International Economic Crisis

Mr BARRY COLLIER: My question is to the Premier. Will the Premier update the House on the impact of recent international economic events on the New South Wales economy, and related matters?

Mr NATHAN REES: I thank the member for his longstanding interest in economic matters. Over the past seven days the financial crisis in the United States has led to an unstable international economic environment. This follows a year of economic uncertainty after the sub-prime crisis in the United States real estate and capital markets. Last week the former United States Federal Reserve chairman, Alan Greenspan, said that the situation "is in the process of outstripping anything I've seen before". He went on to say:

I can't believe we could have a once-in-a-century type financial crisis without a significant impact on the real economy globally, and I think that indeed is what is in the process of occurring.

We should take these comments seriously. We are facing an economic environment that has already damaged some giant financial institutions including Bear Stearns—this may not be important for members opposite, but it is important for us—Fannie Mai, Freddie Mac and, last week, Lehman Brothers and the American International Group [AIG]. The United States Government has responded to this once-in-a-lifetime crisis by providing financial support to AIG and injecting hundreds of billions of dollars into the market in the hope of stabilising the economy.

There are advantages in being part of a globalised economy. The economic and employment growth Sydney has seen in the past two decades bear testament to this. Unfortunately, there are also drawbacks. One of them is that events in far away places can impact on and damage our local economy. Growth in our New South Wales economy is forecast to slow in 2008-09 because of high interest rates and our exposure to events overseas. In this we are not alone. I note and emphasise, however, that the New South Wales medium-term growth forecast of 3¼ per cent compares very well to similar international economies. Like many other Australians, I welcome the Reserve Bank's interest rate cut in September, and I am advised by New South Wales Treasury that it is pretty certain our State will avoid a recession. However, it is also clear to me and my Government that we are not out of the woods and our economic environment, in this hemisphere and everywhere else, will continue to be challenging. My Government will respond by being cautious and responsible.

I want now to update the House on the latest information available to me on the direct exposure of New South Wales Government finances to the recent week's events. The Treasury Corporation's balance sheet has no direct exposure to the Lehman Brothers collapse. Elsewhere, there is minimal exposure to the collapsed identity's fate from a $1 million investment of the New South Wales Lotteries Transition Fund. Whilst the New South Wales Self Insurance Corporation uses the AIG as a re-insurer, the United States authorities' decision to support the AIG means there will be no impact on the State budget. In addition, the Treasury Corporation has a maximum exposure of $1.1 million to the AIG through the Hour-Glass international shares trust. The full impact of this exposure will depend on the future price of AIG shares. All in all, it is an insignificant exposure to the United States collapses we have seen so far.

It is also true that our New South Wales Government revenues are vulnerable to the economic slowdown. For example, as a consequence of a sharper than expected slowdown in the property market, stamp duty revenues are running around $90 million below budget for the past two months. Furthermore, a key risk of the economic slowdown is rising unemployment and the impact this will have on New South Wales families. At the forefront of my mind are those potential consequences for New South Wales's families—mums and dads in the suburbs and country towns—and small businesses potentially impacted by events on the other side of the world. We will act to secure New South Wales's finances and we will act in their interests, always. I am deeply aware what we are facing and I fully comprehend the importance of fiscal responsibility. This will be a key principle of my Government and it will be the driving force of the forthcoming mini-budget.

The SPEAKER: Order! I call the member for Upper Hunter to order.

Mr NATHAN REES: The member for Upper Hunter—save us!

The SPEAKER: Order! I call the member for Upper Hunter to order for the second time.

Mr NATHAN REES: In the lead-up to the 11 November mini-budget, I have set myself two key objectives: The mini-budget will be responsible and it will be robust. Responsibility means not living beyond our means. It means keeping our triple-A credit rating, it means securing power generation for our children and it means not wasting money. When I say "robust" I mean ensuring our long-term spending commitments do not exceed our revenues. It means committing to future projects only if and when we can afford them. This is the message the Treasurer and I will be taking to Standard and Poors when we visit them in Melbourne on Friday of this week. We will be telling them that the forthcoming mini-budget will ensure that New South Wales lives within its means. We will be telling them that fiscal responsibility will be the foundation stone of my premiership.

Since becoming Premier I have said repeatedly that in developing the mini-budget I want maximum flexibility. The Treasurer and I need flexibility to be able to balance competing priorities. We also need flexibility to make sure all options are considered in light of the current economic circumstances. I have said—repeatedly—that I rule nothing in or out. The mini-budget will be brought down by the Treasurer on 11 November and we will not be drawn into a welter of special pleading from every sector during the process. However, since we said there will be a mini-budget there has been significant international volatility in financial markets in the United States. So today in this House I am making one single exception to the rule, and there will be no other exceptions. It is critical my Government reacts with speed to the international events of the past week. To that end, our business community wants a clear signal from the Rees Government that we mean business, that we will take every measure available to us to minimise our exposure, protect our economy and foster investment and employment growth despite whatever difficult investment climates may be faced.

Therefore, today I give my complete and binding commitment that we will deliver the reductions in payroll tax announced in the budget in June this year. All else in the mini-budget will be framed around keeping that core commitment to the business community who, as we speak, are making decisions about whether to invest in New South Wales. My message to the business community today is this: payroll tax will be reduced from 6 per cent to 5.5 per cent. This will start with a reduction to 5.75 per cent from 1 January 2009 and then with further reductions to 5.65 per cent from 1 January 2010 and to 5.5 per cent from 1 January 2011.

In addition, and also consistent with the budget announcement, the payroll tax threshold will be indexed annually in line with the consumer price index. This initiative is equivalent to injecting $1.9 billion into New South Wales businesses over the next four years. In practice this means protecting jobs, providing a stable investment environment and growing employment. It is about defending our strong economy from the dangers of overseas events. This initiative will follow the trend set by my preceding Labor premiers. Since 1995 Labor governments have reduced the State tax burden by an average of $104 million each year. We have not forgotten that when the Coalition was last in office the State tax burden increased by an average of $134 million each year. When Nick Greiner was Premier payroll tax was 7 per cent. The contrast could not be more marked, in particular at a time when business confidence in the Opposition has hit an all-time low.

The SPEAKER: Order! Members will cease interjecting.

Mr NATHAN REES: Would you like me to go further? I should be more specific—when business confidence in the Opposition leader has hit an all time low. There is nodding up the end. I want this announcement to send a strong message to the New South Wales business community that my Government will prioritise initiatives that encourage investment and protect existing jobs. I want to send a message to the community that we are framing the mini-budget with an understanding of what is happening everywhere. And I want to send a message to New South Wales families and small businesses that I will do everything in my power to protect their jobs and the economy that will provide their children's jobs.