VicForests heading downhill fast

 It is difficult to understand how VicForests’ can describe its latest loss of $4.7 million as ‘a sound result’.

A closer look at the VicForests’ Annual Report for 2020/21 suggests a different description may be warranted.  Forest revenue of $85 million was similar to the previous year, but after production costs of $70 million the stumpage value of harvested timber was the lowest ever at 17.9 per cent of revenue or $15.3 million, which was scarcely enough to cover roading and regeneration costs of $13.5 million, let alone employee costs of $19 million and overheads of $12 million. A lifeline of $21 million from the Government was needed for VicForests to continue as a going concern.

Basslink for sale?

 

By any measure 2020 was annus horribilis for Basslink P/L, the owner of the existing Bass Strait interconnector, currently operated by Hydro Tasmania.

Basslink’s recently released annual financial report for the calendar year 2020 revealed its battle-scarred balance sheet after unsuccessful legal battles arising from the 2015/16 cable outage.

In December 2020 Basslink was forced to write off $30.8m which it claimed Hydro owed. The debt write-off related to whether the cable outage was a force majeure event. After taking six months to repair the cable, Hydro maintained because it was unavailable for half the year, the agreed monthly fee upon resumption should be reduced by the availability adjustment factor. Basslink argued the cable fault was an Act of God, a force majeure event, and hence the adjustment factor didn’t apply, and the full fee was payable. The arbitrator didn’t accept God was involved and found in Hydro’s favour. 

The arbitrator was also needed to resolve other disputes between Basslink and Hydro and between Basslink and the State government in respect of the cable failure. In the latter case the arbitrator awarded the State government $46.7 m including costs and interest. In the former case Hydro was awarded $26m, with costs yet to be decided. Basslink has raised a provision account which suggest another $30.9m may become payable. That’s a total of $103.6m Basslink will have to pay Hydro and the government.

Gutwein's grand delusion

 

The Budget papers elicited a memory of an Irish joke which I’m sure you’ve all heard. In answer to a tourist seeking directions to Dublin, the local responded: ”Well Sir, if I were you, I wouldn’t start from here”.

If we are to move to a better place, we shouldn’t be starting with the latest budget delivered by Premier Gutwein. The narrative is awfully misleading. “Last year we leveraged our strong balance sheet to support our community and underpin our economy”, the Premier said. ‘Leveraged’ is right, we borrowed more. ‘Strong balance sheet’ is wrong ‘cos it’s not. The State government’s net assets are no greater than the combined net assets of local governments. Because government businesses are inextricably entwined with the rest of the government sector, one needs to look at total State sector when passing judgement on our supposed strength.  The State’s total assets, including those of government businesses will be $37 billion by 2025. There will be $9 billion of cash and investments (mainly Tascorp and MAIB) and $28 billion worth of land, buildings, infrastructure etc. But there will be $28 billion of liabilities including borrowings of $11 billion and unfunded superannuation of $10 billion Net financial liabilities therefore will be $19 billion. As Saul Eslake recently observed, relative to our size this is larger than all other States and territories except for Northern Territory. Premier Gutwein always likes to draw attention to our low borrowings, our net debt, compared to other states. This is deliberately misleading. It’s our total financial liabilities that’s the relevant metric.

Future Gaming Mega profits

 FUTURE OF GAMING IN TASMANIA

Stage 2 Public consultation August 2021

 

The inescapable nagging question that needs to be answered is why does an industry with as few redeeming features as the gaming industry receive gold star government assistance?

 

Future Gaming Market reform: A windfall for pubs.

 

Everyone including Federal Hotels accepted the reality that the days of its money making machine Network Gaming were numbered. With the exclusive license to run electronic gaming machines EGMs due to expire in 2023, assuming the government has given Federal Hotels the requisite 5 years notice, pubs and clubs were eying off a bigger share for themselves. Both parties, Federal Hotels and THA representing the pubs, cobbled together a proposal in 2017 for a new division of the spoils which the Government has adopted and rebranded as Future Gaming Market reform.

At the time, on 18^th August 2017 Federal Hotel’s boss Greg Farrell told a Parliamentary hearing:

“The Vantage Group's viability would be enhanced as a result of this, as would every other licensed hotel and club. The average value of a Tasmanian hotel and club, post 2023, on this basis, would improve by about $1.5 million. That has been our model and it has been independently verified.” (Note: The Vantage Group is part of Federal Hotels with 12 EGM pubs and 21 bottle shops under the 9/11 banner).

A couple of points. Greg talked about the ‘average value’ and how it will ‘improve’. That pre-empts the question, what is the current situation? And how will the proposed changes impact the value of pubs?

When breaking a monopoly is appalling public policy

 

AT least we now know the excuse for the delay with Future Gaming Markets reform.

Minister Michael Ferguson in Talking Point said the release of the reform package followed “an extensive body of work, with licence fees and tax rates that apply for Far North Queensland casinos (a comparable market) used as a benchmark” (“Delivering best policy on gaming,” July 9).

It might be a coincidence, but the concept of this benchmark to justify low tax rates for casinos was first floated by Federal Hotels in December 2016 and again jointly with the Tasmanian Hospitality Association in 2017. The nature of the extensive body of work undertaken since is not evident. Nothing has changed.

There are three principal reasons why governments fiddle with tax rates and tax concessions. Firstly to raise more revenue or hand some back if they’ve got too much. Secondly to encourage activity if desirable, or to discourage if deemed undesirable. And thirdly as a reward for services or deeds, past, present or future.

Clearly the first reason does not apply in this instance.

The government has tried to pretend the second reason is why the North Queensland benchmark is being adopted. Yet there is no sound public policy basis why casinos in regional areas currently need assistance. The benchmark rationale is a cut-and-paste from the Handbook of Self Interest. We don’t need to attract more capital for new casinos packed with electronic gaming machines as they’re prohibited. Tourists don’t come to Tassie to play the pokies. Even if they did, the tax rate is irrelevant. “Let’s go to Tassie ’cos the EGM rates are lower” is not a marketing slogan you’re likely to hear. It’s the locals who play casino EGMs. Any concessions to Federal Hotels simply gives them an unfair advantage over other accommodation providers.

Which leaves us with the third reason for granting a tax concession, namely an ex-gratia reward.

Who's picking up the tab for Marinus?

 

FEW would have been surprised, least of all blind Freddy, to hear that the Marinus Link will put downward pressure on wholesale electricity prices.

If there’s more produce for sale in a particular market, there’s usually downward pressure on prices. It doesn’t require extensive modelling by well remunerated consultants to make that call.

But that was the headline take from the recently released TasNetworks report as Minister Barnett’s media release trumpeted: Marinus Link confirmed to drive down power prices. All part of the blatant campaign to gain a social licence for Marinus.

The release went on to qualify the statement by referring to wholesale prices.

The key word here is “wholesale”. Wholesale prices comprise less than half of what consumers pay. The other half is mainly transmission and distribution costs. TasNetworks is the monopoly provider of those services in Tasmania.

Wholesale prices are normally of little concern for TasNetworks. Hydro as our publicly owned generator selling electricity into the national market is the entity with a deep abiding interest in wholesale prices. But won’t lower wholesale prices lower Hydro’s profits? They certainly will. We don’t need a consultant to tell us that.