CONTENTS
Page 1 Introduction 1
2 Tasmania's Economic Performance 17
3 Consolidated Fund Budget Outcome, 1997-98 45
4 Consolidated Fund Budget Estimates, 1998-99 53
5 Forward Estimates 77
6 State Capital Program 89
7 Liabilities of the Tasmanian State Public Sector 121
8 Special Deposits and Trust Fund 153
9 State Taxation 171
10 Commonwealth-State Financial Arrangements 193
11 Local Government 217
12 Uniform Government Reporting 243
13 Government Businesses and Authorities 285
Conventions and Glossary of Terms 311
INDEX
Page 1 Introduction 1
Overview 3
Tasmania's Current Economic and Financial Position and Outlook 3
Tasmania's Current Economic Position 3
Tasmania's Current Financial Position 4
Tasmania's Economic and Financial Outlook 7
A New Vision for Tasmania 7
A Social and Economic Strategy for Tasmania 8
Tasmania's Fiscal Strategy 10 2 Tasmania's Economic Performance 17
Introduction 18
Economic Performance 18
Overview 18
Consumer Spending 21
Wages 22
Demographics 23
Labour Market 25
Investment 30
Export Activity 32
The Public Sector in Tasmania 33
Structure of the Economy 35
Changes in the Structure of the Economy 37
Recent Economic Performance 38
Impact of the Asian Economic Crisis 39
Background to Recent Events in Asia 39
How Australia is Affected 40 Page
How Tasmania is Affected 41
Economic Outlook 42 3 Consolidated Fund Budget Outcome, 1997-98 45
Net Financing Requirement 46
Receipts 46
Recurrent Receipts 47
Capital Receipts 49
Expenditure 49
Major Variations 50
State Service Restructuring 51 4 Consolidated Fund Budget Estimates, 1998-99 53
Net Financing Requirement 54
Loan Repayments 55
Receipts 55
Recurrent Receipts 56
Capital Receipts 61
Financing Transactions 62
Expenditure 70
State Service Restructuring 70
Recurrent Services 71
Works and Services 72 5 Forward Estimates 77
Forward Estimates 1999-00 to 2001-02 78
The Forward Estimates Concept 78
Impact of the New Government's Policy Initiatives 78
Explanation of Major Expenditure Variations 83
Explanation of Major Revenue Variations 86 6 State Capital Program 89
State Capital Program 90
Government Departments 92
Sources of funds 92 Page
Application of Funds 93
Roads Program 108
Housing Program 111
Department of State Development 113
GBEs, State-owned Companies and State Authorities 115
Sources of Funds 115
Major Capital Projects by GBEs, State-owned Companies and State Authorities - Summary 117 7 Liabilities of the Tasmanian State Public Sector 121
Debt and Debt Servicing Costs 122
Interest Costs of the Government 128
Credit Status of the State Public Sector 131
Cost of Debt 133
Foreign Currency Exposure 133
Contingent and Other Liabilities 134
Borrowings Guaranteed by the Government 134
Lease and Other Financial Arrangements 135
Superannuation Arrangements in the Tasmanian Public Sector 136
Overview 136
Retirement Benefits Fund (RBF) 138
Parliamentary Superannuation Fund 141
Parliamentary Retiring Benefits Fund (PRBF) 142
Judges' Scheme 143
Aggregate Unfunded Liability 144
Superannuation Outlays 145
General Superannuation Policy Issues 146
Tasmanian State Service Workers' Compensation Scheme 150
Purpose of the Scheme 150
History of the Scheme 150
Performance of the Scheme 150
Measures to Reduce the Number and Cost of Claims 152 Page 8 Special Deposits and Trust Fund 153
The Fund 154
Structure of the Fund 154
Fund Balances 155
Funds Availability 155
Major Balances and Activities 156
Balances of Selected Accounts 165 9 State Taxation 171
Introduction 172
Taxation Receipts for 1997-98 172
Estimated Taxation Receipts for 1998-99 176
Payroll Tax 176
Land Tax 177
Motor Tax 178
Financial Transaction Taxes 179
Stamp Duties 179
Financial Institutions Duty 180
Section 90 Safety Net Arrangements 181
Electricity Levy 183
Gambling Taxes 183
Lottery Tax 184
Racing And Gaming Tax 185
Casino Tax 185
Sundry Licences 187
Major Legislative Changes 188
National Tax Reform 189
Comparison With Other States and Territories 190 10 Commonwealth-State Financial Arrangements 193
Introduction 194
Commonwealth Payments 194
The Need for Commonwealth Payments 194 Page
Classification of Commonwealth Payments 195
Financial Assistance Grant and Special Revenue Assistance 195
National Competition Payments 198
Health Care Grant 200
Specific Purpose Payments 201
Trends in Commonwealth Payments 204
Institutional Arrangements 209
1998 Premiers' Conference 209
Commonwealth Grants Commission 209
Current Issues In Commonwealth-State Financial Relations 212
Vertical Fiscal Imbalance 212
Reform of Arrangements Under Which SPPs are Provided 214
National Fiscal Outlook 215 11 Local Government 217
Introduction 218
Development of the Local Government Sector and its Role in the Economy 218
Development of the Local Government Sector 218
Future Local Government Developments 219
Role in the Economy 220
Relationship with Other Levels of Government 222
Commonwealth Grants 222
State Grants 226
State Subsidies on Local Government Costs 226
State Taxation Exemptions 226
State Levies and Charges on Local Government 226
Fees for Services 227
Local Government Rates Exemptions 227
Financial Reform of the Local Government Sector 228
Rating of State Government Properties 228
Application of State Taxes to Councils 228
Removal of Levies on Local Government 228 Page
Removal of Recurrent Grants and Subsidies 228
Removal of Concessional Charging Arrangements 229
Economic Reform and Local Government 229
Competitive Neutrality 230
Prices Oversight 231
Legislation Review 231
Financial Performance 231
Local Government Sector Financial Aggregates 231
Comparison with Other States and the Northern Territory 236
Benchmarking between LGAs 238
Description of Indicators 240 12 Uniform Government Reporting 243
Introduction 244
Government Financial Estimates 247
GFE Forward Estimates 256
Trends in GFEs for Tasmania 258
Interstate Comparison of Government Financial Estimates 267
Financial Assets and Liabilities 272
Trends in Financial Assets and Liabilities 272
Interstate Comparison of Financial Assets and Liabilities 275
Loan Council 277
Loan Council Arrangements 277
Loan Council Allocations 278
Appendix 280
Classification Basis of Government Financial Estimates (GFEs) 280
Financial Assets and Liabilities (FALs) 281
Consolidation of Transactions 281 13 Government Businesses and Authorities 285
Introduction 286
Performance of Government Businesses 286
Major Developments 287 Page
State Reforms 288
GBE Act Initiatives 288
Community Service Obligations 288
Rationalisation of State and Local Government Business Activities 289
National Reforms 289
Implementing the Competitive Neutrality Principles 290
Competitive Neutrality Principles Complaints Mechanism 291
Prices Oversight of Monopoly GBEs 291
Industry Reforms 292
Electricity Supply Industry (ESI) 292
Bulk Water Supply 294
Softwood Plantations 294
Other Industry Reforms 294
Profiles of Major Government Businesses 295
State-owned Companies 297
Aurora Energy Pty Ltd 297
Burnie Port Corporation Pty Ltd 297
Hobart Ports Corporation Pty Ltd 298
Metro Tasmania Pty Ltd 298
Port of Devonport Corporation Pty Ltd 299
Port of Launceston Pty Ltd 299
Transend Networks Pty Ltd 300
TT Line Company Pty Ltd 300
Government Business Enterprises 301
Civil Construction Services Corporation 301
Egg Marketing Board 302
Forestry Tasmania 302
Hydro-Electric Corporation 303
Motor Accidents Insurance Board 303
North West Regional Water Authority 304
Port Arthur Historic Site Management Authority 304 Page
Printing Authority of Tasmania 304
Rivers and Water Supply Commission 305
Southern Regional Cemetery Trust 305
Stanley Cool Stores Board 306
Tasmanian Dairy Industry Authority 306
Tasmanian Grain Elevators Board 306
Tasmanian International Velodrome Management Authority 307
Tasmanian Public Finance Corporation 307
The Public Trustee 308
Totalizator Agency Board 308
Statutory Authorities 309
Private Forests Tasmania 309
Racing Tasmania 309
Retirement Benefits Fund Board 309
State Fire Commission 310 Conventions and Glossary of Terms 311 1INTRODUCTION
Features
The 1998-99 Budget provides the financial framework which will enable the introduction of the new Government's integrated industry development policy to promote economic growth and employment while also ensuring responsible financial management through the implementation of a new fiscal strategy.
Throughout the 1990s, Tasmania has been experiencing a significant period of economic decline relative to the rest of Australia with the Tasmanian economy now being characterised by only very modest GSP growth, high levels of unemployment, poor levels of investment and a declining population. The economic outlook for the State remains one of slow growth unless significant action is taken to address the serious economic and employment problems facing Tasmania.
The 1998-99 Budget provides for the implementation of the new Government's priority industry development policy to overcome Tasmania's economic problems and achieve increased economic growth and job creation. The core of this package is the cooperative development of an integrated long-term industry development strategy for Tasmania which will provide a comprehensive economic and social vision for the future of the State. In addition, the Department of State Development will conduct industry audits in key industry sectors to enable the development of detailed industry specific plans in line with the overall industry development vision. This consultative process will provide for a comprehensive strategic approach to industry development that will deliver economic growth and jobs in line with the goals, aspirations and views of Tasmanians on the future of the State.
In addition to the planning and industry audit process outlined above, the new Government has also provided a range of industry development initiatives in 1998-99 to address a number of economic problems affecting all industry sectors. These initiatives include:
the establishment of a finance facilitation unit within the Department of State Development to act as an agent for businesses seeking finance, including both debt and equity finance, to address the problems identified by industry in gaining access to finance;
the establishment of a Tasmanian Innovations Board to encourage and foster the development of new ideas, innovations and inventions so as to expand and diversify Tasmania's industry base;
the maximisation of local content through the Industrial Supplies Office identifying imports which could be replaced by locally manufactured items and increasing buyer awareness of local suppliers;
Chapter 1: Introduction 1 the provision of targeted financial incentives for net export industries to provide opportunities to pursue new or expanding prospects in the net export area, with assistance provided on the basis of an economic return to Tasmania in terms of new investment and jobs; and
the establishment of the Office of Business Assistance in each of the main regions of Tasmania to provide a one-stop shop for assistance to business in dealing with all aspects of government regulation to reduce the burden of 'red tape'.
The implementation of the new Government's integrated industry development policy will require a coordinated effort by both State and Local Government. To achieve this outcome, the new State Government will develop a number of strategic Partnership Agreements with Local Government to ensure a coordinated development effort by both levels of government tailored to the economic and social priorities of each participating council, the State Government and the community. The development of the first of these strategic Partnership Agreements is already under way with the Circular Head Council and the Launceston City Council.
The 1998-99 Budget also marks the introduction of a new fiscal strategy by the Government. This new strategy will ensure responsible financial management whilst promoting the Government's priority policies in relation to industry development and job creation.
2 Chapter 1: Introduction OVERVIEW
This chapter addresses the economic, social and financial context in which the 1998-99 Budget has been framed. The financial and economic conditions currently facing Tasmania have placed significant pressure on successive State Budgets over recent years. These issues have continued to impact on the development of the 1998-99 Budget.
Since the early 1990s, the Tasmanian economy has experienced a period of economic and employment stagnation. As a result, Tasmania is currently facing a number of serious economic and employment problems that are, in turn, affecting the State's financial and social outcomes. However, with the election of a new Government in August 1998, a range of new policies has been incorporated into the 1998-99 Budget. These policies provide a comprehensive framework to address the core economic and employment problems facing the State while also maintaining an environment of responsible financial management.
The 1998-99 Budget provides the financial framework for the implementation of the first year of the new Government's integrated industry development policy. This comprehensive package of initiatives will involve a cooperative and consultative approach to develop an industry development strategy which will provide a long-term vision for the future growth and development of Tasmania and will, in turn, enable the development of a number of industry-based strategies to achieve this vision for growth and job creation. This comprehensive policy is aimed directly at overcoming the causes of the relative economic decline experienced by Tasmania in recent years. This integrated strategic policy will actively facilitate the realisation of the significant growth and employment potential within the Tasmanian economy.
The Government has also developed a new fiscal strategy to guide the management of the State's finances. This new strategy recognises the economic and financial issues facing the State as well as the industry development policy of the new Government. The primary objective of the new fiscal strategy is to ensure responsible financial management while also promoting the Government's priority policies for industry development and job creation.
TASMANIA'S CURRENT ECONOMIC AND FINANCIAL POSITION AND OUTLOOK
Tasmania's Current Economic Position Currently, Tasmania is faced with a number of economic problems which are, in turn, adversely affecting the financial and social situation within the State. Historically, the Tasmanian economy achieved comparable economic performance to the rest of Australia up until the recession that began in 1982-83 when the State began to experience an economic decline relative to the rest of the nation. This performance continued for several years following 1982-83. Subsequently, the State's relative
Chapter 1: Introduction 3 decline began to emerge, punctuated by a mini resurgence in 1989-90. The period following the 1991-92 national recession saw Tasmania's relative decline worsen dramatically to the point today where the State has serious structural economic problems that have been allowed to develop unchecked.
Recently Tasmania's economic performance has been characterised by:
very modest growth in Gross State Product (GSP);
a high unemployment rate;
a low labour force participation rate;
a decline in full time jobs and an increase in part time work, with little change in overall employment levels;
relatively low earnings of those in full time jobs;
falling levels of investment;
higher than average reliance of Tasmanians on Government as a primary income source; and
a declining population caused by strong interstate out-migration.
One of the key reasons for Tasmania's poor economic performance during the 1990s is the structure of the State's economy with its relatively narrow industrial base and heavy dependence on sectors that have not shown major growth, such as agriculture and natural resources. These weaknesses have been exacerbated by the continual cuts to the public sector in recent years combined with the lack of a comprehensive strategy to increase jobs in the private sector.
During the 1990s, the Tasmanian economy has experienced a lack of business investment and a lack of growth, both of which have reduced employment prospects within the State. The poor employment situation in the State is a major concern and is largely caused by the underlying economic problems facing Tasmania. The extent of the employment problem in the State is particularly evident through the State's recent population figures. The State's population growth has fallen throughout the 1990s, with State population actually declining by almost 4 000 persons during the first three quarters of 1997-98. This population decline is due to increased out-migration as Tasmanians are increasingly forced to look interstate for employment.
Tasmania's Current Financial Position The poor economic growth experienced in the State during the 1990s has reduced the growth in the State's own source revenue. This effect, combined with real reductions in Commonwealth funding since the early 1980s, has significantly affected the revenue raising ability of the Government. In addition, the poor economic climate, combined with an aging population, has put increasing pressure on expenditure, particularly in relation to health. As a result of this situation, the Budget has historically recorded annual deficits which have been adding to Tasmania's high levels of debt at a time when reductions in debt levels are required.
There is little doubt that the State's finances are under pressure from both the revenue and expenditure sides of the Budget.
4 Chapter 1: Introduction Debt Since the first fiscal strategy was introduced by the Field Labor Government in 1990-91, successive State Governments have made continued efforts to address the escalation in State debt that occurred during the 1980s. While Tasmania's debt levels remain high by national standards, there is no debt crisis facing the State. The efforts of successive Tasmanian Governments have resulted in Tasmania achieving a manageable debt situation. This is illustrated by the following facts:
from 30 June 1991 to 30 June 1998, net State debt fell from $2 805 million to $2 721 million, a reduction of 20 per cent in real terms;
total State net debt has declined by $373 million in nominal terms over the past four years;
General Government sector net debt has decreased by 13 per cent in real terms from 30 June 1994 to 30 June 1998;
while the growth in nominal General Government sector net debt has declined throughout the 1990s, a $39 million reduction in nominal General Government sector net debt was achieved from 30 June 1997 to 30 June 1998; and
Tasmania's net interest cost ratio, which measures the proportion of the State's revenue used to service debt, has fallen from 8.6 per cent in 1990-91 to 7.1 per cent in 1997-98 and is expected to further decline to 6.3 per cent in 1998-99.
Based on the above figures, it is clear that the State's debt position has improved since 1990-91. The State's debt levels will require ongoing attention, but do not by any means constitute a debt crisis.
Taxation Overall levels of taxation, relative to other States and Territories, are an important factor for businesses in assessing the attractiveness of Tasmania as a place in which to invest. In addition, the taxation burden on established Tasmanian businesses has a critical impact on the competitiveness of those businesses relative to businesses in other States and Territories and the rest of the world.
Throughout the 1990s, there have been a number of significant reductions in the levels of taxation in Tasmania, particularly in relation to land tax and payroll tax, both of which have had a direct impact on businesses within the State.
The level of overall taxation in a particular jurisdiction is measured by taxation severity. Chart 1.1 shows the level of taxation severity for all States and Territories for 1996-97. It can be seen from Chart 1.1 that Tasmania's severity of taxation is well below that of both New South Wales and Victoria and is comparable to the severity levels in South Australia and the two Territories.
On the basis of taxation severity, Queensland and Western Australia continue to be the lowest taxing States. However, if broader measures of revenue raising effort are examined, including revenue from other sources such as royalties and dividends from government businesses, then Tasmania's overall revenue raising effort is just below the average of all other States and Territories.
Chapter 1: Introduction 5 Chart 1.1: Taxation Severity Ratios for 1996-97
110
100
90 Taxation Severity
80 NSW Vic Qld WA SA Tas NT ACT
Source: Report on General Revenue Grant Relativities 1998 Update - Commonwealth Grants Commission.
In addition to levels of taxation, the overall costs of labour are also an important consideration for current employers and potential investors. The major costs of labour include levels of payroll tax as well as salary costs (earnings), superannuation, workers' compensation and fringe benefits tax. The level of these costs is shown in Table 1.1 for each State on a per employee basis for 1996-97. It can be seen that Tasmania has the second lowest overall cost of labour after Western Australia and is well below the Australian average.
Table 1.1: Comparison of Labour Costs (Private and Public) for 1996-97 Cost Per Employee NSW Vic Qld SA WA Tas Aust $$$$$$$
Earnings 32 589 31 317 27 420 28 647 31 373 27 062 30 870 Superannuation 2 359 2 431 2 117 2 047 1 976 2 023 2 291 Payroll Tax 1 420 1 269 788 990 899 1 112 1 160 Workers' Compensation 858 605 579 854 620 898 719 Fringe Benefits Tax 529 389 236 267 390 171 395 Total 37 755 36 011 31 140 32 805 35 258 31 266 35 435
Source: ABS Labour Costs 6248.0 Table 1.
Table 1.1 clearly highlights the fact that, contrary to the stated opinion that Tasmania is one of the highest taxed States in Australia, it is in fact the State with the second lowest business costs per employee with these costs being significantly below the average of the other States.
6 Chapter 1: Introduction Tasmania's Economic and Financial Outlook On current trends, poor economic growth, investment and State final demand are predicted to continue for 1998-99. On this basis, Tasmania's economic fundamentals do not appear sufficiently strong in the short term to reverse Tasmania's recent economic performance without a fundamental change to the economic conditions facing the State. Tasmania's negative population growth is a further limiting factor on economic growth.
In addition, during 1998-99 employment growth is expected to be weak. Unemployment is predicted to remain around 11 per cent in the short term. The labour force participation rate is not expected to rise above 60 per cent in the immediate future. These facts highlight the need for a new industry strategy which will deliver growth and jobs.
Tasmania is likely to experience some benefit through increased export earnings as a result of the weakening of the Australian dollar relative to the American dollar. However, this benefit will be reduced through recent declines in international commodity prices and the impact of the Asian economic crisis.
In short, unless steps are taken to address the fundamental economic problems facing the State, the outlook for the Tasmanian economy is one of continuing decline relative to the rest of Australia.
A NEW VISION FOR TASMANIA
Due to the poor economic performance of the Tasmanian economy throughout the 1990s, the State is now facing a number of serious economic and employment problems which, based on Treasury estimates, will only worsen unless action is taken now to turn the State's economy around. A concerted effort by Government is needed. Such a response should not focus on one particular industry, or on a particular aspect of the State's finances, rather it should be a comprehensive effort to arrest Tasmania's economic decline by addressing the range of economic problems facing the State.
With the election of a majority Government in August 1998, the new Government is in a position to provide the leadership and direction necessary to address the problems facing the State's economy.
In this regard, the new Government has adopted a comprehensive approach with two complementary strategies aimed at addressing the core economic, social and financial issues facing the State. For the first time in Tasmania's history, the Government is introducing a fully coordinated and strategic approach to economic development and financial management within the State.
The priority focus of the new Government is on the implementation of a comprehensive industry development policy as part of the 1998-99 Budget. This integrated policy will address all aspects of the State's economy and will include other portfolio initiatives in the areas of health, education, sport and recreation and the arts.
This new strategic approach by the Government will deliver a long-term vision for the future of the Tasmanian economy and will be developed with direct input from the community and each sector of the State's economy. This strategic vision will provide a framework to ensure that the tactical industry development efforts of Government are coordinated with the overall development vision of Tasmanians. The implementation of such a comprehensive industry development strategy was one of
Chapter 1: Introduction 7 the key recommendations of the Nixon Report. A range of other industry development initiatives are also provided for in the 1998-99 Budget as part of the overall industry development policy.
Secondly, the Government, has developed a new fiscal strategy to provide a framework for the management of the State's finances. This new fiscal strategy is specifically designed to ensure appropriate financial management while supporting economic development and employment within the State. In this regard, the Government's new fiscal strategy will 'dove-tail' directly with the new Government's industry development strategies and policies.
A Social and Economic Strategy for Tasmania The 1998-99 Budget provides for the implementation of the new Government's industry development policy which includes a range of initiatives and strategies to address the core economic concerns facing the State. The key encompassing element of this package is the formulation of a long-term vision for the social and economic development of Tasmania which will provide a framework for the effective delivery of the Government's industry development initiatives to achieve the maximum benefit to the State in terms of increased growth and employment creation. The Government's industry development policy will address the key issues affecting development in Tasmania. These key issues include:
planning certainty for major developments;
finance facilitation;
red tape, government regulations and information for business;
networking between industries to create economies of scale and scope;
import replacement through local content;
financial incentives for export and import replacement industries;
middle management requirements;
skill bottlenecks;
access to interstate and overseas markets and marketing; and
harnessing entrepreneurial ideas.
The corner stone in implementing the Government's industry development policy has been to bring together all the industry development arms of the Government together under one roof. The Department of State Development has been established and is charged with the administration, management and implementation of the new Government's industry development policy and strategies. The primary role of the Department is to identify and convert all industry development opportunities into economic growth realities.
Preparation of industry development plans, in line with the overall industry development strategy, will be carried out during 1998-99 through the preparation of industry audits for the key industry sectors of:
environment;
mining and metals;
8 Chapter 1: Introduction services, with sub sectors including State and Local Government, tourism, sport and recreation, education, training, health, community services, business services, finance and marketing;
advanced technology and information and communications technology;
agriculture, including forestry, timber and paper;
fishing and aquaculture;
manufacturing and engineering (heavy and light); and
energy, building and construction.
These industry audits will involve a cooperative approach between all levels of government, industry and the community. The industry audit process will identify the opportunities for growth for each industry while also examining factors which are currently retarding growth. Once completed, the industry audits will provide a valuable information resource which will enable the development of detailed industry development plans tailored to the needs of each specific industry and consistent with the overall economic and social development vision for the State. In addition, many immediate opportunities for growth will be revealed by the audits and these will be pursued straight away.
Concurrently during 1998-99, the Department of State Development will be undertaking an extensive consultation program aimed at developing the long-term strategic vision for industry development. This integrated industry development strategy will bring together the views of businesses, unions, interest groups and the Tasmanian community to present a comprehensive vision of where Tasmania should be as a State in the future, both in terms of economic and social considerations. As part of this consultative approach, forty Cabinet meetings will be held around Tasmania during the new Government's first term and will provide an opportunity for input by the community directly to Government Cabinet members and Heads of Agencies.
During 1998-99, the Tasmanian Development Board will define a detailed set of benchmark targets to be used in assessing progress with the new industry development strategy. The Board will report annually to Parliament, outlining progress with the achievement of the strategy.
The Government's integrated industry development strategy, combined with the benchmarks defined by the Tasmanian Development Board and the outcomes of the industry audits, will present a strategic framework within which detailed industry development plans can be prepared and implemented to ensure that the social and economic development vision of Tasmanians is achieved.
During 1998-99, a Centre for Research, Industry and Strategic Planning will be established within the Department of State Development. The Centre will prepare the overall industry development strategy and develop the medium to long-term industry plans, based on the outcomes of the industry audits.
In addition to the industry specific issues that will be identified as part of the industry audit process, there are a number of other issues retarding economic growth in the State that impact upon all industry sectors. The full range of such issues will be identified both through the industry audit process and through the consultation associated with the development of the industry development vision. However, a number of these broad ranging issues have already been recognised by the new Government. The 1998-99 Budget contains a range of new initiatives designed to address a number of industry development issues that impact upon almost all industry sectors. These initiatives include:
Chapter 1: Introduction 9 the establishment of a finance facilitation unit within the Department of State Development to act as an agent for businesses seeking finance, including both debt and equity finance, to address the problems identified by industry in gaining access to finance;
the establishment of a Tasmanian Innovations Board to encourage and foster the development of new ideas, innovations and inventions to expand and diversify Tasmania's industry base;
the expansion of the Industrial Supplies Office (ISO) to take on the role of actively promoting business networks throughout the regions of Tasmania to enable Tasmanian businesses to achieve economies of scale and scope;
the maximisation of local content through the ISO identifying imports which could be replaced by locally manufactured items and increasing buyer awareness of local suppliers;
the provision of targeted financial incentives for net export industries to provide opportunities to pursue new or expanding prospects in the net export area, with assistance provided on the basis of an economic return to Tasmania in terms of new investment and jobs; and
the establishment of the Office of Business Assistance in each of the main regions of Tasmania to provide a one-stop shop for assistance to business in dealing with all aspects of government regulation to reduce the burden of 'red tape'.
