Adjournment Speech – State’s Financial State
Madam President I wish to use the opportunity I have on adjournment to restate some concerns I have had for some time, views that are incidentally shared by others many of whom may be considered more knowledgeable in the area than me, about the precarious state I believe the State’s finances are in and where we are headed in the future.
Madam President, I’m not a big believer in coincidences.
If my brief time in this Chamber has taught me one thing, it’s that what often gets passed off as a coincidence is anything but.
The problems at Aurora Energy, the retirement of the Head of Treasury Mr Challen, and now the Treasurer himself are unlikely to be unrelated coincidences.
The Mercury published an Opinion piece by Sue Neales titled Bad time to bow out ( HERE )at the weekend.
She is not a big believer in political coincidences either.
“Could it be that Mr Aird is getting out of the kitchen before it gets too hot?” she said.
We now know that we are about to take another $300 million hit to our GST revenues over the period of the Forward Estimates.
With Cash in the General Government sector already projected to fall as low as $455 million by the end of 2011/12, a further fall in Cash balances will put the Government in a precarious position.
It has been my biggest fear, that we would suffer a second round whammy before we had a chance to restore our cash balances following the first blow from the GFC.
But did we use our best endeavours back in October 2008 when we were alerted to the possible effects of the GST on the State’s finances?
As Mr Challen said in an interview with The Examiner in July this year, “In October 2008, people thought things were going to be miles worse than they ultimately were.”
The much vaunted Government budget management strategies that threatened to reduce the size of the Public Service by 800 and save millions of dollars scarcely achieved half of the intended goals. The Treasurer informed us during Budget Estimates that $52.5 million was saved in the last financial year – a 1.6% saving when a 5% saving was what the Treasurer had stated previously was required – a long way short!
The Treasurer also confirmed that there was an expectation that $116 million would be saved using these measures in the last financial year so whichever way you look at it, it would seem the Government made lots of noise about belt tightening but didn’t actually do much of it.
We continue to see public sector wages growth that is clearly unsustainable.
However, when things seemed to be quite daunting and serious savings were going to be needed, things appeared to turn around as the State’s finances certainly looked up when the Feds came to the rescue with more Special Purpose Grants and National Partnership Payments.
Thus, our own State revenue didn’t fall as much as initially estimated.
The Government thought…. well if that’s as bad as it’s going to get we’ll be fine. Maybe our belt tightening won’t be needed to the degree we suggested leading onto the 2009-10 budget process and certainly not into the 2010-11 budget process.
In fact, Madam President, in an exchange between the Honourable Member for Huon and the Treasurer at this year’s Budget Estimates the Treasurer, in commenting on the Member for Huon’s suggestion that the Government was continuing to overspend and that there was a distinct lack of belt tightening following increased revenue from the Commonwealth said:
“Year after year we have these kind of discussions but every time we outperform our budgeted expectation. Even during the GFC. We have just come through an amazing time in pretty good condition. It is no small achievement that by 2012-13 to be general government net debt free and be back in surplus. We will be the only jurisdiction to do that.”
I wonder if the Treasurer stands by that comment now.
However, the talk about a Black Hole, the magnitude of which grew and shrank depending on who was talking, soon dissipated.
However, the election was soon upon us and we were back spending like there was to be no tomorrow.
Spending like a shopper at Myer’s Boxing Day sale before the GFC.
All members of the political cartel downstairs engaged in an auction for our votes in the March 20 election using our money.
The Charter of Budget Responsibility undertakings from all 3 political parties were similar.
Restraint was conspicuously absent.
The outcome of the bidding war can be seen in this year’s Budget Papers. The costs to the Budget’s bottom line from policy changes over the period of the forward estimates of $1 billion far exceeded the effects of parameter changes. As we well know, parameter changes result from matters that are outside the government’s control – policy changes are a direct result of government decisions – completely within their control.
Now we are also being told that budget deficits will last longer than expected.
In spite of this, something I believe we could live with and not have to see drastic measures to deal with, what worries me far more is our impending lack of cash.
By the end of this term of Government, all spare cash apart from that needed for ordinary operations will have been spent. All reserves depleted.
The 2010 year saw a large fall in our cash reserves, a fall of $261 million.
The Government operates a large number of working accounts, special deposits and trust funds, the largest being the Superannuation Provision Account (SPA) with well over half of the total. Departmental operating accounts and amounts set aside for specific purposes represent the balance.
