Tasmanian Times

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

Economy

Tasmania is not Greece … nor is it America

There’s an internet site (http://economicscience.net/content/JokEc) which lists a series of jokes about economists, which I sometimes refer to when preparing for a talk (self-deprecatory humour is one of the safest kinds). And one of the jokes on that site describes two economists walking down a street and hearing two people yelling at each other out of the windows of their apartments on opposite sides of that street. One economist says to the other, “they’ll never reach an agreement”, and when the second economist asks, “why are you so sure of that?”, the first economist replies, “because they’re arguing from different premises”.

There’s a large element of that in the debate between Opposition Treasury spokesman Peter Gutwein and Premier Lara Giddings which was published in the pages of The Examiner three weeks ago.

Mr Gutwein drew attention to the fact that, in recent years, the Government has not been making cash payments to the Superannuation Provision Account (SPA) originally established in 1994 to accumulate assets which could eventually be used to defray the Government’s unfunded liabilities for superannuation payments to retired State employees. This is undoubtedly true.

It’s equally true that former Premiers Paul Lennon and David Bartlett, before each of the last two State elections, lengthened the timetable originally established by former Treasurer David Crean for accumulating sufficient assets fully to offset this liability from 2018 to 2035. That’s partly because, since David Crean’s retirement, the Government has been less disciplined about spending: during the period in which Dr Crean was Treasurer, government operating expenses rose at an average annual rate of about 4½%, whereas since then they’ve risen at an average annual rate of about 7½%. The State Government has also been spending a lot more on infrastructure since Dr Crean retired. As a result, it hasn’t been running cash surpluses (from which it makes payments into the SPA) of the same magnitude as it was when Dr Crean was Treasurer: indeed, since 2009-10 it has been running cash deficits, and hence hasn’t been able to make any cash contributions to the SPA. Nor will it in the current financial year.

Mr Gutwein then went on to argue (if I’ve understood him correctly) that if the Government had to borrow an amount sufficient to pay down the unfunded superannuation liability and other obligations which it has, the State would have a debt of $2.4 billion.

At best, Mr Gutwein seems to be confusing gross and net debt in the same way that Barnaby Joyce did during his brief and inglorious tenure as Federal Opposition Finance spokesman. He also seems to be making the quite unrealistic assertion that the Government might one day have to meet the superannuation liability all at once. That would only be true if all of the State employees still in unfunded super schemes decided to retire on the same day, all sought lump sum payments, and if all the existing retirees died on that same day and their survivors sought lump sum payments rather than continuing pensions. There’s a greater chance of Andrew Demetriou agreeing to Tasmania having its own team in the AFL than of that happening.

My reading of Tasmania’s financial position, based on the most recent Budget Papers, is this. Tasmania’s ‘general’ or ‘core’ government liabilities stood at an estimated $6.2 billion as at 30 June just ended. Of this amount, the unfunded superannuation liability represented $5.0 billion, and more conventional borrowings just $283 million. Offsetting this, the Government had financial assets totalling $7.9 billion, of which by far the largest element was its investment in government business enterprises (GBEs) like Hydro Tasmania and Aurora, totalling $6.0 billion. It also had cash and bank deposits of $567 million (more than enough to repay its conventional debt if repayment were demanded all at once).

Assuming that the Government’s GBE investments aren’t for sale, it had ‘net financial liabilities’ of $4.3 billion at 30 June last. That’s equivalent to about 91% of Tasmania’s gross State product, which is above the average for all States and Territories, but lower than the equivalent figure for South Australia, and about the same as that for Victoria.

The Government also has ‘non-financial assets’ (principally land, buildings and infrastructure assets) totalling $11.7 billion. So its ‘net worth’ is of the order of $13½ billion.

If we look at the State public sector as a whole (that is, including GBEs and other non-budget agencies), at 30 June last Tasmania had total liabilities estimated at just over $15 billion (of which unfunded super was $5.7 billion and conventional borrowings $5.9 billion), financial assets of $6 billion and non-financial assets (including for example those of the Hydro) of $22½ billion – implying a ‘net worth’ of about $13½ billion.

In other words, Tasmania is not Greece. Nor is it America (although the Tasmanian Government doesn’t have the ability that the US Government has to ‘print money’ to pay off its debts, if it ever came to that).

The problem Tasmania does have is that this position will deteriorate significantly – Tasmania will be heading in the wrong direction – if it doesn’t do something like what the Government proposed in this year’s State Budget. That’s because spending, if it’s not reined in (which can’t be achieved without ‘difficult’ decisions like school closures), will continue to grow at a faster rate than revenues (which are being eroded by the unwillingness of Australians to spend as freely as they did before the onset of the global financial crisis, and threaten to be eroded further by the Gillard Government’s review of the carve-up of GST revenues among the States and Territories).

