TASMANIA’S FINANCIAL POSITION
Ms FORREST (Murchison) – Madam President, it is that time of year again and it is not the spring races but when the Government finally released the last pieces of the jigsaw to complete the picture of the State’s financial position as at 30 June 2011.
Madam President, after the debate last sitting week approving the Public Account Act, section 19, request for additional funding, and reading the informative and comprehensive Treasury’s annual information report since the tabling last sitting week, I believe the reality of the current budget situation needs to have a bit more light shone on it because I firmly believe the reality of the situation is not fully understood by many.
Madam President, it would appear that the Treasurer has perhaps been understating the predicament we are facing. Last week saw the Government tabling the RAFs for the last quarter of 2010-11, the June quarter. A total of $436 million of RAFs was tabled, there were a few cost overruns but in the majority of cases the RAFs referred to approving appropriation of additional moneys received from the Australian Government. By far the largest amount was the $270 million in regard to the Royal Hobart Hospital redevelopment or the Wilkie money, as it has been referred to.
As I stated, the Government also tabled the Treasurer’s annual financial report of 2010-11 which includes a complete set of financial statements for the general government sector as well as a consolidated set of the total State sector comprising the general Government and all its GBEs and State-owned companies. This document gives a fairly comprehensive insight into the State’s financial position and, as I have stated on previous occasions, it deserves to be more widely read and discussed. The report lists that the balances of all the trust accounts, special deposits and agency working accounts together total $620 million at 30 June 2011. It is the only time we get to see where the Government’s cash is and perhaps, more importantly, where it is supposed to be.
There is an account entitled Australian Government Funding Management Account, or the AGFMA, that I raised some questions about in a contribution in the last sitting week, with a balance of $424 million. I understand this is where the unspent, specific-purpose and national partnership payments, including the $270 million for the Royal Hobart Hospital grant, find a temporary home. These unspent grants represent 68 per cent of the State Government cash on hand. Before the global financial crisis, the AGFMA had a balance of nil. At that stage, total cash on hand was $1.264 billion.
Amounts in other accounts at 30 June 2011 were $1.447 billion in the Superannuation Provision Account or the SPA, $177 million in the Tasmanian Risk Management Account to cover our self-insurance needs, and a total of $550 million in other deposits and agency working accounts. Overall cash is supposed to total $2.598 billion but there is only $620 million there because $1.978 billion has been internally borrowed by the Government. What this means is that there is only one dollar available for every four dollars that are supposed to be there; the rest has been borrowed and spent.
If one were to ignore the unspent specific-purpose and national partnership payments, which have clear designated purposes, the cash on hand is only $196 million. In other words, there is only one dollar for every 10 dollars that is supposed to be there, hardly enough to pay a fortnight’s bills. It is a dire situation.
The unbudgeted Royal Hobart Hospital capital grant was received in the June quarter. The Treasurer did say in her release of 27 October that “the $270 million funding received for the Royal Hobart Hospital redevelopment does not represent an underlying improvement in the budget position”. That is an understatement. It is a little deceptive to say, as the Treasurer did, “that the 2010-11 general government net operating balance has a deficit of $23 million. This is an improvement of $42 million on the original 2010-11 budget Estimate”. It is misleading to include a capital grant, especially a very large one, as part of what is essentially a measure of operating profit. Without the injection of the $270 million, the net operating deficit would have been $247 million, not $66 million as budgeted. That is the most reasonable interpretation of the numbers.
The Treasurer continued in her media release to say that “the Government continues to remain net debt free. The negative net debt result of $416 million is an improvement of $107 million from the original budget estimate”. What the Treasurer should have said is that without the unexpected Royal Hobart Hospital capital grant, the measure of negative debt would have been $146 million, a deterioration of $163 million from the original budget estimate. It is the cash flow information that is the most alarming. Without the Royal Hobart Hospital grant, the operating cash flow would have only been $125 million. This was needed to cover expenditure on new plant and equipment and infrastructure of $720 million in 2010-11 and which is expected to be $551 million in 2011-12. The lowest projected figure in the forward Estimates is $338 million in 2013-14. Clearly, the operating cash flows are inadequate; that is why we run down our cash reserves so quickly on new plant and equipment and infrastructure.
After reading the Treasurer’s annual financial report it becomes apparent that the situation is very serious. We are almost at a stage where we are using unspent, specific-purpose and national partnership payments from the Australian Government as working capital to pay for the ordinary operations of government. It would be a bit like Forestry Tasmania using TCFA moneys to fund operating expenses, and we have criticised them for that in the past. It all has to be paid back eventually.
