Published Tuesday, 07 October, 2008 at 10:53 AM
Treasurer
The Honourable Andrew Fraser
Ministerial Statement on Queensland Economy and Global Financial Crisis
The world has seen unprecedented turmoil on financial markets. Institutions like Lehmann Brothers, of 150 years heritage and a survivor of the Great Depression, no longer exist. Wall Street is unrecognisable. Post the US Government’s extraordinary intervention, markets remain fragile at best.
As an economy we are enmeshed in our world. A modern, diversified trading economy such as ours finds its destiny inextricably linked to the fate of the global economy. We have, however, much to be confident about – strong growth prospects, a powering commodities sector, and massive public investment underpin our position. As a nation we enjoy a strong and well regulated banking system.
Undeniably there will be an effect on world growth, and that means downside risk for the Queensland economy. We have a certain capacity to absorb downward pressure. The budget provisioned an $809m surplus as a buffer to potential uncertainties. There will however be an impact on growth, on employment growth and inevitably on government revenues.
Our housing market has been under sustained pressure in an environment of restrictive monetary policy. The case for the Reserve Bank to move, move decisively and swiftly for a 50 basis point cut is now more urgent. I repeat my calls for the Reserve to cut when they meet today.
Our housing market has benefited from the stimuli of the last cut and our landmark stamp duty reforms. This is providing – to an extent – a counter balance against the broader housing market slowdown. The Mid-Year Review will provide formal updates of the revenue forecasts.
Mr Speaker,
The reforms I introduced to the budget structure to remove the volatility of investment returns will provide valuable transparency to our position through this period.
As I previously disclosed, our capital losses have been confined to the collapse of Lehmann Brothers, with total exposure of $30.4m – $25.2M of which was with QTC and $5.2M with QIC.
I table the Consolidated Fund Financial Report for 2007-08 which has been signed off by the Auditor-General.
I also table the Annual Report of the Queensland Treasury Corporation, which confirms its position as Australia’s pre-eminent semi-government issuer. Amidst global turmoil, QTC completed its largest ever funding program of $13.8 billion, including partial forward funding of this financial year’s task.
The divergence of credit spreads and new accounting rules providing for mark to market valuations result in an accounting loss before tax of $65 million. The loss has no impact on QTC’s or the state’s liquidity and is expected to be fully reversed in future years as the financial instruments in question will be held to maturity and the accounting losses will therefore unwind. The result represents a face value loss, not an actual loss.
Put simply, the accounting rules require valuations equivalent to what would occur if QTC was forced to cancel the paper on issue now instead of holding it to its full term, which it will do. As a long term issuer and investor, the new rules do not truly reflect QTC’s position. Mark-to-market rules such as AASB132 and 139 introduced last financial year in Australia have been subject to recent critical commentary in other jurisdictions for their capacity to distort.
Mr Speaker, The divergence of spreads over the last 12 months has fundamentally repriced risk and therefore most propositions for private investment. While credit markets have been volatile QTC has stood in the market and been a repository for investors seeking quality.
There is no doubt that the last month has changed the landscape – volatility has been replaced by paralysis. The broader global dynamics remain under constant vigilance by the Treasury. Mitigating strategies have been deployed to overcome the frozen markets. The prospect of markets remaining frozen beyond the immediate term must however be contemplated.
These are times without precedent. As Queenslanders awake and turn on their radios, the latest reports of global crisis continue. It is an uncertain landscape for the global economy, but within that landscape we reside within an economy well-placed, almost uniquely so, to ride-out the on-shore effects.
Our commitment to driving reform, to modernising our economy and prudently managing our state finances stands us in good stead. The situation is one that is rapidly evolving and we have every reason to remain confident of our prospects. Decisive action and continued vigilance are required. Today, that requires the Reserve Bank to act.
Media Contact: Treasurer’s Office – (07) 3224 6361
As an economy we are enmeshed in our world. A modern, diversified trading economy such as ours finds its destiny inextricably linked to the fate of the global economy. We have, however, much to be confident about – strong growth prospects, a powering commodities sector, and massive public investment underpin our position. As a nation we enjoy a strong and well regulated banking system.
Undeniably there will be an effect on world growth, and that means downside risk for the Queensland economy. We have a certain capacity to absorb downward pressure. The budget provisioned an $809m surplus as a buffer to potential uncertainties. There will however be an impact on growth, on employment growth and inevitably on government revenues.
Our housing market has been under sustained pressure in an environment of restrictive monetary policy. The case for the Reserve Bank to move, move decisively and swiftly for a 50 basis point cut is now more urgent. I repeat my calls for the Reserve to cut when they meet today.
Our housing market has benefited from the stimuli of the last cut and our landmark stamp duty reforms. This is providing – to an extent – a counter balance against the broader housing market slowdown. The Mid-Year Review will provide formal updates of the revenue forecasts.
Mr Speaker,
The reforms I introduced to the budget structure to remove the volatility of investment returns will provide valuable transparency to our position through this period.
As I previously disclosed, our capital losses have been confined to the collapse of Lehmann Brothers, with total exposure of $30.4m – $25.2M of which was with QTC and $5.2M with QIC.
I table the Consolidated Fund Financial Report for 2007-08 which has been signed off by the Auditor-General.
I also table the Annual Report of the Queensland Treasury Corporation, which confirms its position as Australia’s pre-eminent semi-government issuer. Amidst global turmoil, QTC completed its largest ever funding program of $13.8 billion, including partial forward funding of this financial year’s task.
The divergence of credit spreads and new accounting rules providing for mark to market valuations result in an accounting loss before tax of $65 million. The loss has no impact on QTC’s or the state’s liquidity and is expected to be fully reversed in future years as the financial instruments in question will be held to maturity and the accounting losses will therefore unwind. The result represents a face value loss, not an actual loss.
Put simply, the accounting rules require valuations equivalent to what would occur if QTC was forced to cancel the paper on issue now instead of holding it to its full term, which it will do. As a long term issuer and investor, the new rules do not truly reflect QTC’s position. Mark-to-market rules such as AASB132 and 139 introduced last financial year in Australia have been subject to recent critical commentary in other jurisdictions for their capacity to distort.
Mr Speaker, The divergence of spreads over the last 12 months has fundamentally repriced risk and therefore most propositions for private investment. While credit markets have been volatile QTC has stood in the market and been a repository for investors seeking quality.
There is no doubt that the last month has changed the landscape – volatility has been replaced by paralysis. The broader global dynamics remain under constant vigilance by the Treasury. Mitigating strategies have been deployed to overcome the frozen markets. The prospect of markets remaining frozen beyond the immediate term must however be contemplated.
These are times without precedent. As Queenslanders awake and turn on their radios, the latest reports of global crisis continue. It is an uncertain landscape for the global economy, but within that landscape we reside within an economy well-placed, almost uniquely so, to ride-out the on-shore effects.
Our commitment to driving reform, to modernising our economy and prudently managing our state finances stands us in good stead. The situation is one that is rapidly evolving and we have every reason to remain confident of our prospects. Decisive action and continued vigilance are required. Today, that requires the Reserve Bank to act.
Media Contact: Treasurer’s Office – (07) 3224 6361