Friday, 29 August 2014

Liberals' missed opportunity

Either there wasn’t a budget crisis or the government is yet to find a solution.

After five months at the crash repair shop, the budget that emerged is little different to the previous model.

If anything it’s worse.

Last year, from a cash viewpoint, break even budgets were predicted over the ensuing four years. This year the combined cash deficits for the next four years are $350 million.

Over the next four years about 90% of receipts will be spent on operating expenses, about 6% on capital and infrastructure and about 5% on finance costs and meeting the costs of the unfunded superannuation of RBF retirees. In every year more will be spent than received. This follows the pattern of the Bartlett/Giddings governments over the last four years.

It is difficult for first time readers to extract this sort of information as capital grants are mixed with operating income, payments for retirees are bundled with current expenses and borrowings include the temporary borrowings each balance date to repay amounts internally borrowed to help pay bills. There is an urgent need for more comprehendible financial statements.

The situation would be even worse if compulsory employer superannuation was paid for the one-third of government employees, approximately 8,000 public servants, who are members of the now closed RBF defined benefits scheme. The government is fortunate that superannuation needn’t be paid on these employees, rather it can be deferred and paid when employees retire and receive either a lump sum or a pension.

Surviving by being able to defer employees’ superannuation arguably doesn’t constitute a foundation for a sustainable future.

At 30th June 2014 there was supposed to be $1.3 billion in all the various government operating and special deposit accounts but there’s was only about $350 million in actual cash because the rest had been internally borrowed and spent to keep the government afloat as spending exceeded revenue and it was cheaper to borrow internally than externally.

In four years time there won’t be any actual cash left, the last $350 million internally borrowed to pay the government’s bills. Fortunately some of the new internal borrowings will be used to repay previous internal borrowings, a little like using new credit cards to pay old ones, so that the amount of internal borrowings will reduce to about $750 million in four years time. The repaid borrowings will include capital grants of $300 million, mainly for the hospital upgrade, received but spent on other items.

It‘s difficult to comprehend how the absence of a cash buffer can be construed as providing a sustainable foundation for a service deliverer self constrained by an unwillingness to increase own source taxes and unable to borrow because it’s still spending more than it receives and therefore unable to service any increased borrowings.

The situation facing Mr Gutwein was eerily similar to when Ms Giddings assumed the mantle from the departing Mr Bartlett only to discover the barn was empty. Both should have known their predicament as the figures were there to see. Both have employed the same approach, cut a few jobs and raid government businesses. Government businesses will be required to pay even more than Ms Giddings demanded, 90% of their after tax profits as dividends, making their total payment  a whopping 93% of taxable profits (NB the businesses pay income tax equivalent payment to the government rather than the ATO).

In addition MAIB will pay a special dividend of $100 million this year, Tascorp will pay extra each year and Hydro Tasmania will be asked to pay $75 million in 2017/18 despite appearing to be in a loss situation. These amounts give the government much needed cash. But as a means for reducing the government’s net debt to $53 million by 2017/18 it is an illusion as it merely increases the debt of government businesses and hence the net debt  of the total state sector does not change.

Hydro Tasmania’s situation is worrisome. Burdened with an extra $205 million in debt when the last government forced it to take over the Tamar Valley Power Station from Aurora Energy, with the loss of carbon pricing and the imminent loss of the Renewable Energy Target, Hydro Tasmania is now being asked to pay another $75 million to the government, when all indications are it needs a cash injection, a capital restructure, as promised by both this and the last government.

The government left itself with little room to move after its constant pronouncements about withdrawing funding from Forestry Tasmania (FT). A business case was not required to repeal the TFA nor to cut off funding for FT. Loan funds from Tascorp will probably be used to prop it up with the government paying the interest as it does with a Tas Racing loan. Security for the loan via a Letter of Comfort is already in place.

A rationalisation of government departments was expected after the creation of the Department of State Growth. Alas little has changed with eight ministers holding portfolios in the new department. Mrs Petrusma is the only Minister who didn’t get a gig. This highlights the government’s confused hotch potch approach to reform.

Infrastructure spending totalling $1.6 billion at first glance looks ok, but over half relates to $437 million for the hospital and $400 million from tied capital grants for roads, rail and water  facilities. The remaining amount is always first in the firing line whenever cash flow pressures arise and savings have to be found. Forward estimates haven’t been achieved since Methuselah was a boy.

Commendably, the budget papers make it relatively easy to see where the election commitments have been honoured. And they have in most cases, although in the context of the whole budget the amounts are relatively small.

Because of the electoral cycle there has been no policy action for 15 months despite a known deteriorating budget outlook. However it is delusionary to pretend that this budget fixes things. It perpetuates the myth, shared by all parties and most interest groups, that a spending shuffle is all that is needed. It has been a missed opportunity.
(Published in The Mercury 30th August 2014)


  1. Just wondering where the Gov think they'll source the funds to finance at heir proposed 2018 Taswater takeover to supposedly speed up any infrastructure remediation when they "couldn't" previously provide assistance to the Council controlled entity ... which is in stark contrast to their approach for propping up the Racing 'Industry'.
    Seems like more deck chair shuffling, not sure what the strategy is really about?
    Have you got any insight on this & its budgetary impact?
    So many assurances "that it'll be better if State Gov control it" you think there'll be a factual business case prepared, or just more fluffy feel good rhetoric?

    1. Just posted a couple of blogs on Tas Water they may be of interest.