STATE BANK (PRIVATISATION) BILL
Second Reading
The Hon. J. P. HANNAFORD (Attorney General, Minister for Justice, and Vice President of the Executive Council) [3.55]: I move:
That this bill be now read a second time.
I seek the leave of the House to have my second reading speech incorporated in Hansard.
Leave not granted.
Page 5481
This is an historic bill that authorises the sale of the State Bank of New South Wales to Colonial Mutual Life Limited on the terms and conditions set out in the share sale agreement. When the forerunner to the State Bank, the New South Wales Savings Bank, was formed in 1819 there was seen to be a genuine need for some form of government involvement in the ownership of the banking sector to provide banking services to middle- and low-income groups. In 1994 there is, and indeed for the past few decades there has been, no worthy rationale for continuing government ownership of the State Bank. The Government's decision to get out of banking is part of a worldwide trend in which 93 government banks have been placed on the market in more than 37 countries over the past 10 years. That is a rate of one every six weeks.
In Australia, all government-owned banks have been, or are in the process of being, privatised - by both Liberal and Labor governments. There is no argument for continued government ownership in the current competitive marketplace. There are established, sound prudential regulations in place and government-owned banks now have purely commercial charters. Indeed, the charter of the State Bank has been purely commercial since 1981. If there is any specific government program or service the New South Wales Government requires of a bank, it can call tenders from all banks: it does not require bank ownership. Yet New South Wales still owns the State Bank, and for that the taxpayers carry a liability of nearly $19 billion - or $3,000 for every man, woman and child in this State.
For various historical reasons, all related to government ownership, the bank has never provided the taxpayer with a commercial rate of return on its assets. But that is not the reason for selling. We accept that one day, given the restructuring that has taken place, the slashing of operating costs and the reduction of employee numbers, the State Bank may well lift its pre-tax profitability to a more commercial level. But it will never be in a position to provide both a commercial rate of return and compensate New South Wales taxpayers for the financial obligation of the government guarantee on all liabilities of the bank.
Private sector bank owners and shareholders carry no such obligation, as they do not guarantee the full liabilities of their banks. Based on information from Australian Ratings and in accord with the New South Wales Treasury guarantee fee policy, this government guarantee has an estimated market value of at least $100 million a year. This means that the New South Wales taxpayer is currently forgoing around $100 million a year for the privilege of running a bank which has to compete in the marketplace. If that $100 million a year opportunity cost is not sufficient reason for the Parliament to say yes to this sale, then let me add this. The issue of a government guarantee has been brought into very sharp focus, courtesy of previous Labor administrations in other States.
Ask the South Australian people what the cost associated with a Government guarantee in banking is worth. They will say that it is around $3 billion on a bad day, perhaps even more. Let me put that into perspective: that is the equivalent of almost half of the New South Wales health budget. We will never really know the true extent of losses in Victoria, because the Federal Labor Government had to sell off 20 per cent of the Commonwealth Bank to bail out State Bank of Victoria. By contrast, and contrary to the smear campaign of the New South Wales Opposition, the State Bank of New South Wales has been well managed and is in a sound financial position. But even if the guarantee is never called on, we are left with the undeniable fact that every year the sale of the State Bank is delayed New South Wales forgoes at least $100 million on the market value of the government guarantee.
It would be financially irresponsible to allow this situation to continue for a day longer than necessary. But this is the path the Opposition would have us travel. In opposing this bill, the Opposition is asking the taxpayers of this State to continue carrying the risk and forgoing the reward. The time has come for New South Wales to accept that being in banking is not in the taxpayers' interest. That is the reality of the decision the House must make. The sale agreement and the legislation before the House are good for the taxpayer, good for the bank, good for bank customers and good for bank employees.
In developing its approach to the sale and in subsequent negotiations on the terms of the sale, the Government set itself three key objectives: first, sale of the bank on the best available commercial terms while addressing a range of preferences in the long-term interest of the people of New South Wales; second, enhancement of the competitive strength of the State Bank after privatisation; and third, strengthening the financial position of the State of New South Wales. The sale agreement that we have negotiated, and which I now present to the Parliament, addresses comprehensively and realistically each of these objectives.
The PRESIDENT: Order! Pursuant to sessional orders, business is interrupted for the taking of questions.