ABC pic of Lara Giddings and David Bartlett … building a stronger Tasmania …
Parkinson’s law of triviality briefly states that the time spent on any agenda item is inversely proportional to the sum involved.
Since 2007/08 cash deficits have been recorded in every year, totalling $1 billion, deficits that have been funded by plundering amounts set aside for other purposes.
Whilst it is commendable to boost aggregate demand by running deficits, the reality has meant Tasmania has been spending all available cash because it’s wedded to the idea that debt is undesirable while at the same time refusing to reform the unsustainable model to allow borrowings, which might provide scope to achieve more desirable economic and social outcomes in the future.
It’s a model we’ve been following for years. It’s about to reach its used by date.
In the period leading up to the global financial crisis extra funds for government spending came from internal borrowings, almost exclusively from the SPA a/c set up to accumulate enough funds to extinguish the government’s unfunded superannuation liability by 2035.
By 2012 the SPA balance was supposed to be $1.5 billion, but it all had been internally borrowed and spent elsewhere. In fact over the entire period of SPA’s existence from 1999 there was virtually no cash backing, as the following graph shows:
Only in 2008 and 2009 was there a small amount of cash backing for the SPA a/c due to the windfall proceeds from the Hobart Airport sale.
In 2003 there wasn’t any cash backing for the $590 million that had been appropriated to help extinguish the unfunded superannuation liability.
By 2012 the SPA a/c had grown to $1,520 million but it too had gone.
Nothing was there except a pile of IOUs.
There was no foreseeable way that the internal borrowings would be repaid because that required cash surpluses.
It was decided to tear up the IOUs and close the SPA a/c.
The internal borrowings were written off as uncollectable.
Another reason the SPA IOUs would never be repaid was the government’s appetite for internal borrowings showed no signs of waning as it started borrowing from other accounts.
The following graph details internal borrowings from other government accounts:
From 2009 to 2013 the amount of cash in government accounts was supposed to be around $1,250 million (the blue line).
In 2009 all the cash was there but by 2013 only $451 million(the red line).
The rest had been internally borrowed, the IOUs shown by the green line. The IOUs totalled $900 million at June 2013 and are expected to rise to $1,100 million by June 2014.
The IOUs for the missing cash accounted for all of the special deposits administered by Finance-General (FG–part of Treasury) by the end of 2013 as shown below:
FG accounts, the special deposit accounts (the red line) comprise roughly 2/3rds of all government cash (the blue line). The balance, the difference between the red and blue lines, is essentially the department and agency operating accounts.
The green line represents the internal borrowings. In 2009 all of FG’s a/cs were fully cash backed. By 2013 none were.
The increase in IOUs from FG a/cs coincides with the cash deficits since 2009 as shown by the following graph:
As is evident the cumulative cash deficits have almost all been funded by internal borrowings.
The pattern of cash deficits over the years is instructive. The following graph contains the details:
The three Bartlett years are followed by three Giddings years (2 actuals and 1 budget), then by three years of forward estimates.
The 2010 year (cash deficit $261 million) was essentially David Bartlett’s pre election spree. It was followed by the 2011 year post election celebration (cash deficit $338 million).
The need to find a solution for the looming budgetary crisis which Mr Bartlett masterminded coincided with his desire to devote more time to parenting, and fortunately for Tasmania he pursued the latter, leaving Ms Giddings to discover the barn was empty, notwithstanding she had been sitting round the cabinet table with Mr Bartlett for his entire premiership.
Faced with the looming emergency Ms Giddings went to work and reduced the cash deficit to $120 million in 2012. The deficit increased to $205 million in 2013 and is budgeted to increase to $223 million in the 2014 year.
All financed by internal borrowings.
But let us worry no more …