These initiatives are tailored as an integrated part of the new Government's overall industry development package for Tasmania. This comprehensive package of initiatives and policies will deliver economic growth and jobs in line with the goals, aspirations and views of Tasmanians on the future of their State.
It is clear that all levels of government have a key role in ensuring that the vision for the State is achieved. It is crucial that each level of government is working both in coordination with other levels of government and in line with the strategic industry development vision. Towards this end, the new Government will develop a number of strategic Partnership Agreements with Local Government to ensure a coordinated development effort by both levels of government tailored to the economic and social priorities of each participating council, the State Government and the community. The development of the first of these strategic Partnership Agreements is already under way with the Circular Head Council and the Launceston City Council.
The new Government's integrated industry development policies will address the key economic problems facing the State and boost employment through a coordinated and cooperative effort to actively promote responsible development that is of genuine benefit to the Tasmanian economy and community.
Tasmania's Fiscal Strategy A credible and achievable medium-term fiscal strategy is an essential component of prudent contemporary public financial management practice. It represents not only an effective planning tool for the Government, but also signals to financial markets, the business sector and the community the intended course of the Government's financial management. A fiscal strategy also provides a framework for the Government to demonstrate to rating agencies the financial focus of the Government, any identified issues or problems and how these will be addressed.
10 Chapter 1: Introduction In 1990, the Labor Government of the Hon Michael Field introduced the first comprehensive fiscal strategy to be adopted by a Tasmanian Government. This strategy set the framework for addressing the then escalating debt levels and stabilising the escalating costs of debt servicing. As part of the 1990-91 Budget, the Hon Michael Field noted that if the financial situation facing the State at that time was allowed to continue then the annual Net Financing Requirement (NFR) would have been $279 million for 1990-91 with the Net Debt Servicing Ratio estimated to increase to 14 per cent by 1995-96 and 30 per cent by the 2000-01 financial year. This would have meant that by 2000-01, for every dollar the State Government received, 30 cents would need to be applied to servicing State debt.
Since the initiation of this first strategy, successive Tasmanian Governments have continued to apply this financial framework to address Tasmania's budgetary problems. Over time, the gap between the Government's revenues and expenditures has markedly reduced with debt servicing costs also reducing to a more manageable level.
The main objectives of the Field Government's initial fiscal strategy was to create a more certain financial future for Tasmanians. This objective has now largely been achieved. With the election of a new Government in August 1998, a change has occurred in the focus of Government policy towards industry development and job creation. It is, therefore, an opportune time for the Government to introduce a new fiscal strategy to set the course of the State's financial management in the future.
It should be noted that, due to the introduction of the 1998-99 Budget being delayed by the August 1998 State Election, the 1998-99 financial year will, in many respects, represent an interim or transitional period in terms of the new fiscal strategy which is focused on the longer term management of the State's finances. As such, some minor deviations from the stated fiscal strategy are expected during 1998-99 due to the transitional nature of this financial year.
The new fiscal strategy adopted by the Government contains five broad components which address the range of financial management issues facing the State. The new fiscal strategy is structured to run until the end of the 2003-04 financial year.
Broadly, the new strategy is concerned with reducing net debt and debt servicing levels. Its primary objective is to ensure responsible financial management while supporting industry development and job creation. Each of the five components of the new fiscal strategy are outlined below.
Budget Position Principle To stabilise and strengthen the State's financial position, the State Budget will be managed on a long term sustainable basis.
The annual Budget position is an important consideration in the long-term management of the State's finances. To achieve improvements in the State's overall financial position over time, it is important that the annual Budget is structured to ensure that it is sustainable in the long run.
The application of the above principle will ensure that the State Budget is structured in such a way that the annual Budget result does not have a negative impact on the State's finances in the long run. In this context, it is important to note that the focus of the new fiscal strategy is not restricted to the Consolidated Fund Budget result alone, but also considers the annual surplus or deficit of the total State Government sector as a whole, including the performance of the State's Government Business Enterprises (GBEs) and State-owned Companies (SOCs).
Chapter 1: Introduction 11 Tactical Targets The annual Consolidated Fund Budget will be maintained in surplus from 1999-2000.
An underlying Budget surplus will also be maintained on a Government Financial Estimates (GFE) basis.
More detailed targets will be developed during 1998-99 in relation to measuring the underlying Budget surplus on a GFE basis.
Asset Sales Principle The proceeds from major asset sales will not be used to fund recurrent expenditure.
The application of asset sale proceeds is also an important consideration in the management of the State's finances in the long-term. Proceeds from the sale of assets represent the cash value of a particular capital asset in the State's balance sheet. The capital nature of this item is an important factor. If sale proceeds are used to fund recurrent expenditure, then the State's net asset position will be weakened, with only a single one off benefit in the year that the funds are expended. Over time, such a practice will have a detrimental impact on the State's overall financial position.
In line with the above principle and sound financial management practice, proceeds from the sale of Government assets will be applied to purposes of a capital nature. As such, sale proceeds from major assets will be used to retire State debt, with minor asset sale proceeds being used for capital improvements to existing State infrastructure. Tactical Targets Proceeds from major asset sales will be used to retire State debt.
Proceeds from minor asset sales will be applied to improving the State's infrastructure.
Community Dividend Principle The implementation of more efficient administration across the State Service will provide a direct financial benefit to the Tasmanian community through reduced costs of Government.
A key element of the Government's new fiscal strategy is the implementation of improved and more efficient administration across the Tasmanian public sector. A direct financial benefit will accrue to the Tasmanian community through reducing the costs of Government. Savings will be achieved through a public service which is more streamlined, efficient and accountable rather than through forced redundancy programs.
It is anticipated that, with the ongoing implementation of more efficient and effective management and administration practices in the Tasmanian State Service, the total real recurrent non-salary operating costs of Government agencies will be reduced by the rate of growth in the Consumer Price Index (CPI). Tactical Target The total real recurrent non-salary operating costs of agencies will be reduced annually by the rate of growth in the CPI.
12 Chapter 1: Introduction The achievement of this annual saving in non-salary costs will provide the Government with an increased degree of funding flexibility to meet identified and arising policy initiatives.
Chapter 1: Introduction 13 Taxes Principle The taxation burden on Tasmanians and Tasmanian businesses will not be increased.
The focus of the Government's fiscal strategy is to ensure responsible financial management whilst also encouraging industry development and creating employment opportunities. In this environment, it is important that the taxation burden on Tasmanian businesses and the community is not increased.
Whilst maintaining a primary focus on not increasing the burden of taxation, the provision of targeted taxation relief will remain an important industry assistance tool available to the Government. On this basis, Government assistance, such as payroll tax relief, will focus on projects and industry sectors which have import replacement or export growth potential and provide new employment opportunities. Tactical Targets There will be no new taxes or increase in the rate of any existing State taxes.
Tax relief will be targeted to industry sectors and firms with potential for import replacement or export growth and which permanently expand their employment.
Debt Principle The burden of debt on the Tasmanian community will be reduced.
Whilst the fiscal strategies pursued by successive Governments since 1990-91 have had a significant influence on stabilising the level of State debt and reducing the proportion of recurrent revenue required to service that debt, Tasmania's level of debt still remains high by national standards.
Total State debt, as a proportion of Tasmania's Gross State Product (GSP), needs to be reduced to ensure that the State has the ability to provide a range and standard of government services comparable to other States. The cost of servicing this debt also needs to be managed appropriately to ensure the State has appropriate budgetary flexibility to continue to provide core government services, such as health and education, at a level expected by the Tasmanian community. Tactical Targets Total State Government net debt as a proportion of GSP will be reduced to below 20 per cent by 2003-04.
General Government net debt as a proportion of GSP will be reduced to below 10 per cent by 2003-04.
The Government will not increase its net debt.
The cost of servicing debt will be reduced with the net interest cost ratio reduced to below 5 per cent by the year 2003-04 (this approximates a Net Debt Servicing Ratio target of below 5.9 per cent).
The accruing superannuation liabilities of new employees will be fully funded from 1 July 1999.
14 Chapter 1: Introduction Progress on all the targets of the new fiscal strategy will be reported annually. It should be noted that the net interest cost ratio target referred to above will be reported on a moving average basis to remove the volatility in this measure.
The following table shows the four key tactical targets of the new fiscal strategy. 1997-98 actual data is also shown for each key target as a basis of comparison.
Table 1.2: New Fiscal Strategy Targets Fiscal 1997-98 strategy Tactical target Actuals1 targets
Consolidated Fund Budget to be maintained in surplus from 1999-00 (surplus $ million) (37.1) > 0
Total State Government net debt as a percentage of GSP (%) 25.4 < 20
General Government net debt as a proportion of GSP (%) 12.7 < 10
Net interest cost ratio (%) 7.4 < 5
Source: Department of Treasury and Finance and the Australian Bureau of Statistics (ABS). Note: 1. Some of the figures shown for 1997-98 represent preliminary ABS data.
This new fiscal strategy will achieve responsible financial management that addresses the major financial issues facing the State while complementing the new Government's comprehensive industry development and jobs creation package.
Chapter 1: Introduction 15
2TASMANIA'S ECONOMIC PERFORMANCE
Features
Prior to the early 1980s, Tasmania's economic performance was on a par with that of the national economy. However, since the early 1980s, Tasmania's economic performance has generally lagged behind Australia as a whole, with the gap in performance increasing since 1991-92. One of the key reasons for this is the structure of the State's economy with its relatively narrow industrial base and heavy dependence on sectors that have not shown major growth, such as agriculture and natural resources.
While the State's economy rebounded following the 1982-83 national recession, a similar improvement did not occur following the 1991-92 recession. As a result, Tasmania's economic performance relative to the national economy has deteriorated in recent years.
Negligible growth in the State's public sector in recent years has also contributed to the relatively poor economic performance.
Recently, Tasmania's economic performance has been characterised by:
very low economic growth in Gross State Product (GSP);
a high unemployment rate;
a low labour force participation rate;
a decline in full time jobs and an increase in part time work, with little change in overall employment levels, resulting in a reduction in working hours in the economy;
relatively low earnings of those in full time jobs;
falling levels of investment; and
a declining population caused by strong interstate out-migration.
While overseas exports have been a recent growth area for Tasmania (albeit from a low base), the problems currently experienced in many Asian economies could have some adverse effect for some Tasmanian exporters, especially if there is also a downturn in other key markets such as Europe and the US.
Chapter 2: Tasmania’s Economic Performance 17 INTRODUCTION
This chapter provides an account of the performance of Tasmania's economy. The first part of the chapter comprehensively compares the State's economic performance with that of Australia as a whole since 1982-83 and puts forward some of the reasons for Tasmania's relative decline. A snapshot of Tasmania's relative performance prior to 1982-83 is also presented. The structure of Tasmania's economy is presented in the second part. This part also shows how the relative importance of the different sectors has changed in recent years and compares Tasmania's industry structure with Australia's.
The third part of this chapter contains a description of the most recent trends in the State's economy, focussing on the performance of the economy in 1997-98. The fourth part gives an account of the current and possible future impacts of the Asian economic crisis on Tasmania.
Projections of the State's economic outlook (based on performance to date) are presented in the final part. These projections do not include the impact of the Crest/Duke Energy magnesite mining and magnesium processing project as they were prepared prior to the public announcement of this project.
As noted above, Tasmania's economic performance is assessed comprehensively from 1983-84. This period was selected because it includes two post-recession periods – one from 1982-83 to 1990-91 and the second from 1992-93 onwards – and most current data series were available from this date. Key exceptions are the Australian Bureau of Statistics (ABS) annual series of real Gross State Product (GSP) – the preferred measure of aggregate economic performance – which only commenced in 1984-85, and labour force data which were available prior to 1983-84.
Except export earnings which are in current prices and where otherwise indicated, all data measured in dollars are expressed in 1989-90 prices.
ECONOMIC PERFORMANCE
Overview This section deals with two post national recession periods, namely post 1982-83 and post 1991-92, and deals briefly with a comparison of Tasmanian and Australian labour force data prior to 1982-83.
Data limitations prevent a detailed analysis of the performance of the Tasmanian economy for the period prior to 1982-83 and preclude comparison with national economic performance. Nevertheless, the limited labour force data available show that prior to 1982-83 in terms of employment growth and the unemployment rate, Tasmania closely parallels Australia as a whole. For example, in the ten years to 1983, employment in Tasmania grew by about 3.7 per cent compared to national employment growth of 4.9 per cent. Similarly, Tasmania's unemployment rate averaged 5.8 per cent over this period – the same as that for Australia.
18 Chapter 2: Tasmania’s Economic Performance Post 1982-83, there has been a gap in performance between the Tasmanian and Australian economies and this gap has widened significantly following the 1991-92 national recession. The gap in performance has been such that:
in the period 1984-85 to 1991-92, the national economy grew by 19.9 per cent, whereas the local economy expanded by 12.2 per cent. The period from 1992-93 to 1997-98 produced economic growth of 26.4 per cent nationally and only an estimated 5.5 per cent for Tasmania;
from 1984-85 to 1991-92, national employment increased by 16.1 per cent, whereas Tasmanian employment rose by 10.0 per cent. However, from 1991-92 to 1997-98, national employment growth of 11.3 per cent outstripped Tasmanian employment growth of a mere 0.7 per cent;
in the seven years from 1984-85 to 1991-92, the national population increased by 12.1 per cent, whereas the local population increased by 7.0 per cent. In the period from 1991-92 to 1997-98, the national population has grown by 6.0 per cent while Tasmania's population is relatively unchanged, rising by 0.2 per cent; and
in the period from 1984-85 to 1991-92, real private investment in the national economy averaged about $3 600 per capita per year, whereas investment in the Tasmanian economy averaged only about $2 600 per capita per year. In the six years from 1991-92 to 1997-98, real private investment has averaged about $4 200 per capita per year for Australia and around $2 700 per capita per year for Tasmania.
From the above points, it is clear that Tasmania rebounded relatively quickly following the 1982-83 recession but this improvement has not been repeated following the 1991-92 recession.
Chart 2.1 below shows that, compared to Australia as a whole, the Tasmanian economy has grown at a slower rate and also at a more uneven rate. This more uneven growth is to be expected given the relatively small size of the Tasmanian economy, its reliance on some key sectors and its strong international trade focus.
Chapter 2: Tasmania’s Economic Performance 19 Chart 2.1: Economic Performance: Tasmania (GSP) and Australia (GDP), 1984 - 1998
130
120
110
100 Index: 1989-90 = 100 90 (ave. 1989-90 prices, trend series)
80 Jun 84 Jun 85 Jun 86 Jun 87 Jun 88 Jun 89 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98
Tasmania Australia
Source: ABS, Australian National Accounts: State Accounts, Cat. No. 5242.0 and ABS, National Income, Expenditure and Product, Cat. No. 5206.0.
Some of the factors that contribute to the State's relatively slower economic growth include an industry structure that lacks sufficient growth sectors, some major job shedding and negligible growth in the public sector (one of the State's larger sectors), low levels of investment and declining, and more recently negative, population growth.
The main components of Tasmania's final demand are consumer spending, private investment and spending by the public sector. In the 13 years to 1997-98, the average annual Tasmanian growth has been lower than the national growth for each of these components. In the case of consumer spending, the largest component, average annual Tasmanian growth was 0.7 percentage points lower, (2.6 per cent as compared with 3.3 per cent), for investment it was 2.1 percentage points lower, and for public sector spending it was 1.1 percentage points lower, increasing by only 0.8 per cent per year in Tasmania.
The other major determinant of Tasmania's performance is net trade with other regions including mainland Australia. In a small open economy such as Tasmania, exports to other regions can contribute significantly to economic growth, especially with a declining population. After Western Australia, Tasmania is the most open of Australia's economies, trading around 20 per cent of total production in international markets. The value of Tasmania's export sales has increased by an annual average rate of 7.2 per cent since 1984-85 (in nominal terms), compared with an annual average growth in export sales of 8.6 per cent nationally. There is also extensive trade with mainland Australia, though definitive data on this are generally not available. However, it has been estimated that, in value terms, approximately 55 per cent to 60 per cent of Tasmanian exports are sent to interstate markets.
20 Chapter 2: Tasmania’s Economic Performance Historically, the total amount spent in Tasmania on goods and services has exceeded the total value of goods and services produced in the State (GSP). Over the 12 years to 1996-97, the level of GSP has, on average, been around 95 per cent of the level of State final demand, but the gap has increased recently, with the ratio of GSP to final demand averaging less than 92 per cent over the four years to 1996-97. This change indicates that growth in aggregate production is not matching growth in aggregate spending. Setting aside any inventory changes, this suggests the value of imports from interstate and overseas has been exceeding by some margin the value of exports.
Consumer Spending Consumer spending or private final consumption expenditure (PFCE) comprises almost 70 per cent of final demand and has been one of the stronger performing components of the Tasmanian economy over the past 15 years. State PFCE has increased at around twice the rate of GSP growth, which suggests either that savings are being reduced, consumer imports are increasing or some combination of the two. As Chart 2.2 shows, in almost every year, Australian PFCE has grown more rapidly than Tasmanian PFCE.
Chart 2.2: Private Final Consumption Expenditure: Tasmania and Australia, 1984 - 1998
140
120
100 Index: 1989-90 = 100 (ave. 1989-90 prices, trend series)
80 Jun 84 Jun 85 Jun 86 Jun 87 Jun 88 Jun 89 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98
Tasmania Australia
Source: ABS, National Income, Expenditure and Product, Cat. No. 5206.0 and ABS, Australian National Accounts: Quarterly State Details, Cat. No. 5206.0.40.001.
Unlike the other economic indicators, Tasmanian consumer spending appears to have recovered following the 1991-92 recession. In the seven years to 1991-92, State consumer spending rose by 17.3 per cent, compared to 22.3 per cent nationally. In the subsequent six years, consumer spending rose a further 18.5 per cent in Tasmania and by 25 per cent nationally.
Nevertheless, there has been a divergence in growth between real retail sales and overall PFCE in recent years. Since 1993-94, real retail turnover in Tasmania rose by just 3.8 per cent while total PFCE growth was 11.9 per cent, implying a large increase in non-retail sales, such as dwelling rent, health
Chapter 2: Tasmania’s Economic Performance 21 care, motor vehicle purchase and operation, and entertainment/recreation expenditure. As an example of this growth in non-retail consumption, between 1993-94 and 1997-98 the number of new motor vehicle registrations in Tasmania increased by over 26 per cent over the same period.
The large increase in non-retail consumption in recent years may be due, in part, to the changes in public sector employment. There was a large scale (mostly voluntary) redundancy program in the State public sector over the first half of the 1990s, which saw the loss of about 6 000 inner-Budget sector jobs (or 3 per cent of total Tasmanian employment). It is likely that the level of consumer spending was boosted by these 'windfall' redundancy payments, much of which comprised superannuation entitlements, at a time when the such a boost would otherwise not have been expected. Typical expenditure items would be non-retail products, such as new cars.
Consumer spending has also been stimulated by the increased number of visitors to Tasmania, which increased by over 70 per cent between 1984 and 1997. These visitors now account for 8 per cent of PFCE, an increase from 6 per cent in 1984.
The major determinants of consumer spending are income and employment growth and population trends, each of which is examined in more detail below. Other determinants, such as direct taxation rates and savings ratios are not discussed in this chapter.
Wages The rate of wages growth in Tasmania has not kept pace with that for Australia as a whole, although growth in Tasmanian wages has held up comparatively well given the State's stagnant labour market. Since the mid-1980s, full time average weekly ordinary time earnings (AWOTE) have risen by an average annual rate of 4.8 per cent in Tasmania, only marginally below the national rate of 5.1 per cent. In more recent years, the overall rate of wages growth has slowed, in line with the decline in inflation, but the differential from national movements has narrowed, such that since 1991-92, AWOTE growth has averaged 3.6 per cent per annum for Tasmania and nationally.
Indeed, over the past two years AWOTE growth in Tasmania has been the highest of all States. One possible explanation is that full time jobs have been lost in relatively low paying sectors (such as manufacturing, construction and agriculture) while the new full time jobs, have been in the relatively higher paying tertiary sector.
Although the 'rate' of wages growth has largely kept pace with Australia, it is worth noting that the 'level' of AWOTE in Tasmania remains below that of the national average. In 1997-98, Tasmanian AWOTE was just over 95 per cent of that for Australia; in the mid-1980s it was around 99 per cent. AWOTE levels in Tasmania, however, are not the lowest in Australia, in 1997-98, AWOTE was lower in both South Australia and Queensland than in Tasmania.
While AWOTE is the benchmark measure of growth in wage rates, (average) total earnings also reveal some useful insights. Total earning differs from AWOTE in that it covers juniors, part time workers and overtime payments, and provides a better guide to movements in average income levels. This is particularly useful in the Tasmanian context, where the share of part time workers to total employed has almost doubled over the past 15 years to nearly 30 per cent (see Table 2.2).
From the 1984-85 (the earliest year for which State data are available), total earnings in Tasmania rose by an annual average rate of 3.9 per cent, below Australia's 4.2 per cent rate. This gap has widened in the 1990s, with earnings growth of 1.9 per cent per annum for Tasmania since 1991-92, compared to
22 Chapter 2: Tasmania’s Economic Performance 2.4 per cent nationally. The 'level' of total earnings was around 91 per cent of the Australian average in 1997-98, down from over 96 per cent in the mid-1980s. The level of total earnings in Tasmania, as distinct from AWOTE, has consistently been the lowest of the Australian States since 1993-94.
This relative decline in the level of total earnings partially reflects the changing nature of the State's labour market, particularly the growing importance of part time employment in the economy. Tasmania's ratio of part time to total employment is the highest of all the Australian States.
In 1996-97, Tasmanian average labour costs per employee were the second lowest amongst the States and Territories, marginally higher than that for Queensland. In the previous survey of labour costs undertaken in 1993-94, Tasmania had the lowest average labour costs. Between 1993-94 and 1996-97, Tasmanian average labour costs per employee increased 8.4 per cent, the third smallest increase amongst the States and Territories. The major contributors to the growth in labour costs for Tasmania over this period were higher level of earnings and superannuation (accounting for about 60 per cent and 19 per cent of the increase respectively). Nationally, labour costs per employee increased by 9.8 per cent between 1993-94 and 1996-97. Further discussion of average labour costs per employee is included in Chapter 1 of this Budget Paper.
Demographics Between 1982-83 and 1991-92, Tasmania's population increased by an annual average rate of 0.9 per cent, compared to a national growth rate of 1.4 per cent. However, in the five years from 1991-92 to 1996-97, Tasmania's annual average population growth rate of 0.2 per cent is well below the 1.2 per cent recorded nationally and is in contrast to the 2.4 per cent average rate recorded in Queensland.
Tasmania's share of the Australian population has consequently slipped from over 3 per cent in the early 1970s to 2.69 per cent in 1991-92 and 2.57 per cent in 1996-97.
Chart 2.3 shows how Tasmania's population growth rate has been more volatile than for Australia as a whole and showed some recovery in the late 1980s. Over the past 15 years, the only time Tasmania's population growth has matched Australia's was briefly in the mid-1980s and again around 1990, when the State recorded positive net interstate migration. The Chart shows how Tasmania's population growth rate has declined markedly since 1991, and is now out of step with the national trend.
Tasmania's natural population growth rate is just under 1 per cent. Overseas migration also adds to Tasmania's population; as Table 2.1 shows, there has been a positive, though usually small, net in-migration from overseas. However, these two influences have been offset by strong out-migration interstate. In the nine years to 1991-92, Tasmania's population has been relatively unchanged by interstate migration. Since the early 1990s, however, the situation has deteriorated noticeably and appears to be worsening. From 1992-93 the average annual loss has been over 2 500 people; in 1996-97 it rose to 3 700 persons, equivalent to 0.8 per cent of Tasmania's population. This trend is recently becoming more pronounced; data for the first three quarters only of 1997-98 show a further net loss of almost 4 000 persons to interstate destinations.
Chapter 2: Tasmania’s Economic Performance 23 Chart 2.3: Population Growth: Tasmania and Australia, 1982 - 1998
2.0
1.5
1.0
0.5 quarter of previous year 0.0 % change from corresponding
-0.5 Jun 82 Jun 83 Jun 84 Jun 85 Jun 86 Jun 87 Jun 88 Jun 89 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98
Tasmania Australia
Source: ABS, Australian Demographic Statistics, Cat. No. 3101.0.
This increase in 'net' interstate migration reflects a rise in the gross number of people leaving Tasmania, the number of interstate arrivals being relatively constant. Over the past five years, the number arriving in Tasmania from interstate has remained around the 10 000 level (per annum). However, the number leaving the State has increased from under 12 000 to nearly 15 000 (per annum), or around 3.1 per cent of the population.
This has now reached a point where Tasmania has begun to record negative population growth, in 1997 Tasmania's population contracted for the first time since 1941. The impact of a declining share of the population on the Financial Assistance Grants pool and Commonwealth payments to Tasmania is covered in Chapter 10 of this Budget Paper.