I do not wish to sound alarmist. We are not like Greece. I noticed there was a commentator in the media this morning saying we are like Greece. I believe we are not like Greece, with unsustainably high levels of debt. Looking at the whole State sector, total borrowings, including the GBEs, are only $6.5 billion and we have $5 billion invested in cash, other government securities and institutional securities. Tascorp has borrowed more than it needs to meet the immediate needs of its clients – that is, the GBEs who are their clients. In a post-GFC world an increase in long-term borrowings has occurred and this will reduce the refinancing risk that comes with too many short-term borrowings, hence the State is not going to fall over; it is certainly not insolvent. The general government sector, excluding the GBEs, does have an unsustainably-low net cash flow. There is no point borrowing more because in the current situation there is not enough spare cash to pay even the interest component.
We need to be frank and honest. The Treasurer’s oft-repeated claims about how there is no money are absolutely true. In fact she has probably glossed over the seriousness of the situation. I am concerned, however, that there are some departments that may be very close to if not insolvent, spending more than they have or are receiving. The operating cash flow last year was only $125 million if one were to exclude the capital funding for the Royal Hobart Hospital. If one also excludes the other one-off grants for Nation Building and Water for the Future, the operating cash flow deficit would be a whopping $127 million. Included in the cash outlays is $187 million to RBF for the Government’s share of the lump sum and pension defined benefits. There was not a single dollar paid to cover the $146 million costs for the increase in superannuation entitlements associated with the employment services provided by current defined-benefit members, nor was there a single dollar to repay any of the amounts set aside to meet future superannuation liabilities in the SPA, which has all been borrowed and spent.
The Treasurer’s measures of a sustainable budget position relate to the net operating balance, but this is a flawed measure because it contains capital grants. It is not a measure of sustainability. It is flawed because capital grants are included as revenue when received but not included as an expense when they are spent. The net operating balance might tell one story but the cash-flow statement may indicate a different picture. Over the past five years – pre-GFC, virtually my entire parliamentary life – the total of all cash outlays in the general government sector is almost identical to the cash receipts. The latter included the cash windfall of more than $300 million received in January 2008 following the sale of Hobart Airport. The cash outflows over this time did not include a single dollar relating to superannuation expenses of current defined-benefit employees; they just have not been paying it.
The calculation of the net operating balance over the five years included $677 million as a superannuation cost for defined-benefit members, but this is only a book entry as payments are only required at benefit stage. Had those defined-benefit members been members of defined contribution schemes rather than defined-benefit schemes then superannuation would have needed to be paid monthly. Had those payments been made we would now be in the red. The only reason we are not in the red is because superannuation payments for defined-benefit members can be deferred until retirement, unlike defined-contribution members whose payments have to be paid monthly. When one looks at the forward Estimates and the overall cash flow, there is not enough surplus cash to cover the cost of superannuation for current defined-benefit employees each year. That means we will fall even further behind.
I ask how the Government can possibly construe this to be a sustainable budget situation. The only reason we are surviving in the short term is that there are defined-benefit members whose superannuation amounts can be deferred. I believe the fiscal strategy to be flawed. The same arguments apply to the Opposition’s budget. It, too, is unsustainable from a cash-flow viewpoint for the very same reasons. Fortunately or otherwise the Greens did not bother with this in their version of the budget. Their only real point of difference with the major parties on an overall budget strategy is whether or not to borrow more. As I have said, if we cannot afford to pay the interest then borrowings will cause even greater problems.
Mr Parkinson – We need the Murchison budget.
Ms FORREST – If I was in government, I might, but I am not.
Over the last five years the unfunded superannuation liability has increased by almost $1.8 billion to $5 billion. Approximately $1 billion of the increase is due to actuarial factors, changes in discount rates, the effects of the GFC and the effects of higher wage increases on final benefits. The remaining $800 million increase in liability is largely because the Government was not required to put away superannuation for defined-benefit members on a monthly basis.
We have been living in a fool’s paradise and it is not going to get much better if the forward Estimates are any guide. We must reduce expenditure absolutely. We need to look at our options to increase revenue and we need to have a mature and meaningful debate about how to address the areas of greatest overspend – current and historic. We need to not make cuts in areas that result in additional cost to our State budget position in the medium to long term and we need to develop a better measure of budget sustainability. We are indeed in a precarious place. Strong leadership and vision is needed but we are not seeing this displayed in any of the decisions being made at the moment. If we can agree on measures to make Health more sustainable, maybe we can sort out the remaining agencies and departments, but cutting elective surgery at the same time as establishing three health organisations is not, in my opinion, the best course of action.
The Treasurer has been saying there is no money and she is absolutely right. The Government will need to find a way to address this issue without making cuts that cost more in the medium to short term. It was a year ago in this Chamber that I raised the question of the missing SPA funds. The Treasurer claimed I was wrong but I was not. I was reminded of this in the silhouetted figures of Messrs Aird and Bartlett riding off into the sunset. As their shadows lengthen, our choices are diminishing.
*Rob Walls’ Picture of Deputy Premier Bryan Green and Premier Lara Giddings at Rally’s rage against the cuts