Senate Loan Inquiry On The Wrong Track
The Age
Thursday January 21, 1993
IF it is to have any useful and justifiable purpose, the Senate Select Committee on the Functions, Powers and Operation of the Australian Loan Council should pursue its current inquiry strictly in accordance with its pretentious title. So far, deplorably, it seems to be degenerating into a politically-motivated and arrogantly-conducted inquisition to drum up fault-finding propaganda before the coming federal election.
The real question such an inquiry could productively answer is whether the Loan Council still serves a worthwhile purpose, which arguably it does not, or how it should be reformed so as to bring its obsolete constitutional structure into line with present financial practice, economic imperatives and political accountability. Instead, the committee appears to be more interested in flailing a dead horse (the discredited and defeated Kirner Government) and embarrassing the Keating Government.
Catalyst for the appointment of the coalition and Australian Democrat- dominated committee was the disclosure that the former Victorian Government last year borrowed nearly $1.3billion outside the global limits set by the Loan Council, apparently with the reluctant and silent connivance of the Federal Government. This irregularity was rightly criticised by the state's Auditor-General but it was hardly as heinous as Labor's opponents have made out.
As the Nicholls report pointed out, the borrowings did not represent additional debt; they were to refinance existing debt which the state could not repay at the time. Technically, though deviously, the then Victorian Treasurer, Mr Sheehan, was in breach of Loan Council rules by designating the borrowings as ``temporary" and hence exempt from the global limits. This they were not, but arguably the rules were too rigid and the limits too tight. Other states have also contrived to evade them.
THE Senate committee now wants Mrs Kirner, Mr Sheehan and other members of their former Government to appear before it, and is threatening to subpoena them if they persist in their refusal to do so voluntarily. The federal Treasurer, Mr Dawkins, has refused to give evidence to the committee and, being responsible only to the House of Representatives, cannot be compelled to attend. The committee has also invited the NSW Premier, Mr Fahey, and former South Australia Premier, Mr Bannon, to appear, but without any hint of compulsion.
The committee has been advised that it has the power to compel members of a state legislature to appear before it, but should carefully consider the implications of taking such an unprecedented step.
Indeed, it would be wise to desist; any attempt to summon former members of the Kirner Government would be difficult to enforce and widely perceived as politically vindictive, especially as they have already been electorally held to account and punished for their financial improvidence and mismanagement. Moreover, federal and state governments agreed at the latest Premiers' Conference to review the Loan Council arrangements and monitoring to bring the rules closer to present-day realities and ensure stricter financial accountability. In other words, the past laxity which the committee is investigating has already been remedied by federal-state consensus.
THERE remains the question, which the committee could gainfully pursue, whether the Loan Council still has any relevance to contemporary federalism. It was originally created under the 1927 Financial Agreement, enshrined by referendum in the Constitution, to enable the Commonwealth to borrow on behalf of itself and each state so as to eliminate competition between Australian governments for funds, particularly on the London market. It no longer serves this purpose. The states now are responsible for raising their own loans, and the global limits which the Loan Council now administers no longer have the force of law. They are no more than an informal agreement _ though effectively dictated by the Commonwealth _ to put a ceiling on total government borrowings. However, the rules have been so riddled with anomalies and twisted by evasions that their economic utility is in serious doubt.
The new Victorian Treasurer, Mr Stockdale, has found it expedient to make political capital out of the Kirner Government's loans breach. On reflection, he might now reasonably take the view that the Loan Council is little more than a device for the Federal Government to meddle in the financial management of his state and others, for which they should each be accountable to their own parliaments and electorates (as well as being subject to the constraints of the financial markets). Perhaps he should volunteer to appear before the Senate inquiry to argue either for the abolition of the Loan Council in the name of state sovereignty or for a thorough redrafting of the Financial Agreement to bring it into line with present-day federal- state relations and financial realities.
© 1993 The Age