24 Chapter 2: Tasmania’s Economic Performance Table 2.1: Annual Gross Migration Flows for Tasmania, 1982 - 1997 Interstate Interstate Net Overseas Overseas Net Total Net Arrivals Departures Interstate Arrivals Departures Overseas Migration1
1982 8 593 10 208 (1 615) 2 090 1 308 782 (854) 1983 7 682 7 854 (172) 1 848 1 256 592 437 1984 8 392 7 603 789 1 898 1 206 692 1 493 1985 9 815 9 554 261 1 971 1 358 613 987 1986 9 119 9 483 (364) 2 123 1 172 951 642 1987 9 118 11 424 (2 306) 2 070 1 339 731 (1 456) 1988 10 248 11 311 (1 063) 2 081 1 403 678 (201) 1989 12 905 11 149 1 756 2 061 1 423 638 2 512 1990 12 945 10 776 2 169 2 014 1 555 459 2 636 1991 11 085 10 714 371 1 952 1 583 369 657 1992 10 999 11 810 (811) 1 903 1 646 257 (771) 1993 10 008 11 882 (1 874) 1 918 1 596 322 (1 755) 1994 9 864 12 292 (2 428) 2 069 1 614 455 (2 216) 1995 10 546 13 277 (2 731) 2 212 1 792 420 (2 323) 1996 10 406 13 604 (3 198) 2 258 1 726 532 (2 724) 1997 10 105 14 698 (4 593) 2 028 1 941 87 (4 523)
Source: ABS, unpublished data. Note: 1. Total net migration includes an adjustment for 'category jumping'. This is the net effect of changes in travel intentions from short-term to permanent/long-term or vice versa.
Labour Market Following the recession of 1982-83, Tasmania's employment growth rate rebounded solidly, exceeding that for Australia until 1985-86. Since the early-1990s, however, the performance has diverged dramatically as Chart 2.4 shows. As at September 1998, Tasmania employs 6 800 less people than at its May 1990 peak (down 3.4 per cent) whereas, over the same period, national employment rose by 743 100 (an increase of 9.4 per cent). The States recording the strongest increase over this period were Queensland (22.3 per cent) and Western Australia (18.8 per cent).
Chart 2.4 clearly shows the dramatic difference in Tasmania's response following the two national recession periods, relative to Australia as a whole.
On a full time/part time split, the State's employment picture does not improve. Since the peak in June 1990, full time employment in Tasmania has fallen by 23 000 (or 14.6 per cent) while nationwide it has risen by 192 600 (3.1 per cent). Full time employment in Tasmania, as at September 1998, is at its lowest level for at least 20 years.
At the same time, part time jobs have increased, by 32.8 per cent nationally and 37.0 per cent in Tasmania. Part time positions now account for 31 per cent of all Tasmanian employment.
Chapter 2: Tasmania’s Economic Performance 25 Chart 2.4: Employment: Tasmania and Australia, 1982 - 1998
115
105
95 (trend series) Index: 1989-90=100 85
75 Jun 82 Jun 83 Jun 84 Jun 85 Jun 86 Jun 87 Jun 88 Jun 89 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98
Tasmania Australia
Source: ABS, The Labour Force, Australia, Preliminary, Cat. No. 6202.0.
Table 2.2 shows the composition of employment in 1983-84, when the total employed was 168 500 in Tasmania, in 1989-90 when State employment was 199 900 and in 1997-98, when Tasmania had 194 700 employed. The Table shows that the popular belief that there has been a reduction in male full time employment and an increase in female part time employment is correct but only provides part of the picture as it does not cover the growth in male part time employment, especially in the period since 1989-90, and female full time employment.
The reduction in full time employment from 1983-84 to 1997-98 has principally affected male employment in Tasmania. In Tasmania, the absolute number of full time positions lost to males over this period was just under 5 000. Male part time employment, as a proportion of total employed, has more than doubled in Tasmania, representing an increase in part time employment of almost 10 000 over this period. Although the proportion of women in full time employment in Tasmania was almost unchanged, the number employed full time increased by just under 8 000. There was also a large increase in female part time employment of almost 13 000.
Similar trends have occurred nationally, except that a greater proportion of females now work full time and fewer part time, compared with females in Tasmania.
The impact of this reduction in full time employment is evident in data on hours worked. In the 15 years to 1997-98, aggregate hours worked in Tasmania increased by 15.7 per cent; nationwide, there was a rise of 36.1 per cent. However, almost all the State improvement occurred in the nine years to 1991-92 with growth of 15.0 per cent, while the number of hours increased by only 0.6 per cent from 1991-92 to 1997-98. The slower growth for Tasmania is consistent with the decline in full time jobs.
As noted above, there has been significant growth in the number of part time jobs in recent years. Furthermore, the nature of part time employment appears to be changing; not only are there more of this type of job but an increasing proportion of part time workers are male in both Tasmania and Australia as a whole and part time employment involves working longer hours than before.
26 Chapter 2: Tasmania’s Economic Performance Table 2.2: Composition of Employment: Tasmania and Australia - share of total employment Tasmania Australia Male Female Total Male Female Total %%% %%% 1983-84 Full time 61.3 21.2 82.5 58.7 24.0 82.7 Part time 3.3 14.3 17.5 3.8 13.5 17.3 Total 64.6 35.4 100.0 62.5 37.5 100.0
1989-90 Full time 55.0 21.9 76.9 54.1 24.9 79.1 Part time 4.8 18.3 23.1 4.7 16.3 20.9 Total 59.8 40.2 100.0 58.8 41.2 100.0
1997-98 Full time 49.6 21.2 70.8 49.9 24.5 74.5 Part time 7.8 21.4 29.1 6.8 18.7 25.5 Total 57.4 42.6 100.0 56.8 43.2 100.0
Source: ABS, The Labour Force, Australia. Preliminary, Cat. No. 6202.0.
In terms of overtime hours worked, the State performance in the early 1980s is similar to that for Australia. Average weekly overtime worked per employee in Tasmania fell to 1.00 hours in 1983-84 before peaking at 1.35 hours in 1989-90, compared to levels of 1.11 hours and 1.45 hours nationally. However, there has been a broad downward trend at both the State and national level since the early 1990s. By 1997-98, average weekly overtime per employee has fallen to just 0.67 hours in Tasmania and to 1.03 hours Australia-wide. The proportion of employees working overtime in Tasmania similarly rose from around 18 percent for the second half of the 1980s to peak at 19.2 per cent in 1989-90 before falling to 10.0 per cent in 1997-98 (around 18.5 per cent to 19.4 per cent to 15.3 per cent nationally); Tasmania's ratio is the lowest of all the States.
In summary, there has been a large reduction in full time employment, with those left in full time employment less likely to be able to work overtime and, if they are able, they work slightly fewer overtime hours.
While Tasmania's poor employment performance is reflected across a number of sectors of the economy, a few industries stand out. Since 1989-90, the largest job losses have occurred in manufacturing (7 300 jobs, or 24.3 per cent in that sector); finance and insurance (2 400 or 34.2 per cent); electricity, gas and water – principally the Hydro-Electric Corporation – (2 100 or 53.8 per cent); mining (1 200 jobs or 37.4 per cent); wholesale trade (1 200 jobs or 12.9 per cent); and agriculture, forestry and fishing (1 100 jobs or 6.3 per cent). Also over this period, total public sector employment fell by 8 300 (or 15.8 per cent), with three-quarters of the cutbacks occurring at the State level. These job losses clearly reflect the changing nature of the Tasmanian economy, with the winding back of the once dominant sectors of the economy – notably manufacturing, mining, dam construction for electricity generation and the public sector – as well as the move to centralise financial services in Sydney and Melbourne and rationalisations in this industry more generally.
Chapter 2: Tasmania’s Economic Performance 27 Partly offsetting these losses were gains in the tertiary sector of the economy, notably in retail trade; accommodation, cafés and restaurants; and property and business services. Expansion in some of these sectors highlights the increased importance of tourism to Tasmania. The number of adult visitors to Tasmania rose by 35 per cent between 1990 and 1997, with approximately 60 per cent from Victoria and New South Wales. Over this period, total expenditure per visitor averaged $1 080, almost 50 per cent more than average estimated expenditure in the 1980s. In terms of employment, the Centre for Regional Economic Analysis has estimated that tourism employment increased from around 11 500 in 1992 to an estimated 14 100 in 1995 – up about 20 per cent.
Chart 2.5: The Changing Structure of Tasmanian Employment from 1989-90 to 1997-98
4.0
2.0
0.0
-2.0
-4.0
-6.0
Change in employment ('000 persons) -8.0 Mining storage insurance Finance & Education defence services Retail trade services fishing services Transport & services Construction restaurants Cultural & rec. Govt admin. & Manufacturing Accom, cafes & Property & bus. Communication Wholesale trade Health & comm. Personal & other Agric, forestry & Elec, gas & water
Source: ABS, The Labour Force, Australia, Cat. No. 6203.0.
The lack of employment opportunities, especially in more recent years, is reflected in the State's relatively low labour force participation rate. (It is worth noting, however, that other factors influence the participation rate, including sociological and demographic trends.) Over the past 15 years, Tasmania's participation rate has averaged just 60.0 per cent compared to 62.6 per cent for Australia. In more recent years, Tasmania's overall rate has changed little but the gap relative to Australia has widened; since 1991-92 Tasmania's average participation rate (60.1 per cent) has been 3.1 percentage points below the national level. The reason for this is apparent from Chart 2.6, which shows that Tasmania's labour force participation rate peaked at 62.4 per cent in December 1989 but has fallen significantly from that level, while the current national participation rate is not much below its July 1990 peak of 64.0 per cent.
Not surprisingly, Tasmania's poor employment record is also reflected in the highest unemployment rate in Australia. Since 1982-83, the unemployment rate in Tasmania has averaged 10.2 per cent, 1.6 percentage points above the Australian average. Since 1991-92, Tasmania's unemployment rate has averaged 11.1 per cent (9.5 per cent nationwide), and as at September 1998 the State's unemployment rate of 10.8 per cent (in trend terms) was more than 2.5 percentage points above that for Australia.
28 Chapter 2: Tasmania’s Economic Performance Once again, there is some evidence of a divergence in Tasmanian and national unemployment rates since 1991-92.
Chart 2.6: Participation Rate: Tasmania and Australia, 1982 - 1998
64
63
62
61
60
59
58
57 % of working age population (trend series) Jun 82 Jun 83 Jun 84 Jun 85 Jun 86 Jun 87 Jun 88 Jun 89 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98
Tasmania Australia
Source: ABS, The Labour Force, Australia, Preliminary, Cat. No. 6202.0.
Tasmania's higher than average unemployment rate is evident across most age groupings, but is particularly evident amongst the 15 to 19 years and 20 to 24 years groups.
Chart 2.7: Unemployment Rate: Tasmania and Australia, 1982 - 1998
13
11
9
7
5 % of labour force (trend series)
3 Jun 82 Jun 83 Jun 84 Jun 85 Jun 86 Jun 87 Jun 88 Jun 89 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98
Tasmania Australia
Source: ABS, The Labour Force, Australia, Preliminary, Cat. No. 6202.0.
Chapter 2: Tasmania’s Economic Performance 29 The recent trend has been that changes in the participation rate sometimes directly match changes in the employment rate. This has the effect that when new jobs are created, there may be little or no impact on the rate of unemployment. To reduce the unemployment rate, employment growth must exceed labour force growth.
Investment Tasmanian investment is fairly cyclical and generally follows a similar pattern to the national investment cycle. However, while investment has continued to experience solid growth at a national level since mid-1991, Tasmanian investment levels appear unable to rise above the 1989-90 level as Chart 2.8 shows. Again this shows the divergence between the Tasmanian and national economies in recent years.
Sustained business investment is essential for an economy to function and expand. New investment is required to replace outmoded or worn out plant and equipment as well as providing the opportunity to increase the productive capacity of the economy through the adoption of new and innovative technology.
Tasmania's recent investment performance is quite poor, with total investment comprising only about 20 per cent of GSP in 1996-97, down from a peak of 26 per cent in 1988-89. The subdued level of investment in Tasmania contributes to Tasmania's relatively poor economic growth. Not only is investment itself a component of GSP, but it also provides for future growth in productivity and output.
Chart 2.8: Investment: Tasmania and Australia, 1984 - 1998
160
140
120
100
80 Index: 1989-90 = 100
60 (ave. 1989-90 prices, trend series)
40 Jun 84 Jun 85 Jun 86 Jun 87 Jun 88 Jun 89 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98
Tasmania Australia
Source: ABS, National Income, Expenditure and Product, Cat. No. 5206.0 and ABS, Australian National Accounts: Quarterly State Details, Cat. No. 5206.0.40.001.
The dramatic falls in investment in both dwelling and commercial buildings has had clear implications for employment in the State's construction industry. From a peak of 15 000 in 1993-94, employment in
30 Chapter 2: Tasmania’s Economic Performance the construction industry has fallen to 10 800 in 1997-98 (down 28.0 per cent), compared with a national rise of 7.1 per cent.
Dwelling Investment and Construction The downward trend in population growth, coupled with a recent oversupply of housing, has resulted in a significant decline in dwelling investment and construction. Over the past five years, the housing sector has been one of the worst performing sectors of the Tasmanian economy.
Over the 1980s and early 1990s, housing activity in Tasmania broadly followed the national cycle. From the mid-1990s, however, performance has diverged noticeably, with dwelling investment continuing to fall in Tasmania but rebounding solidly at a national level, after its early 1990s decline. This divergence is readily apparent in Chart 2.9.
Chart 2.9: Dwelling Investment: Tasmania and Australia, 1984 - 1998
150
125
100 Index: 1989-90 = 100 (ave. 1989-90 prices, trend series)
75 Jun 84 Jun 85 Jun 86 Jun 87 Jun 88 Jun 89 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98
Tasmania Australia
Source: ABS, National Income, Expenditure and Product, Cat. No. 5206.0 and ABS, Australian National Accounts: Quarterly State Details, Cat. No. 5206.0.40.001.
By any measure, the deterioration in housing activity in Tasmania since the mid-1990s is unparalleled. For example, monthly trend building approvals in Tasmania have not risen since November 1993 – a period of almost five years – falling 66 per cent over this period. Similarly, investment in dwellings was at its lowest level in a decade in 1997-98, while nationwide dwelling investment rose to a record high.
A key reason for the State's housing downturn has been the oversupply of dwellings which emerged in the early 1990s. Over this period, the level of dwelling commencements consistently exceeded the underlying demand for new dwellings. For the five years from 1989-90 to 1993-94, the Indicative Planning Council for the Housing Industry estimated average annual underlying demand at 2 400 units. However, over this period there was an average 3 700 dwelling commencements – that is,
Chapter 2: Tasmania’s Economic Performance 31 yielding an excess supply of around 6 500 dwellings. In the past two years, the number of commencements has fallen back to (or below) levels consistent with underlying demand.
One impact of this oversupply has been an increase in housing vacancy rates; that is, the proportion of the existing stock of dwellings that are unoccupied. In 1989-90, vacancy rates in Hobart and Launceston were 3.2 per cent and 4.5 per cent respectively, around that of mainland capital cities. By 1997-98, however, the respective rates were 6.5 per cent and 9.7 per cent – substantially higher than the mainland capitals (ranging from 2.2 per cent in Sydney to 4.5 per cent in Brisbane). These relatively high vacancy rates have no doubt contributed to the sluggishness of average house prices in the State, which have shown little growth, in nominal terms, since the mid-1990s.
Business Investment Gross operating surplus (GOS) is the return to capital from production and, after allowing for costs such as depreciation and interest, tends to be correlated to business profits. While the profits returned by Tasmanian companies are currently at a relatively high level (reflected in GOS comprising about 40 per cent of GSP), this has not resulted in a sustained increase in investment. This may reflect the fact that many of Tasmania's larger companies have their head offices interstate and overseas but may also to be due to the lack of investment opportunities in Tasmania which these companies currently perceive as being attractive. Building and Construction (excluding dwellings) In the 14 years to 1997-98, the level of investment in non-dwelling construction, such as office buildings, factory shells, has averaged about 25 per cent of total business investment. However, in recent years this share has declined, falling to just over 20 per cent for the period from 1992-93 to 1997-98. The deterioration of non-dwelling construction is reflected in the fact that its share of total business investment has been falling during the recent flat performance of business investment. Plant and Equipment Investment in plant and equipment comprises about 75 per cent of total business investment. This share has grown in recent years, possibly reflecting an improvement in the productive capacity of the State's economy. In the eight years to 1991-92, investment in plant and equipment averaged $569 million per annum, but this increased to an annual average $636 million for the six years to 1997-98.
While a detailed industry breakdown is not available, indications are that a significant part of the growth in plant and equipment investment has been in the manufacturing sector.
Export Activity Tasmania has experienced strong growth in exports to the rest of Australia and overseas in recent years. The share of Tasmania's production that is exported overseas is the second highest of all the States, behind that of Western Australia which is also the best performing State.
While data are no longer officially compiled in terms of the proportion of exports that are destined for interstate and overseas markets, it has been estimated that approximately 55 per cent to 60 per cent of Tasmanian exports are sent to interstate markets, with the remainder sent overseas.
In the 13 years to 1996-97, merchandise overseas exports from Tasmania constituted about 17.6 per cent of the total value of production in the State, compared to 14.2 per cent nationally. More
32 Chapter 2: Tasmania’s Economic Performance recently, that share has risen to an estimated 20 per cent for 1997-98 for Tasmania and about 16 per cent for Australia.
In nominal terms, since 1984-85 (the earliest period for which consistent State data are available) the value of Tasmania's overseas export sales has grown at an annual average rate of 7.2 per cent, compared with an annual average growth in export sales of 8.6 per cent nationally. These merchandise export data are in nominal terms. To this extent, changes in prices and currency shifts can affect the value of exports independently from movements in the underlying volume of exports. For example, in year average terms, the $A depreciated about 13 per cent against the $US in 1997-98 compared with the previous year and the (nominal) value of Tasmania's overseas exports rose by 24.2 per cent during this period, as discussed in more detail below. Where contracts for Tasmanian exports are denominated in $US, for an unchanged volume of exports this depreciation would have generated a strong rise in the value of Tasmanian exports in $A terms. However, this will not imply an increase in the volume of the goods that are exported. While the proportion of the State's exports that are written in $US in unclear, it is likely that a significant proportion of the growth in the value of State exports in 1997-98 is attributable to the depreciation of the $A against the $US.
Tasmania's major overseas export destinations are, in order of importance: Japan, the ASEAN group, the European Union, North Asian countries (including Taiwan) and North America. Japan remains by far Tasmania's largest export market, accounting for $547 million or 26 per cent of total exports in 1997-98. Compared to the early 1980s, Tasmania's major export markets remain the same, although their relative importance has changed. The importance of Japan and the United States has declined – although both remain important markets for Tasmania – while North Asia (notably Taiwan and Hong Kong) and the European Union have increased. In terms of market share, in 1982-83 Japan took around 35 per cent of Tasmania's exports (now 26 per cent); the ASEAN group represented 25 per cent (19 per cent in 1997-98); the United States 12 per cent (8 per cent in 1997-98); Taiwan 2 per cent (7 per cent in 1997-98); Hong Kong 3 per cent (now 6 per cent); and the European Union 7 per cent (now 16 per cent).
The key commodity class exported from Tasmania is non-ferrous metals, which comprised 26 per cent of the value of total State exports in 1997-98. Other significant exports include wood and woodchips, transport equipment (primarily catamarans), metallic ores, fish and seafood and dairy products. From 1981-82, some export data are unreliable, making comparisons extremely difficult; this is due to the changing of classifications and the fact a large portion of exports were classified as confidential, including woodchips. In broad terms, however, it appears that dairy products, seafood, and transport equipment (catamarans) have increased in importance, at the expense of textiles.
As a result of Tasmania's relative reliance on exports, its economic future depends crucially on activity in key overseas export markets. Clearly, the State has an exposure to movements in key commodity prices in external markets and to the economic performance of Tasmania's major trading partners.
The Public Sector in Tasmania The public sector comprises the Commonwealth, State and Local Government sectors and includes public trading enterprises (PTEs). While the level of public spending in Tasmania has risen marginally on an annual average basis, its contribution to GSP has fallen from 30.1 per cent in 1984-85 to about 27.9 per cent in 1996-97. At a national level, the contribution of the public sector has eased from 23.5 per cent to 20.3 per cent over this period.
Chapter 2: Tasmania’s Economic Performance 33 In 1997-98, total capital investment by the Tasmanian public sector fell by 8.5 per cent from the previous year to $397 million, its lowest level in real terms since 1991-92. Average capital investment expenditure in the 13 years to 1996-97 was $532 million (in real terms), or 33.9 per cent higher than in 1997-98. Capital expenditure in Tasmania by PTEs accounted for 53.1 per cent of total public sector capital spending in 1996-97, with the remainder being General Government capital expenditure.
The trend towards a smaller public sector is evident from the fact that public sector employment in Tasmania has been falling since the late 1980s, as shown in Table 2.3. The overall reduction of nearly 9 000 jobs has been due to fewer jobs in the State and Commonwealth sectors, with a relatively small rise in Local Government employment over this period.
Table 2.3: Public Sector Employment in Tasmania, 1983-84 to 1997-98 Commonwealth State Local Total Government Government Government Public Sector '000 '000 '000 '000
1983-84 9.9 38.7 3.5 52.1 1984-85 10.1 39.0 3.5 52.6 1985-86 10.3 39.2 3.6 53.0 1986-87 10.2 39.1 3.5 52.7 1987-88 10.1 39.1 3.6 52.8 1988-89 9.5 40.0 3.5 52.9 1989-90 9.5 39.2 3.8 52.5 1990-91 9.3 36.9 3.9 50.1 1991-92 9.1 36.2 4.1 49.3 1992-93 8.4 34.9 4.4 47.7 1993-94 7.6 33.8 4.2 45.7 1994-95 7.6 33.0 3.9 44.6 1995-96 7.8 33.5 4.2 45.5 1996-97 6.9 33.1 4.2 44.2 1997-98 6.1 31.6 3.9 41.6
Source: ABS, Employed Wage and Salary Earners, Australia, Cat. No. 6248.0.
One cause of the decline in Tasmanian public sector employment over the past ten years is the national trend for the contracting out to the private sector of services in areas such as maintenance, cleaning, information technology services, funds management and other services. There are some instances where the decline in public sector employment has been offset, at least in part, by a small increase in employment in the private sector. However, in many cases, the increase in work by the private sector has lead to a rise in the number of hours worked but no corresponding growth in employment levels.
Privatisation of some government enterprises such as the Tasmanian Government Insurance Office and the Commonwealth Bank has also led to a relatively small transfer of employment from the public sector to the private sector.
34 Chapter 2: Tasmania’s Economic Performance There has also been a major reduction in employment in Tasmania's electricity supply industry, from 5 300 in the Hydro-Electric Corporation (Tasmania's largest PTE) at the peak of the dam building era to only around 1 600 in the three entities at present. The scaling down of dam construction activities has also contributed to a reduction in public sector investment discussed above.
In recent years there has been a real reduction in total payments to Tasmania from the Commonwealth, as detailed in Chapter 10 of this Budget Paper. If Tasmania had received, in 1997-98, the same payments in real terms as in 1984-85, the year in which the ABS began to produce its annual real GSP series, the total 1997-98 payments would have been about $280 million greater. This would have allowed an increase of almost 13 per cent in Tasmania's General Government expenditure in 1997-98 and would have resulted in a substantially larger State Government sector, with much greater employment and, most likely, more Government investment.
The reduction in the level of public sector employment has meant that there is less money circulating in the economy than otherwise would have been the case. For example, the gross value of public sector earnings in Tasmania for 1997-98 was only 4.0 per cent higher in nominal terms than in 1991-92 compared to growth in State average weekly ordinary time earnings (a measure of wage rates) of 23.9 per cent and in the consumer price index of 13.3 per cent over the same period. That is, the real value of public sector earnings fell by around 9.3 per cent over this period. Despite the decline in the public sector wages bill in real terms, total public spending increased by 14.6 per cent over this period – reflecting higher levels of non-salary current spending and a relatively unchanged level of public investment.
STRUCTURE OF THE ECONOMY
The Tasmanian economy is prominent in the production of agriculture, marine, mineral and forest products and their processing. As shown in Table 2.4, when the pattern of its broad industry sectors is considered, the Tasmanian economy looks similar to the rest of Australia. Sectors that are larger than average include agriculture, forestry and fishing, retail trade and health and community services sectors. Relatively small sectors include mining, wholesale trade, finance and insurance and property and business services.
The key difference between the Tasmanian economy and the Australian economy is that in several key sectors Tasmania has only a small number of businesses and produces a narrow range of products. For example, Tasmania's manufacturing sector is heavily oriented towards the initial processing of raw materials in plants such as smelters. It also does not specialise in areas that have expanded in several other States, such as finance and insurance, property and business services, communications, cultural and recreational services and even mining. This latter point helps explain the differences in economic performance between Tasmania and Australia.
Due to its smaller size, Tasmania has a much narrower production base, compared with other Australian States. The decentralised nature of the State's population and production base mean that Tasmania has more in common with regions, such as non-metropolitan Victoria or New South Wales, rather than metropolitan capitals such as Sydney or Melbourne.
Table 2.4: Industry Contribution to Tasmania's Economy Average Contribution Share of Share of
Chapter 2: Tasmania’s Economic Performance 35 employment to GSP Tasmanian national 1997-98 1996-97 GSP GDP '000 persons $m % %
Agriculture, forestry and fishing 16.1 557 5.8 3.5 Mining 1.9 246 2.6 4.1 Manufacturing 22.6 1 415 14.8 14.2 Electricity, gas and water 1.8 537 5.6 2.9 Construction 10.8 608 6.4 6.5 Wholesale trade 8.1 401 4.2 5.9 Retail trade 30.5 906 9.5 7.8 Accommodation, cafes and restaurants 10.5 271 2.8 2.3 Transport and storage 9.6 400 4.2 5.2 Communication 2.4 227 2.4 3.1 Finance and insurance1 4.6 169 1.8 3.7 Property and business services 14.3 524 5.5 9.6 Government admin. and defence2 12.6 460 4.8 4.0 Education2 14.5 519 5.4 4.8 Health and community services2 21.1 774 8.1 6.2 Cultural and recreational services 5.0 134 1.4 1.8 Personal and other services 8.9 227 2.4 2.4 General Government2 …. 272 2.8 1.8 Ownership of dwellings3 …. 903 9.5 10.2
Total4 195.2 9 550 100.0 100.0
Sources: ABS, The Labour Force, Australia, Cat. No. 6203.0 and ABS, Australian National Accounts, State Accounts, Cat. No. 5220.0. Notes: 1. The significant difference in the percentage contribution to GSP of finance and business services compared to the national total reflects the concentration of financial activity in the major mainland centres. 2. Employment in General Government is included with government administration and defence, education and health and community services. 3. Ownership of dwellings is the actual rent for tenanted dwellings and a value for imputed rents from home ownership and there is therefore no employment associated with this activity. 4. Discrepancies in totals are due to rounding.