Most of the funds contained in the latter accounts may be needed at short notice so the cash needs to be readily available. These accounts are virtually 100% cash backed. At 30th June 2010, there was $966 million of cash backing $1,012 million of deposit accounts. In other words only a small amount, $46 million needed to be repaid.
But in the case of the SPA, funds may not be needed until 2035, the date the Government plans to fully extinguish the State’s largest liability, the unfunded superannuation liability. In times of need the Government borrows funds from this account via an IOU system termed the Temporary Debt Repayment Account (TDRA) hoping to repay with surplus cash before it’s needed for the intended purpose.
Surplus cash won’t be available during the term of this Government after the latest downward revisions in GST receipts. The 2010/11 Budget Papers projected cash deficits totalling $555 million for the next 2 years.
The Treasurer will recall our exchanges in the Committee stages of this year’s Budgets regarding the possible cash surplus three years hence. The figures said there would be a net increase in cash in2012/13 of only $30.7 million.
The Treasurer misread his own figures and claimed surplus cash would be $104 million in 2012/13. His ‘surplus’ figure omitted loan repayments and equity injections into GBEs.
With the latest GST revisions cash surpluses during the term of this Government are unlikely.
Cash deficits can only be funded from borrowings or asset sales, both ruled out by the Government, spending existing cash resources on the intended purposes, such as amounts in the Water Infrastructure Fund on irrigation projects, or, and this is most likely, borrowing more from accounts such as SPA using IOUs.
At 30th June 2009 the SPA had a balance of $1,324 million but the IOUs were $1,158 million. In other words most of the cash was missing.
At 30th June 2010 the SPA had a balance of $1,364 million but the IOUs were $1,438 million. All the cash had been spent elsewhere. Well and truly so.
The raid on the State’s cash reserves during 2010 was so bad that some of the employer super contributions paid into SPA by Departments were used by the Government to meet its spending commitments elsewhere.
The interest we see ‘earned’ by the SPA in each year’s Budget Papers is not actual interest earned but merely an appropriation. This too was spent elsewhere in 2010 using the IOU system.
Total IOUs increased by $282 million for 2010. For nearly 3 months I’ve been trying to find out from the Treasurer what this figure, the balance of the inaptly named Temporary Debt Repayment Account, actually was at 30th June 2010. The Treasurer’s recently released Annual Financial Statements for 2009/10 contained the figure in the Public Accounts information contained in Statement 7. (see page 132 http://www.treasury.tas.gov.au/domino/dtf/dtf.nsf/LookupFiles/2009-10-TAFR.pdf/$file/2009-10-TAFR.pdf)
The Government has always expressed willingness and intent to repay the IOUs. But best intentions are not enough if there’s no capacity to do so. According to some experts, it will take at least 5% of Budget outlays until 2035 to fund existing superannuation pensions and build up reserves that will extinguish the unfunded liability by 2035.
The 2008 year produced cash surpluses of $567 million. This was the year Hobart Airport was sold. But only $41 million of IOUs were repaid in that year .In 2009 another $27 million was borrowed.
How are we going to repay all the IOUs in the future? We can’t re-sell the Airport and TOTE couldn’t be sold. One does have to ask what else we may need to sell to repay their IOU’s.
Soon we will be reminded of the Treasurer’s enduring achievements.
One such achievement, no doubt, will be having maintained the State’s Net Debt free status. The Treasurer doesn’t include the $5 billion unfunded superannuation liability as a ‘debt’. It is merely a ‘liability’ as he is forever trying to explain to me.
The SPA cupboard is now bare except for the pile of IOUs, some almost 10 years old.
The common misconception that funds are there was again on display in Monday’s Examiner when Barry Prismall, addressing the subject of the State’s unfunded super liability, said “The government has about $1.6 billion set aside to meet these costs”. No longer Barry, it’s all been spent.
It is now time to be more frank about the reality of the State’s budgetary bottom line – we do need to ask the question of whether Aird’s Legacy will be the Giddings’ Great Challenge.
Ruth Forrest MLC speaking to the adjournment motion 16th November 2010
Picked up by Mercury, Friday, November 19:
HERE: Funding a very bleak future
Earlier on Tasmanian Times, the John Lawrence Analysis: