THE TASMANIAN GOVERNMENT S BUDGET PRESENTATION TO A COMMUNITY ORGANIZATIONS MASTER CLASS SPONSORED BY THE AUSTRALIA INSTITUTE (TASMANIA) HOTEL GRAND CHANCELLOR HOBART 12 TH JUNE 218 C O R I N N A E C O NO M I C A D V I S O R Y P T Y L T D
An overview of Tasmania s state public sector The general government sector departments and agencies which are funded primarily by taxes and grants (through the Public Account), rather than by revenue from the sale of goods or services government departments (Education, Health, Police & Emergency Services, Premier & Cabinet etc) agencies such as Parliament, Office of the Governor, Ombudsman, Tourism Tasmania, Audit Office etc some statutory authorities such as TasTAFE, Botanical Gardens, State Fire Commission, MAST, Inland Fisheries The public non-financial corporations sector government owned-entities which are funded primarily by revenue from the sale of goods and services Government business enterprises (subject to their own enabling legislation and the Government Business Enterprises Act 1998) Hydro Tasmania, Forestry Tasmania, Port Arthur Historic Site Management Authority, Public Trustee State owned companies (subject to their own enabling legislation and the Commonwealth Corporations Act 21) Aurora Energy, TasNetworks, Metro Tas, Tas Irrigation, Tas Rail, Tas Ports, Tasracing, TT-Line The public financial corporations sector government-owned entities which are funded primarily by revenue from selling financial services and/or investment income the Tasmanian Public Finance Corporation (Tascorp) which borrows and invests on behalf of the general government sector, GBEs and SOCs, and the Motor Accidents Insurance Board 2
Revenue and expenses of the Tasmanian public sector, 216-17 Revenue Operating expenses Capital expenditures 7 $bn 6 $bn.6 $bn 6 5.5 5 4.4 4 3.3 3 2 2.2 1 1.1 General government Public nonfinancial corporations Public financial corporations General government Public nonfinancial corporations Public financial corporations. General government Public nonfinancial corporations Public financial corporations 3 Source: Government of Tasmania, Treasurer s Annual Financial Report 216-17.
Assets and liabilities of the Tasmanian public sector, 216-17 Assets Liabilities Net worth 25 2 $bn 12 1 $bn Other Superannuation Borrowings 12 1 $bn Non-financial Financial 8 8 15 6 6 1 4 4 5 2 2 General government Public nonfinancial corporations Public financial corporations General government Public nonfinancial corporations Public financial corporations General government Public nonfinancial corporations Public financial corporations 4 Source: Government of Tasmania, Treasurer s Annual Financial Report 216-17.
Tasmania s state public sector is relatively larger than that of most other states and territories State non-financial public sector expenses, 216-17 State non-financial public sector assets, 216-17 State public sector employment, 216-17 3 % of gross state product (GSP) 1 % of gross state product (GSP) 25 % of total employment 25 8 Average of all States & Territories 2 2 15 Average of all States & Territories 6 15 Average of all States & Territories 4 1 1 5 2 5 NSW Vic Qld SA WA Tas NT ACT NSW Vic Qld SA WA Tas NT ACT NSW Vic Qld SA WA Tas NT ACT 5 Sources: State and Territory Governments, Treasurer s Annual Financial Report or equivalent documents, 216-17.
Tasmanian general government sector revenues, 216-17 Tasmanian general government operating revenue, 216-17 Tasmanian general government state taxation revenue, 216-17 GBEs & SOCs* Other 35 $mn Fees & fines 3 Sales revenue State taxes 25 2 Other Commonwealth grants GST revenue share 15 1 5 * Income tax and rates equivalents, and dividends, paid by government business enterprises and state owned companies Payroll tax Financial transactions taxes Motor vehicle fees and taxes Land tax Gambling taxes Insurance taxes Other taxes 6 Source: Government of Tasmania, Treasurer s Annual Financial Report 216-17.
Tasmania gets a bigger share of its revenue from the GST and other Commonwealth grants than any other state or territory except the NT General government revenue by source, States and Territories, 216-17 1 % of total 9 Other Commonwealth grants 8 GST revenue shares 7 6 5 4 3 2 Other own sources Fees & fines GBE & SOC revenues Sale of goods & services Royalties 1 State taxation NSW Vic Qld SA WA Tas NT ACT 7 Sources: State and Territory Governments, Treasurer s Annual Financial Report or equivalent documents, 216-17.
