Following the release of Treasury's Pre Election Financial Outlook yesterday it is vital all Tasmanians understand the scale of the budget problem we have and what needs to be done.

The starting point for Treasury’s Pre Election Financial Outlook (PEFO) report was the latest set of Budget figures. In this case it was the 24/25 Revised Estimate Report issued in Feb 2025 which update the 24/25 Budget and the ensuing 3 years of forward estimates out to 2027/28.

When Treasury reviewed the figures they concluded they weren’t suitable as a basis to advise Tasmanians of the States’ fiscal position required as part of the Charter of Budget Responsibility Act 2007.

Why not?

Because the RER contained a dodgy half completed set of forward estimates which you wouldn’t sell to your grandmother. I wrote about the problem here: Obscured spending decisions undermine public trust in the budget figures .

In the 24/25 RER, $345 million was explicitly identified as a new policy decision to address health demand in 2024–25. There were no figures included in the Forward Estimates. “This level of expenditure is not factored into health expenditure over the Forward Estimates due the difficulty in quantifying the level of demand risk”, was the nonsense claim.

The government left out at least $1 billion worth of health spending over the forward estimates which they knew would be needed on the ludicrous pretext the level of demand couldn’t be estimated. How many government budget decisions don’t require an estimate? They left it out for a reason. They were trying to hide what they were doing. Or perhaps they weren’t going to spend the extra. Who knows for sure?

This put Treasury in a quandary. As Treasury said in the PEFO Report,  when explaining the logic of their approach, it is not possible for it to predict or project what the government’s policy response may be.

In order to satisfy the requirements of PEFO Treasury made a decision to firm up the Estimated Outcomes for 2024/25 and then run their own set of forward estimates out to 2027/28, this time not based on the government’s questionable plans but based on historical growth rates of revenue and expenditure.

Treasurer Barnett’s meddling to exclude health spending from the forward estimates in the RER, the first major set of budget papers for which he was responsible and which were looking pretty sick, has come back to bite him on the bum big time, because it prompted Treasury to organise its own set of projections for the next 3 years that factored in the additional health spending (NB projections and not forecasts as Treasury is at pains to point out) which suggest we are in more trouble than we thought.

Compare this to what happened in 2024. When the 2024 election was called the 2023/24 RER had just been issued. As part of the PEFO requirements Treasury reviewed the RER and decided they were suitable to be used as the basis for the 2024 PEFO Report.

Not so in 2025. There were too many omissions which made the figures unsuitable for a PEFO Report. Treasurer Barnett’s fingerprints had left a trail.

So Treasury prepared a fresh set of forward estimates

Treasury calculated growth rates for revenue and expenditure over the 10 year period ending 2024/25 (NB the almost completed year 24/25 was the last of the 10 years and the updated estimated outcomes were used instead of actuals), and then applied them to derive a Net Operating Balance for the next 3 years.

For capex and infrastructure spending a figure of $800 million was used for year 1 and then increased by 5 per cent each year. The Fiscal Balance figure was thus calculated.

Then by adding the planned contributions (equity transfers) into government businesses allowed the movement in net debt to be calculated.

Finally, interest was adjusted to reflect the additional debt.

The modelling results are shown on page 24 of PEFO Report, the 2024/25 Estimated Outcomes for the key measures followed by projections for the next 3 years.

Whilst the table highlights our dire situation it also highlights a few other issues:

• The fact the new set of forward estimates was needed suggests there were problems with the first set.
• Treasury’s projections could easily have been generated by anyone with basic spreadsheeting skills. It perhaps highlights the lack of medium and long modelling in Treasury to guide planners, something Saul Eslake has referred to on more than one occasion.
• The scant details of the key fiscal measures make it of little use. One of the aims of PEFO was allegedly to provide the basis for political parties to put the finishing touches to their fiscal strategies.
• So many fiscal timebombs are lurking outside the general government sector, in government businesses such as TTLine for instance, that for voters to get better value from a PEFO Report the broader State sector should be included.

The PEFO said at one stage:

” In contrast to previous PEFOs, this Report contains key findings which are intended to make the implications of the Report more accessible to participants in the election and the general community”.

I disagree. The lack of details regarding fiscal measures and the impact of the government businesses, makes it virtually useless if we are to have a full picture of the mess we are in.

In reality, what we have is a few totals derived from a spreadsheet using trends over the last 10 years which have caused the problems we have.

Won’t projecting forward based on the mess we’ve created, result in an even bigger mess?

Or is that the point Treasury is trying to make? Trying to get people to realise  the extent of our problems which Treasurer Barnett seems to have overlooked judging by his delusionary responses to PEFO suggesting the governments’ plans were interrupted by the election and trying to blame the Opposition for our problems.

If Treasury can’t see the a viable path out of the woods with current policy settings, there’s a high likelihood there isn’t one .

To re-affirm what PEFO said:

• The State Budget (GGS) has a structural problem …. this structural problem will not be resolved through future economic growth.
• Explicit policy choices are required.
• Net Debt for the GGS is projected to grow from $4.2 billion in 2024-25 to $13.0 billion by 2027-28. Under this scenario, annual interest costs are projected to rise by approximately 202 per cent from $230.9 million to $697.9 million over the same period. This will reduce the State’s ability to manage economic shocks and to provide services to the community in the future.
• This rate of growth in debt is not sustainable and the size of the problem will only increase if not addressed. Immediate and sustained action is needed.
• No single class of intervention is likely to be sufficient to move Tasmania to a sustainable fiscal trajectory.
• The State Service is larger than Tasmania can afford and is growing at a rate that is increasing employee expenses, which already represent approximately 46 per cent of operating costs. This is not sustainable.
• What is clear is that expenditure restraint is required, including through election periods.

I will have more to say on this in a future update