Image for Like shooting goldfish in a barrel


Bashing politicians and public servants is like shooting goldfish in a bowl. Whatever else it diverts attention away from any useful analysis of where we are and what are our future options.

Barry Prismall in The Examiner was at it again the other day highlighting the costs to operate the legislative arm of Government plus the employee costs of all public servants. No attempt at analysis or trying to place things in context. Little more than incitement, an appeal to readers’ prejudices.  A few responded, reaffirming Pavlovian responses are alive and well.

Whilst most of the figures were correct they were select and lacked context.

The article can be found HERE: http://www.examiner.com.au/story/1544697/parliament-costs-hit-40m/?cs=95#disqus_thread

Barry then concluded with some ridiculous assertions.

” Next financial year agencies and the government will have to find almost $500 million to pay out retiring public servants”, Barry said.

Barry obviously didn’t make it as far as Chapter 6 of the first of three volumes of the budget papers else he would have come across the following table.

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$236.1 million is not “almost $500 million” even if one were to take into account The Examiner’s usual margin of error. The figures are not Treasury’s figures nor did Ms Giddings flip a coin. They are from the State Actuary. By 2016 the estimated “hit” to Government to use Barry’s pejorative term won’t be $570 million, but $264.6 million.

Barry went on to say the above amounts will have to be paid “because the government fritted away $1.5billion saved over the years to off-set the liability”.

Wrong again, Barry.

There weren’t any “savings”. Never ever. It was a Clayton’s account. It was an appropriation, not a cash savings. Money needed to be appropriated into the SPA a/c so that payments to RBF could be made. Money needs to be appropriated before it can be spent. But that doesn’t mean cash was sitting aside in a dedicated a/c. When the Government comes to spent money it grabs it from anywhere it is able as long as it’s been appropriated, always has done and probably always will, although the Government invariably needs to get Parliament’s approval for additional funding each year even after it’s been spent.

No need to alarm your readers, Barry.

A more responsible discussion of our problems would be preferable to alarmist and poorly researched assertions that had they been written by a cadet journo would surely have resulted in alternative career counseling.

Read the full article with graphs, Tasfintalk here

• Earlier on Tasfintalk:

Budget highlights structural woes

(Published in Crikey 31st May 2013)

The month of May is budget time for most jurisdictions. Most attention focuses on the Federal Budget but State Budgets help complete the fiscal mosaic.

On a State by State comparison it’s pretty easy to have a cheap shot at Tasmania for being a basket case, but adjusted for scale and rural location factors Tasmania is little different from other areas in Australia.

The budgetary problems facing Tasmania throws into stark relief the problems facing all States.

The preoccupation with debt and deficits that afflicted the discussion about the Federal Budget has carried over to the State Budget.

Despite there being sound reasons for running deficits, Tasmania has no option but to move to surpluses as it has little cash remaining and cannot borrow because as presently structured it can’t service any more than the current amount of $220 million and has by its words and actions undermined its capacity to raise more of its own revenue.

The wholly owned Government businesses, specifically the three electricity monopolies covering generation, distribution and retail functions, are loaded with debt and will struggle to support more borrowings.

When declining revenues from GST and State taxes smashed the State’s bottom line, the Government upped the % taken as dividends from the electricity companies, which fortunately coincided with rosier future profits given the carbon tax bestowed relative cost advantages upon Tasmania’s largely hydro based generation network.

But electricity demand patterns are changing and the carbon tax likely to disappear after September 14.

Federally the doctrine of surpluses being good and deficits bad adopted by both major political parties means that as we are forced from deficits to surpluses as soon as politically possible, each budget will be contractionary relative to its predecessor and when Government surpluses eventuate the iron law of sectoral balances means the private sector will inevitably be in deficit. Just another problem for the Tasmanian economy as it attempts to move forward from a situation where Tasmanian Gross State Product is estimated to have contracted by 0.75% during 2012/13.

The estimated outcomes for 2012/13 saw a further run down in the State’s cash reserves. Next year 2013/14 will see them disappear altogether. Over the past two years the only cash on hand have been from grants paid in advance by the Federal Government. This has been used as working capital to fund the ordinary operations of Government.