Tasmania s GST share reflects its below-average capacity to raise revenue and, to a lesser extent, an above-average requirement for spending Assessed revenue per capita raised from average State tax regime, 216-17 Assessed spending per capita required to provide average State services levels, 216-17 8, $ per head 15, $ per head $19,87 7, 6, Average of all States & Territories 12,5 Average of all States & Territories 5, 1, 4, 7,5 3, 2, Other Commonwealth grants GST revenue share 5, 1, 2,5 NSW Vic Qld SA WA Tas NT ACT Taxation revenue Mining revenue Other revenue NSW Vic Qld SA WA Tas NT ACT Operating expenses Investment 8 Source: Commonwealth Grants Commission, 218 Update Report, Tables S7-1 to S7-6.
The possibility of major changes to the way in which GST revenue is carved up among States and Territories is a major threat to Tasmania 8 7 6 5 4 3 2 1 GST revenue shares per head of population $' per head, 218-19 Notional equal per capita distribution $11,45 NSW Vic Qld SA WA Tas NT ACT Revenue impact of alternative GST revenue-sharing schemes Equal per capita 2 1-1 -2-3 -4-2 % of revenue 217-18 NSW Vic Qld SA WA Tas NT ACT Equalization to 2 nd strongest state 8 6 4 2 % of revenue 217-18 NSW Vic Qld SA WA Tas NT ACT 7% of equal per capita floor 6 5 4 3 2 1-1 -2 % of revenue NSW Vic Qld SA WA Tas NT ACT Equalization to all-state average 1 8 6 4 2-2 -4 % of revenue NSW Vic Qld SA WA Tas NT ACT 9 Sources: 218-19 Australian Government Budget Paper No. 3, Federal Financial Relations; Productivity Commission, Horizontal Fiscal Equalization Draft Report, October 217.
Tasmanian general government sector operating expenses, 216-17 Operating expenses by type Operating expenses by function Depreciation Interest Other Housing & community amenities Recreation & culture Other Superannuation Economic affairs General public services Health Supplies and Other consumables Commonwealth grants GST revenue share Employee expenses Transport & communications Social security & welfare Grants and subsidies Public order & safety Education 1 Source: Government of Tasmania, Treasurer s Annual Financial Report 216-17.
Tasmania actually raises about 12% ($25mn) less revenue than it would, if it levied State taxes at the average level of all States and Territories Tax severity ratios, States and Territories, 216-17 Severity ratios for specific taxes, Tasmania, 216-17 11 % 12 % 15 11 1 1 9 95 9 Other Commonwealth grants GST revenue share 8 7 85 6 8 NSW Vic Qld SA WA Tas NT ACT 5 Payroll tax Land tax Stamp duty Insurance tax Motor taxes Mining revenue Other revenue Total tax revenue 11 Note: The tax severity ratio is the ratio of revenue actually raised by a State or Territory to the revenue which the Grants Commission assesses it would raise if it levied a particular tax or charge, or total taxes and charges, at the same rate over the same base as the average of all States and Territories, after taking into account differences between a particular State or Territory s capacity to raise revenue, and the average of all States and Territories. Source: Commonwealth Grants Commission, 218 Update Report, Tables S7-1 to S7-6.
Tasmania spends about 6% ($335mn) less on service provision than it would need to, to provide services at the all-states-and-territories average level Level of service provision ratios, States and Territories, 216-17 Level of service provision ratios for specific areas of operating expenses, Tasmania, 216-17 13 % 16 % 125 14 12 12 115 1 11 15 Other Commonwealth grants GST revenue share 8 6 1 4 95 9 NSW Vic Qld SA WA Tas NT ACT 2 Health Roads School education Post- 2ndary education Housing Welfare Community services Justice Transport Services to industry Other expenses Total 'operating' Investment 12 Note: The level of service provision ratio is the ratio of actual spending to the level of spending assessed by the Grants Commission as being required for a State or Territory to provide services at the same standard as the average of all States and Territories, taking account of differences in the demand for services and the unit cost of providing them between that State or Territory and the average. Source: Commonwealth Grants Commission, 218 Update Report, Tables S7-1 to S7-6.
