NO.057

Debt Issuance By Australian Governments

At the request of the Ministerial Council for Commonwealth State Financial Relations in March 2001, State, Territory and Commonwealth Heads of Treasuries considered the benefits of moving to a consolidated system of issuing State and Commonwealth debt. The States, after receiving this consideration, have unanimously agreed not to proceed with such a proposal. The Commonwealth concurs with this view.

This assessment reflects the following issues:

• The current arrangements, where each jurisdiction has responsibility

for its own debt issuance, provide a direct link between the jurisdictions’

financial position and its cost of funds in the financial markets. Substantial

benefits have accrued from these arrangements, which promote greater fiscal

discipline and superior financial management outcomes;

• The savings attributed to the consolidation proposal are uncertain,

likely to be small in the short term and difficult to quantify in the longer

term; and

• Consolidation is unlikely to have any material impact on the investment

decisions of international portfolio managers.

While Treasurers have agreed that the consolidation of debt issuance is not appropriate, they consider it important to continue to promote the effective operation of the government bond market within the existing framework.

CANBERRA

2 August 2001