the loans council used to work.
If the Federal Govt. does it now they will be blamed for bailing out Qld mates, if they do it later they will be blamed for bailing out NSW mates.
Yep, they’ll be blamed! Yet it makes a lot of sense!
Its “funny” really, Whitlam could not get money via the loans council because the majority of the State Premiers would not agree. They thought Commonwealth borrowings would lessen their ability to borrow.
Funny world we live in.
Particularly given all the comparisons of Rudd to Whitlam young Malcom’s been making lately!
I think Mr Turnbull stopped his Whitlamesque debt level comments when it was pointed out to him that the last time Australia had zero net Govt. debt (prior to 2006) was under Whitlam.
Did he? I must admit I haven’t been paying much attention to Malcolm lately!