Some key features of Tasmania's industry sectors, relative to those of Australia as a whole, are provided below.
Agriculture, forestry and fishing: is slightly more important for Tasmania than for Australia as a whole. Tasmania has a greater dependence on apples, vegetables and dairying. There are no significant wheat producers in Tasmania, output from which accounts for more than 10 per cent of the value of Australian agricultural output. Aquaculture is growing rapidly in Tasmania. Tasmania is naturally suited to the production of forestry-based output, with approximately 30 per cent of the State covered with potentially commercial forests. The contribution of forestry to GSP is six times the national average.
36 Chapter 2: Tasmania’s Economic Performance Mining: represents about half of the relative contribution made Australia-wide. 25 per cent of manufacturing output is minerals processing, some of which are sourced in Tasmania. Mineral commodities provide over 40 per cent of export earnings.
Manufacturing: is very significant both in Tasmania and nationally. As with agriculture, the enterprise mix in Tasmania varies from that for Australia. Food processing, wood and paper products and metal products comprise 80 per cent of Tasmanian manufacturing output compared to just 56 per cent nationally. Concentration across Australia is in transport equipment (motor vehicles), other machinery and equipment, fabricated metal products and clothing and footwear.
Public administration and community services: have traditionally made a greater contribution in Tasmania. This reflects in part Tasmania's inherent cost disabilities (including diseconomies of small scale and population dispersion). These impacts are partially addressed through the application of the principles of horizontal fiscal equalisation in the distribution of Financial Assistance Grants as discussed in Chapter 10 of this Budget Paper.
The nature of the State's economic structure is such that it has an exposure to movements in key commodity prices in external markets. This has contributed to greater fluctuations in Tasmania's business cycle relative to those of mainland States as shown in Chart 2.1.
Changes in the Structure of the Economy The most notable change that has occurred in the structure of the Tasmanian economy has been the declining shares in GSP of manufacturing, mining, construction, transport and storage, and General Government and an increase in the shares of retail trade; ownership of dwellings (which covers actual rent for tenanted dwellings and an imputed value for owner occupied dwellings) and health and community services. Chart 2.10 shows that few commercial sectors have shown a consistent growth, with the possible exception of retail trade.
The decline in the construction sector has been one of the largest since the mid-1980s as Chart 2.10 shows. Finance-based activities continue to be a source of weakness for the local economy. The tendency for activities of this nature to be concentrated in Sydney or Melbourne is likely to continue, despite the fact that technology is probably making location less important. In recent years, many financial service industries have wound down local operations and instead relied upon centralised telephone services located interstate to maintain service to the local community.
However, Tasmania is making some progress in capturing its share of location neutral technology based activities. For example, a key area of growth for the Tasmanian economy in recent times has been call centres, where more than 2 200 new call centre jobs have been created or are planned in the next couple of years.
The impact on employment of the decline in the manufacturing sector has been discussed above. Recent closures include Tioxide, Southern Aluminium, and the Amcor Burnie paper mill. In other businesses, such as Pasminco-EZ and Comalco, there has been substantial downsizing since the early 1980s.
Chapter 2: Tasmania’s Economic Performance 37 Chart 2.10: The Changing Structure of the Tasmanian Economy
18
16
14
12
10
8
% of GSP 6
4
2
0 Mining storage insurance General Finance & Education defence services Retail trade services dwellings fishing government services Transport & services Construction restaurants Ownership of Cultural & rec. Govt admin. & Manufacturing Accom, cafes & Property & bus. Communication Wholesale trade Health & comm. Personal & other Agric, forestry & Elec, gas & water
1982-83 1986-87 1991-92 1996-97
Source: ABS, Australian National Accounts, State Accounts, Cat. No. 5220.0.
Tasmania is the only State or Territory without natural gas. This places a restriction on the range of industries that are able to locate in the State as some, for example glass production, tend to use natural gas as their energy source. Similarly, other industries that use cogeneration (the simultaneous production of electricity and hot air or hot water for processing) tend to use gas as the primary energy source. The introduction of natural gas into Tasmania could well lead to the establishment of a new set of manufacturing and processing industries.
RECENT ECONOMIC PERFORMANCE
In 1997-98, Tasmania's GSP is estimated to have declined by 0.5 per cent. Employment is 2 100 persons (or 1.1 per cent) greater in September 1998, compared with September 1997. The level of part time jobs has continued to rise but the level of full time jobs has fallen to such an extent that it is now lower than it was in September 1978. As noted above, the size of the labour force (which is the total number of people either employed or actively seeking a job) has broadly followed the employment series – rising through the first three-quarters of 1997-98 before easing in recent months. The current rate of unemployment of 10.8 per cent remains the highest of all States and Territories and is almost 3 percentage points above the national average.
GSP is expected to decline in 1997-98, despite the increase in the value of State exports of 24.2 per cent, compared with the previous year. This shows that GSP is not always expected to grow when there is a strong export performance. Without this export growth, however, Tasmania's expected economic performance would have been considerably worse.
The commodities that made significant contributions to the substantial rise in the value of exports in 1997-98 are non-ferrous metals (up 26.8 per cent from the previous year), metallic ores (up 38.0 per cent), wood and woodchips (up 28.1 per cent), transport equipment (primarily catamarans – up 32.0 per cent), fruit and vegetables (up 51.3 per cent) and meat products (up 29.1 per cent).
38 Chapter 2: Tasmania’s Economic Performance By destination, the key contributors to the growth in export value in 1997-98 were Japan (up 16.9 per cent from 1996-97), the US (up 50.4 per cent), Taiwan (up 61.7 per cent), the European Union (up 13.0 per cent), and Hong Kong (up 30.7 per cent). While the largest contributor was the 'other' category (up 59.7 per cent), currently there is no further disaggregation available of this category. The value of exports to the ASEAN group rose by only 9.3 per cent in 1997-98, reflecting the problems in that area, while exports to the UK fell sharply, primarily as there were no sales of catamarans during that year.
As an export oriented economy, Tasmania relies to a large extent on events elsewhere. International conditions are very important determinants of local economic growth. While the Asian crisis and the recession in the Japanese economy (the State's largest single export market) may have adverse effects for some Tasmanian exporters, few have been seen to date and there have been some gains in other markets.
Over the last year, Tasmania's economic indicators continue to provide mixed signals (job advertisement numbers have risen solidly in recent months, but this may be a response to the introduction of the Job Network on 1 May 1998, with potential employers now using newspaper advertising rather than relying on the old Commonwealth Employment Service); employment and labour force participation are up on one year earlier but have fallen in recent months and the number of hours worked fell in both 1996-97 and 1997-98; export growth has been impressive but is subject to the impact of the Asian crisis; business investment is trending down and retail turnover has been falling since late 1997.
Recent business surveys generally show a modest improvement in business confidence over the remainder of 1998 and prospects for investment are mixed but mostly positive.
At present, inflation has largely been removed from the Australian economy. Underlying inflation was only about 1.5 per cent in 1997-98, well below the Reserve Bank of Australia's target range of 2 to 3 per cent. Hobart's CPI actually fell 0.1 per cent on a year average basis in 1997-98, having risen by 1.5 per cent the year before. Recent inflation results have been subdued due to lower mortgage interest rates, lower import prices and, more recently, declining petrol prices. However, in the March quarter 1998, the imported-goods component of the consumer price index rose for the first time in seven quarters. It is expected that the impact of the depreciation of the Australian dollar against the currencies of our major importing countries in the past several months will generate higher prices during the remainder of 1998 and into 1999.
IMPACT OF THE ASIAN ECONOMIC CRISIS
Background to Recent Events in Asia The economic and financial situation in Asia has developed through a string of events over the past couple of years. For many years, the 'Asian Tigers', as the economies of the south-east Asian region had become known, had been experiencing rapid growth funded largely from borrowings from Western industrialised economies. The entire East Asian region became very important export markets for Australia, and Tasmania in particular.
Chapter 2: Tasmania’s Economic Performance 39 High rates of economic growth, significant levels of borrowing in East Asia and weak prudential controls in many Asian countries exposed the region to flow-on effects from negative events which might otherwise have been contained. The situation manifested itself in failures of major industrial companies and financial institutions, current account difficulties, currency speculation and depreciation and falling asset values.
Within the East Asian region, the worst affected economies are Japan, South Korea, Indonesia, and Thailand and Malaysia. As an indication, for 1998, the Industrial Bank of Japan expects economies with negative growth rates to include Indonesia (-15 per cent), Malaysia (-6 per cent), Korea (-6.5 per cent) and Japan (-2.5 per cent). Countries such as Singapore and the Philippines have enjoyed good growth rates but have seen this growth fall to almost zero.
Japan's problems began earlier than those in the less developed Asian countries and are in several ways quite different in nature, as, for example, it did not experience a current account crisis. The Japanese economy has been in recession since early 1997, with the effect of tax increases being amplified by the loss of export sales to Asia. Also, Japan's banking system has made little progress over several years in overcoming high levels of bad debts. Problems in the financial sector have had a significant impact on consumer confidence and businesses have experienced a credit squeeze. It was recently announced that legislation will be introduced to allow the Japanese Government to spend 57 trillion Yen ($710 billion) to nationalise banks, purchase bad loans and provide other assistance to the banking sector.
Some commentators are predicting that the rate of decline may be bottoming out in countries such as Thailand, Korea, Malaysia and even Indonesia, though not in the case of Japan. For these countries, it is expected that recovery is at least another 18 months away. It is generally agreed that no fundamental recovery will occur until the financial sectors in these economies are re-financed and the problems of bad and doubtful debts are fully addressed, as Japan is currently striving to do.
How Australia is Affected The impact of the Asian crisis on the Australian economy is very important to Tasmania's economy because, as noted above, mainland Australia is Tasmania's most important export market. For example, 85 per cent of visitors to Tasmania are from mainland Australia.
To date, the Australian economy has weathered the Asian crisis surprisingly well. The value of exports, particularly of resource products, has held up very well, actually increasing in Japan in the first half of 1998 compared with the first half of 1997. Although there has been a decline of almost 20 per cent in the value of exports to the worse affected countries, this has been matched by equivalent increases elsewhere, such as to Europe. The depreciation of the Australian dollar has assisted in the overall increase in the value of Australian exports in sectors such as minerals and energy, metals, rural products and manufactured goods. The rate of GDP growth in Australia was 4.0 per cent in 1997-98, significantly higher than many market analysts had predicted.
Whilst it is probably true that the economy would have grown by even more had the Asian crisis not happened, the data show that Australia is not so reliant on Asia as the conventional wisdom may suggest. There is general agreement, however, that national economic growth will decline to between 1.5 to 3 per cent for the next two to three years – due in part to the continuation of the Asian crisis, especially in Japan. The Commonwealth Government estimates the Asian crisis will reduce national
40 Chapter 2: Tasmania’s Economic Performance economic growth by at least 0.75 percentage points in 1998-99. Some private sector commentators suggest the impact could be 1.0 to 1.5 percentage points.
Other factors expected to lead to slower Australian growth include an anticipated downturn in activity in the United States and some European countries, especially the United Kingdom, and a projected decline in the growth of Australian consumer spending.
How Tasmania is Affected As an export oriented economy that sells over 60 per cent of total overseas exports into Asia, Tasmania is potentially more exposed to the Asian crisis than any other State except Western Australia. However, Tasmania experienced the greatest percentage growth in the value of exports of all States in the first half of 1998 compared with the first half of 1997, with a growth of around 32 per cent. Even the value of exports to East Asia grew by around 10 per cent over this period.
For East Asia, Tasmania's largest commodity markets are North Asia for wood and paper products as well as food and beverages (primarily Japan in both cases), and ASEAN countries for processed metal products (mainly to Indonesia). A brief country by country description is given below.
Japan In 1996-97, woodchips comprised $218 million or nearly half the State's total exports to Japan. Other key exports to Japan included copper ($43 million), beef ($32 million), cheese ($24 million), abalone ($23 million), aluminium ($23 million) and Atlantic salmon ($18 million). There are reports that there has been a reduction in demand for woodchips which has adversely affected some logging contractors in the State, many of whom invested in new equipment following the signing of the Regional Forest Agreement.
Indonesia Over 90 per cent of Tasmania's exports to Indonesia in 1996-97 were processed metal products, comprising zinc and aluminium. Sales of these metals to Indonesia may be reduced, given the large contraction in the Indonesian economy.
Malaysia Processed metal products made up nearly half of Malaysia's imports from Tasmania in 1996-97, overwhelmingly zinc and aluminium. Tin ores comprised a further one-third of the State's exports to Malaysia during the year.
Tourism and Education Services ABS data on exports of services, such as tourism and other visitor-related services, are not available at a State level. Tourism Tasmania data show that in 1997 there were around 11 300 adult visitors from Asia, including Japan, accounting for 2.3 per cent of adult visitors to the State. Taking into account expenditure patterns by all international visitors, Asian visitors accounted for around 4 per cent, or $23.8 million of total estimated expenditure in 1996-97. It is likely, therefore, that Tasmania's tourism industry will not emerge unscathed from the Asian crisis as fewer Asian tourists are expected into Tasmania. However, this represents a relatively small proportion of the State's total tourism market.
Chapter 2: Tasmania’s Economic Performance 41 Of potentially greater concern is how the events in Asia will affect tourists from mainland Australia, which account for 85 per cent of all visitors to Tasmania. Following the depreciation of several Asian currencies, low cost Asian destinations are proving more attractive to the mainland Australian market.
Asian students account for the vast majority of Tasmania's 1 500 international students who, in total spend an estimated $34 million annually on tuition fees and living expenses. It is possible that there may be a contraction in the number of Asian students in the next one or two years.
ECONOMIC OUTLOOK
Table 2.5 contains Treasury's forecasts for key economic variables for Tasmania for 1998-99. It should be noted, however, that these forecasts were compiled before some recent projects were announced, such as the proposed magnesite mine and magnesium processing plant.
Table 2.5: Tasmanian Economic Aggregates and Forecasts 1996-97 1997-98 1998-99 actual actual forecast
Gross State Product (real, % change)1 0.2 (0.5) 0.5 Employment (year average, % change) (2.0) (1.2) 0.0 Labour force participation rate (year average, %) 59.8 59.2 59.5 Unemployment rate (year average, %) 10.7 11.0 11.1 Average weekly earnings (year average, % change) 2.9 1.6 3.0 Consumer price index (year average, % change) 1.5 (0.1) 2.8 10 year Treasury bond rate (as at year end, %) 7.05 5.58 5.75 Population (as at 31 December, % change) 0.0 (0.5) (0.5)
Sources: Actual data - Australian Bureau of Statistics and Reserve Bank of Australia. Note: 1. The 1997-98 figure is a preliminary estimate as full year data is not yet available.
On current trends, Tasmanian economic growth is expected to lag behind national growth. State final demand, which provides an indicator of economic performance, has recorded only moderate growth in 1997-98, while the aggregate number of hours worked in 1997-98 was lower than for one year earlier. At present, Tasmania's economic fundamentals are not sufficiently strong to provide a basis for believing that economic growth will return to above trend for 1998-99. Tasmania's negative population growth will be a further limiting factor, with GSP growth in the order of 0.5 per cent likely for 1998-99. Further out, annual State economic growth will remain subdued in the absence of any fundamental change to Tasmania's economic environment. Recent forecasts of Tasmania's economic growth for 1998-99 from private sector commentators tend to be more optimistic at around 1.5 per cent.
If Tasmania is to lift its growth rate in 1999-2000 and beyond, it will need to provide growth in a number of key industry sectors. For example, it is highly likely that any improvement in economic performance would be associated with a turnaround in the construction industry. With some notable exceptions, such as Incat Tasmania and (more recently) call centres, there have been no major growth sectors in Tasmania since 1991-92 – especially providing any substantial increases in full time employment. However, in the absence of any major changes, this trend is likely to continue.
42 Chapter 2: Tasmania’s Economic Performance Based on current trends, no employment growth is expected in the coming year (in annual average terms), determined in part by the prospect of some weakening in export prospects. This forecast assumes that there will be no major employment initiatives. It is expected the trend away from full time to part time employment will continue, such that given the forecast zero growth in employment, the aggregate number of hours worked in the State is likely to decline in 1998-99. The expectation of an unchanged level of employment compares with forecasts by private sector commentators of employment growth of at least 0.5 per cent in 1998-99.
At times when fringe labour market participants deem the unemployment rate to be too high, labour force participation is unlikely to rise. The labour force participation rate is not expected to rise above 60 per cent for any extended period. This view is consistent with that of other forecasters.
In light of the anticipated stability in employment and labour force participation, the unemployment rate is expected to remain around 11 per cent for the next year or so. Again, this view is consistent with that of other forecasters.
It is expected that the subdued economic conditions will lead to continued out-migration to mainland Australia, resulting in a decline in Tasmania's population by a further 0.5 per cent in 1998-99.
Although pressure for productivity improvements will remain, output growth will continue to be weak in the absence of any substantial new development projects. Price and wage inflation is expected to rise to around 3 per cent in the next year, due to the effect of the Australian dollar depreciation. On the positive side, continued growth in national domestic demand and growth in Western Europe and the United States, even if lower than the current high rate, may help provide impetus for growth for Tasmanian exporters.
Furthermore, Tasmania is likely to receive a significant benefit from the weakening in the Australian dollar relative to the American dollar over the past year, through a boost in export earnings, though this is balanced by the recent decline in international commodity prices. Tasmanian exporters will also benefit from substantially improved competitiveness in the United States and Western European markets.
National economic performance is such that the Reserve Bank of Australia is unlikely to adjust monetary policy significantly in the near term – a slowing domestic economy resulting from the Asian crisis is providing pressure to lower interest rates while high current account deficits and a weak dollar suggest no reduction in rates. On balance, interest rates are likely to remain unchanged over coming months. Further out, domestic interest rates are likely to fall in light of the global trend towards lower rates, as evidenced by recent cuts in Japan, the United States and the United Kingdom.
Chapter 2: Tasmania’s Economic Performance 43
3CONSOLIDATED FUND BUDGET OUTCOME, 1997-98
Features
The Net Financing Requirement (NFR) for 1997-98 was $37.1 million, $3.2 million above the Budget estimate of $33.9 million.
Total receipts were $1 945.5 million, $15.8 million or 0.8 per cent below the Budget estimate of $1 961.3 million.
Expenditure was $1 986.3 million, $12.6 million or 0.6 per cent below the Budget estimate of $1 998.9 million.
Chapter 3: Consolidated Fund Budget Outcome, 1997-98 45 NET FINANCING REQUIREMENT
The Net Financing Requirement (NFR) is the amount the Government must borrow to bridge the gap between the total receipts to the Consolidated Fund and total expenditure from the Fund. Table 3.1 provides details of variances from 1997-98 Budget estimates by major category.
Table 3.1: Net Financing Requirement, 1997-98 1997-98 1997-98 Estimate Actual Variation $'000 $'000 % Receipts Commonwealth Sources 1 046 351 1 037 914 (0.8) State Sources 914 969 907 575 (0.8) Total Receipts 1 961 320 1 945 489 (0.8) Less Expenditure Recurrent Services1 1 856 111 1 843 839 (0.7) Works and Services 142 783 142 417 (0.3) Total Expenditure 1 998 894 1 986 256 (0.6) Gross Financing Requirement 37 574 40 767 8.5 Less Loan Repayments 3 677 3 675 (0.1) Net Financing Requirement 33 897 37 092 9.4
Note: 1. Recurrent Services expenditure includes the amount of the contribution payable to the Debt Retirement Trust Account, $3.7 million (1997-98 estimate) and $3.7 million (1997-98 actual).
The budgeted NFR for 1997-98 was $33.9 million. The actual NFR for 1997-98 was $37.1 million which was $3.2 million or 9.4 per cent above the budgeted amount. The NFR was financed by borrowings from the Tasmanian Public Finance Corporation (Tascorp).
Further details of the 1997-98 NFR are provided in Table 4.1 of Chapter 4 in this Budget Paper.
RECEIPTS
Total receipts to the Consolidated Fund in 1997-98 were $1 945.5 million compared with the Budget estimate of $1 961.3 million, a shortfall of $15.8 million or 0.8 per cent.
Table 3.2 outlines the variances from Budget estimate by major category.
46 Chapter 3: Consolidated Fund Budget Outcome, 1997-98 Table 3.2: Consolidated Fund - Total Receipts, 1997-98 1997-98 1997-98 Estimate Actual Variation $'000 $'000 % Recurrent Commonwealth General Purpose 688 540 677 714 (1.6) Specific Purpose 300 924 307 293 2.1 Total Commonwealth 989 464 985 007 (0.5) State Sources Taxation 646 019 638 431 (1.2) Recoveries from Government Business Enterprises and State authorities 93 409 96 374 3.2 Departmental Fees and Recoveries 80 781 76 721 (5.0) Recoveries of State Debt Charges 36 973 37 191 0.6 Sale and Rent of Government Property 15 543 15 768 1.4 Resource Rent and Royalties 10 122 10 555 4.3 Other Sources 26 995 26 658 (1.2) Total State 909 842 901 697 (0.9) Total Recurrent Receipts 1 899 306 1 886 704 (0.7) Capital Commonwealth 56 887 52 907 (7.0) State 5 127 5 878 14.6 Total Capital Receipts 62 014 58 785 (5.2)
Total Receipts 1 961 320 1 945 489 (0.8)
Complete details of receipts to the Consolidated Fund are provided in Table 4.5 of Chapter 4 in this Budget Paper.
Recurrent Receipts Actual recurrent receipts were $1 886.7 million in 1997-98, $12.6 million or 0.7 per cent below Budget. The major components of this variation were:
The Financial Assistance Grant from the Commonwealth was $10.8 million lower than the 1997-98 Budget estimate, primarily due to a reduction in Tasmania’s estimated population and a reduction in the Consumer Price Index against estimates. Chapter 10 of this Budget Paper provides further details.
The Commonwealth Specific Purpose Payment for Assistance for Concessions was approximately $910 000 higher than the Budget estimate due to a higher than expected number of pension card holders, upon which this Specific Purpose Payment is based.
Chapter 3: Consolidated Fund Budget Outcome, 1997-98 47 The Commonwealth Specific Purpose Payment for Primary and Secondary Education was $3.7 million higher than the Budget estimate due to additional funding for primary and secondary education services.
The Commonwealth Specific Purpose Payment for Technical and Further Education was $1.9 million higher than the Budget estimate due to additional funding for traineeship grants.
State Taxation collections in 1997-98 were $7.6 million or 1.2 per cent below the Budget estimate. The major variations were:
tobacco tax receipts were $15.3 million below estimate and land tax was $1.5 million below estimate;
petroleum products franchise fee receipts were $2.2 million below estimate; and
racing taxes were $1.1 million below estimate.
These decreases were partially offset by increases in:
stamp duties, which were $4.8 million higher than estimated and motor taxation, which was $1.1 million higher than estimated;
casino tax and licence fees, which were $2.8 higher than estimated; and
financial institutions duty, which was $5.2 million higher than estimated.
These variations are explained in detail in Chapter 4 of this Budget Paper.
Recoveries from Government Business Enterprises and State authorities were $3 million or 3.2 per cent above Budget. The major reasons for the variance was an additional $1.2 million in tax equivalents from the Tasmanian Public Finance Corporation (Tascorp) and the receipt of an additional dividend of $3.8 million from the Motor Accidents Insurance Board (MAIB). These increases were partially offset by a decrease of $1.2 million in receipts from Forestry Tasmania, due to lower than expected tax equivalent payments.
Departmental Fees and Recoveries were $4.1 million or 5.0 per cent below Budget estimates. The most significant variations were:
Recoveries by the Department of Environment and Land Management (DELM), now the Department of Primary Industries, Water and Environment, were approximately $2.1 million below estimate. This was largely attributable to the non-receipt of $1.5 million in contributions from the Commonwealth towards the construction of the Antarctic and Southern Ocean Centre following its sale to Dreamworld. In addition, DELM was permitted to directly retain Park User Fees of $1.3 million rather than forwarding revenue to the Consolidated Fund. There also was a general decline in fees, particularly in relation to the Land Titles Office. These decreases were partially offset by an increase of $1.9 million in recoveries by the Department of Primary Industry and Fisheries (DPIF), now the Department of Primary Industries, Water and Environment, due to higher than estimated abalone fee and craypot licence fee receipts.
Recoveries by the Department of Education, Training, Community and Cultural Development (DETCCD), now the Department of Education, were $3.1 million below Budget expectations, of which $2.7 million was due to the retention of revenue by TAFE Tasmania, following its establishment as a statutory authority from 1 January 1998.
48 Chapter 3: Consolidated Fund Budget Outcome, 1997-98 In addition, Tasmania Development and Resources, now the Department of State Development, fees and recoveries were approximately $900 000 higher than estimated due to greater than expected early repayment of a number of loans by clients.
Infringement Notice Fines were $2.3 million, or 29.9 per cent below the Budget estimate of $7.7 million. The reduced revenue reflects a greater than expected decrease in the number of speeding detections and subsequent infringement notices issued. This is primarily attributed to the continued success of the Road Safety Strategy designed to discourage motorists from speeding and indicates that there have been changes in driver behaviour.
