ABC pics of Lara Giddings and Will Hodgman
Two months ago the problems facing the State Government were outlined with a detailed examination of cash inflows and outflows in the General Government Sector over a 9 year period including the then Forward Estimates: State of the State: What your mother didn’t tell you, graph by graph.
This note proposes to update the information as a result of last week’s Budget, to see what effects if any may ensue.
In March we observed the State’s current situation was as follows:
• Flat line cash inflows in nominal terms, worse in real terms.
• A reluctance to address the matter of reduced inflows.
• Flat line ‘operating’ cash outflows.
• Falling ‘investing’ outflows, to such an extent that expenditure on new capital will barely cover impairment of existing capital by the end of the forward estimates period.
• A small but inexorably growing ‘financing’ cost of unfunded superannuation which will soon equal amounts spent on ‘investing’, on new capital in other words.
• A maintenance of the fiction of ‘net debt free status’ when our financial liabilities are still increasing.
• A growing reliance on cash in advance from Federal specific purpose grants to finance the general operations of Government.
• The borrowing and spending of amounts appropriated to Special Deposit and Trust Funds notably the Superannuation Provision Account, without any reasonable chance of repayment.
• An absence of any realistic measures to assess the long term viability of the State.
The flat lining of future cash inflows was simply addressed by arranging for Treasury’s model of future GST receipts to be used in preference to the figures supplied by the Australian Government and contained in Budget Paper No 3 of the recent Federal Budget. The following graph contains the figures for the current year 2011/12 and the next 4 years from both sources.
In the last 3 years of the forward estimates the extra GST revenue estimated by Treasury’s model is $129 million, $288 million and $316 million respectively. A total of $733 million for 3 years. The Treasury model implies growth of 7% pa, whilst the Feds say less than 3%.
Need a solution to the loss of $1.8 billion from GST and State taxes as a result of the GFC? No problems. I’ve got just the model for you.
Treasury no doubt have good reasons for estimating Tasmania’s per capita share of GST revenue will increase from 158% in 2012/13 to 176% in 2015/16, the after effects of the Wilkie RHH monies were not properly accounted for by the Feds for instance. But is it the best estimate? Or at the upper end of expectations? How has the model performed in the past with making correct predictions? The GFC seemed to have confounded everyone with GST receipts falling much quicker than expected.
The health of the General Government is heavily dependent on the increased receipts. There seems to be no Plan B. Are we putting all our free range eggs into one basket?
The rosy predictions for GST compared with other operating grants and State taxation, the next 2 biggest sources of revenue for the State is shown in the following graph.
The GST is assumed to grow at about 7%.
Together the 3 revenue sources comprise roughly 75% of State revenue.
The budget does imply a leveling of operating outlays. Operating inflows and outflows are shown in the following graph. A growing gap between the 2 lines is essential if we are to survive.
Repaying internal borrowings
The Government in recent years has plundered amounts appropriated into Special Deposits and Trust Fund SDTF accounts, including but not confined to the Superannuation Provision Account. The Temporary Debt Repayment Account TDRA has recorded all internal borrowings. At 30th June 2012 the TDRA will have a balance of approximately $2,180 million, $1,550 missing from the SPA account and $630 million from other SDTFs.
The Government plans to ‘forgive’ all the internal borrowings from the SPA account. This will reduce the TDRA to $630 million.
It will then arrange a 24 hour overdraft from Tascorp for $630 million to repay the TDRA balance, and then close both SPA and TDRA.
Whew. That got rid of those 2 problem accounts. Too easy!!
On 1st July the Government will borrow $630 million from SDTF and repay the 24 hour overdraft. At 30th June 2013 once again the SDTF will need to reimbursed, but this time the 24 hour overdraft will need to be $862 million, which will increase the General Government’s borrowings (which also includes housing debt owing to the Australian Government), to $1,108 million.
Although the proceeds from the 24 hour overdraft of $862 million will be deposited into the bank taking the General Government’s bank balance to $915 million, at this point the State will be in net debt, of $134 million.
Net Debt is quite a misleading concept; largely symbolic and narrowly defined ... $134 million of net debt pales into insignificance alongside $5 billion of unfunded superannuation liabilities.
The process will be repeated for the next 3 years. Come 30th June the Government will use any surplus cash plus a 24 hour overdraft to replenish missing SDTF monies. By the end of the Forward Estimates in 2015/16 there will no longer be a need for a 24 hour overdraft because there will be enough surplus cash, boosted by the increased GST receipts to reimburse all missing SDTF amount.
