Yesterday’s State Budget makes substantial progress towards its stated objective of returning the Tasmanian Government’s finances ‘to a sustainable position over time’.
It includes, by my reckoning, almost $1 billion of planned reductions in government spending over the four year forward estimates period (2011-12 to 2014-15) and $255mn of revenue increases, plus another $50mn in cancellation or deferral of previously proposed infrastructure spending.
About three quarters of the expenditure saving measures are absorbed by new spending totalling $721mn over the next four years, $600mn of it in additional funding for health and education. But that still leaves around $520mn of net improvements in the Budget ‘bottom line’ between 2011-12 and 2014-15. As a result, Tasmania’s ‘core’ government sector will remain net debt free – the only jurisdiction in the country apart from the ACT to do so over the next four years. Without these measures, Tasmania could have racked up net debt of almost $4bn by 2015-16, which would have represented as large a figure in relation to the size of the State’s economy as was reached in the early 1990s.
For all that, there is still a long way to go before it can be said with any confidence that Tasmania’s finances actually are on a sustainable footing.
The Government still has to deliver on the savings measures foreshadowed in the Budget. Of these, almost $800mn are to come from ‘agency saving strategies’, and many of them rely on the outcome of ‘reviews’, ‘implementing efficiencies in the delivery of corporate services’, ‘changing the culture in the system’, ‘revised organizational and operational structures’ and ‘extending the Voluntary Workforce Renewal program’. Some of these, such as the closure of 20 relatively small primary schools, were announced yesterday: details of many others are still to come.
The track record of the Government in delivering on ‘strategies’ like these is not terribly convincing: over the last five years (up to and including 2010-11), total ‘operating expenses’ have exceeded those forecast in the previous year’s Budget by an average of $203mn per annum, those foreshadowed two years earlier by an average of $435mn per annum, and those projected three years earlier by an average of $561mn per annum. Indeed, this inability to control spending in the recent past (which the Budget Papers don’t acknowledge) is as much a contributor to the Government’s current predicament as the unanticipated shortfall in revenue from Tasmania’s share of the GST (which the Budget Papers go into in considerable detail).
It will require hitherto unprecedented discipline to reduce the rate of growth in government expenses from the average historical growth rate of 6.2% per annum (over the past decade) to the average of 0.3% per annum projected in the Budget Papers for the next four years.
Nonetheless, the Government’s commitment to require each department to publish indicators of efficiency and quality of service delivery will assist in achieving that task.
No doubt the measures on the revenue side of the Budget will be unpopular with many, although I can think of no good reason why ‘shacks’ should be exempt from land tax, and I can only applaud the decision to wind back stamp duty concessions to first home buyers that were only ever intended to be temporary measures, and which do nothing to increase the supply of housing but serve only to add to the price of it.
The Budget Papers acknowledge that more needs to be done in order to meet the first (and most important) target in the Government’s new (and much clearer) fiscal strategy, which calls for ‘net operating surpluses’ (that is, an excess of current revenues over ordinary ‘operating expenses’) of more than $50mn per annum between 2012-13 and 2014-15 (the target for this year is a much less demanding ‘net operating deficit’ of less than $120mn, which the Budget meets by a bare $6mn).
And the task could be made more difficult if the Gillard Government’s Review of the arrangements by which revenues from the GST are allocated among the States and Territories recommends changes which result in a greater reduction in Tasmania’s share of those revenues than already assumed in the Budget Papers. Such an outcome must be a real risk, given the composition of the panel (former Premiers of NSW and Victoria, together with a businessman from South Australia), and the Gillard Government’s evident lack of sympathy for Tasmania’s position (for example, Ms Gillard turned down Ms Giddings’ request for a Tasmanian to be appointed to the review panel).
The Budget Papers also downplay the significance of Tasmania’s unfunded public service superannuation liability, which has been revised upwards by another $664mn since last year’s Budget, and which at 20% of Tasmania’s gross State product is proportionately larger than that of any other State or Territory. Together with Tasmania’s relatively large non-Budget sector (Government Business Enterprises) debt (which at just over 10% of gross State product is also larger than that of any other State or Territory), this is one of the main reasons why Tasmania has never gained a AAA credit rating from Standard & Poors, despite being (as noted earlier) one of only two jurisdictions now having no net ‘general government’ sector debt. To be sure, credit ratings aren’t the only yardstick by which a government’s financial position should be judged: but these two large liabilities have long been a weak point in Tasmania’s case.
The Budget increases the proportion of the profits of Hydro Tasmania and Aurora which it takes in dividends from 50% to 60% and 70% respectively, whilst also reducing the dividend paid by the Motor Accidents Insurance Board. That will deliver an additional $131mn into the Government’s coffers over the four years to 2014-15, in addition to another $220mn or so because some of these GBES (Hydro Tasmania in particular) are now expected to generate larger profits than at this time last year (and that, I should add, as a non-executive director of the Hydro, isn’t principally because Hydro Tasmania is charging higher prices to Aurora, but rather because it’s been raining a lot more). However, taking more money out of GBEs doesn’t do anything to improve the financial position of the public sector as a whole.
In short, the Budget goes a long way towards retrieving the Tasmanian Government’s financial position from the dire state towards which it was heading as a result of the shortfall in GST revenues and (although the Budget Papers don’t admit this explicitly) the lack of discipline over spending since David Crean retired as Treasurer. Lara Giddings deserves credit for that, and the support of all the parties in Parliament in giving effect to the decisions in the Budget. But the task is by no means done yet.
Expanded version of an article by Saul Eslake originally published in the Launceston Examiner, Friday 17 June 2011
Saul Eslake is a Program Director with the Grattan Institute, and is also on the Board of Hydro Tasmania. The views expressed here are however entirely his own.