Recoveries from Department Business Units were $1.2 million above the Budget estimate due to additional revenue from TASFleet. The 1997-98 Budget was formulated on the basis that the Government’s car fleet would be sold in March 1998. The additional TASFleet revenue reflects the fact that the sale of the Government’s car fleet was not finalised during 1997-98 as was anticipated.
Capital Receipts Capital receipts totalled $58.8 million in 1997-98, compared to the budgeted amount of $62 million. The decreased level of receipts was primarily due to deferral of $3.4 million in Commonwealth funding from 1997-98 to 1998-99, for the redevelopment of the Launceston Institute of TAFE.
EXPENDITURE
Total expenditure in 1997-98 was $1 986.3 million, which was $12.6 million (0.6 per cent) below the original Budget estimate. Recurrent Services expenditure was $1 843.8 million (0.7 per cent) below the original estimate, while expenditure on Works and Services was $142.4 million (0.3 per cent) below the Budget estimate.
Table 3.3: Consolidated Fund Expenditure, 1997-98 1997-98 1997-98 Estimate Actual Variation $'000 $'000 % Recurrent Services Appropriation Act1 1 702 438 1 723 753 1.3 Reserved by Law2 133 673 120 086 (10.2) Treasurer's Reserve3 20 000 .... (100.0) 1 856 111 1 843 839 (0.7) Works and Services Capital Investment Program 142 783 142 417 (0.3)
Total 1 998 894 1 986 256 (0.6)
Notes: 1. Treasurer’s Reserve excluded from estimated expenditure but included in actual expenditure. 2. Reserved by Law expenditure includes the amount of the contribution payable to the Debt Retirement Trust Account, $3.7 million (1997-98 estimate) and $3.7 million (1997-98 actual). 3. Actual amounts included as agency expenditure under the Appropriation Act.
Chapter 3: Consolidated Fund Budget Outcome, 1997-98 49 Major Variations Community and Health Services The Department of Community and Health Services, now the Department of Health and Human Services, incurred net additional expenditure of $7.3 million. $3 million of these funds were received by the Government from Australian Health Care Ltd for the lease of the Queen Alexandra building. The total additional funds were directed to the provision of health care services in 1997-98.
Education, Training, Community and Cultural Development During the year, the Department of Vocational Education and Training was merged with the Department of Education, Training, Community and Cultural Development, now known as the Department of Education.
Additional approved net expenditure by the Department for 1997-98 was $1.2 million greater than Budget estimates. Additional recurrent expenditure of $4.3 million was required to support teacher and other salaries. This expenditure was fully offset by additional Commonwealth funding of $3.5 million received during 1997-98 and $817 000 from the proceeds of asset sales. Additional salary expenditure of $1.4 million was also incurred in 1997-98 following the 7 per cent teacher salary increase effective from 18 May 1998.
A further $1.1 million was also expended on the implementation of certain policy commitments of the previous Government, including the funding of the Giant Steps Program, loan interest subsidies and the funding of non-government kindergartens. This expenditure was fully offset by proceeds from asset sales.
Additional works and services expenditure of $2.6 million was required to supplement the Capital Investment Program. In particular, significant capital expenditure of $1.5 million was incurred for the restoration works at the Nixon Street Primary School, following a fire in November 1997. Further expenditure of $900 000 was required for the purchase and restoration of a building in Tasma Street, Hobart to house the Tasmanian Design Development Company and the Design-Makers Tasmanian Co-operative Pty Ltd.
Savings in works and services expenditure were due to the delay in construction works at the Launceston Institute of TAFE. It was anticipated that $7.0 million would be expended on works at the campus during the year, however, due to delays, works totalling only $3.6 million were completed. The remainder of the works will be completed with Commonwealth funding during 1998-99.
Administered Payments were also below Budget estimates by approximately $800 000. Savings were due to a change in the mix of apprenticeships and traineeships, together with their associated allowances. In addition, the scholarship payments for the Centre for Precision Technology were less than expected.
50 Chapter 3: Consolidated Fund Budget Outcome, 1997-98 Justice Reserved by Law under expenditure of some $2.2 million arose primarily from the provision of $1.8 million in the 1997-98 Budget for Parliamentary Elections and By-Elections which did not occur. Furthermore, payments under the Criminal Injuries Compensation Act 1976 were approximately $287 000 less than originally estimated.
Police and Public Safety The Department of Police and Public Safety, now known as the Department of Police, incurred net additional expenditure of some $1.9 million in 1997-98, which was partly funded by asset sales. The additional expenditure was largely attributable to funding of approximately $900 000 required for increased policing activities associated with demonstrations at Mother Cummings Peak (Operation Huntsman), the Maritime Union of Australia dispute and major arson investigations. Further additional expenditure of $821 000 was incurred in relation to costs associated with meeting the Department’s responsibilities under the Firearms Act 1996.
Treasury and Finance Net additional expenditure of approximately $1.1 million was incurred by the Department in 1997-98. This additional expenditure resulted from the costs associated with the restructuring of the Hydro-Electric Corporation.
State Service Restructuring The following information relates to State Service restructuring implemented by the previous Government in 1997-98 and not the significant State Service restructure undertaken by the new Government in 1998-99. Information on the latter restructure can be found in Chapter 1 of Budget Paper No 2 Operations of Government Departments 1998-99.
During 1997-98, the previous Government implemented significant changes to the delivery of TAFE and Adult Education services in Tasmania. As part of these changes, TAFE Tasmania was established on 1 January 1998 as a statutory authority under the provisions of the TAFE Tasmania Act 1997. TAFE Tasmania was structured in accordance with the recommendations of the Best Report released in March 1997.
The Best Report reviewed the delivery of vocational and educational training in Tasmania and recommended substantially revised administrative arrangements, including the establishment of five product based institutes. Prior to the establishment of TAFE Tasmania, the former Department of Vocational Education and Training was responsible for the delivery of vocational and educational training through the various institutes of TAFE and Adult Education. The establishment of TAFE Tasmania removed the institutes from the administrative control of the former Department and established TAFE Tasmania, in its own right, as a provider of vocational and educational training in the Tasmania.
The former Department of Vocational Education and Training was merged with the Department of Education, Training, Community and Cultural Development on 6 May 1998. The Budget Papers reflect the changed administrative arrangements for vocational and educational training in Tasmania. Details of these administrative arrangements are provided in Chapter 2 of Budget Paper No 2 Operations of Government Departments 1998-99.
Chapter 3: Consolidated Fund Budget Outcome, 1997-98 51 Under the Electricity Supply Industry Amendment Act 1998, the Electricity Regulator was given the power to determine generation, transmission, distribution and retail electricity prices. The role of the Electricity Regulator was transferred from the Director of the Office of Energy Planning and Conservation to the Government Prices Oversight Commissioner with effect from 1 July 1998.
In response to the Nixon Inquiry, the previous Government abolished the separate bodies of the Public Land Use Commission, the Land Use Planning Review Panel and the Sustainable Development Advisory Council in favour of the Resource Planning and Development Commission (RPDC) and the existing Resource Management and Planning Appeals Tribunal (RMPAT). Both the RPDC and RMPAT form part of the Department of Environment and Land Management (DELM), now known as the Department of Primary Industries, Water and Environment. The RPDC commenced operations from 1 January 1998. To facilitate this reform, resources provided to the Department of Premier and Cabinet for the operation of the Sustainable Development Advisory Council were transferred to DELM.
52 Chapter 3: Consolidated Fund Budget Outcome, 1997-98 4CONSOLIDATED FUND BUDGET ESTIMATES, 1998-99
Features
The Net Financing Requirement (NFR) for 1998-99 is estimated to be $15.5 million, $21.6 million less than the actual NFR of $37.1 million achieved in 1997-98.
Total receipts are estimated to be $2 026.0 million in 1998-99, an increase of $80.5 million or 4.1 per cent on the actual receipts collected in 1997-98 of $1 945.5 million.
Expenditure in 1998-99 is expected to be $2 044.4 million, an increase of $58.1 million or 2.9 per cent over actual expenditure in 1997-98 of $1 986.3 million.
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 53 NET FINANCING REQUIREMENT
In 1998-99, the Net Financing Requirement is budgeted to be $15.5 million. The Consolidated Fund will be supported by gross borrowings of $18.4 million. Borrowings will be made available by Tascorp within the Loan Council Allocation determined by the Australian Loan Council.
Table 4.1: Net Financing Requirement, 1997-98 and 1998-99 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Receipts Commonwealth Sources Recurrent 989 464 985 007 1 014 726 Capital 56 887 52 907 50 262 Total Commonwealth Receipts 1 046 351 1 037 914 1 064 988
State Sources Recurrent 909 842 901 697 955 622 Capital 5 127 5 878 5 343 Total State Receipts 914 969 907 575 960 965 Total Receipts 1 961 320 1 945 489 2 025 953
Less Expenditure Recurrent Services Expenditure on Outputs Annual Appropriation 1 722 438 1 723 753 1 772 287 Reserved by Law1 133 673 120 086 133 056 Total Recurrent Services 1 856 111 1 843 839 1 905 343
Works and Services Capital Investment Program 142 783 142 417 139 050 Total Works and Services 142 783 142 417 139 050 Total Expenditure 1 998 894 1 986 256 2 044 393 Gross Financing Requirement 37 574 40 767 18 440 Less Loan Repayments 3 677 3 675 2 912 Net Financing Requirement 33 897 37 092 15 528
Note: 1. For the purpose of calculating the Net Financing Requirement, Reserved by Law expenditure includes the amount of the contribution payable to the Debt Retirement Reserve Trust Account. This figure is also shown as Loan Repayments.
54 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 Loan Repayments The State is to repay $2.9 million in 1998-99 to the Debt Retirement Reserve Trust Account in respect of borrowings in accordance with arrangements established under the Financial Agreement Act 1994.
RECEIPTS
Consolidated Fund receipts are estimated to be $2 026.0 million in 1998-99, an increase of $80.5 million or 4.1 per cent on the actual receipts collected in 1997-98 of $1 945.5 million.
Table 4.2 outlines the variations between the 1998-99 Budget estimate and actual receipts in 1997-98 by major category.
Table 4.2: Consolidated Fund - Total Receipts, 1998-99 1997-98 1997-98 1998-99 Percentage Estimate Actual Estimate Change $'000 $'000 $'000 % Recurrent Receipts Commonwealth Sources 989 464 985 007 1 014 726 3.0 State Sources 909 842 901 697 955 622 6.0 1 899 306 1 886 704 1 970 348 4.4 Capital Receipts Commonwealth Sources 56 887 52 907 50 262 (5.0) State Sources 5 127 5 878 5 343 (9.1) 62 014 58 785 55 605 (5.4) Total Receipts 1 961 320 1 945 489 2 025 953 4.1
Complete details of receipts to the Consolidated Fund are provided in Table 4.4.
Chart 4.1 shows the estimated total sources of funds for the Consolidated Fund in 1998-99, including borrowings, and a percentage breakdown of the categories of the total sources of funds.
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 55 Chart 4.1: Consolidated Fund - Total Sources of Funds, 1998-99
Returns from Government Net Borrowings Business Enterprises, State- $15.5m (1.1%) Loan Repayments $2.9m (0.1%) owned Companies and State authorities $126.4m Commonwealth (6.2%) General Purpose Payments $724.3m (35.3%)
State Taxation $664.1m (32.4%)
Recoveries of State Commonwealth Specific Debt Charges Other Receipts Purpose Payments $30.9m (1.5%) $139.6m (6.8%) $340.7m (16.6%)
Recurrent Receipts Total recurrent receipts in 1998-99 are estimated to be $1 970.3 million. This is an increase of 4.4 per cent on actual recurrent receipts of $1 886.7 million for 1997-98.
The single most important source of recurrent revenue for the State is the Commonwealth Government which, through a range of general and specific purpose grants, will provide the State with approximately 51.5 per cent of its recurrent revenue funds in 1998-99. The remainder of the State's recurrent revenue will be derived by the State from its own sources, the major elements being State taxation (33.7 per cent), departmental fees and other recoveries (3.5 per cent), recoveries of State debt charges (1.6 per cent) and returns from Government Business Enterprises, State-owned Companies and State authorities (6.4 per cent).
Chart 4.2 shows the estimated recurrent receipts for 1998-99 and a percentage breakdown of the categories of recurrent receipts.
56 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 Chart 4.2: Recurrent Receipts, 1998-99
Returns from Government Resource Rents and Royalties $12.5m (0.6%) Business Enterprises, Other State Sources $28.2m (1.4%) State-owned Companies and State authorities $126.4m (6.4%)
Commonwealth General State Taxation Purpose Payments $664.2m $724.3m (36.8%) (33.7%)
Sale and Rent of Government Commonwealth Specific Property $23.6m Purpose Payments Recoveries of (1.2%) $290.4m (14.7%) State Debt Charges Departmental Fees and $30.9m (1.6%) Recoveries $69.9m (3.5%)
Chart 4.3: Recurrent Receipts (in 1998-99 dollars)
1200
1000
800
600 $ million 400
200
0 1988-89 1989-90 1990-91 1991-92 1992-93 1996-97 1997-98 1998-99 1993-94 1994-95 1995-96
Commonwealth State Taxation Other
Commonwealth Sources Revenue from Commonwealth sources for recurrent purposes is estimated to total $1 014.7 million, an increase of $29.7 million or 3.0 per cent over the actual revenue received in 1997-98 of $985.0 million. This revenue consists of the State's Financial Assistance Grant (FAG) (untied funding to the State), National Competition Payments and specific purpose payments which are tied to specific activities.
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 57 Financial Assistance Grant It is estimated that Tasmania's FAG will be $718.9 million in 1998-99. This is an increase of $46.6 million, or 6.9 per cent, over the amount of $672.3 million received in 1997-98. A large proportion of the increase in Tasmania's FAG for 1998-99 will arise from changes to the treatment of the Health Care Grant in the Commonwealth Grants Commission's fiscal equalisation assessments. These new arrangements are discussed in detail in Chapter 10 of this Budget Paper.
National Competition Payments The Agreement to Implement the National Competition Policy and Related Reforms provides for the States to receive general revenue grants which reflect a share of the expected revenue gains to the Commonwealth arising from States' implementation of National Competition Policy. It is estimated that in 1998-99 Tasmania will receive $5.4 million for this purpose.
Health Care Grant The Health Care Grant (HCG) (previously known as the Hospital Funding Grant) is estimated to be $126.3 million in 1998-99, $15.2 million lower than the amount received in 1997-98 of $141.5 million. This decrease is due to a change in the basis for distributing Health Care Grants from that in place under the previous Medicare Agreement. However, as explained in Chapter 10 of this Budget Paper, accompanying this change is a substantial reduction in the amount of Health Care Grants to be quarantined from the Commonwealth Grants Commission's fiscal equalisation assessments compared with the level under the former Hospital Funding Grant arrangements. This will result in Tasmania receiving increased FAGs, more than offseting this decrease in HCGs.
Other Specific Purpose Payments Specific purpose payments from the Commonwealth that are paid to the Consolidated Fund will total $164.1 million (excluding the Health Care Grant) in 1998-99, a decrease of $1.7 million or 1.0 per cent on the 1997-98 actual receipts of $165.8 million.
Major variations in individual payments for 1998-99 are as follows:
the 1998-99 estimate for High Cost Drugs is 22.3 per cent less than actual receipts for 1997-98. Additional revenue for this item was received in 1997-98 and the 1998-99 estimate is in line with previous levels of funding received; and
the 1998-99 estimate for Mental Health is $0.6 million or 56.0 per cent greater than the actual receipts for 1997-98. Commonwealth funding for this program was withheld in 1997-98 pending agreement on performance measures. The shortfall in funding is expected to be received in 1998-99.
More detailed information in relation to Commonwealth payments to Tasmania is provided in Chapter 10 of this Budget Paper.
58 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 State Taxation Total State taxation revenue for 1998-99 is estimated to be $664.1 million, an increase of $25.7 million or 4.0 per cent on 1997-98 actual receipts of $638.4 million.
The increase is primarily due to the following factors:
additional compliance effort planned in 1998-99, the impact of the increase in the Superannuation Guarantee Charge to 7 per cent and growth in the value of the tax base are expected to result in additional payroll tax revenue; and
total safety net revenues retained as franchise fee equivalents (that is, net of subsidy payments) are expected to be $159.1 million for 1998-99. The apparent nominal increase of $20.5 million over related revenues for 1997-98 reflects in most part the full year effect of the excise surcharge on tobacco products.
More detailed information in relation to State taxation revenue is provided in Chapter 9 of this Budget Paper.
Chart 4.4 shows the estimated State taxation receipts for 1998-99 and a breakdown of the categories of State taxation.
Chart 4.4: State Taxation Revenue, 1998-99
Safety Net $159.1m (24.0%)
Payroll Tax $211.7m (31.9%)
Land Tax $25.8m (3.9%)
Other Sources $22.9m (3.4%)
Electricity Levy Motor Tax $40.7m $14.6m (2.2%) (6.1%)
Gambling Taxes Stamp Duty $124.5m (18.8%) $64.8m (9.8%)
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 59 Returns from Government Business Enterprises, State-owned Companies and State Authorities Returns in 1998-99 are expected to be $126.4 million, an increase of $30.0 million or 31.1 per cent on actual receipts of $96.4 million in 1997-98. The increase in returns is largely attributable to a special dividend of $40 million from the Hydro-Electric Corporation (HEC) in 1998-99. In 1998-99 it is estimated that the HEC will pay $56.9 million in dividends, including a special dividend of $40 million, $28.5 million in tax equivalent payments, and $2.9 million in guarantee fees. Transend Networks Pty Ltd will pay an estimated $7.3 million in tax equivalent payments. Aurora Energy Pty Ltd will pay $9.0 million in tax equivalent payments and $1.0 million in guarantee fees.
During 1998-99, Forestry Tasmania will contribute $11.8 million to the Consolidated Fund, comprising $6.6 million by way of an ordinary dividend and $5.2 million by way of tax equivalent payments.
In 1998-99, the Motor Accidents Insurance Board will contribute $4.9 million by way of dividend payments, comprising a $3.0 million special dividend and a $1.9 million ordinary dividend.
Further information concerning Government Business Enterprises, State-owned Companies and State authorities is provided in Chapter 13 of this Budget Paper.
Departmental Fees and Other Recoveries Revenue from fees and other charges levied for services provided by agencies in 1998-99 is estimated to be $69.9 million, a decrease of 8.9 per cent over actual receipts of $76.7 million in 1997-98. The decrease in revenue from these sources is attributable to the following factors:
revenue from fees and other recoveries collected by the Department of Education in 1998-99 is estimated to be $7.8 million, $1.4 million or 14.8 per cent less than the actual receipts received by the Department in 1997-98 of $9.2 million. On 1 January 1998, TAFE Tasmania, now part of the Department of Education, became a statutory authority and is able to retain fees previously collected by the former Department of Vocational Education and Training. This reduction in revenue is offset by a reduction in expenditure by the Department.;
Receipts collected by the Department of Primary Industries, Water and Environment in 1998-99 are estimated to be $22.0 million, $1.9 million less than the actual receipts received by the Department in 1997-98. This is largely attributable to the retention of Park User Fees of $1.3 million by the Department and a general decline in fees, especially in relation to the Lands Titles Office; and
the Department of Infrastructure, Energy and Resources will collect an estimated $26.0 million in revenue from fees and other recoveries in 1998-99. This is $1.1 million, or 4.1 per cent less than actual receipts for 1997-98. This is largely due to new arrangements established for the operation of the Bruny Island Ferry Service by the private sector, which means that the Department of Infrastructure, Energy and Resources will no longer collect the revenue from fares charged to the users of the service. This reduction in revenue is offset by a reduction in expenditure by the Department.
Recoveries of State Debt Charges Interest and Sinking Fund Recoveries are expected to be $30.9 million in 1998-99, a decline of $6.3 million, or 16.9 per cent, from actual receipts of $37.2 million in 1997-98. This decline reflects a decrease in the balances of some loans to statutory authorities.
60 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 Resource Rents and Royalties Revenue received from resource rents and royalties will be $12.5 million, or 17.9 per cent greater than the actual receipts of $10.6 million in 1997-98, reflecting the implementation of the next stage of the new mineral royalty regime that was negotiated with the industry in mid-1997.
Capital Receipts In 1998-99, capital receipts are estimated to be $55.6 million, a decrease of $3.2 million or 5.5 per cent over the actual receipts of $58.8 million in 1997-98. The major reason for this decrease is a reduction in Commonwealth Specific Purpose Payments.
Table 4.3: Summary of Capital Receipts 1997-98 1997-98 1998-99 Percentage Estimate Actual Estimate Change $'000 $'000 $'000 % Commonwealth Sources Specific Purpose Payments 56 887 52 907 50 262 (5.0) Total Commonwealth Sources 56 887 52 907 50 262 (5.0)
State Sources Loan Repayments 5 127 5 878 5 343 (9.1) Total State Sources 5 127 5 878 5 343 (9.1) Total Capital Receipts 62 014 58 785 55 605 (5.4)
Commonwealth Specific Purpose Capital Payments These payments are for specific projects nominated by the Commonwealth and are expected to total $50.3 million in 1998-99, representing a decrease of 4.9 per cent over the 1997-98 receipts of $52.9 million. This is attributable to the following factors:
the 1998-99 estimate for the Housing Program is $9.5 million, $5.3 million or 35.8 per cent lower than the actual receipts of $14.8 million in 1997-98. This variation is a result of a decrease in Commonwealth funding provided for capital expenditure and a consequent reduction in State matching capital under the Housing Agreement; and
construction works on the Launceston Institute of TAFE were anticipated to commence in 1997-98. This work was postponed due to the deferral of $3.4 million of Commonwealth funding to 1998-99.
More detailed information in relation to Commonwealth payments to Tasmania is provided in Chapter 10 of this Budget Paper.
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 61 State Sources The receipts under this heading represent the repayment of advances financed from previous years' allocations to various community organisations. Receipts have decreased from $5.9 million in 1997-98 to $5.3 million in 1998-99, a decrease of 10.2 per cent.
Details of capital receipts are shown in Table 4.4.
Financing Transactions The level of borrowing will decrease from $40.8 million in 1997-98 to an estimated $18.4 million in 1998-99, reflecting the decrease in the NFR for 1998-99. Borrowings will be undertaken through Tascorp.
62 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 Table 4.4: Consolidated Fund Receipts, 1997-98 and 1998-99 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Commonwealth Sources
Recurrent Receipts General Purpose Payments Financial Assistance Grant1 683 070 672 316 718 900 Competition Payments 5 470 5 398 5 430 Total General Purpose Payments 688 540 677 714 724 330
Specific Purpose Payments Health and Human Services Blood Transfusion Service 1 500 1 375 1 570 Bone Marrow Donor Registry 30 30 30 Cervical Cancer Screening Program 423 423 423 Commonwealth State Housing Agreement 12 185 12 185 12 528 Disability Services Grant 12 368 12 398 12 963 Grant to Combat AIDS 708 708 708 Health Care Grant2 141 640 141 491 126 300 Health Services for Homeless Youth 54 54 54 High Cost Drugs 2 686 3 455 2 686 Home and Community Care Program 13 004 13 047 13 322 Magnetic Resonance Imaging Program 1 113 1 111 …. Mammography Screening Program 1 703 1 286 1 703 Medicare Incentives Program 2 405 2 405 2 638 Mental Health 1 207 984 1 535 National Campaign Against Drug Abuse 661 661 752 National Child Care Strategy 342 344 325 National Women's Health Program 245 245 345 Pathology Services 1 967 1 957 1 992 Supported Accommodation Assistance Program 5 816 5 720 5 566
Notes: 1. The increase in the Financial Assistance Grant in 1998-99 is due to changes to the treatment of the Health Care Grant in the Commonwealth Grants Commission's fiscal equalisation assessments. 2. The decrease in the Health Care Grant (previously known as the Hospital Funding Grant) reflects a change in the basis for distributing Health Care Grants which is more than offset by a compensating increase in the Financial Assistance Grant.
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 63 Table 4.4: Consolidated Fund Receipts, 1997-98 and 1998-99 (continued) 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Education Primary and Secondary Education 32 473 36 126 34 631 Technical and Further Education 18 093 20 016 18 340 Primary Industries, Water and Environment World Heritage Area 5 300 5 350 5 000 Brucellosis and Tuberculosis Eradication 30 11 …. Police Natural Disaster Organisations 191 185 185 Treasury and Finance Assistance for Concessions 3 700 4 610 4 800 Grant to the State for Local Government 41 080 41 116 42 000 Total Recurrent Specific Purpose Payments 300 924 307 293 290 396 Capital Receipts Specific Purpose Payments Health and Human Services Housing1 15 032 14 807 9 517 Education Primary and Secondary Education 6 010 6 065 6 010 Technical and Further Education2 7 680 4 300 7 170 Infrastructure, Energy and Resources National Highway System 28 165 27 735 27 565 Total Capital Specific Purpose Payments 56 887 52 907 50 262 Total Specific Purpose Payments 357 811 360 200 340 658 Total Commonwealth Sources 1 046 351 1 037 914 1 064 988
Notes: 1. The decrease in the Housing Program in 1998-99 is due to a reduction in Commonwealth funding and a consequent reduction in State matching capital under the Housing Agreement. 2. This increase reflects the receipt of funding from the Commonwealth which was expected in 1997-98 for construction works on the Launceston Institute of TAFE.