If this occurs it will be a truly wonderful achievement, a masterful example of cash flow management. Generating $862 million surplus cash in 3 years seemed a pipedream 6 months ago.
However it is totally dependent on the rosy GST projections.
Superannuation benefit payments and other financing costs
In theory at least, benefit payments to retired members of the now closed defined benefit superannuation schemes were paid from the SPA account, but because all the cash was missing, in practice the benefits were paid from operating cash flow.
With the SPA account being assigned to the trash can, future benefit payment will continue to be paid from operating cash, but for all intents and purposes these outflows are ‘financing’ outflows because they relate to a reduction of a liability incurred some years ago.
The following graph shows the superannuation benefit payments gradually rising from $198 million today to $252 million in 2015/16. The borrowings being repaid reflect the reduced reliance on the 24 hour overdraft. Added together they give total financing outlays.
New capital works
The following graph indicates how many of our funds (excluding Nation Building Grants) we will be spending on new capital and infrastructure. Compared to depreciation, or the rate at which old capital is deteriorating, it is a little disappointing.
The spike in 2012/13 was similar to that budgeted for 2011/12 in last year’s Budget, but the reality fell $130 million short. When cash flow gets tight Plan B is always to defer capital expenditures.
Spending a net $268 million on investing or capital in 2015/16 is only 1% of Gross State Product GSP. Victoria has a target to spend 1.3%. This would translate into about 7% of operating inflows in Tasmania.
A measure of sustainability
For a small service entity like Tasmania, virtually all outlays need to be funded from operating outlays. We may receive capital grants from the Australian Government but these should be icing on the cake and not considered when organising a sustainable structure for Government.
The graph below shows the % of operating, investing and financing outflows each as a % of operating inflows. In 2015/16 the respective %s are 87%, 5% and 10%. The latter figure comprises 4.5% for paying the super liability and the balance for repaying the last of the 24 hour overdraft.
In subsequent years if we could allocate say 85% for operating, 7% for investing or capital, 5% for financing or reducing our liabilities, we might have 3% or $180 million, left over for a rainy day.
That would be a sustainable fiscal strategy.
But to achieve those %s it’s so dependent on controlling costs and receiving the expected windfall from GST.
To put all the %s in one column it can be seen that over the 5 year period we exceed 100% each year. Spending more than we receive in other words. 2012/13 is when we venture into Net Debt. But to be fair it does include repayment of $862 million of borrowings (in ‘financing’) over the last 3 years.
But it’s an extremely precarious situation. Little upside, all downside by the look of it.
Specific purpose grants as a cash buffer
Cash balances at 30th June 2011 of $620 million comprised 68% of unspent Australian Government specific purpose grants.
Ignoring the 24 hour increase in cash at 30th June each year, the cash at bank is all unspent Australian specific purpose grants.
At 30th June 2013 again ignoring the 24 hour cash boost the cash in the bank is only $53 million. Wages are about $80 million per fortnight!!
The Government’s measure of sustainability
The Government has decided to reduce the number of measures of sustainability when it publicly comments on the matter.
Net operating balance is the chosen measure. It’s essentially a measure of operating profit that would appear in a P&L statement, but it includes capital grants as income so it’s misleading.
It’s a flawed measure.
Further flaws were in evidence with this year’s Budget.
In the dead of the night, after last year’s Budget, but before 30th June 2011, without any public fanfare, the Government wrote down the book value of some of its assets, mainly roads, by $859 million. If one reduces the book value of an asset, depreciation in future years will, in all likelihood, decrease, which will…. lo and behold…. increase net operating balance and hence boost the claims to sustainability.
But the Mid Year Report in February 2012 actually increased the depreciation in each year of the Budget and forward estimates.
But the latest Budget delivered the goods, reducing depreciation and hence boosting net operating balance by over $100 million in total for this year, next year’s budget and the 3 years of forward estimates.
With a stroke of the pen we are suddenly $100 million closer to sustainability.
Net operating balance is a flawed measure.
If we receive the GST as the Government expects, contain costs, and repay all amounts owing to SDTFs we will have achieved a basis for sustainability by 2015/16.
Without the increased GST, projected net debt will continue beyond 2015/16 unless a further round of austerity measures occurs. But given the election cycle that is unlikely to happen until the 2014/15 Budget
It seems the Government has set its plan which will last for a couple of years; we will assume a form of suspended animation treading water hoping for the truckload of GST receipts. The Government has baulked at further rationalisation, preferring instead to resort to rosary beads and prayer mats.
The fall back position is not at all clear.
