Denial of budget reality is no longer an option for Tasmania.

The government last week released the Preliminary Outcome Report for the 2023-24 year, revealing the latest on the state's finances. On Monday of this week, leading economist Saul Eslake released his long anticipated review into the same subject.

First the good news on the 2023-24 year.

Revenue was $500m higher. Despite reduced GST, specific purpose grants were higher, as was own-source taxation and dividends from government businesses.

It was pleasing to see more own source revenue as that's what we need if we are to keep providing services that people expect, need and deserve.

The rest is bad news.

More cash came in the door in 2023-24 but even more went out. Operating cash outlays were up $750m, half attributed to wages and employee costs, mainly in the health sector. To find cash savings infrastructure spending was the first casualty, pruned by $400m, a one third reduction on the budgeted amount.

The government ended the year with $450m more cash in the bank than expected $100m of that came from higher than budgeted borrowings. The rest came from slashing infrastructure spending. Deferring essential infrastructure spending might provide temporary cash relief but long-term gains are illusory.

The cash position at year's end might look OK but it's the alarming build up in financial liabilities that is the major concern. Over the 2023-24 year, net financial liabilities increased by a whopping $2.4bn. It wasn't just the provision for claims related to child sexual abuse in state care. Borrowings were higher, employee entitlements and payables increased faster than budgeted, and the liability to Telstra for the operation and maintenance of Tas GRN for emergency services was brought to account for the first time with a closing value of $669m, more than the book value of that asset.

Bringing to account a future liability in one year will make that year appear worse than expected. That's why the bottom line outcome for 2023-24 is so bad. The fiscal balance, the operating outcome adjusted to include infrastructure outlays is $800m worse than budgeted.

The reality is worse, however, as financial liabilities have to be serviced from current income and if liabilities are growing faster than revenue. The amount needed to service liabilities will leave less for normal operating expenses and infrastructure needs.

Previous budget papers already identify our growing problem with debt servicing which relates to interest on borrowings and payments for unfunded superannuation due entirely to both parties not setting aside any moneys for that purpose over the past 30 years, preferring instead to spend the cash on providing government services rather than borrowing to do so.

That is why paying unfunded superannuation amounts are included as a debt servicing amount. The more we pay for debt servicing, the less is available to pay other outlays, including delivering services.

Currently debt servicing requires more borrowings, which in turn means higher future servicing costs.

Add in the cost of servicing other liabilities and the picture looks bleaker. Servicing and covering for our past sins is taking an increasing share of current income which in turn is compounding future problems.

In real terms, the amount we are spending on current operations, as distinct from paying for the legacies of the past, is falling. That's why gaps are appearing everywhere, unmet needs and growing inequality.

Increased wages in the health sector was unquestionably needed but it must be noted that the cost only related to the last few months of the year. Over a full year there'll be another jump which together with the expected costs of the 2024 election promises as estimated by Treasurer Michael Ferguson at $1,377m over four years will completely swamp any budget efficiency dividends which a search party was trying to find before the election was called.

Saul Eslake has stated that while it is always possible to spend money in the health and education sectors more effectively, it will not be possible to reduce outlays overall, as current budgets already assume "an extraordinary and unprecedented degree of expenditure restraint."

The heavy lifting will indeed have to be done on the revenue side.

We need to raise more of our own revenue.

Mr Eslake suggests the area that may produce cash savings is infrastructure spending. The long queue of infrastructure projects has just had a new addition, the unplanned, uncosted and unfunded works at berth 1 in Devonport, for the new Spirits. Other projects knocking on the door for funds are Marinus Link, the Greater South East Irrigation Scheme, the Mac Point Water Treatment plant and the Mac Point Stadium itself. If infrastructure spending is to be restrained, projects to be funded should be those with the highest ratio of social and economic benefits to cost.

Self-denial is no longer an option if we wish to address the reality facing us.

The Mercury, 20 August 2024