THE Treasurer’s Revised Estimates Report issued in late January has removed any doubts as to the financial position of the state.
In two years the Government will need external borrowings. Outlays will exceed receipts for the next four years even if the health system remains underfunded.
To paraphrase Paul Keating, they’re the deficits we had to have.
Each year I have sat across the table from the Treasurer at Estimates hearings and raised my doubts. His response has varied from dismissive to outright denial that things were anything but rosy.
The Government’s headline surplus figure is so misleading, the sooner it is thrown in the bin the better. For instance, federal capital grants for rail and water initiatives boost this surplus when received but leave it unaffected when paid out as equity contributions into TasRail and Tas Irrigation. Another example is evident when the Government has required TT-Line to pay a $40 million dividend each year, boosting the surplus. But when it is repaid as equity contributions, it has no effect on the surplus. Without this year’s paper shuffle the Government revised surplus of $7 million would be a deficit of $33 million. It would be funny if it wasn’t so serious.
The Legislative Council’s inquiry into Acute Health Services left me with no doubt that the chronic underfunding of the Tasmanian Health Service, where budgets were consistently set below the previous year’s actual spending, was the basis for the Government’s claim it was running surpluses every year. At the same time, it hangs on to as much cash as possible by continually cutting infrastructure spending which doesn’t affect the surplus calculation. A masterly achievement of making silk purses out of sows’ ears. But it couldn’t last. The day of reckoning has arrived.
Hopefully everyone is better able to see the wood for the trees. The ever-present danger is that politics will intervene and the tribal argy-bargy will prevent any sensible discussion. A prerequisite for the latter is to make the Government’s operating statement easier for laypersons to understand. Hardly anyone has realised the seriousness of the situation we now find ourselves in. Let’s have no more talk about net operating surpluses or underlying operating balances or fiscal balances. These terms might mean something to the cognoscenti, but they mean very little to most of us and when used in public discourse bring any meaningful exchange to an abrupt end.
Keep it simple. What are our receipts? Our outgoings? How much of that is spent on operating? On new assets and infrastructure? What is the difference between inflows and outflows? How are we going to fund the difference? If by loans, how are they to be repaid?
These questions need addressing in the Premier’s upcoming State of the State speech. It’s not exactly rocket science. Most people will appreciate a simple lucid explanation of the Government’s budgeted income statement for the next few years, rather than current headline claims we’re running surpluses despite, as the Revised Estimates Report has clearly shown, depleting our cash reserves at an alarming rate.
Fixing the Government’s unfunded superannuation scheme is floated with monotonous regularity as a solution to the state’s ills. There is never any accompanying detail.
Some favour selling government businesses and using the proceeds to repay the unfunded amount. Even if the businesses sold for book value there wouldn’t be enough to fully pay the unfunded liability. There would still be an unfunded portion. The state would lose an income stream averaging roughly $300 million per year, and which has been enough to pay the Government’s annual contribution towards the unfunded liability for retired members.
There’s also the often conveniently overlooked, ongoing contributions for current employees. Both this government and its predecessor haven’t bothered paying employer contributions for current defined benefit employees, not even the superannuation guarantee levy of 9.25 per cent, saving themselves a bundle of cash. The government only pays when a member retires, either a pension or a lump sum. If the Government could somehow repay the existing unfunded liability, it would still need to pay employer contributions each year to prevent the defined benefit scheme from becoming unfunded once again. There are 5250 members still employed. They are older and better paid because the scheme was closed to new entrants 20 years ago.
The Legislative Council sessional committee of which I am chair ran an inquiry into the unfunded superannuation scheme two years ago. The State Actuary advised us had governments paid the superannuation guarantee levy as it is required to do for all other employees, the unfunded liability would be $1.2 billion less. All governments have been happy to defer liability for superannuation until employees retire because cash was scarce. The budget in its current state cannot afford to pay even the superannuation guarantee levy for defined benefit employees which is at least $60 million per year.
Others suggest the Government renege on its contractual commitment to 9500 pensioners and 5250 current employees who are members of the defined benefit scheme which closed 20 years ago. The annual cost of meeting the unfunded liability can be reliably estimated. It is not expected to grow much as a percentage of budget outlays beyond the current figure of 6 per cent before peaking in about 10 years. The Government has built containment lines around the liability and yet there is still fearmongering.
Why sell assets which produce regular income when governments need regular income. TasPorts at Estimates in 2017 stressed how its property portfolio, which earns about $7 million a year in rents including almost $1 million for parking around the port of Hobart, provides regular income in case of downturns in its principal business.
There are no silver bullet solutions. The Government is at square one, similar to March 2014 when it first took over. We await the Premier’s State of the State speech. The unsettling truths in the Revised Estimates Report need addressing.
The Mercury 15 February 2019Go Back