It’s only a matter of time before reality catches up with the State government.
Treasury Secretary Tony Ferrall’s rewrite of his 2016 Fiscal Sustainability Report last month, when the original report was found to be lacking, sounded the warning bells loud and clear.
We should be thankful the Report was made directly to Parliament. There’s been a growing tendency for the government to put unfavourable reports on a trolley before wheeling them into the cabinet room to re-badge them as cabinet-in-confidence documents never to see the light of day.
Further evidence given to the Public Accounts Committee in a public hearing by Treasury confirmed the surplus figure, chosen to spin the government’s performance, only measures the operating position of providing government services. It does not account for capital spending or injections into government businesses. The best measure to assess the overall strength of the government's financial position is its net debt position. Changes in net debt each year immediately reveal whether the government has spent more or less than it received for that year. Under most modelled scenarios over the next 15 years Treasury estimated an alarming increase in net debt.
We now know from the recently released Treasurer’s Annual Financial Report which contained the final audited figures for 2018/19 that the net debt change implied overall spending in that year was $90 million more than receipts. At first glance this looks a good result given GST receipts were $43 million less than expected and last year’s bush fires cost us an extra $33 million.
But a closer look reveals the government spent $120 million less on new infrastructure and $75 million less on the National Disability Scheme NDIS than budgeted and received a $55 million grant for the second Bass Strait interconnector (Project Marinus) of which only $6 million was spent by year’s end. Deferrals and windfall gains thus helped hide the fiscal hole. Kicking the can down the road is, by definition, a temporary, delusionary reprieve. A $40 million dividend from TTLine to the government also helped paper the cracks. The government placed the $40 million in a special TTLine Replacement account, notwithstanding TTLine had its own bank account comprising restricted funds earmarked to pay for the replacement ferries. It was a Clayton’s dividend effectively boosting the government’s bottom line and not available to be spent on government services. A cosmetic exercise akin to putting lipstick on a pig.
The underperforming government sector contrasts with the overall Tasmanian economy which is posting growth figures which puts us ahead of other States. Therein lies the challenge for the government. The fruits of our growing economy aren’t being shared by all of us, as Premier Hodgman has admitted. Few of the benefits are trickling into government coffers at the very time it needs extra funds. That is the first challenge, to capture more of the economy’s gains as State revenue.
Treasury Secretary Tony Ferrall reminded us of a second challenge. We need a source of revenue that will grow faster than the economy in general. We need to find a way to fund health expenditure which will grow by 5 per cent each year just to cater for increased demand, not to mention the backlog and legacy costs of existing unmet demand. Health costs will grow faster than the economy, and thus become a larger part of our economy, not because we’re getting older and sicker, but because technology is finding new ways of treating a wider range of complaints helping us live a little longer. Closing the door to technology is not an option. The trite proposition of some anti-taxers that you can’t tax your way to prosperity is nonsense if austerity and a rundown of vital services is the only alternative.
The third challenge is to make the tax system fairer. Each year the Budget papers contain a largely ignored table which details the cost of tax exemptions, rebates and concessions. The estimated figure for this year 2019/20 of $ 445 million is the amount of tax revenue forgone by narrowing the tax base. In other words, if the same tax rates that apply to a few were to apply to everyone then an extra $445 million in tax will be raised. By no means am I suggesting that we should try to raise an extra $445 million. This figure is simply the best way of summarising the inequities in our tax system where a few taxpayers pay most of the tax. It’s the starting point for any discussion about making the system fairer.
The fourth challenge is to reduce the gap between the amount the Commonwealth Grants Commission assesses we need to spend in each area to deliver comparable services to other States and the amount we actually spend, unless there are sound policy reasons for continuing with a gap. As The Mercury’s Future Tasmania Action Plan pointed out on 11th November, Tasmania needs to spend more on health to provide services on par with the national average. That may mean raising more revenue but it also means we need to examine areas which receive more than is needed to provide average services. Services to industry is one such area. To what extent should we divert resources from health to provide assistance to say the tourism industry? The tourism industry is an important part of our economy but there’s a danger of it becoming a sacred cow. There aren’t many industries that expect the government to underwrite their marketing costs. At the same time as demanding free licenses to operate poker machines with a tax rate that allows extraordinary profits to benefit a privileged few.
The longer we postpone our date with reality, the harder it will be to control our own destiny. There’ll be nowhere to hide.
The Mercury Saturday 30 November, 2019