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A Preliminary Annual Report from a company is normally scrutinised by interested parties and often draws widespread coverage.

Gunns for example (TT here).

Not so the Preliminary Outcomes Report for the Tasmanian State Government released in mid August.

Few read it and less care.

A search of Hansard revealed it failed to interest any Members in the Lower House.

That’s perhaps not surprising. The Labor Party have enough on their plate, the Greens don’t want to rock the boat too much and the Liberals don’t want to draw any attention to their Roadmap to Recovery (TT here), now in tatters, as it relied on diverting funds earmarked to rescue Forestry Tasmania which, it is now conceded by all parties, will be needed regardless of the final FT restructure model adopted.

The Legislative Council debated the Preliminary Outcomes Report (see http://www.parliament.tas.gov.au/HansardCouncil/isysquery/ff7bd97e-b120-4cf8-838c-98f725180691/1/doc/)

The Member for Murchison Ruth Forrest posted a summary of her speech on her website:

Is there cause for optimism in the State’s finances in 2012?

The new Minister for Finance’s first media release proclaimed strong progress on the Government’s fiscal strategy.

The Preliminary Outcomes Report for 2011-12 issued last week purportedly shows the Government “remains on track to meet its fiscal strategy targets and deliver a sustainable operating surplus by 2014-15.”

I generally err on the side of optimism yet find it difficult to see how the Minister can put such a gloss on the figures.

There’s more cash on hand than expected but all was due to the proceeds of the new overnight borrowing arrangement at balance date designed to restore the rightful balances to all the various Government department and agency deposit and trust funds raided by the Government during the year to help keep us afloat.

Without the overnight boost, cash decreased by only $51 million compared to a budgeted fall of $308m, a $257 million improvement.

But despite all the talk of cutbacks, operating outlays which were meant to fall by $115 million went up by $33 million.

Hence the improved cash position resulted, not from operating austerity, but from other cash inflows. Cash flows, that are essentially a one-off revenue boost such as the sale of TOTE for $103 million and more grants from the Feds ($98 million), and by deferring capital expenditure of $194 million.

This is being triumphed by the Minister as showing “the Government is delivering on its pledge to return the state’s finances to a sustainable footing.”

Sustainable? Increased operating cash outlays hidden by asset sales, the deferral of infrastructure spending and increased specific purpose grants from the Australian Government, the latter fortunately more than offsetting a decline in GST revenue? I am not convinced this would meet many definitions of sustainability.

Last year at this time the Government had about $600 million in the bank, but two-thirds was actually unspent specific purpose grants, mainly capital grants such as the Wilkie RHH money of $270 million. Only $194 million was ours to do as we wished, enough for a fortnight’s wages.

The breakup of this year’s $528 million cash at balance date is likely to be similar. There may be even more unspent capital grants, as the largely unspent RHH grant has been boosted by the Macquarie Point redevelopment funds. We won’t know for sure until the October release of the Treasurer’s Annual Financial Report for 2011/12.

We will survive this year by ‘borrowing’ from the account containing grants from the Australian Government, mainly capital grants.

But there is some hope. The Minister stated “the improvement in the Government’s underlying Net Operating Balance which removes the effect of major one-off revenue from the Commonwealth for capital projects had improved from an actual outcome of a $557 million deficit in 2010-11 to a Preliminary Outcome of a $300 million deficit.”

If we ignore proceeds from asset sales as well as capital grants, in the 2010/11 year 99% of cash inflows were spent on operating expenses leaving little to pay financing outlays of 4% principally past unfunded superannuation liabilities and 4% for capital and infrastructure over and above the specific purpose grants and amounts obtained from assets sales.

Hence the rundown in cash of $459 million in 2010/11.

In the most recent 2011/12 year 94% of operating revenues was spent on operating cash outlays, approximately 5% on financing outlays and only 2% as a top-up to capital grants and assets sale proceeds to allow for more investment in capital and infrastructure.

The rundown in cash was less, only $51 million.

But we need to move to a situation where only 85% of operating revenue is spent on operating expenses as per the 2014/15 Forward Estimates. In that year 5% is needed for financing outlays and 5% for capital outlays, leaving 5% cash surplus in the kitty to obviate the need for the overnight borrowings at balance date to restore the last of the missing cash to the raided trust funds and deposit accounts.

If this occurs it would be an awesome achievement. But the modest improvement made in 2011/12 where operating outlays were $148 million higher than budget is not a good sign that Forward Estimates can be realised. The Forward Estimates are precariously predicated on continuing rises in Tasmania’s share of GST proceeds despite the current Greiner-Brumby review and the claw back, or ‘washing out’ of the impact on our GST revenues, of most of the $270 million worth of Wilkie RHH money, due to commence in 2013/14.

If we are to move forward cooperatively we need a fiscal strategy we can all comprehend. The continual chopping and changing by the Government has left the strategy with little meaning and even less understanding by stakeholders. The Opposition tabled a commendably detailed Plan but didn’t bother to relate the Plan to its hurriedly cut and pasted fiscal strategy.

Most people I talk to understand a strategy which involves spending 85% to 87% of operating revenue on operating expenses, 5% to 7% on financing outlays and 5% to 8% on capital and infrastructure, and they know that including asset sales and capital grants in any measure of sustainability is misleading, and deferring capital expenditure merely postpones the day of reckoning.

The current use of more esoteric terms like Net Operating Balance and Underlying Fiscal Deficit serves only to exclude people from the all important public policy issue as to what does ‘sustainable’ mean and how do we achieve it.

We are making slow progress but I’m fearful that the necessary decisions are too hard to accommodate within our four year election cycle where an expansionary exuberant celebratory Budget is followed by a more austere effort, before a couple of steady-as-she-goes and don’t-frighten-the-the-horses-too-much type of budget that inevitably precede another election.

(From http://www.ruthforrest.com.au/index.php/issues/42-featured-issues-left/1069-is-there-cause-for-optimism-in-the-states-finances-august-2012-)