Committee for Economic Development of Australia
It is my pleasure to be here today at this important annual conference that is something of a scene-setter for the political year ahead, right around Australia.
We are fast approaching the 2nd year anniversary of the election of the Hodgman Liberal Government, and in a few months, I will be delivering my third Budget as Tasmania’s Treasurer.
Tasmania today is in a much better position, a much stronger position relative to where we were when this Government commenced office.
On almost every economic indicator we are doing better than we were only a few years ago. Broadly speaking, it is a very good time to live and invest in Tasmania – the economic data and business surveys repeatedly tells us that this is the case.
Our economy is growing at the fastest rate it has in six years, our rate of population growth is the highest it has been in 4 years. Importantly, the State’s finances are now under control and the forecasts are that we will be in back in surplus next year and each year of the forward estimates period.
Tasmanian business confidence is through the roof in most national surveys and I for one was very proud when last year we were able to announce that Tasmania was rated by the key national surveys as the most confident place in the country to invest and run a business.
Importantly, this has held with the most recent sensis business index rating Tasmanian small and medium sized enterprises as the most confident in the country.
What is pleasing is that that our improved economic performance is being driven by the real economy – the private sector. The growth in State final demand has largely been as a result of strong growth in private investment and consumption.
Dwelling investment in the September quarter 2015 was almost 12 per cent above the level in the same quarter 2014.
Tasmanian business investment has also been increasing, with the level in the September quarter 2015 almost eight per cent higher than a year earlier. Forward indicators of business investment are promising, with a number of large private projects underway or expected to commence shortly.
There is more construction work being done and more in the pipeline. Construction work completed had its highest quarter on record reaching $331m, up 12% from $296m at the election. And pleasingly construction work commenced was up 32% in the year to September 2015, compared with the year leading up to the election.
The most recent Property Council of Australia Office Market Report showed a reduction in office vacancy rates in Hobart and highlighted that where space is being withdrawn from the office market, it is increasingly being repurposed, particularly for hotel space, which in the view of the PCA State Director is another sign of improved investor confidence in this State.
Importantly our retail spending, which is one of the best litmus tests for the broader economy, is now at record levels as are our tourism visitation numbers with significant growth occurring in both interstate and international visitation over the last 12 months.
Ladies and gentlemen, there is no doubt that Tasmania is well and truly known now on the national and international stage. Seven gold, nine silver and three bronze awards at the national tourism awards is indicative of the very high regard our State and our products are held in. Tasmania is without doubt the place to be, and this Government is intent on keeping it that way.
I believe very firmly that the change to a majority Government two years ago, that had a plan which was widely understood by the Tasmanian community, especially the business and development sectors of our economy, has in large part provided the foundation for those confidence levels to rise.
However I understand and acknowledge that as well as a majority Government with a plan, the key fundamentals at work in the national economy, like the low interest rate environment and the fall of the exchange rate to much more accommodating levels, have been particularly important for Tasmania given the trade-exposed nature of our economy.
And certainly, the State is poised to benefit from rising income levels in Asia. Our trade missions are seeking to capitalise on this structural shift in the world economy. While we have put a lot of emphasis on our relationship with China, and the unique opportunity that has been presented by the relationship between this State and the Chinese President, this Government is also pursuing closer economic linkages with other important Asian trading partners, such as Thailand, Singapore and of course India.
As a Government we have explained to Tasmanians what we would do when we won Government, and we have delivered. We have done what we said we would do. And ladies and gentlemen, Tasmanians are responding in kind, and we are seeing the results in the economic and business confidence data.
Along with the shift in the State’s economy, the shape of the State Budget has also changed since the Hodgman Government was elected. That shift is an even stronger contrast than the economic one.