In the current year 2012/13, 98% of operating revenues (excluding tied capital grants) were spent on operating expenses, a further 5% paying the costs of unfunded superannuation to retired public servants and a further 5% on new plant equipment and infrastructure. Fortunately the costs of servicing borrowings were negligible.

Next year 95% of operating revenues will be spent on operating expenses, 5% paying pensions and benefits and 6% on new plant infrastructure and injections into Government businesses. The cash tin will then be empty.

The following years will be break even or better, but if the pattern of the recent past is repeated the estimates for future revenues are optimistic.

Hence the situation is a little precarious, especially as the Federal capital grants received in advance and used for working capital will have to be ‘repaid’ when it’s time to spend as intended.

Tasmania has elected to become a cork in the ocean, at the mercy of the elements. Batten down the hatches, reef the sails and pray the GST rate will increase is essentially the Government’s plan.

Despite the Liberals’ virulent criticism of the Government’s Budgets, in releasing its alternative Plan for a brighter Future it accepted all the Government revenue projections and fiddled with a few expenses and proclaimed ‘our bottom line is better than yours’ and ‘we will reach a surplus a year earlier’.

Removal of the carbon tax will hurt Tasmania because of the dominance of existing renewables, but the Liberals only accounted for the change in the first year of their Plan. No need to worry about the other three years we were told because any costs will be offset by the dividends from a growing economy. How was not explained. The risks and sensitivity section in the Budget offered no basis for the Liberals’ ebullient view of the future. An increase in employment of 1% will only lead to payroll tax rising by $4 million, hardly enough to offset declining returns from the electricity companies.

The Liberals also reaffirmed its commitment to tearing up the recent Forest Agreement bankrolled by the Federal Government. Amounts to be spent were removed and treated as savings despite retaining the incoming grants as income.

The Government owned Forestry Tasmania is insolvent and propped up with a Letter of Comfort from the Government, hasn’t produced operating cash surpluses for years even when woodchipping was rife, has pawned it’s motor vehicle fleet, sold its softwood plantations, has hardwood plantations that are cash flow negative, has spent Federal grants money paid in advance on operating expenses and whatever it earns barely covers overheads. It therefore needs a Government lifeline of $25 million pa to pay wages. The Liberals disagree with the views of the newly constituted Board and say the injection is not needed because they will grow the industry. Again, how was not explained.

The Government appropriates amounts each year into the Treasurer’s Reserve to meet unforseen expenditures. It is not included in the bottom line calculation, because it is only a contingency. But that didn’t stop the Liberals removing the contingency and counting it as a bottom line savings.

A recent opinion poll taken before the Budget revealed the undecided vote heading towards the March 2014 State election had risen to 30%.Whilst the Premier resorts to Pollyanna imitations rather than adequate explanations of the State’s situation and a way forward, the Opposition’s response is little more than a hoax unlikely to restore much needed trust amongst the growing numbers of disaffected and disillusioned.

• The Crikey article is a summation of two Tasfintalk analyses: Debt deficits and the State Budget and A brighter future

John Lawrence was 2011 Tasmanian Times’ Tasmanian of the Year for his ability to interpret arcane financials through forensic analysis ...

• Gordon Bradbury, in Comments: I wish to nominate John for a Tasmanian Times “Lifetime Achievement” award for services to the community, logic and reason. Well done John. Stirling effort again.

• Barry Prismall: Dear Tasmanian Times Editor,

I am happy to arrange a Budget briefing for John Lawrence, so he better understands what is a very complex document.

He says I am off the mark with state government superannuation contributions, when I put the annual cost at approaching $500 million, while he says it is more like $219 million in 2011-12, rising to $264.6 million in 2015-16.

Had he read the next couple of paragraphs in the Budget, following that table he used, he would have read where, yes, there is an agency contribution towards merging super costs - plus - a Reserve by Law contribution which in 2012-13 was $197.9 million. That sounds to me like a liability approaching $500 million.

If he turns to page A3.6 of Budget Paper Number 1 he might spot the extra Reserve by Law obligation on the government. 

