Gunns' banking dilemma

David Symons this week in the Fairfax media canvassed the worth of Gunns and suggested it’s only got 4 months to sort out the restructure proposal else it may find itself in breach of its banking covenants (HERE).

A bit like FEA at the current time.

But what are these banking covenants? How do they work?

Oh what a tangled web

Oh what a tangled web we weave, when first we practise to deceive.

The slow and tortuous wind up of the MIS companies Great Southern and Timbercorp has laid bare the legal complexities that were not envisaged by the Masters of the Universe who first created the monsters.

But it’s getting worse.

If Eucalyptus Nitens are causing toxicity problems in the Georges River area, then maybe the owners of the trees should be getting a little twitchy.

Spend, spend, spend...

Transparency may not be Paul Lennon’s abiding legacy, but that was the stated intention of the Charter of Budget Responsibility Act 2007 enacted during the ex Premier’s unforgettable tenure.

The CBR Act requires a Government to set out its fiscal strategy and to report its performance at regular intervals.

It also requires Opposition parties to release a fiscal strategy at election time.

The purpose of a fiscal strategy statement according to the Act is to establish a benchmark for evaluating the Government’s fiscal performance; and increase public awareness of the fiscal policies of the Government and Opposition parties.

Our vanishing tax base

In an earlier article covering issues facing the Tasmanian economy in these pre election times (HERE: Our economic black hole), the matter of the Government’s little known but very large overdraft was examined. The latest Mid Year Financial Report shows the State’s net cash reserves plummeting to $313m by 2012/13 despite the fact that the Superannuation Provision SPA a/c should show a balance of $1,589m by 2012/13.

Whilst Treasury no doubt has a conservative and achievable plan to reduce the overdraft, the so called temporary Debt Repayment a/c, and at the same time provide for the extinguishment of the unfunded super liability by 2035, it is not at all clear that Mr Bartlett’s current spending spree is based on the Treasury plan or indeed if Mr Hodgman’s plan to abolish taxes can be accommodated within that same plan. Without further info, we are all in the dark. As shareholders in Tas Inc it is a little unnerving.

In this second part a search for the ‘black hole’ that we were warned about as little as 12 months ago will be attempted. What happened to the State’s income as a result of the GFC, and how will the policy decisions and promises that have occurred recently affect this level of income?

Another forest industry plan

The Forest and Forestry Industry Council FFIC have recently released a 106 page report detailing their Plan for the future: The New Forest Industry Plan: HERE

Most credible plans will attempt an analysis of the past before attempting to outline a future course of action. The description of the past is skimpy and the analysis non-existent. It’s a little hard to give credence to the new Plan built on these foundations.

There is, however, one conclusion that is very revealing.

“Sawing trials have concluded that E.nitens plantation stock is unsuitable for, and uneconomical as, a source of wood for appearance grade sawn products. This is because of the considerable degrade associated with the seasoning process (in particular, surface checking and unrecovered collapse). .............. Unless these challenges (associated with processing plantation timber) are overcome, a large proportion of the current Tasmanian hardwood production industry is unlikely to be able to profitably or sustainably process plantation sourced logs into high grade products.”

Basically, FFIC has led the industry up the wrong path. Or maybe I should say the path that FFIC has been following is now known to be the wrong one.

Hodgman's Reagonomics

 ABC News (HERE) reported Will Hodgman as saying the Greens’ policy would bankrupt the state.

The Tasmanian Opposition has ridiculed the Greens for promising to abolish poker machines.

Tasmanians lose about $220 million a year on poker machines, while the Government reaps about $55 million in revenue, or 7 per cent of State tax receipts.

The Greens say they want to phase out pokies within five years, leading to fewer problem gamblers and big savings.

However Liberal leader Will Hodgman is sceptical.

“Most Greens policies are right out there in the Never-Never, they bear no practical resemblance to what’s achievable…......... it’s very easy for Mr McKim to come out and make these wild statements [but] how is he going to bring these policies into effect, without bankrupting the state.”

It is not immediately clear why abolishing land tax of about $80m or 10% of the State’s tax receipts over 8 years won’t create an even larger problem.