The Budget is the annual financial plan of the general government sector Strictly speaking, the Budget is the instrument by which money is appropriated by Parliament (that is, authorized to be spent) out of the Consolidated Fund, which is the principal account within the Public Account which is why the Treasurer s Budget Speech in Parliament is actually the Second Reading speech on a Bill for an Act for the appropriation of <an amount of money> out of the Consolidated Fund for the services of the Government for the financial year ending on 3 June 2xx and a Bill for an Act for the appropriation of <another amount> for the services of the Parliament and Statutory Offices for the financial year ending on 3 June 2xx In practice, the Budget is a series of documents in which the Treasurer, on behalf of the Government defines or re-iterates the Government s fiscal strategy its over-riding objectives for the management of the State s public finances sets out its view of the outlook for the State s economy announces and explains any changes in state taxes, fees or charges which the Government wishes to make announces and explains any new spending programs, or increases or reductions in spending on existing programs, upon which the Government has decided explains how the Government proposes to manage the public sector s assets and liabilities makes a detailed series of forecasts and projections of individual items of revenue and expenditure, and assets and liabilities, for individual departments and agencies, for the general government sector, and for the public sector as a whole, for each of the next four financial years 13
The Budget Papers The Budget Speech Budget Paper No 1 Budget Paper No 2 Appropriation Bills 14
The operation of the Public Account State taxation receipts Other Statesourced receipts Commonwealth Government receipts Consolidated Fund Expenditure by Appropriation Act Recurrent services Works & services Expenditure by various legislation Reserved by Law Expenditure on the provision of Outputs, Grants & Subsidies, and Capital Investment Program Agency non- Consolidated Fund receipts Special Deposits and Trust Fund Funds disbursed for Trust Account purposes 15 Source: Tasmanian Department of Treasury and Finance, Guide to the Budget, May 217.
The core of Budget Paper No 1 is the three financial statements for the general government sector The income statement which shows (for the budget year and the three following years) revenue and expenses from transactions between the Tasmanian general government sector (on the one hand) and everyone else (businesses, individuals and households, community organizations, other parts of the Tasmanian public sector, the Commonwealth and local governments) the difference between revenue and expenses the net operating balance other economic flows arising from transactions in non-financial assets and changes in the value of the government s investments in GBEs and SOCs, or holdings of non-financial assets the government s purchases and sales of non-financial assets, and the sum of the net operating balance and net purchases of non-financial assets (less depreciation) otherwise known as the fiscal balance The balance sheet which shows (for the budget year and the three following years) the value of general government sector s assets and liabilities and in particular the level of net debt (borrowings minus the sum of cash and deposits and investments) 16 The cash flow statement which shows (for the budget year and the three following years)`` cash receipts from and payments for operating activities (ordinary service provision) net cash flows from purchases and sales of non-financial assets, and from transactions in financial assets (equity and debt) for policy purposes net borrowing, and the cash surplus or deficit (net cash flows from operating activities plus net cash flows from transactions in non-financial assets)
Chapter 4 of Budget Paper 1 provides forward estimates of the Government s income statement A trap for young players the numbers given in the main body of BP1 for the financial year that s about to end are last year s Budget numbers Chapter 1 of BP 1 includes an important table, which shows the extent to which any predictions of a net operating surplus are reliant on one-off capital grants from the federal government The latest numbers for the financial year that s about to end are to be found in the Uniform Government Reporting tables, in Appendix 1 (Tasmania is at least more honest about this than other State Governments) 17
Key components of the general government sector income statement Major income statement aggregates as shown in successive Budgets, 214-15 to 217-18 GST revenue 2,75 2,5 2,25 2, 1,75 1,5 $ mn Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June Other Commonwealth grants 2,25 2, 1,75 1,5 1,25 1, 75 $ mn Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget Includes $73mn Mersey Hospital payment 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June State taxation revenue 1,2 1,1 1, 9 8 $ mn Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June GBE/SOC revenue 5 4 3 2 1 $ mn Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June Total operating revenue 7, 6,5 6, 5,5 5, 4,5 4, 3,5 $ mn Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget Includes $73mn Mersey Hospital payment 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June Total operating expenses 6, 5,5 5, 4,5 4, 3,5 $ mn Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June 18 Source: Tasmanian Government, Budget Paper No 1, 212-13 through 217-18.