So unless Tasmanians are willing to pay higher State taxes (of which there’s no sign, and which would in any cases have adverse consequences for the State’s economy, since most State taxes are paid by businesses), there’s really no broad alternatives to the strategies laid out by Lara Giddings in her first Budget. It’s open to other parties to suggest alternative ways of achieving similar (or greater) reductions in spending – but ‘backing off’ from the broad path laid out by Ms Giddings would ultimately condemn future generations to harsher reductions in spending on ‘core’ services than the Government is proposing now, as well as re-inforcing the growing perception on the mainland that Tasmania is a place where it’s very difficult to get anything done.

Full version of op-ed published in this morning’s Launceston Examiner newspaper, which looks at competing claims made last month in that newspaper by Opposition Treasury spokesman Peter Gutwein and Premier/Treasurer Lara Giddings

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23 Comments

23 Comments

  1. Peter Gutwein

    August 13, 2011 at 9:24 pm

    As the article that was the genesis of this discussion was commenting on concerns that I raised regarding the superannuation provision account not being cashbacked I have sent my response to Mr Eslakes article which the Examiner also published 11/8/11. Peter Gutwein.

    Dear Editor,

    The article by Saul Eslake (Opinion 9/8/11) was factually incorrect and misrepresented my position. I have never argued that the Government should be borrowing to pay out its unfunded superannuation liability nor that the Government has not been making contributions to the Superannuation Provision Account (SPA) established to meet the unfunded superannuation liability. My point was that the SPA is no longer cash backed, an indisputable fact as evidenced in the budget papers. That this is as a result of the Government drawing down its superannuation savings to meet its current expenditures is also a fact. The Premier has herself confirmed this. It is also very clear that the State would be in a worse gross debt position today than it was in 1998 if it had to repay this cash back to the Superannuation Provision Account. The States unfunded superannuation liability is currently around $4.5 Billion and growing, and as the SPA which should have around $1.5Billion is no longer cash backed it will be both current and future generations of Tasmanian taxpayers who will have to pay because this Government has spent all of the cash. And that unfortunately is another fact.

    Kind regards
    Peter Gutwein
    Shadow Treasurer

  2. Saul Eslake

    August 12, 2011 at 9:36 pm

    I hope, Mr Langfield, that you have learned a lesson from this, and that you will henceforth be more considered and careful about what you impute to other people, not just me. Apology accepted. Other people might well have sued you. I won’t.

  3. Russell

    August 12, 2011 at 8:26 pm

    You are correct, Mr Eslake, on second reading reading they are Ms Davis’ words. My unreserved apologies to the attributions.

  4. Trevor Burdon

    August 12, 2011 at 6:06 pm

    As a close ‘observer’ and another who has been hounded here – I already have.

  5. Saul Eslake

    August 12, 2011 at 3:16 pm

    Re #9: (Ed: on this thread here: http://oldtt.pixelkey.biz/index.php?/weblog/article/prospects-for-the-global-australian-and-tasmanian-economies/show_comments/

    in pursuing his obsession with what he imagines my views about forestry to be, Russell Langfield has made a serious and potentially costly (to him) error.

    He has – perhaps carelessly, but nevertheless faslely and misleadingly – attributed to me words which I have never spoken, opinions which I have never expressed, views which I do not hold – here, and in two similar postings on another contemporaneous thread on TT (“Tasmania is not Greece’).

    The words which he imputes to me in #9 are taken, as he says, from an article in “Tasmanian Country” written by a Ms Jan Davis, whom to the best of my recollection I have never met, and to whom I have never spoken.

    But as any one who reads that article carefully (which Mr Langfield obviously didn’t) will immediately discover, the words attributed to me here by Mr Langfield were in fact not spoken by me. They are neither in quotation marks, nor preceded nor followed by words such as “Mr Eslake said …”. They are in fact, as should be clear to any literate reader, the views of Ms Davis.

    So if Mr Langfield has an ounce of integrity in him, he will, as soon as he reads this post, offer a full and unreserved retraction of both #9 here and his two recent posts on the other thread; and if he has any decency he will also offer an unreserved apology. He will also promise to think more carefully about what he has written before he hits the “submit” button on TT (and hopefully on any other sites he inhabits).

    If he does neither, TT readers can draw their own conclusions about Mr Langfield’s motivations, integrity and character, and about the weight which they should attach to anything else he says.