The Budget situation we faced after the election was dire. I asked Treasury to prepare the April 2014 Risks Report, which highlighted several sobering facts:
• operating deficits across the forward estimates period and no return to surplus on current settings for the foreseeable future;
• across the 4 year Budget and Forward Estimates period, cumulative deficits of $1.1 billion, as well as 1,000 hidden job cuts left buried in the Budget; and
• net debt rising to $400m
The repair job began immediately, and in August 2014, I handed down the Government’s first Budget. It contained some difficult elements, including the proposed pay freeze right across the public sector and other savings measures, but we had to act quickly to put the State’s finances back onto a sustainable footing.
We said without the pay freeze, we would have to reduce the size of the public sector, and when the freeze was rejected we took action as we said we would. This is yet another example of this Government staying the course when obstacles are put in our way.
That first Budget put the State on a path to return to surplus in six years, and cut projected Net Debt from around $400 million to around $50 million.
It was a measured Budget, a Budget that got the balance right, that put the State’s finances back on track, while kick-starting the economy and commencing the delivery of our long-term Plan.
Our second Budget, built on those foundations, struck the right balance between spending on services now and building for the future. The Budget was framed to grow the momentum that was then evident in our economy. This budget benefitted from the disciplined approach we took in regards to our expenditures but also from the firm approach we took at a national level in not allowing other states to benefit from our GST receipts and which also provided us with increased revenues over the coming years.
The Budget made further progress in putting our State’s finances back on track, putting the Budget on a path back to surplus in the 2016-17 financial year – back in the black and out of deficit, three years ahead of the schedule set out in our first Budget. It should be noted that even with increased GST receipts, without the savings that were implemented in our first budget a return to surplus would not have been possible.
Earlier this month I released the 2016 Revised Estimates Report, which provides a transparent update on the State’s Fiscal Position. The RER shows that the State’s finances remain on track to return to surplus next year and remain in surplus over the forward estimate period, as I said, three years ahead of the original schedule.
The RER projects an improved bottom line this year with the operating deficit expected to be $56.6 million ($1.9m better than budgeted), which would make it the best budget result in five years.
This result is a reflection of the ongoing spending discipline we have shown since coming to government. The growth in expenditures remains constrained to just 1.7 per cent over the budget and forward estimates, compared to 4.8 per cent under the last eight years of Labor and the Greens.
The Government’s borrowings are forecast to reduce by nearly $70 million; net debt has improved with net cash and investments now projected to reach $410 million for 2015-16, up from around $253 million in the Budget.
The RER shows healthy surpluses remaining across the forward estimates; however, the need for ongoing budget discipline remains as the risks identified in the Budget are still present as well as fire, floods and other recent challenges.
Additional expenditure committed since the Budget reflects our focus on the core services of government, with $25.6 million for the Family Violence Action Plan, $13.5 million for our Affordable Housing Strategy, and $10 million in additional funding for our hospitals.
Reflecting our strengthening economy, tax receipts are projected to increase by $10 million across the Budget and Forward Estimates period, and GST receipts are expected to be around $33 million higher over the same period, relative to that in the Budget.
Returns from Government businesses remain strong. The RER takes a prudent approach to forecasting returns to the Budget from Hydro Tasmania. Total reductions of around $33 million in dividends and $21 million in tax equivalent payments have been factored into the budget across the three-year forward estimates period. We will review these provisions as we move through the formulation of the 2016-17 Budget and as we obtain greater clarity on the timing of the Basslink repair, and of course, the magnitude of autumn rains and the extent of the operation of the temporary diesel generation that is currently being deployed to support the hydro system. Our budget though now has the capacity to withstand these types of unexpected challenges.
This Government understands that we simply must control our expenditure to ensure our financial sustainability and cannot simply hope for higher Australian Government payments or increased GST.
The Government is determined not to make the mistake of spending our improved budget outlook on recurrent expenditure that we will not be able to afford in the future, even if the Opposition parties continue to advocate for that to happen. We have learned from the mistakes of the previous government, and are determined not to fall into the traps of the past, or of other states.
As I said in the Budget speech in March last year, we know that inevitably, over time as our economy strengthens and that of other states weakens, our GST share will decline.
As I have said that we know that there will always be shocks that the Government will need Budget flexibility to be able to respond to.
