Friday, 1 February 2019

The surplus that never was

The Treasurer’s Revised Estimates Report for 2018/19 released on Wednesday 30th January reveals we are on the brink of a disaster.

The Treasurer still says otherwise. “(W)e will remain in surplus this year and across the forward estimates”, according to his media release.

How can the government be running surpluses if its net debt position worsens by $1.2 billion over the forward estimates? That’s because they’re not real surpluses. The Treasurer is not entitled to describe his bottom line as a surplus, because that term implies a cash surplus. Most people think the government is running cash surpluses. The reality is the exact opposite. For example, in the current year, the government will spend $522 million more than it will receive.

This is not a temporary blip caused by the Hobart hospital. Even after Revised Estimate changes, spending on the rebuild will only be $210 million this year (and $80 million in 2019/20 to complete the job).

In the next year or two the government will finance its excess spending by internal borrowings. In three years’ time however the cupboard will be completely bare. Even the $270 million that the government has supposedly set aside to cover insurance (the government is a self-insurer) will be gone.

Then what? The government will have to start borrowing like Hydro, Tas Networks and TTLine. The Revised Estimates don’t appear to provide for extra interest payments, but they will only occur towards the end of the forward estimates which few people believe anyway, so the omission is not serious.

The Treasurer’s budget bottom line for 2018/19 of $161 million, the so-called surplus figure, has been revised downwards by 95% to a miniscule $7 million. What happened to cause the change in the government’s fortunes?

The major culprit is health. In the original budget for 2018/19 handed down in May 2019, the Tasmanian Health Service (THS) was given a budget of $1,510 million, a delusionary figure given actual spending for 2017/18 was $111 million more. The Revised Estimates Report allocates another $113 million to health for 2018/19 about $100 million of which will probably go to THS. Which still leaves it short of what was spent in 2017/18. How’s that going to work?

Almost as an afterthought, a $50 million health funding provision was created in Finance-General (part of Treasury) in each year of the forward estimates, from 2019/20 onwards. The amounts won’t be enough. If it all goes to THS, its budget for 2019/20 for instance will still be less than what was spent in 2017/18. That’s absurd.

The Treasurer claimed being able to now spend more on areas like health “is precisely why we budgeted for a surplus in the first place”. That’s bizarre. He created the surplus principally by underfunding health.

If realistic figures for THS were incorporated in the Revised Estimates, it would be obvious that external borrowings will be needed. The government is avoiding the inevitable. Most people would probably be comfortable if only they knew how the loans will be serviced, with cash outlays currently exceeding cash receipts and likely to continue that way. That’s the big unknown.

What’s the alternative? Increased taxes? The Revised Estimates Report cuts taxation revenue forecasts despite Tasmania supposedly being on a roll? The original 2018/19 budget contained significant increases in conveyancing duties. The property tsunami finally reached Tasmania’s shore and the increased duties were about to be a reward for patience. However, the Revised Estimates removes 60 per cent of the increased duties that were pencilled in only six months ago. What has happened cause such a massive fall in estimated duty receipts? Lower property prices? Lower turnover? Maybe the 2018/19 budget was wishful thinking?

What is now unravelling was destined to happen, as sure as night follows day. On each balance date when financial statements are prepared the government arranges a 24-hour loan to repay its internal borrowings.  There is no footnote to assist a lay reader. When this cosmetic transaction is ignored however the emperor is found to be without clothes. Almost all commentators have parroted the government’s mantra that the budget is and will remain in surplus, without bothering to understand the true situation.

The surplus delusion has spread to the opposition parties. Whether the unions have become infected as well is unclear. Maybe they were happy to accept the existence of a surplus and use it to press their claims for wage increases. After all a one per cent increase in wages only costs $25 million which is only a fraction of the government’s original surplus of $161 million for 2018/19. The Treasurer has made a rod for his own back with his misleading claims about surpluses. Surpluses have been manufactured to obscure the ever-deepening black hole. There’s no plan B in case Plan A failed. Plan A was little more than a fanciful wish that a benefactor would rescue the State before it became airborne in road-runner territory. In that respect the current government is no different to all its predecessors.

The government earned the right to be given space to sort out our problems as per their election manifestos. But the Revised Estimates Report shows they have palpably failed. There are no cash surpluses. There is no cash buffer for a rainy day. The extra demands upon government from a growing economy far exceed any extra revenue raised. There is no plan to raise more revenue. Father Christmas hasn’t been leaving any extra each year. Austerity is the only answer it seems. How long will the government keep trying to spend less on health than it did in the immediately preceding year?  And when it is forced to find more, from some other area that probably can’t do without, how long will the government continue to blow its trumpet that even more is being spent on health than ever before, to meet, to use the Treasurer’s words, the “unprecedented levels of demand in our hospitals and health systems”.

Unprecedented maybe but entirely predictable.

(Published in The Mercury 1st Feb 2019)

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