64 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 Table 4.4: Consolidated Fund Receipts, 1997-98 and 1998-99 (continued) 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 State Sources
Taxation Land Tax 27 438 25 940 25 783 Motor Taxation 38 079 39 129 40 690 Payroll Tax 206 273 205 594 211 678 Financial Transaction Taxes Financial Institutions Duty 21 078 26 311 22 811 Stamp Duties 119 275 124 057 124 517 Franchise Fees and Levies Hydro-Electric Corporation Statutory Levy 14 778 14 879 14 600 Liquor1 18 159 17 661 …. Petroleum Products1 49 008 46 859 …. Tobacco1 89 391 74 092 …. Safety Net Revenue1 ….. …. 159 146 Gambling Taxes Casino Tax and Licence Fees 32 923 35 763 37 258 Lottery Tax 19 125 18 813 19 613 Racing and Gaming Taxes2 10 337 9 197 7 837 Soccer Football Pools Tax 72 79 71 Other Sundry Licences 83 56 60 Total State Taxation 646 019 638 430 664 064
Notes: 1. From 5 August 1997, the business franchise fees on tobacco, petroleum and liquor products were no longer collected. To replace the State and Territory franchise fee revenue, the Commonwealth implemented a safety net arrangement by increasing excises on tobacco and petroleum and wholesale sales tax on liquor and distributed the additional revenue raised to the States and Territories. More information in this respect can be found in Chapter 9 of this Budget Paper. 2. The expected reduction in revenue is primarily the result of relief to the racing industry worth $1.2 million through a reduction in the share of the tax payable to the Consolidated Fund (which took effect from 1 July 1998). In addition, a modest contraction of TAB betting, a further decline in bookmakers' betting and a small drop in minor gaming receipts are also expected.
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 65 Table 4.4: Consolidated Fund Receipts, 1997-98 and 1998-99 (continued) 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Receipts from Government Business Enterprises, State-owned Companies and State authorities Dividends Civil Construction Corporation 632 537 …. Egg Marketing Board …. …. 3 Forestry Tasmania1 8 778 9 890 6 560 Hydro-Electric Corporation1 16 800 27 153 16 931 Motor Accidents Insurance Board1 …. 6 750 1 900 Southern Regional Cemetery Trust …. …. 43 Stanley Cool Stores Board 70 88 70 Tasmanian Public Finance Corporation 1 195 1 196 2 353 Sub-total 27 475 45 614 27 860 Special Dividends Hydro-Electric Corporation2 …. …. 40 000 Motor Accidents Insurance Board 6 000 3 000 3 000 Sub-total 6 000 3 000 43 000 Tax Equivalents Aurora Energy Pty Ltd3 …. …. 9 000 Civil Construction Corporation 875 438 30 Forestry Tasmania 5 772 3 467 5 175 Hydro-Electric Corporation2 45 500 35 159 28 451 HEC Enterprises Corporation …. 119 …. Metro Tasmania Pty Ltd 425 348 348 Motor Accidents Insurance Board …. 32 40 The Public Trustee 20 11 60 Stanley Cool Stores Board 90 146 80 Tasmanian Public Finance Corporation 1 469 2 707 30 Totalizator Agency Board 378 275 93 Transend Networks Pty Ltd3 …. …. 7 300
Notes: 1. The 1998-99 figures for Forestry Tasmania, the Hydro-Electric Corporation (HEC) and the Motor Accidents Insurance Board reflect a reduced dividend payout ratio. 2. Following the restructuring of the HEC, in 1998-99 the HEC will make a special dividend of $40 million and will pay $16.9 million in dividends, $28.5 million in tax equivalent payments, and $2.9 million in guarantee fees. Transend Networks Pty Ltd will pay an estimated $7.3 million in tax equivalent payments. Aurora Energy Pty Ltd will pay $9.0 million in tax equivalent payments and $1.0 million in guarantee fees. 3. Aurora Energy Pty Ltd and Transend Networks Pty Ltd were established on 1 July 1998.
66 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 Table 4.4: Consolidated Fund Receipts, 1997-98 and 1998-99 (continued) 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Tax Equivalents (continued) TT Line 209 240 252 Port Corporations 263 269 313 Water Supply Authorities 7 47 12 Other GBEs 63 66 72 Sub-total 55 071 43 324 51 256 Guarantee Fees Aurora Energy Pty Ltd …. …. 1 000 Forestry Tasmania …. 12 6 Hydro-Electric Corporation 4 400 3 994 2 888 Metropolitan Transport Trust 42 37 37 The Public Trustee 10 9 …. Port Corporations 100 174 223 Water Supply Authorities 309 208 80 Other GBEs 2 2 …. Sub-total 4 863 4 436 4 234 Total Recoveries from Government Business Enterprises, State-owned Companies and State authorities 93 409 96 374 126 350
Departmental Fees and Recoveries Health and Human Services 937 766 937 Education1 12 265 9 205 7 843 Justice and Industrial Relations 8 483 8 138 8 005 Police 520 328 260 Premier and Cabinet 7 20 2 Primary Industries, Water and Environment2 25 928 23 866 22 004 State Development 5 970 6 866 4 609 Infrastructure, Energy and Resources3 26 359 27 129 25 974 Treasury and Finance 312 402 310 Total Departmental Fees and Recoveries 80 781 76 720 69 944
Notes: 1. TAFE Tasmania, now part of the Department of Education, became a statutory authority on 1 January 1998 and is able to retain fees previously collected by the former Department of Vocational Education and Training. 2. The Department of Primary Industries, Water and Environment is to retain Park User Fees in 1998-99. 3. The Bruny Island Ferry Service has been transferred to the private sector and as a result, the Department of Infrastructure, Energy and Resources will no longer collect the revenue from fares charged to the users of the service.
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 67 Table 4.4: Consolidated Fund Receipts, 1997-98 and 1998-99 (continued) 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Recoveries of State Debt Charges Interest 35 000 35 135 29 232 Sinking Fund Recoveries 1 973 2 056 1 700 Total Recoveries of State Debt Charges 36 973 37 191 30 932
Sale and Rent of Government Property Crown Lands Administration Fund1 14 633 15 000 22 834 Rent of Education Properties 360 279 250 Rent of Police Quarters 550 488 500 Total Sale and Rent of Government Property 15 543 15 767 23 584
Resource Rents and Royalties Mineral Royalties2 7 750 8 190 10 000 Rent and Fees from Mineral Lands 770 781 770 Storage of Explosives and Inflammable Liquids 227 202 226 Water Royalties 1 375 1 382 1 525 Total Resource Rents and Royalties 10 122 10 555 12 521
Other Recurrent Receipts Dividends on Investments 112 66 …. Fines and Fees 3 000 2 732 3 000 Fines - Infringement Notices 7 700 5 430 5 500 Interest on Investments - Rivers and Waters Supply Commission 40 19 19 Interest on Investments - Treasury and Finance 1 500 1 846 2 000 Interest on Investments - Trust Bank 1 000 1 133 1 000 Government Prices Oversight Commission: Recoveries 200 246 457 Recoveries from Departmental Business Units3 1 218 2 371 225
Notes: 1. The increase in the estimate for the Crown Lands Administration Fund reflects the proceeds from the anticipated sale of the Government owned interstate Travel Centres during 1998-99. 2. The increase reflects the implementation of the next stage of the new mineral royalty regime that was negotiated with industry in mid 1997. 3. The revenue primarily relates to a charge levied on the capital value of TASFleet vehicles. The 1997-98 estimate was based on the assumption that the Government light vehicle fleet, managed through TASFleet, would be sold during 1997-98. However, the sale was not finalised during 1997-98 and accordingly, revenue was $1.2 million higher than anticipated.
68 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 Table 4.4: Consolidated Fund Receipts, 1997-98 and 1998-99 (continued) 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Other Recurrent Receipts (continued) Return of Funds to the Public Account1 9 725 9 725 …. Stamp Duties - Instalment Payments 1 700 2 037 2 100 Trust Bank Repayment …. 69 …. Unclaimed Moneys Act 1918 50 2 …. Miscellaneous 750 981 899 Funding for the 27th Pay2 …. …. 13 027 Total Other Recurrent Receipts 26 995 26 657 28 227
Capital Repayments Finance-General Closer Settlement Act 1957 - Capital Advances 196 207 5 Community Centres Loans Act 1959 4 2 1 Elderly Citizens' Clubs and Youth Centres Act 1966 1 …. …. Homes Act 1935 - Part IV 4 220 4 182 4 220 Midway Point Improvement Act 1975 25 53 25 Public Bodies Assistance Act 1971 515 1 291 915 State Loans and Loan Guarantees Act 1976 32 24 40 Tourism and Recreation Development Act 1977 34 34 37 Private Forests Loans 100 85 100 Total Capital Repayments 5 127 5 878 5 343
Total State Sources 914 969 907 572 960 965
Total Receipts 1 961 320 1 945 486 2 025 953
Notes: 1. In 1997-98, funds previously held by the former Department of Vocational Education and Training outside the Public Account were returned to the Consolidated Fund. 2. In 1998-99 the Department of Health and Human Services is liable to meet the cost of 27 pay periods. This receipt to the Consolidated Fund is funded from a special purpose account in the Special Deposits and Trust Fund within which funds to meet the 27th pay are accumulated.
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 69 EXPENDITURE
Expenditure in 1998-99 is expected to be $2 044.4 million, an increase of $58.1 million or 2.9 per cent over actual expenditure in 1997-98 of $1 986.3 million.
Table 4.5: Consolidated Fund - Summary of Estimated Expenditure 1998-99 1997-98 1997-98 1998-99 Estimate Actual Estimate Variation $'000 $'000 $'000 % Recurrent Services Appropriation Act 1 722 438 1 723 753 1 772 287 2.8 Reserved by Law 133 673 120 086 133 056 10.8 1 856 111 1 843 839 1 905 343 3.3 Works and Services Appropriation Act 142 783 142 417 139 050 (2.4) Total Expenditure 1 998 894 1 986 256 2 044 393 2.9
State Service Restructuring Following the State Election in August 1998, the new Government initiated a number of changes to the administrative structures of departments. The Tasmanian State Service (Restructuring) Order (No. 2) 1998 was introduced to implement the Government's new agency structure. The Budget Papers present all departmental information in the form of the new structure.
More detailed information on the restructuring of the State Service is provided in Chapter 1 of Budget Paper No 2 Operations of Government Departments 1998-99.
Chart 4.5 shows estimated total Consolidated Fund expenditure for 1998-99 and the percentage of the total expenditure for each major agency component.
70 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 Chart 4.5: Consolidated Fund Expenditure 1998-99
Primary Industries, Water and Environment $90.8m (4.4%) Education $555.6m (27.2%) Infrastructure, Energy and Justice and Resources $162.2m Industrial (7.9%) Relations $50.9m (2.5%)
Other $427.8m Police $96.3m (20.9%) (4.7%)
State Development $77.7m (3.8%)
Health and Human Services $583.0m (28.5%)
The above chart reflects estimated Consolidated Fund expenditure for 1998-99 in accordance with the new agency structure implemented under the Restructuring Order.
The 'Other' category includes expenditure on the Executive and Legislature, core Government services provided by the Department of Premier and Cabinet and the Department of Treasury and Finance, and Finance-General expenditure.
Further detail of expenditure is provided in Table 4.6. A listing of all Reserved by Law items of expenditure is provided in Table 4.7. Descriptions of the activities of departments funded through the Consolidated Fund are provided in Budget Paper No 2 Operations of Government Departments 1998-99.
Recurrent Services Total expenditure on recurrent services is estimated at $1 905.3 million in 1998-99. This is $61.5 million or 3.6 per cent higher than 1997-98 expenditure.
A $6.0 million provision has been included in the Finance-General Division for unbudgeted wage increases which may occur during 1998-99.
An allocation of $20 million has been made to the Treasurer's Reserve to provide for other unanticipated expenditures that may arise during 1998-99, the same level as in 1997-98. This reflects provision for unanticipated outlays which may impact on the 1998-99 Budget, and which cannot be included in specific expenditure items, and to provide a buffer in the event that revenue shortfalls occur.
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 71 Works and Services Estimated expenditure on Works and Services for 1998-99 is $139.1 million. This represents a decrease of $3.3 million, or 2.3 per cent, against 1997-98 expenditure of $142.4 million.
Funding for the Capital Investment Program can vary significantly from year to year due to the size and construction timetable of the projects involved. The reduction in funding for the Capital Investment Program in 1998-99 is due to the completion, in 1997-98, of several major developments including the Antarctic and Southern Ocean Centre and the Hobart Magistrates Court. The emphasis of the Capital Investment Program in 1998-99 is on maintaining the State's asset stock. This approach will result in a significant amount of work being undertaken through smaller projects.
More detailed information in relation to the Capital Investment Program is provided in Chapter 6 of this Budget Paper.
Table 4.6 provides a summary of total expenditure from the Consolidated Fund by department. Details of expenditure on Reserved by Law items are shown in Table 4.7.
72 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 73 Expenditure under Reserved by Law items is not included in the annual Appropriation Act. The authority to spend from these items is provided by the legislation under which the particular items are established.
Table 4.7: Estimated Expenditure on Reserved by Law Items 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000
Finance-General Pensions payable under the Solicitor-General Act 1983 62 59 64 Payment to the Parliamentary Superannuation Fund and Parliamentary Retirement Benefits Fund (Parliamentary Superannuation Act 1973 and Parliamentary Retiring Benefits Act 1985) 2 825 1 848 2 343 Pensions payable under the Judges' Contributory Pensions Act 1968 470 534 621 Interest payable in Australia on Commonwealth Stock and Bonds raised on behalf of Tasmania (Financial Agreement Act 1927) 48 470 48 461 39 790 Refund to the Commonwealth of charges incurred in respect of Commonwealth Stock and Bonds raised or refinanced on behalf of Tasmania (Financial Agreement Act 1927) 35 9 35 Contribution payable to the Debt Retirement Reserve Trust Account (Financial Agreement Act 1994) 3 677 3 675 2 912 Payments to Municipalities under the Local Government (Rates and Charges Remissions) Act 1991 11 350 11 503 11 910 Appropriation to the Treasurer's Reserve (Public Account Act 1986, Section 11 (2)) 10 000 …. 10 000 Payment under the Beauty Point Landslip Act 1970 20 20 20 Financial Assistance under the Rosetta Landslip Act 1991 300 29 300 Contribution to the Superannuation Provision Account (Retirement Benefits Act 1993, Section 13) 38 343 38 343 46 914 Pension payable under the Governor of Tasmania Act 1982 17 17 19 Payments under the Stamp Duties Act 1931 (Section 18c) 2 000 2 014 2 100 Total 117 569 106 512 117 028
House of Assembly Parliamentary Salaries and Allowances (Parliamentary Salaries and Allowances Act 1973) 3 406 3 197 2 405 Travelling Allowances (Parliamentary Salaries And Allowances Act 1973) 109 98 109 Members' Committee Fees and Allowances (Parliamentary Salaries and Allowances Act 1973) 31 23 31 Total 3 546 3 318 2 545
74 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 Table 4.7: Estimated Expenditure on Reserved by Law Items (continued) 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Infrastructure, Energy and Resources Contributions towards Construction of Streets in Towns by Municipal Councils (Local Government Act 1993) 52 31 52
Justice and Industrial Relations Salaries of Magistrates (Magistrates Court Act 1987) 1 922 1 877 1 988 Salaries of Judges (Supreme Court Act 1887) 1 290 1 206 1 349 Salary and Travelling Allowance, Master of the Supreme Court (Supreme Court Act 1959) 172 171 181 Salary, Solicitor-General (Solicitor-General Act 1983) 208 204 217 Salary, Director of Public Prosecutions (Director of Public Prosecutions Act 1973) 208 204 217 Criminal Injuries Compensation Act 1976 Section 11(4): Payments 3 512 3 224 3 512 Expenses of Parliamentary Elections and Referendums (Electoral Act 1985 and Referendum Procedures Act 1994) 2 230 484 2 433 Expenses under the Legislative Council Electoral Boundaries Act 1995 30 13 500 Expenses of Aboriginal Land Council of Tasmania Elections 5 …. 10 Total 9 577 7 383 10 407
Legislative Council Parliamentary Salaries and Allowances (Parliamentary Salaries and Allowances Act 1973) 1 728 1 626 1 724 Travelling Allowances (Parliamentary Salaries and Allowances Act 1973) 86 64 111 Members' Committee Fees and Allowances (Parliamentary Salaries and Allowances Act 1973) 43 36 40 Total 1 857 1 726 1 875
Chapter 4: Consolidated Fund Budget Estimates, 1998-99 75 Table 4.7: Estimated Expenditure on Reserved by Law Items (continued) 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Ministerial and Parliamentary Support Allowances of Ministers (Parliamentary Salaries and Allowances Act 1973) 526 525 536
Office of the Governor Salary, His Excellency the Governor (Governor of Tasmania Act 1982) 137 139 149 Salary, the Administrator (Governor of Tasmania Act 1982, Section 5(1)) 9 6 7 Total 146 145 156
Primary Industries, Water and Environment Contribution to Cressy-Longford Reserve Fund (Cressy- Longford Irrigation Act 1969, Section 3) 100 106 100
State Development Contribution under the Tasmanian Symphony Orchestra (Financial Assistance) Amendment Act 1993 144 144 148
Tasmanian Audit Office Salary and Travelling Allowance, Auditor General (Financial Management and Audit Act 1990) 156 196 209
Total Estimated Expenditure on Reserved by Law Items 133 673 120 086 133 056
76 Chapter 4: Consolidated Fund Budget Estimates, 1998-99 5FORWARD ESTIMATES
Features
The Net Financing Requirement (NFR) projections for 1999-00 to 2001-02 on a same policy basis are:
1999-00 $3.4 million surplus;
2000-01 $4.9 million surplus; and
2001-02 $14.3 million surplus.
The Forward Estimates indicate that the Government will be able to secure a modest surplus within its first term. The surplus will be used to retire debt to improve the State's financial position.
The Forward Estimates are based on the Government's policy of not introducing new taxes or increasing the rates of existing State taxes.
Chapter 5: Forward Estimates 77 FORWARD ESTIMATES 1999-00 TO 2001-02
The Forward Estimates Concept The Forward Estimates provide a mechanism for projecting expenditure and receipts which impact on the Tasmanian Government Budget, on the assumption that existing policies are maintained and that the Government’s planned objectives continue to be pursued. This is known as the 'same policy basis'. The Forward Estimates which are generated on this basis can be described as the projected expenditure and revenue outcomes if the same level of services is provided in the immediate three years following this Budget, the existing regime of taxes and charges continues, expectations of the level of Commonwealth transfer payments are realised and assumptions underlying the economic parameters are realised.
The Forward Estimates are premised on Treasury estimates of a number of economic parameters. These parameters are estimated, and regularly reviewed by Treasury, based on economic conditions and forecast movements in major economic aggregates. Beyond 1998-99, estimates of parameters are assumptions only and are not considered forecasts. Further information on forecasts of Tasmanian economic aggregates is detailed in Table 2.5 of Chapter 2 of this Budget Paper.
The Forward Estimates provide a strategic framework for budgetary decision making in the medium-term, highlight the flow-on effects of revenue and expenditure measures contained in the current year's Budget and facilitate the monitoring of achievements against existing Government strategies and objectives.
At the present time, the Forward Estimates represent estimates of Consolidated Fund revenue and expenditure only. During 1998-99, the Forward Estimates will be amended so as to provide information on a total agency resources basis. This is consistent with the full implementation of the Output methodology and also with the presentation of agency Budget information in Budget Paper No 2 Operations of Government Departments 1998-99.
It should be noted that the Forward Estimates are not prescriptive of what will happen in future years, since they are based on the assumption that existing policies, and the Government’s currently planned objectives which are incorporated in the Forward Estimates, will not change over the ensuing period. Future policy decisions, variations to the assumptions underlying economic parameters and external influences will have an impact on the Forward Estimates. In this sense, the Forward Estimates are projections rather than forecasts.
Impact of the New Government's Policy Initiatives The expenditure reported in this chapter includes the significant Government policy initiatives initially announced during the 1998 Election and implemented by the new Government in this Budget. The information provided in this chapter is prepared entirely on the basis of the new agency structure implemented by the new Government. Further details in relation to the new agency structure are provided in Diagram 1.1 of Chapter 1 of Budget Paper No 2 Operations of Government Departments 1998-99.
78 Chapter 5: Forward Estimates As outlined in the Treasurer's Budget Speech and detailed further in the Budget Papers, the Government is committed to introducing a number of important policy initiatives in the current Budget year and in the future. These policy initiatives and strategies include:
the achievement of Budget surpluses from its second Budget in 1999-00;
the continued reduction of State debt levels through a process of fiscal reform;
a strong focus on Tasmania's current economic and jobs crisis;
the development of long term industry plans;
improved consultation with the community at a number of different levels; and
the development and improvement of a range of vital services provided by the Government.
Many of these strategies and initiatives impact on the current Budget and will also impact on future years' Budgets. For example, achievement of the new Government's targets in relation to debt retirement and the Consolidated Fund surplus will strengthen the State's financial position and ensure the State's finances are managed on a long-term sustainable basis. Budget surpluses will ensure that the annual Budget result has a positive impact on the State's financial position and debt reduction to a sustainable level will allow the Government to provide a range and standard of government services comparable to other States. Decreased debt servicing costs will also allow the Government appropriate budgetary flexibility to continue to provide core government services, such as health and education, at the level expected by the Tasmanian community.
The Forward Estimates do not include the introduction of any new taxes or increased rates of existing State taxes.
Table 5.1 highlights the projected Net Financing Requirement (NFR) for each of the financial years from 1999-00 to 2001-02. The Consolidated Fund NFR outcome in 1997-98 was $37.1 million. The Budget estimate of the NFR for 1998-99 is $15.5 million. The Forward Estimates indicate that the NFR projections are consistent with the achievement of the Government’s target to realise a surplus during its first term. Table 5.2 provides detailed Forward Estimates information on an agency basis.
Chapter 5: Forward Estimates 79 Table 5.1: Consolidated Fund Forward Estimates Summary 1998-99 (Budget) 1999-00 2000-01 2001-02 $'000 $'000 $'000 $'000 Expenditure Recurrent Services1 1 902 431 1 904 836 1 933 023 1 974 315 Works and Services 139 050 136 162 136 682 137 451 Total Expenditure 2 041 481 2 040 998 2 069 705 2 111 766
Receipts Recurrent Commonwealth Sources 1 014 726 1 051 595 1 071 296 1 090 879 State Sources 955 622 940 473 950 390 982 344 1 970 348 1 992 068 2 021 686 2 073 223 Capital Commonwealth Sources 50 262 47 277 47 772 47 772 State Sources 5 343 5 054 5 115 5 115 55 605 52 331 52 887 52 887 Total Receipts 2 025 953 2 044 399 2 074 573 2 126 110
Net Financing Requirement2 15 528 (3 401) (4 868) (14 344)
Notes: 1. For the purposes of calculating the Net Financing Requirement, recurrent expenditure has been reduced by the amount of the contribution payable to the Debt Retirement Reserve Trust Account. 2. Figures in brackets represent a surplus.
80 Chapter 5: Forward Estimates Table 5.2: Consolidated Fund Forward Estimates - Expenditure Summary 1998-99 (Budget) 1999-00 2000-01 2001-02 $'000 $'000 $'000 $'000
Education 537 250 550 426 556 451 564 460 Finance-General Debt Management1 183 087 174 383 170 657 154 041 Superannuation 50 235 51 349 71 676 87 653 Employee Separation Costs2 17 000 14 000 14 000 14 000 Other Employee Related Costs 10 070 14 235 14 467 14 785 Payments to Government Business Enterprises 2 459 2 467 2 479 2 494 Other 22 272 21 475 21 505 38 517 Administered Payments 65 037 71 976 70 436 70 004 Health and Human Services3 558 016 554 105 563 182 574 930 House of Assembly 4 216 3 997 3 968 4 078 Infrastructure, Energy and Resources 84 187 82 648 82 899 83 490 Justice and Industrial Relations 50 821 49 389 49 883 50 809 Legislative Council 3 177 2 956 2 632 2 694 Legislature-General 3 229 3 267 3 295 3 352 Ministerial and Parliamentary Support 10 430 10 444 10 539 10 816 Office of the Governor 1 786 1 813 1 830 1 865 Police 95 916 98 977 99 094 101 516 Premier and Cabinet 18 434 13 690 13 528 13 787 Primary Industries, Water and Environment 88 287 86 821 87 451 89 010 State Development 71 110 70 402 68 473 67 090 Tasmanian Audit Office 209 230 253 278 Treasury and Finance 28 115 28 604 25 985 25 356 1 905 343 1 907 654 1 934 683 1 975 025
Capital Investment Program (Departments) 46 949 43 915 44 347 45 172 Roads Program 78 060 78 206 78 294 78 238 Housing Program 14 041 14 041 14 041 14 041 139 050 136 162 136 682 137 451
TOTAL 2 044 393 2 043 816 2 071 365 2 112 476
Notes: 1. Finance-General debt management expenditure includes the contribution payable to the Debt Retirement Reserve Trust Account of $2.9 million in 1998-99, $2.8 million in 1999-00, $1.7 million in 2000-01 and $0.7 million in 2001-02. 2. In addition to an ongoing amount of $14 million for the repayment of the previous Government's Employment Rationalisation Program (ERP) account, the 1998-99 Budget includes a further amount of $3 million which has been provided to fund the separation costs of Parliamentarians and former Ministerial support staff as part of Parliamentary reform. 3. The 1998-99 Budget for the Department of Health and Human Services includes a one-off provision of $13.3 million for the additional pay period occurring in 1998-99.
Chapter 5: Forward Estimates 81 Table 5.3 provides details of the estimated impact on Departments of the new Government's policy initiatives in the 1998-99 Budget and Forward Estimates. As policy initiatives are further developed and implemented, the Forward Estimates will continue to be adjusted to reflect the impact of these changes on the Budget. This will particularly be the case in relation to the implementation of the new Government's whole-of-government financial policy initiatives such as achieving a reduction in consultancy and travel expenditure, and generating savings from Parliamentary and Public Sector structural reform.