Being able to appropriately respond to emerging issues in a way that does not jeopardise the funding of core service delivery is something Tasmanians rightly expect of a responsible Government.
While ongoing discipline is required, bringing the budget back under control, as well as a strengthening economy, means we are well placed to weather unexpected financial challenges.
Importantly, with the hard work that we have already undertaken on fixing the Budget mess created by the Labor-Green Government, the upcoming 2016-17 Budget will see the Government able to reinvest and deliver dividends through better service delivery to the community.
The key focus of the initiatives that we are considering as part of the Budget process are in the core services of government, such as health, education, and looking after our most vulnerable. Some of the top priorities under consideration are new investments in the child protection system and an extension of the initial funding for affordable housing that were announced last year.
Maintaining the economic momentum that has been sustained over the past 18 months will remain a key priority, so jobs and skills remain an important area of focus for the Budget.
Putting the State’s finances onto a sustainable footing is one of the key elements of the Hodgman Government’s Long Term Plan for Tasmania.
Ladies and gentlemen, I can assure you that there is a tremendous amount of attention being given inside Government and by government-related entities in grappling with the immediate pressing issues we are facing in energy and fire.
But the wider work of Government must also go on in parallel, and I would like to touch on two other key elements of our program that will continue to be amongst the ‘biggest issues’ on the political stage for 2016.
The first is Forestry.
It was a privilege to be appointed by the Premier as the Minister for Forestry and to have the opportunity to continue the very good work that retired Minister Paul Harriss has begun.
The first phase of our Plan for the forestry sector was to secure the forest resource and to stabilise the industry.
Minister Harriss delivered on Phase one – the job destroying forestry deal has been torn up, the strongest workplace protection laws in the country have been introduced to protect Tasmanian jobs and the industry is once again growing.
The second phase is to grow the overall industry and see real jobs growth. As Forestry Minister, I am determined to position our forest industry for the future. And when I use the term industry, I’m talking about a lot more than the publicly owned native forests and sawmilling sectors which while being central, are only part of the overall forestry industry. This Government is looking to secure a brighter future for the whole of the sector – the private native timber growers, private investors in hardwood and softwood plantations, the businesses that support forest operations and, of key importance, downstream processes that generate the value that flows right back through the supply chain.
In my view, the single biggest change that will unlock the potential of our public and private forest resource is the development of higher value uses of the timber that they produce. Innovation and development are of central importance to drive up the value of our resource, and to deliver the investment and jobs we are looking for from the sector. Accordingly, my emphasis as Minister will be to look forward, and work with the private sector to identify and deliver value-creating opportunities.
In the immediate term, a lot of my focus will be given to working through the results of the southern residues EOI process, which saw round 2 bids close last week. I was very pleased that of the original 15 proposals that we were working with, 10 proposals have been further developed and remain in the process across a range of options and applications, none of which by the way, contemplate a woodchip pile on Macquarie wharf.
Identifying the best prospects of the 10 proposals lodged is my top priority, as implementing both short, and longer-term solutions for the residues being generated from forestry activity – both from the public and private resource base is a key plank of putting Forestry Tasmania onto a sustainable financial footing, and also removing a key constraint for the industry in the South of the State.
I also want to place firmly on the record my desire to see biomass become a part of this solution and not just biomass from sawmill residues or arisings in our forests but also biomass generated in both domestic and agricultural settings as well.
The other two high priorities directly involve Forestry Tasmania – they being ensuring that Forestry Tasmania is on a financially sustainable footing, and of course, securing FSC certification for that business.
We announced last year that following the comprehensive Forestry Tasmania Review undertaken by the Government’s Steering Committee and supported by Deloitte, that Forestry Tasmania would transition to a composite operating model – under which it would remove itself from parts of the value chain, and free up the opportunity for the private sector to increase its involvement in the sector where this delivers better outcomes for both sectors.
