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Legislative Assembly for the ACT: 1997 Week 13 Hansard (2 December) . . Page.. 4320 ..

MR WHITECROSS (continuing):

In other words, it is an expense which perhaps is not justified. The committee considered a decision to use external insurance had more to do with the requirements of Bankers Trust than with any wider policy considerations and should be regarded as a cost of the transaction.

In this regard, too, it should be noted that the Government in its budget papers makes reference to a policy of review of insurance risk and risk management arrangements. It is interesting to note that in relation to that a policy is yet to be developed, although some broad policy parameters have been identified. The broad policy parameters are to establish a self-insurance arrangement based on an internally managed fund, with risk-determined levies on agencies and purchase catastrophe insurance from the fund to protect against claims and losses above certain levels. They go on to talk about determining appropriate excesses, et cetera. It is interesting to note these policy principles which have been established, because what is not clear is that the policy principles established would have covered the use of external insurance in relation to the Dame Pattie Menzies Building or the Magistrates Court building. If it is intended that the catastrophe insurance clause apply to every government building, then it is interesting to note that there does not appear to be a policy of purchasing external insurance in relation to the multitude of other buildings which the Government owns, only in relation to these buildings.

The significance of the requirement to take out external insurance is this: The cost of that external insurance is a little over $30,000, I understand, in the first year. Presumably, it will be renewed at around the same figure or at a slightly escalating figure in future years, according to the insurance market. The $30,000 works out to some 90 basis points, that is, an amount which is 90 times the alleged saving of one basis point on the 15-year bank bill swap rate compared to the rate used in this transaction. That suggests the possibility at least that this is a more expensive transaction than traditional borrowing at the short-term interest rate or even at a long-term interest rate. Unfortunately for the ACT, only time will tell whether it is a more expensive arrangement. But there are reasons for concern contained in the arrangements here. It could be, therefore, that the Territory will be paying a higher price for the revenue raised, the $49m raised by these transactions, purely to satisfy the Chief Minister's desire to be able to come into this place and say she had no borrowings and to satisfy the Chief Minister's desire to disguise her borrowings, as indeed she has this financial year where she is actually going to borrow money, lend it to ACTEW and then get ACTEW to give it back to her as a dividend and pretend that that is not borrowing.

In conclusion, I will make one reference to Mrs Littlewood's inevitable dissenting report. Mrs Littlewood suggests that the committee put reliance on short-term finance and variable interest rates. The committee drew no conclusions whatsoever on the best financing arrangements; the committee merely sought to compare these arrangements with the kinds of arrangements which have been traditionally used for government financing and, indeed, with long-term interest rates which are the alternative. Given that the cost in the short term is higher than borrowing on the 90-day bank bills swap rate and given that it is marginal at best on the 15-year bank bills swap rate, the committee recommended that the Government not enter into any further sale and lease-back or lease and lease-back arrangements until it reports to the Assembly on a comprehensive policy for management of interest and insurance risks - that is, that future decisions in relation to

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