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Legislative Assembly for the ACT: 1997 Week 13 Hansard (2 December) . . Page.. 4318 ..

MR WHITECROSS (continuing):

the claims of the Government. However, the committee was unable to examine the lease and lease-back arrangements, as they had not been finalised. Therefore, the details of the arrangements were not available to be examined. It therefore recommended that the Public Accounts Committee inquire in more detail once the transactions were finalised. Earlier this year, when the transactions were finalised, a reference was, therefore, made to the Public Accounts Committee to conduct that inquiry, on the motion of Ms Horodny. As a result, the committee conducted an investigation into this matter.

The budget papers claim that lease-back arrangements free up considerable capital, negate the need for any new borrowing in the current year and allow for debt to be retired. That is what Budget Paper No. 1 for the year 1996-97, that is, the Chief Minister's speech, said. In evidence to the Estimates Committee, which was, of course, after the Estimates Committee had already concluded that they were borrowings, the Chief Minister proffered the view that sale and lease-back permit a lower level of borrowing, which reduces interest costs. The committee was not able to agree with these conclusions in the budget papers and in the Chief Minister's letter to the committee. The committee concluded that the lease and lease-back arrangements are effectively another form of borrowing and that the evaluation of the appropriateness of these arrangements should focus on the relative costs and benefits of lease and lease-back, compared with normal borrowings.

The committee concluded that the arrangement which involved payment of a capital sum by Bankers Trust to the Territory in exchange for an agreement to pay rent to Bankers Trust for 15 years - an arrangement which was linked to bank bill swap rates and an arrangement which left all the costs of ownership of the buildings in the hands of the Territory, not in the hands of Bankers Trust - was, effectively, a financing arrangement and was, effectively, borrowing in every sense of the word. The committee found that the lease and lease-back arrangement is similar in financial terms to borrowings and that such arrangements are not compatible with the low debt policy. In other words, the committee found that the arrangements are, in all respects, equivalent to borrowing, having the same annuity structure in which a capital sum is exchanged for a series of payments. This conclusion is similar in all respects, really, to the conclusion that the Auditor-General came to in relation to the sale and lease-back of the vehicle fleet, when he concluded that this was a financing arrangement, that it was not compatible with the low debt policy and that it should be regarded as borrowings in the accounts - something which the Chief Minister has apparently reluctantly agreed to do in the response she tabled earlier today.

Starting from that position that the arrangements should be evaluated on their relative costs and benefits compared with normal borrowings, the committee then proceeded to evaluate the claims that were made. In this regard, it should be noted that evidence provided by the Office of Financial Management indicated that the underlying interest rate agreed to in the lease and lease-back arrangement was 231/2 basis points higher than the 90-day bank bill swap rate at which they would normally have borrowed and that the 15-year bank bill swap rate, which is equivalent to the period of the borrowings in question, was only one basis point lower than the long-term bond rate at which they would have borrowed if they had borrowed long term. One basis point, of course, is equivalent to one-hundredth of a percentage point.

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