I fear it doesn’t exist.
We are on a knife edge.
The Editor was hoping for a follow up article titled ‘Will Rides to the Rescue’ commenting on the Liberals’ alternative Budget.
A quick look at the plan found this:
“Over 5 year rolling periods, the general Government net operating balance will be in surplus and equal to the medium term sustainable level of net infrastructure investment;
Over 5 year rolling periods, the net infrastructure investment will be at least equal to 0.5% of the historical 5 year average of Gross State Product.”
Whoops…..0.5% of GSP is only $120 million. A net operating balance of $120 million might cover net infrastructure spending of $120 million, but that’s less than half of what we need just to tread water.
Looks like a roadmap to oblivion.
Might have to rename the article.
First published: 2012-05-22 08:28 PM
• GREENS’ BUDGET VISION DELIVERS
Compassion, Innovation and Fiscal Responsibility
Nick McKim MP
Tuesday, 22 May 2012
The Tasmanian Greens today launched their policy initiative to introduce a State Wellbeing Index to measure Tasmanians’ quality of life in a holistic manner, rather than just evaluate economic health.
Greens Leader Nick McKim MP also outlined the Greens’ vision to invest in and develop a whole-of-government approach to aggressively promote the State and Tasmanian unique products in exclusive interstate and overseas markets.
“Budget’s should not just be about a nice set of numbers, instead they must also drive good policies which invest in healthy communities as well as a healthy economy,” Mr McKim said.
Wellbeing Index Initiative
“We hear a lot about progress, but the reality is we do not have appropriate data to measure where Tasmanians think we are progressing well, and where progress may be faltering.”
“The Greens launched today our initiative to establish a Tasmanian Wellbeing Index, by transforming the Tasmania Together Unit into a team dedicated to developing a different, inclusive and holistic set of indicators in consultation with the community.”
“We all know that money isn’t everything, and other jurisdictions are moving to develop their own Wellbeing Indices to measure how their economies are faring but also how their people and their communities are faring.”
“Canada has just released their first report from the Canadian Wellbeing Index, which has been recognised as a global Leader by the OECD. France and the UK are now also developing their own respective Wellbeing index initiatives.”
“The Tasmanian Together benchmarks already provide data useful for the development of a robust and workable set of indicators. These will in turn be injected into the decision-making and policy-setting directions at both local and State government level, as Canada has demonstrated.”
Tasmanian Product & Proud!
“The Greens also outlined our policy priority to developing a whole-of-government approach to aggressively promote Tasmania, and our unique products in exclusive interstate and international markets.”
“Innovation and a strong clean green Brand are key assets with which we can do, and achieve, more.”
“The Greens propose developing a “Produced in Tasmania’ promotional resource that brands Tasmanian products as underpinned by our unique brand values. These could include being HGP free, cruelty free pork, GE-free or even ‘produced in Tasmania with 100% guaranteed renewable energy’.”
“We would invest in the strategic identification of growth markets, in produce and innovation skills, and develop strategic and smart marketing strategies that are targeted and have a well defined on-line and viral approach.”
Carbon Green Dividend
“This budget is historic as it is the first to benefit from the great Green Carbon windfall, resulting from the carbon price secured by the Australian Greens in the Federal Parliament.”
“The measures already announced to mitigate future power prices rises for our domestic and small business consumers, have been made possible because of the $37 million from this Carbon windfall being available.”
“Clearly, if this State Budget was delivered by a Greens’ Treasurer it would look different, with a shift in priorities, such as investing more in Tasmania’s reputation as authentically clean, green, clever and creative.”
“Instead a Greens’ Budget would prioritise passenger transport over more roads for cars, and more for preventative health measures, and less into things like football sponsorship.”
“However, the Greens are proud of the significant wins delivered in negotiation with Labor from the injection of flexibility into the fiscal strategy which helps protect frontline services, through to progressive policies that set the groundwork for a compassionate, creative and sustainable society,” Mr McKim said.
Download Copy of Budget Reply Speech delivered by Greens Leader Nick McKim MP, 22 May 2012:
• LIBERALS PLAN TO WIND BACK ENVIRONMENTAL PROTECTIONS
Cassy O’Connor MP
Greens Environment Spokesperson
Wednesday, 23 May 2012
The Tasmanian Greens today said the Liberal Party’s posturing over what they described as “Green tape” should sound alarm bells for any Tasmanian who values health and environmental sustainability.
