Thursday, 6 March 2014

Tripartite consensus at last?

The most compelling thing about the Liberals’ fiscal strategy just released is that it may signify the dawn of a new era of consensus.

The fiscal strategy is barely distinguishable from the government’s current strategy.

The government’s all important measure of budget sustainability, that the net operating surplus be at least $50 million per year won’t be achieved over the next four years.

The Liberals have responded with a strategy to do better.

Yep, that’s the strategy. To do better.

Specifically the target for net operating balance over the budget year and the forward estimates period will be for improved outcomes each year on current forecasts and to point the budget in the longer term direction of a surplus.

Nothing specific but just to do better than Labor.

If Labor’s budget outlook is drowning in an ocean of red ink, as the Liberals claim, then so is theirs.

Maybe the proposed authority to tackle red and green tape could have a look at reducing hyperbole as well.

The Liberals planned level of infrastructure spending is identical to that of the government, to spend an amount at least equal to the level of depreciation of existing infrastructure.

Which will be achieved in the next 2 years simply by spending $500 million on the Royal Hobart Hospital, two thirds of which come from the Feds.

Big deal.

In the long term expenditure growth will be maintained at two per cent.

Big deal.

There’s no alternative.

That’s the expected revenue growth, there’s nothing in the kitty and no other source of funds. Tax increases have been ruled out. The internal borrowings of almost $1 billion are maxxed out and further external borrowings can’t be serviced.

It’s not such a noble objective when there’s no alternative.

The Libs have acknowledged a majority Hodgman Liberal Government will adhere to the principles of sound financial management as defined in the Charter of Budget Responsibility Act 2007 (the CBR Act) to ensure transparency and accountability in developing, implementing and reporting on fiscal objectives.

A few weeks ago the Libs’ plan had been given a tick of approval by a lot of observers. But the deterioration of the Libs’ likely inherited opening balances as detailed in the Mid Year report plus the rash of subsequent promises and the realisation that many of the larger ticket savings are either unlikely or won’t occur in the timeframe indicated, means there is every likelihood the Libs will fall at the first hurdle.

The Libs are on track to produce a worse net operating deficit than the government in 2014/15.

It seems Mr Hodgman has finally admitted he plans to terminate 800+ public servants which will give a net downsizing figure of 500.

Thus far the Libs have denied that redundancies will be needed.

Nevertheless payment for accrued leave and amounts to cover superannuation benefit payments for older unfunded members will be required. These don’t form part of a net operating balance calculation as they are accruals already recorded in an earlier period.

Cash outlays will be needed however, which will worsen net debt and may necessitate a more permanent line of borrowings which will incur interest.

The media are yet to get Mr Hodgman to admit to the additional cash needed to get rid of 800 employees.

Ms Giddings experience two years ago when downsizing was last attempted was that only half the planned number ended up leaving and the cash savings were hardly noticeable in the first year.

It’s not as cut and dried as the Libs pretend.

Libs’ small business spokesman Mr Brooks recently chided his adversaries by claiming “(t)he Labor-Green government don't (sic) understand cash flow management.”He should perhaps give his colleague Mr Gutwein a lesson. Financial planners are notorious for being unable to distinguish between profits and cash flow.

Mr Gutwein’s media release which accompanied the fiscal strategies noted “Labor has lost control of the State’s finances”. A close look at the Libs plan doesn’t instil any confidence that they even understand the problems let alone are capable of rectifying matters.

The CBR Act requires fiscal strategies to be made public (Sec. 6) to specifically increase public awareness (Sec 4). The Libs paid lip service to the Act by posting the strategies on Mr Gutwein’s website rather than on Will Hodgman’s site which is the go-to-point for Lib policies and media releases.

Not that the government has been forthcoming about how their current budgets comprehensively fail to meet most of the benchmarks contained in their own fiscal strategies.

The government has been grossly remiss.

Both parties are co-conspirators in hiding the truth from electors.

The Greens too have released their fiscal strategies. It’s a bit of a cut and paste from their 2010 strategy. Still determined to extinguish the $5 billion unfunded superannuation liability by 2035 will mean that 10%+ of operating revenues will be devoted to payments in respect of the unfunded superannuation scheme. Given that at least 5% needs to spent on infrastructure (or more if the light rail project is to proceed), the Greens in effect will need to severely prune amounts spent on current operations. The strategy needs reviewing.

The fiscal strategies of the three major parties are similar.

They’re all unachievable.

There is no doubt that all plans will fail to meet their own benchmarks given the revised outlook presented in the Mid Year report.

We have, for what’s it’s worth, a tripartite consensus.

There needs to be a tripartite acknowledgement that all plans currently before the voters are inadequate and that we need to work together to solve what are not insurmountable problems.

The mantra that majority government, rule by the 51%, will move the state forward is seriously delusional.


  1. I'd be curious to know some solutions from your overview of the State Budget

  2. For me, a sustainable budget position is spending 85% of operating revenue on operating expenses, 5% on infrastructure, 5% on financing including paying past unfunded superannuation benefits leaving 5% for a rainy day.

    Additional infrastructure spending may come from capital grants from the Feds.

    This needs to be done over a 5 year period with a combination of increased revenue, reduced functions in some areas and continuing productivity increases.

    Increased revenue can only come from increased state taxes. We can’t expect the Feds to increase GST and simply hand the increases to the States. About 20% of our revenue comes from State taxes. It needs to be say 23%. The majority of Tasmanians don’t pay their fair share of State taxes which average about $1,700 for every man women and child. I don’t.

    But first and foremost there needs to be a recognition and acceptance of our situation. It’s not dire. It needs a dose of realism and a cooperative spirit, both of which have been noticeably absent of late.