Table 5.3: Impact of the Government's Policy Initiatives on the Consolidated Fund Forward Estimates by Department 1998-99 1998-99 1999-00 2000-01 2001-02 Policy Recurrent Capital Recurrent Recurrent Recurrent $'000 $'000 $'000 $'000 $'000 Education Education 1 700 .... 4 300 4 300 4 300 Vocational Education and Training1 250 .... 500 500 500 Youth 240 .... 240 240 240 Health and Human Services2 Aged1 133 .... 265 265 265 Infrastructure, Energy and Resources Racing 1 500 .... 1 000 1 000 1 000 Transport1 250 .... 500 500 500 Justice and Industrial Relations Law Reform1 225 .... 450 450 450 Premier and Cabinet Information Technology 350 .... 350 350 350 Multicultural 60 .... 60 60 60 Women's 350 .... 350 350 350 Other3 135 100 135 135 135 Police Community Safety1 1 085 .... 2 170 2 170 2 170 Primary Industries, Water and Environment Environment 380 .... 380 380 380 Primary Industries3 270 1 017 270 270 270 State Development Art and Cultural Development1 130 .... 260 260 260 Economic Development 4 050 .... 4 550 4 550 4 550 Film and Multimedia1 500 .... 1 000 1 000 1 000 Icons1 500 .... 1 000 1 000 1 000 Northern Tasmania 306 .... 306 306 306 Small Business 225 .... 225 225 225 Sport and Recreation 200 .... 200 200 200 Tourism1 525 .... 1 050 1 050 1 050
Total 13 364 1 117 19 561 19 561 19 561
82 Chapter 5: Forward Estimates Notes: 1. Costing in 1998-99 is based on half year implementation of the policy. 2. The Department of Health and Human Services (DHHS) has been provided with an additional funding allocation of $15 million for 1998-99 and future years. 3. Capital funding was provided for the cost of establishing some policy initiatives in 1998-99.
Explanation of Major Expenditure Variations The explanations provided below should be read in conjunction with Tables 5.2 and 5.3 of this chapter.
Education The 1998-99 Budget and Forward Estimates for the Department of Education include funding for the impact of the teachers' wage case decision of $14.7 million in 1998-99 and $17.4 million in future years. In addition, funding to non-government schools has increased by $2.7 million in 1998-99, $3.8 million in 1999-00 and $4.4 million in 2000-01 and 2001-02.
The Department’s 1998-99 Budget and Forward Estimates also include provisions for a Community Service Obligation payment to the Hydro-Electric Corporation of $3 million in 1998-99 and $4.1 million in 1999-00 and future years to subsidise generation and reticulation of electricity on King and Flinders Islands.
Health and Human Services The Department of Health and Human Services has been provided with additional base funding of $15 million in 1998-99 and future years. In addition, the Department will be required to make a Community Service Agreement payment to Aurora Energy Pty Ltd in respect of pensioner concessions of $7.3 million in 1998-99 and $10 million in future years. Funding for this payment has been included in the Department's 1998-99 Budget and Forward Estimates.
Further, the Department of Health and Human Services has been provided with additional one-off funding of $13.3 million in 1998-99 for the payment of one additional fortnightly payroll. The Department's fortnightly payroll falls due in the adjacent week to all other agencies and, in this regard, it should be noted that all other agencies will be required to meet 27 payroll payments in 2003-04. The effect of this one-off funding provision for the Department of Health and Human Services is to inflate the level of funding provided in 1998-99 above that which is required in future years to continue to meet the delivery of existing services.
Finance-General Debt Management
The 1998-99 Budget and Forward Estimates relating to debt management have been revised, taking into consideration current interest rate forecasts and the maturity profile of the State's debt over the period covered by the Forward Estimates.
Employee Related Costs
The decrease in employee related costs, below the previously published Forward Estimates of expenditure for this purpose, represents the net impact of a number of factors. Principally, the decrease arises from revisions to the provision for repayments to the Employment Rationalisation Program (ERP) account in the Special Deposits and Trust Fund. The provision has been revised
Chapter 5: Forward Estimates 83 downwards by $13 million in 1998-99, $12 million in 1999-00, and $11 million in subsequent years. This is consistent with the Government's policy of ceasing redundancy programs.
The magnitude of the decrease arising from revisions to the ERP repayment is offset by an increase in the existing provision for additional funding which will be required by a number of agencies in 1998-99 and future years, following the resolution of current award wage negotiations. This additional provision is in the order of $0.9 million in 1998-99, $4.9 million in 1999-00, $5.1 million in 2000-01 and $5.4 million in 2001-02. This funding has been indexed for subsequent salary increases in the Forward Estimates for future financial years. This provision is included in the Finance-General estimates, pending the determination of the appropriate level of additional funding for specific agencies once award negotiations have been finalised.
Government Business Enterprises
The 1998-99 Budget and Forward Estimates for payments to Government Business Enterprises and Statutory Authorities reflect an annual decrease of approximately $1 million. This decrease results from the transfer of funding for Private Forests Tasmania to the Department of Infrastructure, Energy and Resources.
Other
The Government has provided additional funding of $0.8 million in 1998-99, $3.2 million in 1999-00, $3.4 million in 2000-01 and $3.6 million in 2001-02 to fund an additional subsidy to off-road users of diesel fuel. This subsidy of three cents per litre is in addition to the existing three cents per litre subsidy. It should be noted that the 1998-99 provision reflects part year funding, with the additional subsidy to commence from 1 March 1999.
House of Assembly The House of Assembly 1998-99 Budget and Forward Estimates exhibit declining estimates due to the inclusion of savings from Parliamentary reform which are estimated to be $1.07 million in 1998-99, $1.4 million in 1999-00 and $1.5 million in 2000-01 and 2001-02.
Infrastructure, Energy and Resources The 1998-99 Budget and Forward Estimates for the Department of Infrastructure, Energy and Resources include savings of $0.8 million in 1998-99 and future years as a result of contracting the operation of the Bruny Island Ferry service. This saving has been partially offset by the provision of additional funding of $0.5 million in 1998-99 and future years for the Office of Energy Planning and Conservation.
Justice and Industrial Relations The 1998-99 Budget for the Department of Justice and Industrial Relations includes one-off funding of $1.9 million provided for Parliamentary elections and $0.5 million for Legislative Council elections to be held during 1998-99. The effect of these one-off funding provisions for the Department is to inflate the level of funding provided in 1998-99 above that which is required in future years to continue to maintain existing service delivery. To this extent, the Department’s Forward Estimates, when compared with the 1998-99 Budget, reflect lower estimates.
84 Chapter 5: Forward Estimates Legislative Council The Legislative Council Forward Estimates reflect declining expenditure due to the inclusion of savings from Parliamentary reform, commencing in 1999-00. These savings are estimated to be $317 000 in 1999-00, $652 000 in 2000-01 and $665 000 in 2001-02.
Ministerial and Parliamentary Support The Ministerial and Parliamentary Support 1998-99 Budget and Forward Estimates include reduced funding due to the inclusion of savings from Parliamentary reform. These savings are estimated to be $360 000 in 1998-99 and $535 000 in future years.
Police The 1998-99 Budget and Forward Estimates for the Department of Police include additional funding for the registration and licensing of firearms, in accordance with the Firearms Act 1996, of $0.7 million in 1998-99, $1.1 million in 1999-00 and 2000-01, and $1.3 million in 2001-02. In addition, the Department's 1998-99 Budget estimate includes one-off funding for Community Safety and Crime Prevention Plans ($170 000) and Repeat Burglary Victimisation Prevention Plans ($200 000).
Premier and Cabinet The 1998-99 Budget and Forward Estimates for the Department of Premier and Cabinet include the transfer of $330 000 in 1998-99 and future years to the Department of Primary Industries, Water and Environment for the Sustainable Development Advisory Council. The Department has also been provided with $205 000 in 1998-99 and $175 000 in future years for the administration of the EnAct legislation database.
Further, one-off funding has been provided in 1998-99 for the implementation of the Regional Forests Agreement ($370 000) and the extension of Service Tasmania ($3.5 million). These additional one-off funding provisions have resulted in an inflated 1998-99 Budget estimate for the Department when compared with the Forward Estimate outyears.
Primary Industries, Water and Environment The Forward Estimates for the Department of Primary Industries, Water and Environment reflect a decrease in the 1999-00 estimates when compared with the 1998-99 Budget. This is principally due to the inclusion of one-off funding in the Department’s 1998-99 Budget in relation to the Government’s policy initiative funding as detailed in Table 5.3 and reduced 1999-00 funding of $1.1 million in relation to Land Information Services following the completion of the integration of land information.
State Development The 1998-99 Budget and Forward Estimates for the Department of State Development include significant additional funding for Call Centre Assistance Packages. This funding has been provided to meet the cost of Call Centre assistance packages negotiated by the previous Government. The 1998-99 Budget includes $8.2 million for this purpose, with the Forward Estimates of the Department including a further $5.0 million in 1999-00, $4.2 million in 2000-01 and $2.6 million in 2001-02.
The increased funding provided to the Department for Call Centre Assistance has been partially offset by savings in interest costs funded from the Consolidated Fund, amounting to $1.7 million in 1998-99, approximately $0.9 million in 1999-00, $0.3 million in 2000-01 and $0.7 million in 2001-02.
Chapter 5: Forward Estimates 85 Treasury and Finance The 1998-99 Budget and Forward Estimates for the Department of Treasury and Finance include additional funding of $3.7 million in 1998-99, $5.5 million in 1999-00, $3.0 million in 2000-01 and $2.0 million in 2001-02 for further investigation and implementation of the Basslink initiative. In addition, $1.2 million has been provided in 1998-99 and in future years to facilitate the undertaking of the functions of the Electricity Industry Regulator. When compared with the published Forward Estimates at the time of the 1997-98 Budget, the impact of the funding provisions detailed above is to significantly increase the Department’s 1998-99 Budget and Forward Estimates.
PAYE 27th Payment Supplementation 1999-00 Agencies are liable to meet 26 PAYE Taxation remittances in 1998-99, including the deductions from the last pay of 1997-98. The PAYE deduction in relation to the last pay of 1998-99 is payable in 1999-00. In this regard, in the year 1999-00, agencies will be required to remit 27 instalments to the Australian Taxation Office. Supplementary funding for the 27th PAYE instalment due in 1999-00 has been included in the Forward Estimates.
Capital Investment Program (Departments) The 1998-99 Budget and Forward Estimates of the Capital Investment Program (CIP) for departments, relative to the Forward Estimate of the CIP reported in the 1997-98 Budget Papers, reflect an increase in the CIP of $4.5 million in 1998-99 and $0.5 million in 1999-00. This increase reflects the Government's provision of additional funding, above the originally expected amount, for departmental capital works projects. Further details of the capital programs of departments in 1998-99 are provided in Chapter 6 of this Budget Paper.
Housing Program The 1998-99 Budget and Forward Estimates for Housing Program expenditure reflect a reduction of $7.4 million across all years when compared with the published Forward Estimates in the 1997-98 Budget Paper. This reduction is the result of a reduction in Commonwealth funding and matching State capital funding under the Housing Agreement. Further details of the Housing Program are provided in Chapter 6 of this Budget Paper.
Explanation of Major Revenue Variations Commonwealth Recurrent Receipts The 1998-99 Budget estimate for the Commonwealth general purpose payment Financial Assistance Grant reflects an increase of $18.7 million in comparison with the Forward Estimate as at the time of the 1997-98 Budget. The increase is due to changes in the Consumer Price Index (CPI) and national population growth outcomes. It should be noted that general purpose health care grants are included in the Financial Assistance Grants and reflect the most recent information provided by the Commonwealth regarding its offer for the Australian Health Care Agreements which Tasmania is yet to accept.
86 Chapter 5: Forward Estimates There have also been a number of changes in Commonwealth Specific Purpose Payments (SPPs). Major changes include:
increase in primary and secondary education recurrent grant - $2.2 million;
increase in recurrent funding for pensioner concessions - $1.2 million;
increase in recurrent TAFE funding - $0.9 million; and
increase in recurrent Health related SPPs - $1.0 million.
The variation to the Forward Estimates of Commonwealth sourced revenue also reflects the information provided in the Commonwealth Budget, in May 1998, and revised forecasts of economic parameters used by Treasury in projecting Commonwealth funding for future years.
Commonwealth Capital Receipts The 1998-99 Budget and Forward Estimates for Commonwealth capital receipts reflect a reduction across all years when compared with the published Forward Estimates in the 1997-98 Budget Paper. This reduction is the result of a reduction in Commonwealth housing funding under the Housing Agreement.
State Recurrent Receipts The increase in the 1998-99 Budget and Forward Estimates of State sourced recurrent revenue relative to the 1997-98 Forward Estimate is principally due to increases in State taxation receipts, recoveries from Government Business Enterprises, State-owned Companies and State authorities, and additional revenue from mineral royalties. These increases have been marginally offset by reduced departmental fees and charges revenue.
Chapter 5: Forward Estimates 87
6 STATE CAPITAL PROGRAM
Features
The planned level of the 1998-99 State Capital Program is $391.2 million.
The Capital Investment Program of departments for 1998-99 is $159.9 million, including a $31.6 million Housing Program and a $78.4 million Roads Program.
The 1998-99 Capital Investment Program reflects the continuing emphasis on the maintenance of the State's capital stock through smaller, labour intensive projects.
$6.5 million has been provided in 1998-99 to fund essential maintenance projects for public assets.
$3.8 million has been provided to agencies in 1998-99 to cover specific Building Services Maintenance obligations.
Government Business Enterprises, State-owned companies and State authorities have an estimated capital program of $235.4 million in 1998-99.
Chapter 6: State Capital Program 89 STATE CAPITAL PROGRAM
The State Capital Program comprises the capital programs of Government Business Enterprises (GBEs), State-owned companies (SOCs) and State authorities, and the Capital Investment Program (CIP). The CIP includes major capital works of government departments, the roads program, expenditure for public housing and major maintenance works.
The emphasis of the CIP in 1998-99 is on maintaining the State's asset stock. This approach will result in a significant amount of work being undertaken through smaller projects. These smaller projects are more labour intensive than large projects, which often rely more on capital intensive processes.
Total expenditure under the State Capital Program in 1997-98 was $389.4 million. However, this figure included $13.3 million in unexpended funds which were carried forward into 1998-99. The total expenditure planned under the State Capital Program for 1998-99 is $391.2 million. Compared to the 1997-98 State Capital Program, the State Capital Program in 1998-99 includes an increase in the capital programs of GBEs, SOCs and State authorities of $6.0 million and an increase in the Housing Program (largely funded from carry forward expenditure), offset by a reduction in the Roads Program due to a decrease in Commonwealth funding. State funding to the Roads Program has been maintained. The total capital program for departments is largely unchanged.
Several major developments in the CIP for government departments were completed during 1997-98, including the Antarctic and Southern Ocean Centre and the Hobart Magistrates Court. However, these projects have been offset by major capital expenditure planned for 1998-99 on the Port Arthur Historic Site Management Authority Visitors' Centre, the second stage of the Royal Tasmanian Botanical Gardens Visitor Centre and the Launceston Institute of TAFE redevelopment.
Funding for the State Capital Program has a tendency to vary significantly from year to year due to the size and construction timetable of the projects involved. This needs to be kept in mind when making inter-year comparisons of the level of capital works, particularly at the level of individual departments.
In framing the overall State Capital Program, the following approach has been adopted:
for departments, priority has been given to those projects which:
− meet essential community needs;
− are consistent with the Government's priorities; or
− lead to savings in operating costs; and
for GBEs and State authorities, debt funding of projects has been minimised. However, SOCs will incur some private borrowings to finance capital projects.
Table 6.1 provides a summary of the sources and applications of funds under the State Capital Program.
90 Chapter 6: State Capital Program Table 6.1: State Capital Program - Summary 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Sources of Funds Capital Investment Program State Funding - Brought Forward1 8 606 8 606 13 343 - Consolidated Fund2 92 611 89 509 88 788 - Other 52 8 573 7 350 Commonwealth Funding 58 253 53 325 50 462 159 522 160 013 159 943
GBEs, SOCs and State authorities Private Borrowings 12 000 14 900 18 239 Internal and Other Funds3,4 170 840 214 488 213 013 182 840 229 388 231 252 Total Funds 342 362 389 401 391 195
Application of Funds Capital Investment Program Capital Investment Program (Departments)3,4 48 296 45 831 45 801 Roads5 79 060 80 206 78 437 Housing 32 166 20 633 31 573 Total Capital Investment Program 159 522 146 670 155 811 Approved Carried Forward Expenditure .... 13 343 .... 159 522 160 013 155 812 GBEs, SOCs and State authorities3,4 182 840 229 388 235 384 Total Expenditure 342 362 389 401 391 195
Notes: 1. In 1997-98, total funds of $13.3 million were carried forward to 1998-99 in accordance with section 8A(2) of the Public Account Act 1986 or within agencies' operating accounts. These funds relate to the following projects: $'000 $'000 Dental Services Statewide 359 Kelham Street Dental Clinic 97 Ashley Youth Detention Centre 166 DHHS Building Services Maintenance 10 Fire Services Statewide 420 Royal Hobart Hospital Stage 1 4 Royal Hobart Hospital Stage 2 178 Clarence Child Care Centre 460 Hobart Magistrates Court 313 Risdon Prison fire restoration 25 Challenger refit 32 Whole-of-government maintenance 377 Nixon St Primary School 43 2 484 Capital Investment Program (Housing) 10 832 Capital Investment Program (Roads) 27 TOTAL 13 343
Chapter 6: State Capital Program 91 2. Total Works and Services expenditure attributable to the Consolidated Fund Appropriation Act in 1997-98 was $142.4 million. $52.9 million of this amount was Commonwealth Government funding appropriated through the Consolidated Fund. In 1998-99, the total Consolidated Fund Works and Services allocation is $139.1 million, including $50.3 million in Commonwealth funding. 3. The total allocation for the Capital Investment Program (Departments) is sourced from a number of areas. These are: $'000 Consolidated Fund Appropriation 46 949 add Approved Carried Forwards 2 484 add Local Government contribution to Cygnet Primary 500 less Consolidated Fund applied to GBEs' Capital Program (4 132) TOTAL 45 801
4. It should be noted that the capital expenditure expected to be incurred by the Port Arthur Historic Site Management Authority during 1998-99 has been funded from the Consolidated Fund and appropriated to the Department of State Development. This funding has been included in the source of funds section in this Table as Consolidated Fund, and as a GBE capital expenditure in the application of funds section. Total Capital Investment Program expenditure by departments is $49.9 million, including the funding provided to the Port Arthur project. 5. The 1998-99 total allocation for the Capital Investment Program (Roads) is sourced from a number of areas. These are: $'000 Consolidated Fund Appropriation 78 060 Departmental Operating Revenue 150 Approved Carried Forwards 27 Commonwealth funding paid directly to the Department of Infrastructure, Energy and Resources 200 TOTAL 78 437
GOVERNMENT DEPARTMENTS
Sources of funds For the 1998-99 financial year, capital programs for departments will be funded from a combination of:
• Consolidated Fund appropriations;
• funds carried forward in accordance with section 8A(2) of the Public Account Act 1986;
• Commonwealth funding in relation to certain projects and programs. These funds are paid into the Consolidated Fund and are subsequently appropriated to the relevant departments; and
• direct financial assistance from the Commonwealth. These funds are paid into the Operating Accounts of the relevant department.
Details of the sources of capital funds for departments are shown in Table 6.2.
92 Chapter 6: State Capital Program Table 6.2: Capital Investment Program - Summary of Source of Funds (including Housing and Roads) 1997-98 Actual 1998-99 Estimate Common- Common- Department wealth State Total wealth State Total $'000 $'000 $'000 $'000 $'000 $'000
Education 10 365 6 037 16 403 13 180 6 206 19 386 Health and Human Services1 14 807 12 479 27 286 9 517 34 190 43 707 Infrastructure, Energy and Resources 28 153 52 053 80 206 27 765 50 672 78 437 Justice and Industrial Relations .... 5 097 5 097 .... 432 432 Legislature-General ...... 375 375 Office of the Governor .... 8 8 .... 8 8 Police .... 676 676 .... 376 376 Premier and Cabinet ...... 600 600 Primary Industries, Water and Environment .... 1 905 1 905 .... 2 537 2 537 State Development .... 7 933 7 933 .... 6 607 6 607 Treasury and Finance .... 7 157 7 157 .... 7 478 7 478
TOTAL2,3 53 325 93 345 146 670 50 462 109 481 159 943
Notes: 1. Funding for the Clarence Child Care Centre has been transferred from the Department of Health and Human Services to the Department of Education. 2. The total actual funding from the State in 1997-98 differs from Table 6.1 by $13.3 million due to the impact of unexpended funds which are not included for the purposes of summarising the sources of capital expenditure funds in this Table. 3. It should be noted that the capital expenditure expected to be incurred by the Port Arthur Historic Site Management Authority of $4.1 million in 1998-99 has been funded from the Consolidated Fund and appropriated to the Department of State Development. This funding has been included in this Table as Consolidated Fund funding, although it relates to GBE capital expenditure and is also reported in Table 6.9.
Application of Funds Capital expenditure by departments provides for the development and maintenance of public facilities for the community and public infrastructure to facilitate economic activity.
During 1996-97, the Project Initiation Process (PIP) was introduced to facilitate the rigorous evaluation of proposals for capital investment by departments. All proposed CIP projects must have a PIP completed to gauge the viability of the proposed project.
The PIP includes a review of:
service delivery;
alternative asset solutions; and
capital budgeting and risk.
Chapter 6: State Capital Program 93 The inherent benefits of the PIP are:
that the Government receives the best value from its capital expenditure by requiring an analysis of needs, risk and cost of more than one development option before an investment is approved;
the promotion of efficient and effective planning of service delivery strategies and resource allocation by agencies;
the clear definition and documentation of the criteria which will be applied to determine project viability and to support project justification;
the encouragement of innovative service delivery options; and
the provision of an audit trail of the processes followed to arrive at the option proposed.
Before projects can be placed on the CIP, a number of criteria must be addressed by departments in the PIP. Departments must ensure that:
• non-build alternatives, which produce the same service delivery, are considered;
• projects are specifically related to approved Outputs and show the extent and nature of the service that will be delivered as a result of developing the project;
• the project complements the Strategic Asset Management Plan of the relevant department;
• the relationship of the project to the Corporate Plan of the relevant department is identified;
• the total project cost, including the life cycle costs such as maintenance and upgrade, is identified; and
• the project timetable is clearly established.
Guidelines have been introduced to ensure that a greater degree of accountability is evident in all capital projects undertaken by departments on behalf of the Government. The guidelines also seek to give greater transparency to the decision making process.
The total estimated expenditure for the CIP by departments in 1998-99 is $159.9 million.
Table 6.3 provides a comparison of the estimated and actual expenditure for 1997-98 and estimated expenditure for 1998-99 by departments. This Table does not include details in relation to capital investment in Roads and Housing, which are detailed in Tables 6.6 and 6.7 respectively.
94 Chapter 6: State Capital Program Table 6.3: Capital Investment Program (Departments) - Summary 1997-98 1997-98 1998-99 Department Estimate Actual Estimate $'000 $'000 $'000
Education1 17 260 16 403 19 386 Health and Human Services2 8 373 6 653 12 134 Infrastructure, Energy and Resources3 26 ...... Justice and Industrial Relations 5 162 5 097 432 Legislature General ...... 375 Office of the Governor 8 8 8 Police4 376 676 376 Premier and Cabinet ...... 600 Primary Industries, Water and Environment 1 906 1 905 2 537 State Development5 7 650 7 933 6 607 Treasury and Finance 7 535 7 157 7 478
TOTAL6 48 296 45 831 49 933
Notes: 1. Capital expenditure by the Department of Education was below Budget in 1997-98 due to a delay in the receipt of Commonwealth funding in respect of the Launceston Institute of TAFE. Under expenditure in this area was partially offset by additional expenditure required as a result of fires at the Nixon Street and Springfield Gardens Primary Schools. 1998-99 expenditure includes $500 000 from Local Government for the Cygnet Primary School development. 2. Under expenditure by the Department of Health and Human Services related, in the most part, to the Clarence Child Care facility (which has been transferred to the Department of Education in 1998-99), the Ashley Youth Detention Centre, Kelham Street Dental Clinic and Fire Services projects. Unexpended funds for these projects will be carried forward into 1998-99. 3. During 1997-98, it was agreed that the Building Services Maintenance allocation of the Department of Infrastructure, Energy and Resources would become recurrent funding and would not appear as a Works and Services allocation to remove potential confusion with the Roads Program. 4. The Department of Police was allocated additional capital funding to provide for the relocation of the Marine Police Division from the Hunter Street property to allow for the development of that site. 5. The budget for the Antarctic and Southern Ocean Centre was exceeded due to final works required on the Centre prior to its sale to Dreamworld. 6. Total Capital Investment Program expenditure in this Table differs from Table 6.1 due to the following: 1998-99 Budget $'000 Table 6.1 Capital Investment Program (Departments) 45 801 Port Arthur Historic Site Management Authority 4 132 Table 6.3 Total 49 933
Details of the projects of departments included in the CIP are contained in Table 6.4, which lists individual projects for each department and includes information on individual projects with respect to the estimated total cost and estimated expenditure for 1998-99.
Chapter 6: State Capital Program 95 Table 6.4 reflects details of the estimated cost of projects at the time of the 1998-99 Budget. Estimated costs will vary as projects proceed to tender and some re-scheduling of individual projects is likely to occur during the year. This may allow some expenditure to occur against projects which are programmed to go to tender late in the financial year and for which funds are not currently provided in 1998-99.
Table 6.4: Capital Investment Program (Departments) - Project Details Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF EDUCATION
Huonville Primary School 1 776 558 Completion Due: December 1998 This project provides for the redevelopment of existing classroom accommodation. The works include extensions to incorporate the provision of practical activity and withdrawal areas.
