Tripartisan blindness

The complete and utter failure of the Tasmanian political class to articulate and discuss policy options for the State has never been more apparent than with the State budget in May and the ensuing parliamentary Estimates hearings.

After two weeks of tribal conflict the combatants appeared together, in a mock tri-partisan display of support for a Tassie based AFL side. Their sheepish demeanour was tacit acknowledgement that the public is tiring of their inability to solve problems.

The Labor Party’s budget response was predictably tightly scripted. Every wearisome contribution focused on the State’s impending debt position.  ‘At least we didn’t go into net debt’ was the gist of Labor’s position. But that’s a red herring, a complete furphy. Former Labor Treasurer Michael Aird when asked why the State’s unfunded superannuation liability, now $8 billion, wasn’t included in the net debt calculation, used to respond by saying “it’s a liability, not a debt”. The current Labor leadership is continuing with the same convenient hair-splitting approach.

Few people care whether it’s a debt or a liability. It has to be paid. If anything, the superannuation liability is more onerous, requiring payments each fortnight. Debt repayments can be deferred.

Currently servicing our small debt plus the large superannuation liability only requires six per cent of annual revenue.  But after paying operating expenses (around 90 per cent of revenue) and investing in new plant and infrastructure (around 10% of revenue) there’s nothing left to pay for debt servicing. We need to borrow to service our debts (and liabilities).

Planned infrastructure spending are deferrals from past years. Yet they won’t be or shouldn’t be a one-off splurge. We will need that level of spending in the foreseeable future.

When all outlays are considered the government is not running surpluses. For the current year 2019 and the next four years, the budget papers indicate $1.5 billion of spending in excess of receipts. If that pattern is replicated for a subsequent period, that’s another $1.5 billion. That assumes of course the government can find $450 million in savings over the next four years as required by this year’s budget.

The current shallow political discourse assumes the cash flow shortfall set out in the budget papers is a temporary phenomenon. No one has considered it may be more permanent. The $450 million of savings won’t be a one-off occurrence. Either that or there’ll be even more borrowings needed, funds to pay for new infrastructure plus funds to service the growing debt.

Survival plan A borrowed internally from government accounts with lazy balances. Plan B required government businesses to remit as much as possible, even requiring some to borrow. Hydro Tasmania and Tas Networks have probably reached their borrowing limits, hence the government has now moved to Plan C, borrowing directly from Tascorp. There is no alternative. It’s probably an overstatement to categorise it as a plan. More a wing and a prayer at this stage.

The budget estimates government revenue growth over the next four years will only be 1.6 per cent per year. Adjust for inflation and that’s no increase in real terms.  Similar revenue growth in the broader State sector doesn’t offer much hope of using government businesses to assist. The second Basslink offers a chance for Hydro Tasmania and Tas Networks to make some more money, but it’s a terribly costly and indirect way to assist the State. There would be a long queue if every industry was offered heavily subsidised freight costs to mainland markets.

The government hasn’t grossly mismanaged as the Labor party alleges. Its priorities may not have universal appeal. Where it has failed comprehensively is by misleading us. The new Financial Management Act almost ten years in the making has produced the same old tired set of opaque budget papers which are difficult to follow even with accounting knowledge and a bit of practice. Compared to other states we are badly served.

The government’s strategy is to match spending with revenue. That will mean zero spending growth in real terms.  Yet health costs will inevitably grow in real terms. Health demand will also grow and that is from a base of neglected unmet demand. Infrastructure costs too will rise in real terms. Combined with the backlog of projects and the growing needs of a growing population, cash deficits will be with us for a while. Let’s put this unassailable fact on the table. There is no alternative especially as the Federal government wishes to run surpluses, which means taking more out of the economy than it returns by spending. This doesn’t augur well for States expecting more grants. The surplus plan however might have to be revised given the latest national accounts figures indicated it was only government spending that stopped the weak national economy declining in the last quarter.

Tasmania isn’t going to get much of a hearing as a member of the Federation if it doesn’t get its own house in order. We don’t raise as much tax as the Grants Commission, charged with the GST carve-up, assesses we should. Consequently, we spend less. We build long life assets such as hospitals out of current income. Some areas, assistance to industry, tourism for example, get more than the Grants Commission on average reckons it should receive. Other areas, health for instance, inevitably suffer. To cap it off, the government is about to gift a select group of hotel owners exclusive licenses worth between $150 and $250 million to operate poker machines.

The government’s budget is a spending plan. There is no clear funding plan. It’s going to be a hand to mouth existence.

If tri-partisan support for an AFL side is the best we can do, we’re doomed.

(Published in The Mercury 14^th June 2019)