Tasmanian Budget delusions

 

Barely a year ago Treasury’s Fiscal Sustainability Report revealed large icebergs on the horizon which will require Tasmania to chart a different course. Captain Gutwein had a good view from the bridge of what lay ahead. Unfortunately he has since resigned his commission.

New Treasurer Michael Ferguson has not yet fully acquainted himself with the outlook from the bridge if his Mercury Talking Point article on 2nd June (Tassie has the lowest net debt in the nation ) is anything to go by.

“From 2022-23, we will achieve positive net operating cash flows. This means that the Government continues to live within our means”, Mr Ferguson stated.

Most people would assume this means operating receipts will be greater than operating expenses. Government accounting standards however allow net operating cash to include capital grants from the Australian government.

Needless to say, capital outlays on infrastructure for such items as roads and the Bridgewater Bridge for which the grants will be paid to us, aren’t included when calculating net operating cash.

Nor are equity contributions into government businesses such as Tas Rail and Tas Irrigation also sourced from the Australian government as capital grants.

Include all outlays and there are large cash deficits in every year and for at least the next 15 years according to the 2021 Fiscal Sustainability Report. There is no way this can be described as living within our means.

Mischief bordering on deception is the only way to describe the Treasurer’s claim that our net debt is the lowest in the nation. The Budget papers went to great lengths this year to explain our position relative to other States. The Treasurer chose to cherry pick the bit that suited his narrative.

It is true that Tasmania’s debt is proportionally smaller than other States. But the government’s unfunded superannuation liability is proportionally much larger than other states.

Add the two together gives a more realistic measure of the relative size of our financial liabilities. It’s larger than other States.

Even so it’s the amount required to service the liabilities that is the most crucial number.

The amounts required to service borrowing is starting to track well ahead of the doomsday scenarios reported in the Fiscal Sustainability Report conveniently issued just after last year’s early State election. The Report estimated debt servicing for the 22/23 year at $48 million (see page 55 of the Review of the Report by the Parliamentary Public Accounts Committee (PAC) HERE). The current budget has interest costs at $90 million for 22/23, so we’re well ahead of schedule heading for the icebergs. By the end of the Forward Estimates in 2025/26 the current budget says interest costs on borrowings will be $206 million (see page 135 of Budget Paper No 1 for 22/23  HERE). The worst-case scenario envisaged by the Fiscal Sustainability Report which estimates $30 billion of net debt by 2034/35 has debt servicing costs of $148 million in 2025/26.  

Interest is increasing by more than 20 per cent pa yet operating revenue is growing  at barely 2 per cent pa.

How exactly can this be construed as living within our means?

Not only that but despite the cash deficits there is widespread evidence of a growing list of unmet needs for essential services.

Which makes it easy for Rebecca White and the Labor party to point to some of the unmet needs and use some of the traumatic stories of people who are suffering, as a convenient diversion from the fact that we have a hopelessly unsustainable fiscal position for which the Labor Party also has no solution.

To assert as Ms White did in her budget reply that Jim Bacon fixed things and Labor left the State net debt free is as misleading as anything Treasurer Ferguson has said.

The pattern of spending more than we receive became obvious during David Bartlett’s brief reign. The Liberals after 2014 tried holding back the tide of cash deficits whilst they battled to build the Royal Hobart Hospital after the Australian governments grants for the hospital rebuild were spent elsewhere.

But in 2019 the dike wall burst. A pattern of continuing cash deficits was there for all who wished to see. Covid has since made things worse.

To be fair, in the 2021/22 year, the year about to end, the government has done a reasonable job in achieving a slightly better than budgeted result, aided by some unexpected GST and an extra $100 million in State taxes due to increased duties from the booming property market and more payroll tax.

Our fiscal dilemma is not of Liberals doing. It is a Tasmanian problem caused by our inaction. Our complacency is death defying. We need to face up to the reality that we are spending more than we are receiving with no solution on the table.

We will continue to borrow just to pay interest with no end in sight. It might make sense, as the Treasurer argued, to borrow at historically low interest rates. It may only cost $2 or $3 to service a $100 loan but it still requires finding $100 to repay the loan. To do that requires cash surpluses. The State government is like a household unlike the Australian government which is not as constrained. There will come a tipping point when running deficits without a Plan B will not be possible for Tasmania. Let’s hope we fix the Federation before then.

The longer government ministers such as the Treasurer continue to gloss over our deep-seated problems and the longer the Labor party invokes stories of heartbreak and talk about football stadiums rather than the bigger picture, the longer it will take to get to Square One before we start to solve our mess.