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?
Too little attention is given by the politicians to
the income side. It’s as if money grows on trees.
Amounts received from the Feds consist of General
Purpose GP Grants being a share of GST receipts, and Specific Purpose SP and
National Partnership Payments NPP being for specified purposes as agreed
usually at COAG meetings.
There is no doubt that the GP grants have reduced
following the GFC.The Government has been at a loss to explain why GST receipts
have fallen so much when the effects of the GFC here have been minimal.
But overall when SPs and NPPs are included, grants
from the Fed will increase over the 4 year period of the forward estimates
(FEs).This is the conclusion when the 2008/09 Budget handed down in May 2008
(before the effects of the GFC) is compared with the latest Mid Year Financial
Report in Dec 2009.
But SP grants and NPP grants are tied grants which
have to spent in agreed ways, so in fairness it might be appropriate to look at
Fed grants less direct grant expenses. The net grants for this year 2009/10 are
expected to increase by $67m , but fall by $27m and $60m in the succeeding
years if the May 2008 Budget is compared with the Dec 2009 Mid Years. Not a
huge concern. Certainly not a reason to frighten us all with talk about a black
hole of $1.5b.
But what about the State’s other income? This is
where the picture becomes bleaker. We are planning to become more reliant on
Fed grants. We will be raising less.
The following table extracted from last year’s
Budget and this year’s Mid Year Report averaging cash income over the period of
the Forward Estimates (4 years) shows an alarming change in the amount of
income we, as a State, are raising.
2008/09 Budget
|
2009/10Mid Years
|
|
Grants
|
58.8%
|
61.9%
|
Taxation
|
21.6%
|
19.4%
|
Sale goods and services
|
7.3%
|
8.4%
|
Fines, regulatory income
|
1.4%
|
1.5%
|
Interest income
|
2.4%
|
0.8%
|
Dividends and tax equivalents from GBEs
|
3.4%
|
3.3%
|
Other receipts
|
5.1%
|
4.8%
|
Total
|
100.0%
|
100.0%
|
Operating expenses
|
88.1%
|
92.4%
|
Net cash from operating
|
11.9%
|
7.6%
|
Net cash on new plant & infrastructure
|
7.9%
|
12.6%
|
The % of our income raised by State taxes has
fallen from 21.6% to 19.4%, a fall of 2.2%.Because we’re spending all our cash,
interest will fall from an average of 2.4% of our income to 0.8%, a fall of
1.6%. Together these amount to 3.8% of our income or around $170m. The Feds
share of our income has risen by 3.1% to almost 62%.
What’s the response? Bartlett is spending like his
life depends on it. Will promises ‘real change’ then takes another $80m out of
our income with the land tax abolition at the same time slamming the Greens for
living in Never Never land and likely to bankrupt the State with their proposal
to reduce State revenue by a lesser amount with the abolition of poker
machines.
Peter Gutwein’s line is that ‘fiscal
responsibility’ is all that is needed to cover for the absence of land tax.
Presumably he means spending cuts. I can’t quite believe it. We could be
looking at a possible reduction of 6% in our income or $270m pa which will be
addressed with spending cuts.
The above Table also indicates that spending on new
plant and infrastructure will exceed the net cash after normal operations. And
this is before the spending spree of the last 2 months. Sure that’s what we may
expect Government to do in hard times but they’re spending the funds set aside
to extinguish the unfunded superannuation liability. Which they haven’t
attempted to explain to voters.
Another salient point from the Table is the steady
contribution made from GBEs into Government coffers. Only 3.3% of our revenue
but hugely invaluable at this time. Imagine if the GBEs were sold as some
politicians are philosophically inclined to do, the proceeds could easily
vanish during an election campaign, and we would be left with a future revenue
shortfall without dividends and the payment of income tax equivalents from
GBEs.
The Age reported one of Ken Henry’s speeches the
other day in which he cited the controversy over the Hawke government’s
introduction of a fringe benefits tax in the 1980s, a move he said was based on
the ‘‘rather innocuous proposition that a worker should pay tax on his or her
remuneration even if it is not labelled wages or salary’‘.
‘‘Who on earth would consider it sensible that an
executive who receives some part of his remuneration in the form of a Porsche
and a holiday apartment should not be required to pay tax on that income?’‘
Dr Henry said he still found the intensity of
opposition to ‘‘this rather obvious requirement of tax system fairness and
integrity’’ hard to believe.
Ken Henry could have been talking about Tasmania.
Or about Will Hodgman’s plan to abolish land tax
ostensibly designed to drive investment, but at the same time retaining the
socially wicked and economically inequitable poker machine tax.
Another small matter Will hasn’t confided to voters
is how the abolition of land tax will be regarded by the Grants Commission when
they assess the State’s revenue raising efforts as part of the complicated
formula used to divide GST revenue between States. Could it be that our % of
the GST pool will fall if it shown that we are not pulling our weight when it
comes to raising our own revenue?
Nouriel Roubini who was one who foresaw the
impending GFC train wreck wrote recently in the AFR while discussing the debt
time bomb which might impact on some advanced nations ( Australia was not on
the list) said
“Americans are deluding themselves that they can
enjoy European-style social spending while maintaining low tax rates as under
President Reagan. At least European voters are willing to pay higher taxes for
their public services.”
Tasmanians are similarly deluded if they blithely
accept what Messrs Bartlett, Hodgman and McKim are saying.
No comments:
Post a Comment