Working through the detail on the new operating model for Forestry Tasmania is complex however good progress is being made and at an accelerating rate. The first half of 2016 is a key period in bedding down the details of a sustainable transition path for Forestry Tasmania. I expect to provide further clarity on this model before I hand down the budget, but want to make it very clear now that I see Forestry Tasmania remaining as a Government business, albeit one that has a sustainable financial pathway into the future.
In relation to the FSC certification process, several points have been very clear for a long while, namely:
• FSC is a complex process;
• Forestry Tasmania does not expect to be granted FSC certification first go (as this would be unprecedented for an operation of FT’s complexity); and
• the Audit Report is a progress report (rather than an absolute ‘yes’ or ‘no’).
I will be in a position to have more to say in detail about the recently received Audit Report after it has been considered by the Forestry Tasmania Board later this week. What I can say at this stage is that it is highly pleasing that the vast majority of the FSC certification criteria are being met by Forestry Tasmania, but there will be further work to do.
It is my expectation that Forestry Tasmania will release as much of the Audit Report as possible, while protecting commercial-in-confidence and personal stakeholder details, after the report has been properly considered.
Ladies and gentlemen, the second and final issue I wish to touch on today is the future of gaming licences in Tasmania. It is appropriate that I start this conversation today here on the site of Australia’s first casino.
There has been strong interest in this matter since David Walsh came forward proposing a casino licence for a table gaming only, high roller casino for international and interstate players to financially support his MONA museum.
Without going over all of the detail, the Government was firm in its position that it would not seek to override the existing Deed with Federal Group that grants that business with an exclusive opportunity to conduct casino operations in Tasmania until 2023 at the earliest.
This would have created a climate of sovereign risk-we are not in the business of tearing up contracts and it also needs to be placed on the record that Federals have been good corporate citizens and have invested and provided jobs for Tasmanians over the period they have been operating casinos and gaming in this State.
In that context, the Government received a proposal from Federal Group on the terms under which it would be prepared to forgo casino exclusivity. Those terms were not acceptable to Mr Walsh, and on this basis, Mr Walsh determined not to proceed and in that context, the Government ended that process.
This coming year will be a very significant one in relation to the future of gaming licenses in Tasmania post 2023.
I have sought, and now considered, advice from Treasury on options in relation to the future of gaming licences, and the Government is working through the final details of its approach to this important issue.
I expect that the Government will be in a position to make a more detailed public statement within the next six weeks, but today I can set out some clear markers:
• Firstly, I can absolutely rule out any secret deal being done as it was back in 2003.
• Secondly, in the coming statement we will set out our views on key policy matters for the post 2023 environment such as exclusivity, harm minimisation, the future and process for awarding gaming licenses and also the option of the MONA high roller casino so that all stakeholders have an understanding of the Government’s preferred positions.
• Thirdly, there will be an open and transparent process established to enable all stakeholders the opportunity to voice their views on the policy framework we will outline and also raise their issues and have them tested to help inform the finalisation of the Government’s approach to gaming post 2023. I anticipate this process will be undertaken and finalised during 2016 to enable the final policy platform to be finalised on gaming licencing ahead of the 2018 State election. Bearing in mind that the earliest opportunity to make changes to the current arrangements is 2019 with implementation from 2023.
In wrapping up then ladies and gentlemen, in the context of today’s theme – an economic and political overview – 2016 is set to be an exciting and notwithstanding the current challenges the State faces, an even more successful year than the last two.
The Premier will set out our full Agenda for the year ahead in his State of the State address when Parliament resumes, so I shall not seek to do so here.
One thing is clear though, the Government will continue to manage any emerging issues and is well-positioned to do so because of the hard work we have already undertaken in putting the Budget back onto sustainable settings;
The upcoming Budget will continue our disciplined approach to managing the State’s finances whilst investing the dividends in the core services of government and also ensuring we preserve our capacity to weather any unexpected financial challenges;
The contrast between the Tasmania before and after the election of the Hodgman Liberal Government will continue to grow.
We are well placed to handle any challenges and Tasmania is well and truly open for business once again.
Thank you for the opportunity to address you all today.
