Sunday, June 28, 2009

Where'd those dollars come from?

Shane Wright in the West Australian:

A plan to reveal the home country of companies that buy Australian debt is unravelling just a week after it was forced on the Federal Government to put it in place.

The West Australian understands Government bureaucrats are struggling to come up with a system that will conform with what has been demanded by the Parliament, not become overly expensive and actually reveal the details sought by the coalition.

It follows the Government’s move to offer States and Territories a Federal guarantee for their debt, so they can compete on national and international markets for investors.

To get the guarantee through the Parliament, the Government accepted a coalition amendment that required a register to be set up that would list the company that bought the debt and the home nation of that company...

The coalition has expressed fears Australia will end up financially beholden to China.

At the time, Treasurer Wayne Swan warned there could be problems with the plan.
“The Treasury has advised that it will not be possible to publish the additional information and have any confidence it would provide an accurate reflection on the beneficial owners of Australian securities,” he said.

Those problems have quickly surfaced.

A major issue is that the amendments failed to outline what would happen in the case of a company refusing to reveal its identity or its home country.

In the US, which along with New Zealand is the other country with the requirement to reveal the home country of a bond holder, those companies that refuse to divulge the information face substantial fines.

But without any penalty to release the information, there are concerns within Treasury any register would be highly suspect.

A spokeswoman for shadow treasurer Joe Hockey said the coalition believed voluntary disclosure was preferred, but it was open to discussions on replicating the American system.

Another issue revolves around identifying owners of older bonds.

Between October 1996 and 1999 more than $9 billion worth of bonds were issued that are still to mature, many of which are believed to have changed hands since then. Following the trail of ownership is proving to be an expensive proposal.

There are also problems surrounding the sheer scale of the demand. The proposal, rather than requiring the details of new debt, called for the identity of debt already on issue from the Commonwealth. States and Territories can take the guarantee for debt they already hold and which they are rolling over.

There are more than $77 billion of Federal government bonds on issue and another $120 billion in government and semi-government bonds on issue from the States, Territories and some of their business entities.

Mr Swan would not be drawn directly, but a spokesman confirmed there are problems with the proposal.