    And just for the record, I would be fairly confident that, over the course of my life, I have seen more of Tasmania, including the before, now and after of forestry plantations, than Mr Langfield has ever done. The fact that I don’t pepper everything I write with opinions about forestry is obviously frustrating to Mr Langfield, as his incessant posts to that effect on TT readily attest, but it doesn’t give him the right to impute to me things I have never said, or opinions which I don’t hold.

  6. mike seabrook

    August 12, 2011 at 12:06 pm

    ref #17

    and the man to do it will not be voluntary & bears a resemblance to superman/ clark kent aka warwick mckibben

    he could consider tassie as an experimental trial before he is asked to step in to save greece & the world as we know it.

  7. Russell

    August 11, 2011 at 4:24 pm

    Another (non-forestry issue) quote from Mr Eslake’s article which mike seabrook and sam betts may find some comfort in for their earlier (on-the-mark) posts, “If Tasmania were a business we’d be looking at calling in a voluntary administrator and seeking expert external advice to help us trade our way out of this situation.”

  8. Russell

    August 11, 2011 at 4:19 pm

    Re #13
    Everyone should read Opinion on page 10 of this week’s Tasmanian Country newspaper to find out why forestry is never mentioned in any of Mr Eslake’s articles.

    http://tascountry.realviewtechnologies.com/default.aspx?xml=TAS_Country

    I can’t believe what I read.

  9. Saul Eslake

    August 10, 2011 at 2:32 am

    Re #14, no apology necessary, but accepted in the spirit intended.

  10. mike seabrook

    August 10, 2011 at 12:00 am

    re #11

    could all tt readers please note sauls (#11) response to my ref #8,

    saul, please accept my apology, re my wrong allegation as to your closeness to the tasmanian government, & aspersians of improperly placed partiality.

    I & assuredly all other tt readers very much appreciate whatever commentary (particularly the statistics & graphs) saul is able to provide on the tasmanian economic scene.

  11. Saul Eslake

    August 9, 2011 at 6:23 pm

    Re #10, successive Budget Papers indicate that during the period in which Dr Crean was Treasurer, capital expenditures funded out of the Budget averaged $107 mn per annum, or 0.8% of gross State product (GSP). Since then, budget capital works spending has averaged $408 million per annum, or about 1.9% of GSP. In the last two fiscal years, capital works funded through the State Budget have been inflated by Federally funded stimulus programs; if you exclude the last two years for that reason, then budget-funded capital works expenditures have averaged $264 mn per annum, or 1.3% of GDP, since Dr Crean retired as Treasurer.

    Unless Mr Langfield thinks I’ve made these figures up, that should constitute sufficient “proof” for him of the statement I made in my original article that “the State Government has been spending a lot more on infrastructure since Dr Crean retired”.

    I didn’t make any assertions about the quality of infrastructure spending either during Dr Crean’s time as Treasurer or subsequently. Hence I don’t see any need to spend what would be a lot of time trawling through each of the past dozen years’ budget papers in order to list them so that Mr Langfield can make whatever assertions he wants to make about particular infrastructure projects. That’s what I mean when I say I am not going to be his unpaid research assistant.

    Re #12, I didn’t think Mr Betts was being “catty or disrespectful”, although in my personal experience on other websites, fans of Barnaby Joyce can be both, and much worse. I totally agree that one of the lessons of the GFC, and subsequent events, is that too much debt can be very bad for you. Another lesson ought to be that inappropriately low interest rates can be bad for you too, since when interest rates are “too low”, people (and governments) tend to borrow too much, and banks tend to lend to the wrong sorts of people (and governments) – those who can’t pay it back or even service it when interest rates get back to more ‘normal levels.

    But while I agree that the proportion of Tasmania’s population dependent in one way or another on government for their income is higher than desirable, I still disagree that we are either close to being, or condemned inevitably to end up being, like Greece.

  12. sam betts

    August 9, 2011 at 12:52 pm

    Thanks Saul for the response. Sorry didnt mean to sound catty or degrading and fully respect your view. What we all agree on, and I think this is what we have witness the past few days, is that while debt is good, too much isnt. Eventually you have to live within your means. If you keep borrowing money for unproductive purposes (ie the DPAC agency for a start) and keep taxing the population to the hilt, add to the mix a public services out of control in its spending, then you will end up like Greece. While you say we are not like Greece in terms of financial papers, I totally disagree with that. The only industry left in Tassie is welfare and the public service. If it were a company we would be in administration by now. It aint good.