On the now defunct Superannuation Provision Account, John says the $1.5 billion account was never a real lump of money. Tell that to Lara Giddings. How can a government spend money that you say doesn’t exist? But, they did. He also should inform the former Treasury Head Don Challen of this revelation, just so an expert can understand how the government spent fake money. He might care to read what Mr Challen said about the SPA , and the government’s management of it, on page one of The Examiner Newspaper on Budget day 2012.

In future, please don’t waste my time with such uninformed crap

Cheers,

Barry Prismall
June 6.

• John Lawrence: Dear Tasmanian Times Editor:

Barry Prismall needs to consider the possibility that he is wrong.

When the SPA a/c existed prior to 30th June 2012, appropriations and Reserved by Law amount were added to the SPA a/c. Payment to RBF for the Government’s share of pensions and lump sums (the employer contributions) were then subtracted from the SPA a/c. This can be seen in2011/12 Budget Papers for instance (see page 7.18 2011/12 Budget Paper No1)

With the abandonment of the SPA a/c the Governments share was paid as Reserved by Law amounts. The Government Superannuation Payments will be $236.1 million in 2013/14 (as per Table 6.5).
Barry also spied Reserved by Law superannuation amounts in Appendix 3 covering Consolidated Fund Estimates. The proposed outlay for 2013/14 is $233.1 million.

Almost identical, $236.1 million vs $233.1 million.  A coincidence? No it’s the same item presented slightly differently. Barry is right it is a complex document. All the need for a little more caution when trying to interpret it.

The difference between the Consolidated Fund estimate and the proposed outlays in Chapter 6 of the Budget Papers is explained by the fact that the former is prepared on a cash basis and the latter on an accruals basis. In other word the former is what is expected to be paid in cash, the latter is the actual amount incurred.

Barry however added the two figures together. He has double counted. There’s not “an extra Reserve by Law obligation” as Barry says, there is only a Reserved by Law amount. Since the abandonment of SPA it’s all Reserved by Law.

The Governments employer contribution in regard to unfunded superannuation is more easily understood from the Treasurer’s Annual Financial Reports. The 2011/12 Report on page 88 has a more accessible table.

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The table lists the plan assets for the defined benefit fund, the funded portion. Each year the Government as employer pays its share of pensions and benefits. In 2011/12 the amount was $219 million. You will note this reconciles with the figure for 2011/12 in this year’s Budget Papers, in Chart 6.5.

The total payment to retirees is $331 million, but the Government only had to cough up $219 million. It’s not going to jump to $500 million next year!!

Barry’s reference to “fake money” and “money that doesn’t exist” shows a complete lack of understanding of the current budgetary process. There is a world of difference between amounts appropriated and cash spent. Just because an amount has been appropriated doesn’t mean there is cash available equal to the amount of appropriation. Appropriation is necessary to gain Parliament’s approval to spend, required in all cases except certain Reserved by Law items.

Funds are often appropriated so that if cash becomes available the necessary parliamentary approval is already in place so the Government can just go ahead and spend.

As at 30th June 2012, before the abolition of the SPA a/c Parliament had appropriated $2,170 million more than the cash available. Confirmation of this can be found by looking at the balance of the Temporary Debt Repayment (TDR) a/c which recorded all the internal borrowings. By far the largest amount that had been appropriated was the SPA a/c of $1,520 million as at that date. As shown in the graph the amount of internal borrowings always exceeded (except for a brief occasion in 2008 and 2009) the amount in the SPA a/c. The SPA a/c in other words was never cash backed. It was never “a real lump of money” to use Barry’s term. What Ms Giddings believes and what she says aren’t necessarily the same and in any event what she thinks and/or says is hardly of any relevance in this matter. As for Mr Challen’s views, I’d be interested in his precise words, rather than relying on a newspaper report at the time. There’s nothing surer than if the journo doesn’t understand what he’s writing about, the story is more likely to be “uniformed crap”.

Editor, I regret that some people may now believe you to be a publisher of “uninformed crap”. I hope I have disabused them of this notion and you won’t require an apology. Barry will no doubt set the record straight with his readers and that should be sufficient.

Barry should avail himself of the Treasury briefing at the earliest opportunity. We need a more enlightened public discussion of our woes.

Sincerely,

John Lawrence