Saturday, 15 February 2020

Revised Estimates Report shows problems ahead

The government’s cheer squads are not quite as raucous as they once were.

There’s a growing awareness that all is not well with Tasmania’s fiscal position. The Revised Estimates report for 2019/20 released this week confirms the State’s vulnerabilities.

Needless to say Premier and Treasurer Gutwein was unwavering in his claim that the government fifth surplus in a row “means more money to invest in essential services that Tasmanians need”. This is a complete untruth. The surplus as measured by Mr Gutwein doesn’t provide more money. Only a cash surplus does.

The government’s mischievously titled surpluses conveniently ignore a lot of capital spending, including large equity contributions into government businesses, many sourced from capital grants from the Feds which are included as income when received.  

Over the next four years, including the current year 2019/20, the Gutwein government will spend $1.8 billion more than it will receive. This year for every $100 received we will spend $108. Next year the figure will be $110. The government is running large cash deficits.

The ‘surplus’ measure this year was even more meaningless than usual. The original projected ‘surplus’ for 2019/20 of $57 million was inflated by a change in accounting standards. In past years all federal grants were included as income regardless of whether the amounts were spent in the year of receipt. In 2018/19 for instance $56 million was received as part of Project Marinus. By year’s end almost all was unspent. This stroke of fortune ensured a surplus was posted for 2018/19.  

Beginning in the 2019/20 year it was decided, in the case of National Partnership Payments (NPPs) which are specific purpose grants as distinct from general purpose grants such as the State’s GST distribution, to include them as income when spent, not when received. This is in line with conventional accounting standards, to match the timing of income with its spending where the grant is for a specific purpose. The net effect of this change in accounting policy in 2019/20 is to include $135 million of grants received in prior years as income in 2019/20. It was already included in 2018/19. Never has two bites of the cherry been so rewarding. The 2019/20 ‘surplus’ improved by $135 million with double counting income.

The impacts of the change in accounting standards was mentioned in passing in the 2019/20 budget but the government persisted with its claim that its headline surplus figure was $57 million. Even using its flawed method of calculating surpluses, the figure should have been a deficit of $77 million. It wasn’t obvious to most readers that the government was double counting income.

In any event the alleged surplus is tiny. The latest estimate in the Revised Estimates Report is for a ‘surplus’ of $10 million for 2019/20. It’s a figure that’s easily massaged. Take TTLine for instance. It has been accumulating funds to pay a deposit on the new ferries , but as part of a shameless accounting fiddle it  paid a $40 million dividend this year to boost the surplus, even though the government will hold the money on deposit and return it when the deposit needs to be paid, at no cost to the surplus because the surplus calculation conveniently excludes equity contributions into government businesses.

The 2019/20 budget tabled in May 2019 was predicated on finding $450 million of cost savings over four years. The Revised Estimates Report indicates $300 million of savings were found. The government couldn’t find the remaining $150 million.  Health was let off the hook for $90 million and the remaining $60 million will be taken from government businesses over four years. Hydro drew the short straw this year and will have to pay $15 million in addition to its usual dividend and a special dividend of $70 million. This cost savings exercise highlights the State’s dilemma. Even if a similar level of savings is found for each ensuing four year period, which is doubtful, the State will still be spending far more than it is receiving.

The government’s cash reserves are fast diminishing. Soon it won’t be able to fund operations by internal borrowings. The government is postponing the inevitable external borrowing until 2020/21, in part by continuing to squeeze government businesses by forcing them to pay special dividends whenever it can. The government is requiring Hydro to pay special dividends of $85 million this year. The overall State situation is the same whether Hydro pays a dividend, or the government borrows. However, getting a government business to borrow (or refrain from paying debt) and then remit dividends to the government, boosts the sacred surplus and puts a little more lipstick on the pig.

A listed company wouldn’t get away with peddling the same nonsense and providing the same inadequate explanations as Treasurer Gutwein does. He treats us with contempt.

(A more detailed look at the Revised Estimates Report and the legacy left by former Premier Hodgman will be posted in a few days.)

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