  13. Saul Eslake

    August 9, 2011 at 11:29 am

    Contrary to what Mike Seabrook suggests in #8 I have not had any “privileged access to the inner workings” of the current government, or any previous government, nor have I expected or sought it. Being on the board of the Hydro does give me access to information about its operations, some of which is “commercial in confidence”, but it doesnt give me any special insights into budget decisions or any other processes of government.

  14. Russell

    August 9, 2011 at 11:16 am

    Re #7

    The statement you made regarding infrastructure projects was over a long period and I doubt it’s all to be found in one Treasury Report. You made the statement, not me, so I assumed you had read all the Reports and would be able to list the infrastructure projects you cited.

  15. mike seabrook

    August 9, 2011 at 1:26 am

    ref #4 “Tasmania’s financial position is nowhere near as dire as Greece’s. Fact”

    I presume you meant NOT YET !!.

    saul , if the feds don’t keep the loot/danegeld flowing down to tassie & tassie cannot print & debase its own tassie currency or issue unlimited amounts of iou’s (just like greece , unless/until greece is thrown out of the euro) , surely it will end up like greece – sometime !!!!!

    is it not the FACT that tassie is tied to canberra’s chariot wheels

    – in other words whatever tassie does it is irrelevent, hence rational for tassie in effect to party, party, party, at every opportunity and forget about any hangovers or tomorrows.

  16. mike seabrook

    August 9, 2011 at 1:08 am

    has saul ever publicised on tt anything critical of the guilty parties (names please) in the lab-green government which he has surely seen in his special access into the inner workings of the state government.

    – like massive wastage, lack of cost-benefits, cases of certified idiots (tassie foxes anyone),special deals for tas.inc mates etc.

    i understand that as a paid hydro board member he is constrained for talking about electricity prices, bass strait cable, vic brown coal greenhouse gas generating power etc, as he could never be regarded as impartial. This is mostly claimed as being commercial in confidence & hidden from the tasmanian public.

  17. Saul Eslake

    August 9, 2011 at 12:51 am

    Re #6, Of course I don’t expect people to take everything I say at face value, and a trawl through the comments on most of the articles I have posted on here over the years will immediately indicate that many people don’t. Which is fine. It’s a free country, we have a free press, no-one’s word should be taken as gospel just because of who he or she is, or used to be.

    There’s been a very large number of infrastructure projects funded out of State Budgets over the past decade. I’ve got better things to do with my time than look them all up, and transcribe them here, so that Mr Langfield can make whatever points he wants to make about them. I’ve indicated where that information can be found, but I’m not going to do his legwork for him on this.

  18. Russell

    August 8, 2011 at 11:06 pm

    Re #4
    I never asked you to be my personal research assistant, Mr Eslake, but if you’re going make statements in an article then at least provide some proof of them if asked, or don’t make them.

    Do you really expect everyone just to take everything you say willynilly at face value, unquestionably?

    I am interested to know what infrastructure projects over the period you quoted, which you are talking about, to see whether it was worth the money or not and who they benefited. Do you have a problem with that?

  19. Trevor Burdon

    August 8, 2011 at 10:20 pm

    These days RBF is trying to raise a few $ itself.

    Boy have I been looking for an opportunity to raise this – thanks Saul…

    A year ago I opened a line of enquiry with the RBF regarding their strategic transformation and the basis for changes to their Managed Investment Choice Options. After much correspondence and few answers, I now have a letter from the Chairman of the Board, Damian Egan, who has dismissed any further discussion with me. I had asked for a copy of the Board’s minutes – transparency continues to be a major issue for Tasmania’s fiefdoms.

    To clarify for non-public servants, late last year the RBF closed some of their investment choice options leading up their transformation and the outsourcing of much administration to Mercer. That is almost complete now.

    One option closed was the State Street ETF, which was a low fee, passive index-linked Exchange Traded Fund. In the midst of today’s mayhem one might question any share investment except that historically over the longer term it has been the star performer. Most importantly it has out-performed the RBF default option (Actively Managed) at a fraction of the cost (0.15% << 0.56%) perhaps precisely because no one is paid extra to manage it actively. And that is the secret of retail Fund Managers the world over. ASX figures support a flight to index tracking (with dividends and no management) as the core of investment portfolios with peripheral speculative investment choices. Over the last two years ETF investments have grown from ~$1 billion to $5 billion. Worldwide the trend is the same - reduce the take of the financial expert but share in world economic growth. My request of the Board was that they share dated transcripts that reflect Board thinking or determinations on the following: 1. That no low cost investment option should be offered to members 2. That no passive investment option should be offered to members 3. That members can be forcibly moved from their investment choice 4. That no ETF can be managed for < 0.56% pa admin charges 5. That AU Shares targets are usually unrealised yet justifiably optimistic this year.* 6. The raising of my serious concerns in the recent Board meeting *For the very many Tassie, readers of RBF collateral, who has ever seen a performance to target summary from the RBF? Apart from indulged supprt staff, from the RBF I have nothing informative ...

