Page 2361 - Week 08 - Wednesday, 29 August 2007
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This is a substantial increase in costs per loan, and one which might alert the government to the possibility of outsourcing this portfolio. As a result, I raised this matter in estimates committee hearings to see what kind of analysis had been done of this problem. In these hearings, Ms Megan Smithies of the ACT Treasury said that a previous review had indeed been conducted to determine whether the government could outsource this portfolio. The review found at that time that it was better value for money that the portfolio be retained by the government. She did not state when this review was conducted, and I would be interested to know that.
However, in answer to a question on notice, the Treasurer stated that the portfolio had undertaken an investigation into its management before the expiry of its previous management contract, which was some time in or before 2001. There was no mention of any review conducted since this time, some six years later. This is a bit of a worrying revelation. As can be seen from the figures I have cited, the administrative costs per loan are increasing at quite a dramatic rate and the government does not appear to have kept track of the viability of this portfolio. If its last review of the issue was conducted as far back as 2001 or before then, we have seen at least six years elapse without further review. Given that costs per loan have almost doubled in the last two years, we need to be looking at this issue somewhat more regularly.
Of course, I acknowledge that there is some difficulty with outsourcing this function due to the unique nature of the loans, which include terms favourable to the borrower that do not exist in standard commercial loans. Indeed, the government should be mindful of this difficulty in its future lending activities. It shows that there is some value in governments adhering to standard commercial practices, and this must be weighed against other objectives.
Despite these difficulties, there are clearly other means by which this portfolio can be wound down if necessary. If this portfolio becomes too expensive to justify retaining, there is always scope for the government to provide incentives to borrowers to refinance through commercial lenders. The government must consider every option, especially when costs are rising so rapidly.
I reject the Treasurer’s statement, in his answer to question on notice No 207, that administrative costs could not be compared to the private sector because of the differences in the loans. This is a bit nonsensical. The numbers can easily be compared, and this comparison will tell us how much more the government pays to administer its loans than the private sector. The difference may be due to a multitude of factors, such as economies of scale, additional efficiencies within the private sector or even different kinds of loans. No-one is suggesting that the private sector figure is for the same kinds of loans. But the difference is nevertheless useful in understanding the additional administrative costs faced by the government in providing these kinds of loans compared with what the costs in the private sector are for its commercial loans. The government must look at all options. I am in no position, standing outside the agency, to tell it which one is the best. I can only make suggestions, and I urge the government to keep up to speed with its costs and options.
The dissenting report of the estimates committee recommended that the government regularly reassess the viability of this portfolio in the light of increasing costs per loan.
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