Key components of the general government sector income statement (continued), cash flow statement and balance sheet Major financial statement aggregates as shown in successive Budgets, 214-15 to 217-18 Net operating balance 1, 8 6 4 2-2 -4 Underlying net operating balance 2 1-1 -2-3 -4-5 -6 $ mn Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget Includes $73mn Mersey Hospital payment 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June $ mn Excludes one-off capital grants from Commonwealth (incl. RHH redevelopment and MCH) 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget Purchases of non-financial assets 8 7 6 5 4 3 2 1 9 75 6 45 3 15-15 -3 $ mn 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June Fiscal balance $ mn Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June Cash surplus or deficit 9 75 6 45 3 15-15 -3 Net debt 2-2 -4-6 -8-1, -1,2 $ mn Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget Includes $73mn Mersey Hospital payment 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June $ mn Actual 214-15 Budget 215-16 Budget 216-17 Budget 217-18 Budget 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June 19 Source: Tasmanian Government, Budget Paper No 1, 212-13 through 217-18.
Tasmania has a very strong general government net debt position, but it has by far the worst unfunded public sector superannuation liability Net debt 1 % of GSP 8 3 25 Unfunded superannuation % of GSP 3 June 217 Annual cost of Tasmanian superannuation payments 6 4 Average of all States & Territories 2 15 2 1 Average of all States & Territories -2 5-4 NSW Vic Qld SA WA Tas NT ACT NSW Vic Qld SA WA Tas NT ACT 2 Note: Net debt and unfunded superannuation liabilities are for the general government sector of each State and Territory. Sources: State and Territory Governments, Treasurer s Annual Financial Report or equivalent documents, 216-17; Tasmanian Government, Budget Paper No. 1, 217-8.
There s a two-way flow of causes and effects between the budget and the economy The Tasmanian economy The State budget State Government Parameter variations (changes in employment, property market etc, and changes in demand for or cost of services) Policy decisions (intentional changes in state taxes & charges, spending programs etc) Parameter variations (changes in GST shares, specific purpose grants) Federal Government 21
Parameter variations normally have a bigger impact on changes in the budget bottom line than policy decisions Impact of parameter variations and policy decisions on forecasts of the net operating balance for the budget year in the last six state budgets 3 2 1-1 -2-3 -4-5 $mn 212-13 211-12 Budget 'Parameter variations' Policy decisions 212-13 Budget 3 2 1-1 -2-3 -4-5 $mn 214-15 213-14 Budget 'Parameter variations' Policy decisions 214-15 Budget 3 2 1-1 -2-3 -4-5 $mn 216-17 215-16 Budget 'Parameter variations' Policy decisions 216-17 Budget 5 4 3 2 1-1 -2-3 -4 $mn 212-13 Budget 'Parameter variations' Policy decisions 213-14 213-14 Budget 5 4 3 2 1-1 -2-3 $mn 215-16 214-15 Budget 'Parameter variations' Policy decisions 215-16 Budget 3 2 1-1 -2-3 -4-5 $mn 217-18 216-17 Budget 'Parameter variations' Policy decisions 217-18 Budget Deterioration in the net operating balance Improvement in the net operating balance 22 Source: Tasmanian Government, Budget Paper No 1, Policy and Parameter Statement, 212-13 through 217-18.
Policy decisions typically change revenues and expenses by relatively small amounts Impact of policy decisions on revenues over four-year forward estimates periods Impact of policy decisions on revenues over four-year forward estimates periods 2. % of total forecast revenues over four years of Budget forward estimates period 4. % of total forecast operating expenses over four years of Budget forward estimates period 1.5 3. 1. Absolute average =.6% 2. 1..5.. Other Commonwealth grants GST revenue share -1. -2. Absolute average = 2.% -.5-3. -1. 211-12 212-13 213-14 214-15 215-16 216-17 217-18 Budget -4. 211-12 212-13 213-14 214-15 215-16 216-17 217-18 Budget 23 Source: Tasmanian Government, Budget Paper No 1, Policy and Parameter Statement, 211-12 through 217-18.