  20. Saul Eslake

    August 8, 2011 at 8:31 pm

    Re #1, I’m not going to be Mr Langfield’s research assistant. There are lists of the various infrastructure projects on which the Government has spent, or proposes to spend, money in the annual budget papers. They are, in turn, available on the Treasury website. I’m not making any assertions as to whether all, or any, of that money has been well spent – although I certainly would agree that much of Tasmania’s existing infrastructure is inadequate and/or poorly maintained, and that some of it unnecessarily and That inefficiently duplicates other infrastructure.

    I don’t dispute the Government has been making withdrawals from the SPA. Peter Gutwein has made an estimate which I can’t verify from the Budget Papers: I understand that this information is provided in the Treasurer’s Annual Report, the 2010-11 edition of which isn’t available yet. I will be interested in this information when it is available.

    Re #2, the US didnt default on its debt, so Barnaby Joyce was wrong about this, and I don’t owe him an apology or anything else. Nowehere did I suggest that Tasmania’s unfunded superannunation liability is anything to be complacent about. It is higher, relative to gross State product, than for any other State or Territory, and represents a significant burden on future State taxpayers, albeit not one that will have to be paid abruptly.

    That said, Tasmania’s financial position is nowhere near as dire as Greece’s. Fact.

    Incidentally, I have recently walked through the mall in Hobart – several times – although I haven’t been to North Launceston or any of the other suburbs mentioned recently. But I don’t think such experiences are necessary (or sufficient) to be able to make informed judgements about the economic situation of Tasmania.

  21. mike seabrook

    August 8, 2011 at 8:10 pm

    tasmanians can vote out the villains in a couple of years time who progressively caused this state of affairs over the past 10 years since the votors threw out the libs & replaced them with the labs & their green fellow travellors.

    the only thing which can fix tassie is going cold turkey, cutting our cloth to suit & massive cash inflows from the feds.

    and we still have those pyromaniacs who caused this conflagration (with assistance from their brilliant advisers – who are still in place) running the show & claiming that they have the answers.

    such is life

    when occasions like this happen forget about the general good

    – any savings will continue to be wasted on frolics like hunting for the non-existent tassie fox & 10/80 the fauna on macquarie island or handouts to subsidise a big stinker,handouts to mainland footy clubs Z& other circuses to keep the masses distracted, contracting to have built & occupy a taj mahal masoleum building to be occupied by an increasing number of pollies & spinners etc. & constructing gold plated walking tracks for a few 5 star standard bushwalkers etc.

    look out for your own & your families interests as a priority. decrease your exposure to assets/positions which can be readily be hit up by increasing fees & taxes etc. from these wastrels.

  22. sam betts

    August 8, 2011 at 3:02 pm

    Good that saul slags off Barnaby Joyce, but I do remember Barnaby predicting that the USA was close to default. He was only 10hrs off making that predication. I think an apology to Barnaby would be nice.

    If Saul thinks that 6Billion in unfunded liabilities is ok, for a state of 500,000 people, where 70% off people get their source of funding from either welfare, or GST then I am sorry but I don’t.
    My reading of the budget papers is this. We are stuffed, and very much like Greece.

    http://www.budget.tas.gov.au/media/pdf/publications/2011-12_BP1.pdf

    See page A3.7 We were $234m in debt last year, $169m this year, we haven’t closed one school nor sacked one public servant. The forestry industry is dead, and not amount of eco-tourism ie pommie backbackers or german kayakers will save this state soon.

    Saul my advice take a walk through slum of north launceson, mowbray, go through to george town, hell just walk through the mall in hobart, you will see we are in a recession and not much hope left. Taxation receipts are down and people are not spending. The canary is in mine is no longer singing, but choking.

  23. Russell

    August 8, 2011 at 2:09 pm

    “The State Government has also been spending a lot more on infrastructure since Dr Crean retired.”

    Could you list these please, Mr Eslake?

    “indeed, since 2009-10 it (the Tasmanian Government) has been running cash deficits, and hence hasn’t been able to make any cash contributions to the SPA.”

    More to the point, it (the Tasmanian Government) has been making withdrawals from the SPA.

    Could you tell us exactly how much was in the SPA, how much has been withdrawn, Mr Eslake, and how much is left please?

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