State parked on the precipice

THE challenge for this year’s State Budget will be whether the Government can actually meet its own targets because its track record of budget savings has been abysmal.

Premier and Treasurer Lara Giddings also continues to blame the fall in GST revenue for the budget position while omitting to mention that the reduced GST over the past two to three years has been more than matched with increased Specific Purpose and National Partnership Payments.

Although this situation is unlikely to continue to occur, we need to be mindful of the reality that increased funding is secured in this way.

Funding secured by Andrew Wilkie for the redevelopment of the Royal Hobart Hospital has a downside in that future GST relativities may be adjusted as a consequence, meaning there is less GST revenue flowing to the state for other purposes.

Additionally, the review into the distribution of GST revenue following a concerted campaign by some states places our current share of the GST pool at risk.

An interesting aspect of the Budget was another re-make of the state’s Fiscal Strategy.

The Government’s old Fiscal Strategy was revised last year to become an Interim Fiscal Strategy, which has now also been sidelined.

The embarrassing and “too difficult to achieve” targets have either been mothballed or replaced with simpler measures, but these new targets still do not set the kind of goals on which the Government should be focusing.

The most crucial measure is the measure of budget sustainability. The Government has chosen to use Net Operating Surplus – the headline figure in the income statement. The NOS includes all grants as income but the capital outlays are ignored in the NOS calculation. How can that be a measure of budget sustainability?

Funds from the Federal Government flagged for capital works such as the Royal Hobart Hospital and irrigation developments boost the measure of budget sustainability but the ensuing outlays are disregarded.

There needs to be a measure that provides a more meaningful assessment of the state’s financial position – one which is easier to understand by a greater number of people to raise the level of public discourse and discussion of the merits of various options in a more informed and less politically-charged manner. Ms Giddings continues to claim a “net debt free” status. However, the balance sheet of the general government sector clearly indicates that there is a liability for unfunded superannuation of more than $5 billion.*1 This falls outside the narrow definition of debt, even though interest of $229 million is included as an expense in the budget income statement. Ms Giddings told us going into debt would necessitate paying interest that would further exacerbate our cashflow problems.

We have in effect been doing just that with the internal borrowings from the Superannuation Provision Account and the Tasmanian Risk Management Fund. With the $1,452 million that’s supposed to be in the SPA and $160 million in the TRMF, all borrowed and spent, the cost of those borrowings is the interest foregone. There will only be $482 million of cash in the whole general government sector at the end of 2014-15 to cover the SPA, TRMF and all the other Special Capital Investment Funds and agency working accounts which will total about $2.4 billion. I’m not suggesting that we shouldn’t have undertaken any internal borrowings. Quite clearly, it’s cheaper than external borrowings but the extravagant spending of the past has had a significant cost in terms of interest foregone. With no plan for repayment, future generations will be as burdened as if they were external borrowings.

The increase of more than $2 million sponsorship for the Hawthorn Football Club, representing almost 20 per cent of the Sport and Recreation budget, when every other area must cut costs is completely unacceptable.

How many frontline police, nurses or teachers would this fund?

Revenue as well as savings must be considered equally in this process. Currently state taxes amount to just under 20 per cent, or just over $900 million, of the state’s revenue each year. Fifteen years ago we raised 26 per cent of revenue via state taxes. In today’s terms, this would mean an extra $270 million into state coffers each year. There are a lot of Tasmanians who pay little or no tax so the burden is not shared equitably.

In terms of further possible savings measures, it is vitally important the proposed independent review of the public service goes to the very core and is done in a timely manner by a reviewer who is willing and able to tell us the plain facts without fear or favour and without any conflict of interest.

We also can’t continue to make decisions like the recent decision with regard to Local Health Networks. The additional money which three LHNs will cost will clearly be for bureaucracy instead of patient services.

In my view, the healthcare industry is one of the few where market presence has a negative effect. In other industries, competition in the marketplace will improve productivity, reduce costs and generally lead to better outcomes. In healthcare, competition actually increases costs, increases demand and doesn’t necessarily increase productivity or improve outcomes. It also tends to lead to duplication of services and infrastructure which in turn increases demand and costs further.

Fragmentation of services and disconnection between acute and primary health services are the areas we should be focusing on.

We should not be setting up bodies that force us to compete for limited resources.

For reasons of efficiency, effectiveness and cost minimalisation, I would prefer to see a reduction in the number of departments. Currently we have 28 areas of ministerial responsibility and nine departments reporting to eight ministers.

The Department of Economic Development would be a good place to start. It should be noted that half of DED (in revenue terms) is administered by the Tasmanian Development Board. The board’s CEO is the secretary of DED. The chairman of the board is also the chairman of TT Line.

While I have no opposition to AFL football being played in the south, I do question the rushed trip to Launceston by Ms Giddings and the responsible minister to outline to the board of the TT Line the benefits of sponsoring AFL in Hobart.

This is despite the chairman of TT Line also being the chair of the TDB, the very organisation which should be most aware of potential economic development opportunities for Tasmania. If that’s the way the Government’s role in economic development is to be discharged, we need to look seriously at the model. The Government should concentrate on infrastructure, not trying to pick industry winners. All the industry functions in various departments should be brought together, with infrastructure being the primary goal.

This Budget does go some way to clawing Tasmania back from the edge of a precipice. While the Treasurer does deserve some credit for this she should cease pretending that it was all someone else’s fault.

The real question is whether the Government actually can achieve the savings and get Tasmania back on track. I am not sure we will get another chance to do so.

First published in Mercury , Wednesday June 29

*1 Tasmanian Times analyst John Lawrence has been hammering this point again and again and again.

*2 Tasmanian Times analyst Jarvis Cocker made this point in an eviscerating assault on the deal to bring footy South. Excerpt:

But the news that the taxpayer-subsided corporation over which he presides is to randomly allocate $1.5 million to a football club should be enough to convince even the most hardened skeptics that something is wrong in Tasmania. Very, very wrong.

Let’s look at some governance issues first. Denis Rogers, for those who view sport as the domain of the intellectually challenged, has a long association with cricket – a strange pastime with declining attendance numbers, defined by author Bill Bryson a series of tea breaks interrupted by hours of tedious commentary. A previous chairman of the Australian Cricket Board, Rogers was integral to the push to spend $20 million of taxpayer funds improving the Bellerive Oval – despite the venue being geographically incompatible with large visitor numbers. But Denis isn’t just a cricket man. He loves his footy too – particularly when played on Hobart’s Eastern Shore. I’m told (but haven’t confirmed) he was once a football coach for a Howrah team, and retains an involvement with the Clarence club. Read more: TT-Line: Tasmania’s own Titanic, HERE

Earlier on Tasmanian Times:
John Lawrence’s Budget analysis:
Lara, Will … and the corner store
Jarvis Cocker’s Budget analysis:
Not the GFC: 12 years of Labor neglect, Stupid
Saul Eslake’s Budget analysis:
Saul Eslake: Review of the 2010-11 Tasmanian State Budget

First published: 2011-07-01 02:33 AM