The first Chapter of Budget Paper No 1 summarizes the key details of the Budget 24 Source: Tasmanian Government, Budget Paper No 1, 217-18, Chapter 1.
The Policy and Parameters Statement (within Chapter 4 of Budget Paper No 1) provides a detailed account of all the Budget policy decisions 25 Source: Tasmanian Government, Budget Paper No 1, 217-18, Chapter 4.
Budget Paper No 2 provides details of the services and programs provided by each agency, and forecast financial statements at the agency level 26 Source: Tasmanian Government, Budget Paper No 2, 217-18, Volume 1.
Chapter 5 of Budget Paper No 1 provides more detail on the Government s revenue sources This table and section will be especially important this year given the uncertainty over GST revenue sharing arrangements This table provides estimates of the revenue which the Government doesn t collect because of concessions or exemptions to favoured groups 27 Source: Tasmanian Government, Budget Paper No 1, 217-18, Chapter 5.
Chapters 6 and 7 of Budget Paper 1 provide detail on capital works programs, and the Government s balance sheet 27 Source: Tasmanian Government, Budget Paper No 1, 217-18, Chapters 6 & 7
Chapter 2 of Budget Paper No 1 sets out Treasury s view of Tasmania s economy although not in as much detail as most other states & territories 29 Source: Tasmanian Government, Budget Paper No 1, 217-18, Chapter 2 ; Western Australian Government, Budget Paper No. 3, 218-19.
Forward estimates for the public non-financial and financial corporations sectors, and the public sector as a whole are in Appendix 1 of BP1 3 Source: Tasmanian Government, Budget Paper No 1, 217-18, Appendix 1.
Different parts of Budget Paper No 1 provide information on tax and dividend payments by GBEs and SOCs to the Government Chapter 5 of BP1 sets out estimates of different sources of revenue including dividend and income tax equivalent payments by GBEs and SOEs The Policy & Parameters Statement in Chapter 4 shows the reasons why those forecasts have changed since the previous Budget 31
A key focus of this year s Budget will be the impact of all of the Government s election promises on the bottom line $ million 217-18 218-19 219-2 22-21 Total $ million 217-18 218-19 219-2 22-21 Total Mid-Year Review Net operating balance 21.3 138.2 11. 67.9 337.4 Net new infrastructure commitments.5 65.3 113.1 142.1 321. Recurrent spending promises - Health 21.2 34.6 53.2 19. Education 1. 21. 29.6 6.6 Police & Emergency Services 4.5 7.8 11.4 23.7 Primary industries 4.1 7.3 8. 19.4 Human services 9.2 9.4 9.1 27.7 Tourism & hospitality 8.4 7.1 5.9 21.4 Other 13. 35.4 14.7 1.5 73.6 Total recurrent spending promises 13. 92.8 11.9 127.7 335.4 Tax cut promises 2. 13. 7.5 8.1 3.6 Total promises 15. 15.8 19.4 135.8 366. Less funding offsets. 2.2 42.7 88.1 133. Total 15. 13.6 66.7 47.7 233. Mid-Year Review fiscal balance -242.3-269.1 27.4 86.1-397.9 Less Net effect of promises on NOB 15. 13.6 66.7 47.7 233. Net new infrastructure commitments.5 65.3 113.1 142.1 321. Total impact of promises 15.5 168.9 179.8 189.8 554. Fiscal balance after promises -257.8-438. -152.4-13.7-951.9 Mid-Year Review net debt -599.4-349.7-392. -536.5 Post-election net debt -614.9-196.3-58.8-13.5 (assuming differences in fiscal balance funded by running down net cash and investments) Net operating balance after promises 6.3 34.6 43.3 2.2 14.4 Less one-off C/W grants for capital purposes 157.7 128.4 1.1 62.3 448.5 'Underlying' net operating balance - As at MYR -136.4 9.8 9.8 5.6-111.2 After promises -151.4-93.8-56.9-42.1-344.2 32 Sources: Tasmanian Government, Revised Estimates Report 217-18; Tasmanian Liberals pre-election fiscal strategy statement.
The Budget Papers are just one part of the annual budget cycle 33