Greens Environment spokesperson Cassy O’Connor MP said that although Liberal Leader Will Hodman MP had failed to define what he meant by ‘Green tape’ it was clear that he wanted to wind back Tasmania’s suite of environmental protections, which were already inadequate.
“The Liberals might believe that anyone should have the right to trash the environment in a profit-hungry free-for-all, but these regulations are in place for very good reasons,” Ms O’Connor said.
“The scary thing about this divisive posturing is it exposes how little the Liberals understand the value of Tasmania’s clean, green and clever brand in national and international markets.”
“The Liberals are nostalgic for a time when factories were allowed to spew toxic waste into our rivers and when our oceans and forests were regarded as bottomless resources.”
“This notion of ‘Green tape’ is a ridiculous straw man being put about by the Liberals in their sad and desperate attempt to blame the greenies for everything.”
“The Hodgman Liberal Party needs to come clean about what environmental and public health protections they would undo if, Heaven help Tasmania and its people, they were ever elected to Government,” Ms O’Connor said.
• Mainstream Media:
Poor report card for public servants
23 May 2012 10:54:52
A review of Tasmania’s public service has found widespread concern about the way it is run.
The independent review looked at management issues within the public sector and found it wanting.
The report, stamped ‘confidential and for discussion only’, was commissioned by the State Government last year, in its push to make the sector more efficient.
It says there is widespread concern that there are no consequences for underperforming public servants or sanctions for agency bosses who fail to pick up the problem.
The report’s author, George O’Farrell, says he has been given examples that suggested a lack of proper understanding of how the state service should work.
Mr O’Farrell’s recommended the abolition of the State Service Commissioner, who sets standards and is responsible for reviewing the public service.
He says an independent person should be appointed to conduct regular performance reviews.
Tom Lynch from the Community and Public Sector Union supports the general findings but says the Government should consult widely before responding.
• GREENS PROPOSE WELLBEING INDEX FOR TASMANIA
A More People-Centred Economic Model
Nick McKim MP
Thursday, May 24, 2012
The Tasmanian Greens today said that the proposal for a Tasmanian Wellbeing Index was an innovative new economic approach that that placed the quality of life of citizens at the top of the Government’s priorities.
Greens Leader Nick McKim MP said that the revenue-neutral plan would transform the Tasmania Together unit into a team dedicated to developing a truly Tasmanian Wellbeing Index by working with Tasmanians to develop that index.
“The real measure of a modern, civilised society is the health and wellbeing of its people, not just its level of economic activity,” Mr McKim said.
“Traditional economic metrics like Gross Domestic Product do not measure the things that truly matter in life, like our physical health, our mental health, how safe we feel, and the connectedness of our community.”
“Economic indices like GDP may reveal how the economy is changing, but more and more people are realising that economic progress does not necessarily guarantee progress in other areas.”
“The Canadians realised that in these economic turbulent times it was necessary to put these quality of life questions to their citizens, and in December last year Canada released its first report generated by the Canadian Index of Wellbeing (CIW).”
“The Greens will lead a community discussion designed to develop a Well-Being Index to measure things that matter much more than money,” Mr McKim said.
• KEEP KUNANYI SPECIAL
Access is OK - A Cable Car is Unviable – That’s Why it’s Never Come to Fruition
Cassy O’Connor MP
Greens Environment Spokesperson & Member for Denison
Thursday, 24 May 2012
The Tasmanian Greens today called for the cultural and environmental values of Mt Wellington or kunanyi, as it is known by traditional owners the palawa people, to be respected and preserved.
Greens Environment spokesperson Cassy O’Connor MP backed the calls of Hobart residents to protect the mountain and said there was a clear and well-defined responsibility and mandate from the people of Hobart to protect kunanyi’s cultural and natural values.
“Perennial calls for a cable car to the mountain’s summit, apart from being unlawful under the Wellington Park Management Plan, are simply economically unfeasible. No proper proposal has been sighted in the decades since the cable car debate started,” said Ms O’Connor.
“A cable car would look terrible, it would show disrespect for the mountain, its history, its traditional owners and those Tasmanians who want their wilderness areas protected.”
“There are smarter, more sensible ways to provide public access to and enjoyment of the mountain, and sensitive development is already in place, such as world-class walking and mountain bike tracks.”
“And let’s not forget, there is already a well-established road allowing vehicles to drive up and marvel at the spectacular view.”
“There are few cities in the world where one can safely drive, walk or ride from the heart of the city into a wilderness area.”
“Everything is already in place for us to enjoy kunanyi, so the best thing we can do is keep it just how it is, wild and beautiful,” said Ms O’Connor.