Multi sites - fire services upgrade 1 017 339 Completion Due: May 2000 Funding has been provided for the upgrading of the fire services at various sites and will provide a safer environment for staff and students.
Multi sites - electrical installations upgrade 2 259 752 Completion Due: April 2001 Funding has been provided for the replacement and upgrading of switchboards and cabling at various sites.
Multi sites - dust and fume extraction 2 006 500 Completion Due: April 2000 Funding has been provided for the upgrading of mechanical services equipment associated with dust and fume extraction in schools and associated facilities.
Brighton Primary School 1 473 1 473 Completion Due: May 1999 This project caters for a predicted increase in enrolments and improvements to general facilities of the school, including the replacement of temporary structures.
96 Chapter 6: State Capital Program Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF EDUCATION (continued)
Cosgrove High School 2 518 120 Completion Due: April 2000 Funding has been provided for the redevelopment of specialist teaching facilities, including materials, design and technology (MDT), science and home economics.
Cygnet Primary School 1 965 1 965 Completion Due: June 1999 This project caters for the predicted increase in enrolments and improvements to general facilities of the school. The project also includes a joint development with the Huon Valley Council to provide indoor sporting facilities.
George Town High School 818 92 Completion Due: February 1999 This project will upgrade home economics, science, business studies, information technology and other specialist areas.
Glenora District High School 570 40 Completion Due: January 2000 Funding has been provided for the upgrading of primary classroom accommodation and an extension to the existing library accommodation.
Latrobe High School 527 44 Completion Due: December 1998 This funding provides for the completion of the project to refurbish and modernise the science teaching facility.
Lilydale District High School 1 482 1 482 Completion Due: May 1999 This project encompasses the construction of five primary classrooms to relace existing temporary accommodation and the upgrade of specialist teaching areas including home economics, science, materials, design and technology (MDT) and art.
Chapter 6: State Capital Program 97 Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF EDUCATION (continued)
Lindisfarne North Primary School 251 20 Completion Due: December 1999 This project provides for the provision of additional classrooms in conjunction with the redevelopment of adjacent schools.
Lindisfarne Primary School 542 41 Completion Due: January 2000 This project provides for the redevelopment of existing classrooms in conjunction with the project at Lindisfarne North Primary School to cater for increased demand in the Lindisfarne/Old Beach area.
Parklands High School 361 361 Completion Due: May 1999 Funding is provided for the rehabilitation of the MDT area with the refurbishment of the MDT block to current standards, including ventilation, mechanical and electrical services.
Perth Primary School 567 54 Completion Due: January 2000 Funding will allow for the provision of permanent accommodation as a second stage in the establishment of this school on one site. Older demountable classrooms will be replaced with permanent buildings.
Sheffield District High School 1 033 88 Completion Due: March 2000 This project provides for the construction of a performing arts centre in conjunction with support from Local Government.
Sorell District High School 1 133 78 Completion Due: February 2000 This project provides for the refurbishment of the MDT block to current standards including ventilation, mechanical and electrical services. The project also includes upgrading technology, computing and design, and middle school accommodation.
98 Chapter 6: State Capital Program Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF EDUCATION (continued)
Summerdale Primary School 1 550 1 550 Completion Due: May 1999 This project replaces a proposal to develop a new school in the Prospect Vale area. Redevelopment of the library will occur with the addition of new classrooms and a new staffroom to cater for predicted enrolments.
The Don College 1 671 271 Completion Due: January 2000 Funding is provided for the replacement of terrapin buildings with permanent structures to provide a performing arts, gymnasium and sports science facility.
Westbury Primary School 581 40 Completion Due: December 1999 This project provides for the upgrade of library services, electrical and toilet facilities and the refurbishment of classroom accommodation.
Nixon Street Primary School 1 228 43 Completion Due: December 1999 Additional funding was provided in 1997-98 to rebuild the Nixon Street Primary School following fire. Expenditure in 1998-99 represents final expenditure on the project which was carried forward from 1997-98.
Launceston Institute of TAFE redevelopment 10 070 6 320 Completion Due: December 1998 This project provides for the refurbishment of level 2 of the former Senior Secondary College Block A and parts of Blocks B and C to accommodate administration, fashion, hair and beauty and student services. These functions are presently accommodated in the city campus. Part of the city campus will be refitted to accommodate business services and promote flexible use of the site.
Chapter 6: State Capital Program 99 Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF EDUCATION (continued)
North West Institute of TAFE New Resource and Flexible Learning Centre 850 590 Completion Due: December 1998 This project is to refurbish the resource centre and to relocate TAFE Training Services and Marketing, which is currently located in temporary transportable accommodation. Staff accommodation for engineering services and student services will also be redeveloped. Incorporated in the project is the creation of a new Technology Centre encompassing a library, computer managed learning facilities and a student study area with extended access for a computer managed flexible learning environment.
Clarence Child Care Centre 460 460 Completion Due: June 1999 This project relates to the Commonwealth/State National Child Care Strategy which has seen child care centres established in most urban centres in the State over the last four years. The Centres are generally operated by non-government organisations under an agreement with the Commonwealth Government and the State Government.
Building Services Maintenance 2 105 From 1997-98, funding previously managed centrally for Building Services Maintenance has been devolved to agencies to facilitate agency management of these obligations.
TOTAL 19 386
100 Chapter 6: State Capital Program Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF HEALTH AND HUMAN SERVICES
Royal Hobart Hospital (RHH) - Stage 1 15 400 4 Completion Due: November 1998 This project involves the extension of the existing Nurses Home Building at the RHH to provide additional wards, with a new wing providing beds, six new theatres, car parking and support services functions. Expenditure in 1998-99 represents the final stages of the project which were carried forward from 1997-98.
Royal Hobart Hospital (RHH) - Stage 2 17 953 9 178 Completion Due: June 1999 This project is a continuation of the work commenced in 1995 to improve the functional efficiencies of the RHH and provide contemporary accommodation for the in-patients and out-patients using the facility. The project involves a sequential upgrading of sections of the building to improve the functional collocation of departments and to place out-patients facilities adjacent to corresponding in-patients facilities to improve service delivery.
Ashley Youth Detention Centre 415 415 Completion Due: December 1998 This project involves the upgrading of the high supervision, general security and amenities areas of the Centre. This includes installation of adequate heating and ventilation, replacement of wiring, flooring, surveillance, communications and heavy plate glass windows.
Fire Services Statewide 860 820 Completion Due: June 1999 The Department is currently undertaking a survey of its buildings, seeking advice from an independent expert and consulting with the Tasmanian Fire Service, in developing a general upgrading program.
Chapter 6: State Capital Program 101 Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF HEALTH AND HUMAN SERVICES (continued)
Dental Services - Statewide 1 209 949 Completion Due: December 1999 This project involves the upgrading of existing facilities and collocating with other health services in sites such as community health centres. An upgraded mobile service will be provided to designated remote areas. A clinic will also be provided in Burnie.
Kelham Street Dental Clinic 660 97 Completion Due: December 1998 The Launceston Kelham Street Dental Clinic was constructed in 1975 and is the principal dental clinic in the north of the State. This project provides for the completion of the major refurbishment of the Clinic from funds carried forward from 1997-98.
Challenging Behaviour Residences 1 226 533 Completion Due: December 1999 Challenging Behaviour Residences are purpose built accommodation units to provide short-term safe and secure accommodation for young people and children who are in danger of damaging themselves, other people and property.
Triabunna Health Centre 615 50 Completion Due: May 2000 This project will provide a new purpose built Centre. The Centre will be located on land donated by the Glamorgan/Spring Bay Council and will provide upgraded facilities for health care for East Coast residents.
Building Services Maintenance 88 From 1997-98, funding previously managed centrally for Building Services Maintenance has been devolved to agencies to facilitate agency management of these obligations.
TOTAL 12 134
102 Chapter 6: State Capital Program Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF JUSTICE AND INDUSTRIAL RELATIONS
Hobart Magistrates Court - Stage 1 7 659 313 Completion Due: January 1999 This project provides improved measures of security for remandees, secure levels of access to remandees by the public and legal service providers and reduces existing demands on Risdon Prison. Expenditure in 1998-99 represents the final stages of the project with funding carried forward from 1997-98.
Risdon Prison 189 25 Completion Due: January 1999 This project replaces workshop, equipment and vehicles destroyed by fire at Risdon Prison in February 1997. Expenditure in 1998-99 represents the final funding for the project and is carried forward from 1997-98.
Building Services Maintenance 94 From 1997-98, funding previously managed centrally for Building Services Maintenance has been devolved to agencies to facilitate agency management of these obligations.
TOTAL 432
LEGISLATURE-GENERAL
Parliament House Maintenance 375 375 Completion Due: October 1999 This project provides access for disabled persons to the principal spaces of Parliament House through the installation of a lift. This will overcome problems resulting from differing floor levels that exist within the Parliament House.
TOTAL 375
Chapter 6: State Capital Program 103 Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 OFFICE OF THE GOVERNOR
Building Services Maintenance 8 From 1997-98, funding previously managed centrally for Building Services Maintenance has been devolved to agencies to facilitate agency management of these obligations.
TOTAL 8
DEPARTMENT OF POLICE
Building Services Maintenance 376 From 1997-98, funding previously managed centrally for Building Services Maintenance has been devolved to agencies to facilitate agency management of these obligations.
TOTAL 376
DEPARTMENT OF PREMIER AND CABINET
Service Tasmania Shopfront 600 600 Completion Due: December 1998 Service Tasmania will use these funds to meet fit out and refurbishment costs at its shop sites at Glenorchy, Launceston, Devonport and Burnie.
TOTAL 600
104 Chapter 6: State Capital Program Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF PRIMARY INDUSTRIES, WATER AND ENVIRONMENT
Ben Lomond Road 602 292 Completion Due: May 1999 This project provides for remedial and maintenance works to the Jacobs Ladder section of the Ben Lomond ski fields access road. The Jacobs Ladder section is an essential part of the only vehicle access to the Ben Lomond ski fields.
Royal Tasmanian Botanical Gardens Visitor Centre 1 580 1 301 Completion Due: December 1998 This project involves the construction of a Visitor Centre at the Botanical Gardens. The Centre will provide facilities to enable visitor interpretation, education and research activities to be undertaken. The Centre will be designed to complement the gardens and offer a further tourist attraction for the State.
Hastings Cave State Reserve Development 590 200 Completion Due: November 1999 This project relates to the construction of a Visitor Centre, associated vehicle parking and tourist accommodation at the Hastings Reserve as part of the program to develop the Reserve as a commercially viable operation.
Mount Field National Park Visitor Centre 953 500 Completion Due: November 1999 The purpose of this project is to provide a multi-purpose building containing state of the art interpretation and education facilities, restaurant/kiosk operations and park management offices.
Refurbishment of Fisheries Research Vehicle Challenger 459 32 Completion Due: November 1998 In 1997-98, a major refit of the fisheries vessel Challenger was completed to improves its functionality and enable it to continue its role in the Marine Resources Division. The 1998-99 estimate represents the disbursement of a carried forward deposit on a tender received in 1997-98 for the contract for the Challenger refit.
Chapter 6: State Capital Program 105 Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF PRIMARY INDUSTRIES, WATER AND ENVIRONMENT (continued)
Building Services Maintenance 212 From 1997-98, funding previously managed centrally for Building Services Maintenance has been devolved to agencies to facilitate agency management of these obligations.
TOTAL 2 537
DEPARTMENT OF STATE DEVELOPMENT
Inveresk Art Gallery 4 000 1 500 Completion Due: January 2000 This project provides for the construction of a purpose built art gallery in conjunction with the Launceston City Council. Funding will be provided over a three year period with 1998-99 being the second year of funding.
Tasmanian Symphony Orchestra - Concert Hall 975 975 Completion Due: December 1999 This project provides for the construction of a concert hall at the Grand Chancellor Hotel property in Hobart. The State Government, the Hobart City Council and Symphony Australia will make contributions to the funding of this project.
Port Arthur Historic Site Visitor Centre 3 928 3 309 Completion Due: January 1999 This funding will provide for the construction of a retail, ticketing, catering and interpretation centre at the Port Arthur Historic Site.
Port Arthur Historic Site Conservation Works 823 823 Ongoing works will be carried out during 1998-99 to conserve the heritage value of the Site, including essential repairs and stabilisation works, remedial work to prevent further damage and minor public amenity works to facilitate safe access and interpretation of the historic structures.
TOTAL 6 607
106 Chapter 6: State Capital Program Table 6.4: Capital Investment Program (Departments) - Project Details (continued) Estimated 1998-99 Total Proposed Department Cost Expenditure $'000 $'000 DEPARTMENT OF TREASURY AND FINANCE
Whole-of-government asset maintenance 6 519 Projects funded from this allocation must have a long term use as identified in the Strategic Asset Management Plans of departments. Amongst the uses for these funds is plant and building upgrading. These funds are also applied to the conservation of government owned heritage assets and to remedy occupational health, safety and welfare and disabled access deficiencies.
Building Services Maintenance 959 From 1997-98, funding previously managed centrally for Building Services Maintenance has been devolved to agencies to facilitate agency management of these obligations.
TOTAL 7 478
TOTAL CAPITAL INVESTMENT PROGRAM (DEPARTMENTS) 49 933
Chapter 6: State Capital Program 107 ROADS PROGRAM
The Roads Program consists of new works projects and the upgrade and maintenance of already established roads. It is funded by both the Commonwealth Government and the State Government. The Roads Program forms part of the CIP.
A summary of allocated funds is shown in Table 6.5
Table 6.5: Roads Program - Summary 1997-98 1997-98 1998-99 Category of Project Estimate Actual Estimate $'000 $'000 $'000 Commonwealth Funds National Highway System 26 377 27 469 23 871 Federal Black Spot Program 985 833 985 Roads of National Importance 600 300 700 State Funds Highway Investment 6 750 7 655 4 424 Regional Investment 4 180 4 888 3 012 Miscellaneous Safety Works 1 825 1 659 2 508 Asset Preservation - Reinstatement 8 034 5 752 8 947 Asset Preservation - Maintenance 21 155 22 760 23 355 Assistance to Local Government 145 116 65 Program Management 860 366 539 Property Settlement Account 350 50 300 Asset Management 2 940 3 621 4 241 Strategic Planning and Policy 1 865 1 743 2 463 Administration of the Roads Program 2 994 2 994 3 027
TOTAL 79 060 80 206 78 437
Total State funding provided to the Roads Program in 1998-99 has been maintained at the level provided in 1997-98.
Further detail of the proposed 1998-99 Roads Program is contained in Table 6.6.
108 Chapter 6: State Capital Program Table 6.6: Roads Program - Project Details Estimated 1998-99 Project Total Cost Estimate $'000 $'000 NATIONAL HIGHWAY SYSTEM CAPITAL WORKS Bass Highway Penguin to Chasm Creek 65 860 11 896 Bass Highway Deloraine to Hagley 63 720 3 920 National Highway Junctions 360 360 Burnie Truck Route - Bass Highway Junction 230 230 Heavy Vehicle Overload 800 300 Safety Works 730 730 Minor Works 43 43 Property Management 175 175 Night Time Delineation 370 370
ASSET PRESERVATION Reinstatement 1 130 1 130 Routine Maintenance 4 562 4 562
PROGRAM MANAGEMENT 155 155 23 871
FEDERAL BLACKSPOT PROGRAM 985 985
ROADS OF NATIONAL IMPORTANCE 700 700
STATE FUNDED PROJECTS HIGHWAY INVESTMENT Channel Highway 13 800 143 Bass Highway - Burnie to Smithton (including Cooee to Cam River) 10 640 1 660 West Tamar Highway - Cormiston Creek to Legana 4 050 87 Minor Works 195 195 Minor Carry-Over Costs 124 124 General Acquisitions 325 325 East Derwent Highway at Beltana 2 760 167 Tasman Highway - Montagu Bay Interchange to Rosny Hill 2 000 200 Arthur Highway - Junctions and Passing Bays 205 205 Southern Outlet Highway - Kingston Interchange Ramps 320 110 Youl Main Road 77 77 Channel Highway - Algona Main Road to Margate 1 200 97 Channel Highway - Margate Rivulet Bridge 500 307 Roads of National Importance - East Devonport Access Contribution 367 367 Access Control 360 360 4 424
Chapter 6: State Capital Program 109 Table 6.6: Roads Program - Project Details (continued) Estimated 1998-99 Project Total Cost Estimate $'000 $'000 REGIONAL INVESTMENT Burnie Truck Route 7 050 1 291 Station Road Bridges, Launceston 2 250 1 721 3 012
MISCELLANEOUS SAFETY WORKS 2 508 2 508
ASSET PRESERVATION - REINSTATEMENT Lyell Highway - Strickland Road to Brady's Lake 6 670 1 077 Murchison Highway - Zeehan Highway Scenic Track 2 580 80 Tasman Highway - Sorell Causeways 1 005 104 Zeehan Highway - Lyell Highway to Anthony Main Road 2 860 2 655 Bridport Main Road 808 625 Batman Highway 2 730 153 Bruny Island Main Road - Lennon Main Road to Great Bay 612 92 Esk Main Road - Avoca to Fingal 1 745 1 470 East Tamar Highway - Charles Street to Lilydale Main Road 1 250 403 Poatina Main Road - Lake Highway to Cramps Bay Road 1 550 128 Bridge Strengthening 1 800 1 800 Slips and Bank Stabilisation 149 149 Concept Development 207 207 Minor Carry-Over Costs 4 4 8 947
ASSET PRESERVATION - MAINTENANCE Roads 19 138 Bridges 4 017 Emergency and Flood Repairs 200 23 355
ASSISTANCE TO LOCAL GOVERNMENT 65 PROGRAM MANAGEMENT 539 PROPERTY SETTLEMENT ACCOUNT 300 ASSET MANAGEMENT 4 241 STRATEGIC PLANNING AND POLICY 2 463 ADMINISTRATION OF THE ROADS PROGRAM 3 027
TOTAL ROADS PROGRAM 78 437
110 Chapter 6: State Capital Program HOUSING PROGRAM
The Housing Program aims to ensure that low income Tasmanians have access to adequate, affordable, appropriate and secure housing options.
The 1998-99 Housing Program is jointly funded under the terms of the Commonwealth State Housing Agreement (CSHA).
The program has been developed within the framework of the Department of Health and Human Services Housing Division's strategic plan and is designed to facilitate the re-alignment of the Housing Division's portfolio through construction, upgrading and strategic purchases. The major initiatives to be undertaken as part of the Housing Program in 1998-99 include:
• a capital program which underpins and forms an integral part of the implementation and further refinement of the Division's Strategic Asset Management Plan (SAMP). The SAMP recognises supply and demand factors and the relative over supply of mismatched properties;
• significant emphasis has been placed on improving communities, meeting the needs of tenants to improve the overall performance of assets and compliance with the Tasmanian Residential Tenancy Act 1997. As a consequence, community projects, and safety and security projects, comprise a large part of the program with other upgrading projects focussing on raising the amenity of high demand, well located stock, especially where it fails to meet contemporary standards;
• a continued emphasis on the capital upgrading program which seeks to optimise the performance of the asset base;
• a dwelling construction program of $1.8 million; and
• the purchase of 15 dwellings from the private sector at an estimated cost of $2.8 million. This includes purchases for special needs accommodation as targets are identified and the transfer of carried forward funds of $1.8 million from the Crisis Accommodation Program to Child Youth and Family Support.
Details of the source and application of funds for the Housing Program are shown in Table 6.7.
Chapter 6: State Capital Program 111 Table 6.7: Housing Program - Source and Application of Funds 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Source of Funds1 Commonwealth State Housing Agreement Grants 15 032 14 807 9 517 Sale of Assets and Other Capital Receipts2 6 500 6 139 6 700 Operating Revenue and Carry Forward Funds 4 222 4 222 10 832 State Matching Grants 6 412 6 297 4 524 Less: Funds carried forward to 1998-99 .... (10 832) .... 32 166 20 633 31 573
Application of Funds Asset and Stock Performance Spot Purchase 4 597 970 2 824 Capital Upgrading 13 406 6 823 13 539 Dwelling Construction 1 718 1 858 1 805 Land Development .... 37 .... Sundry Capital3 8 599 8 624 9 436 Community Housing Program 3 157 1 752 3 144 Aboriginal Rental Housing Program 689 569 825 TOTAL 32 166 20 633 31 573
Notes: 1. The total budgeted 1998-99 Housing Program of $31.6 million includes a Consolidated Fund contribution of $14.0 million consisting of the Commonwealth State Housing Agreement Untied Grants ($9.5 million) and State Government matching funds ($4.5 million). 2. Total actual Sale of Assets and Other Capital Receipts for 1997-98 were $9.5 million. Housing Division management determined that $3.4 million of this total would be used to fund additional recurrent expenditure. 3. Details of the Sundry Capital 1997-98 actual expenditure and the 1998-99 estimated expenditure are as follows:
Sundry Capital 1997-98 1998-99 Actual Estimate $'000 $'000 Loan Repayments 8 258 8 349 Computer Capital costs 344 300 Other Sundry Capital 22 787 8 624 9 436
112 Chapter 6: State Capital Program DEPARTMENT OF STATE DEVELOPMENT
The Department of State Development is continuing to focus on assisting business in sourcing finance from private sector providers, rather than providing routine commercial lending.
While the 1998-99 Lending Program does not provide for any new loan approvals, the Board of Directors of the Tasmanian Development Board retains the capacity to lend in special circumstances to support strategic developments in Tasmania for which private sector finance is not available.
During 1997-98, the disbursement of existing loan approvals under the Rural Adjustment Scheme was finalised. It was noted in Chapter 5 of Budget Paper No 1 Budget Overview 1997-98 that the Rural Adjustment Scheme was under review nationally. The Commonwealth Government's review of the Rural Adjustment Scheme was subsequently completed during 1997-98, with the Commonwealth announcing that it would accept the recommendations of the McColl Review and discontinue the interest rate subsidy program. Applications for the interest rate subsidy under the Rural Adjustment Scheme closed on 30 September 1997. The Commonwealth has announced that it will, instead, support the new FarmBis program to assist farm management teams to improve profitability and competitiveness through building business knowledge and risk management skills. Consequently, there is no longer a provision for advances under the Rural Adjustment Scheme within the Department's Lending Program. Further information regarding the new FarmBis program is contained in the Department of Primary Industries, Water and the Environment's Chapter in Budget Paper No 2 Operations of Government Departments 1998-99.
The planned 1998-99 Lending Program will be totally internally funded, as shown in Table 6.8.
Chapter 6: State Capital Program 113 Table 6.8: 1998-99 Department of State Development Lending Program 1997-98 1997-98 1998-99 Estimate Actual Estimate $'000 $'000 $'000 Sources of Funds Rural Adjustment Funds ...... Internal Funds 9 935 31 799 11 851 Total Sources of Funds 9 935 31 799 11 851
Application of Funds Advances Tasmanian Development Act 1983 4 656 4 634 3 884 Rural Adjustment Scheme 279 265 .... Total Advances 4 935 4 899 3 884
Debt Repayment1 5 000 26 900 7 967
Total Applications of Funds 9 935 31 799 11 851
Note: 1. The actual 1997-98 debt repayment, totalling $26.9 million, was significantly higher than the forecast amount of $5 million due to early repayment of loans by clients. This was subsequently used to retire the debt raised to finance those loans.
114 Chapter 6: State Capital Program GBES, STATE-OWNED COMPANIES AND STATE AUTHORITIES
Sources of Funds The programs of GBEs, State-owned companies (SOCs) and State authorities are financed from internal funds and by external borrowings sanctioned under the Loan Council Allocation (LCA) of the State.
Internal and Other Funds Internal funds are the major source of funds for the capital programs of GBEs, SOCs and State authorities. They include depreciation provisions and other reserves. In 1998-99, internal and other funds of $217.1 million will be used to finance the capital programs of GBEs, SOCs and State authorities.
Borrowings Total new borrowings by GBEs, SOCs and State authorities in 1998-99 are estimated to be $18.2 million. The majority of this borrowing ($15.2 million) relates to SOCs. The remainder of the borrowing will be required by the Director of Housing to meet the funding requirement of the Home Ownership Assistance Program (HOAP).
Details of the sources of capital funds for GBEs, SOCs and State authorities are shown in Table 6.9.
Chapter 6: State Capital Program 115 Table 6.9: Sources of Capital Funds for GBEs, State-owned Companies and State Authorities - Summary 1997-98 Preliminary 1998-99 Estimate Private Internal Private Internal Authorities Borrowings Funding Total Borrowings Funding Total $'000 $'000 $'000 $'000 $'000 $'000 Aurora Energy Pty Ltd1 ...... 51 600 51 600 Burnie Port Corporation Pty Ltd .... 700 700 .... 2 600 2 600 Civil Construction Corporation .... 1 539 1 539 .... 150 150 Health and Human Services - HOAP 5 500 8 500 14 000 3 000 6 000 9 000 Egg Marketing Board .... 14 14 .... 10 10 Forestry Tasmania .... 26 700 26 700 .... 37 700 37 700 Hobart Ports Corporation Pty Ltd 7 400 1 400 8 800 2 000 1 555 3 555 Hydro-Electric Corporation1 .... 120 600 120 600 .... 38 200 38 200 Metro Tasmania Pty Ltd .... 3 600 3 600 .... 1 206 1 206 Motor Accidents Insurance Board .... 602 602 .... 842 842 North West Regional Water Authority .... 340 340 .... 400 400 Port Arthur Historic Site Management Authority2 .... 1 555 1 555 .... 4 132 4 132 Port of Devonport Corporation Pty Ltd 2 000 1 905 3 905 2 000 4 183 6 183 Port of Launceston Corporation Pty Ltd .... 2 800 2 800 .... 300 300 Printing Authority of Tasmania .... 140 140 .... 430 430 Private Forests Tasmania .... 35 35 .... 10 10 The Public Trustee ...... 240 240 Retirement Benefits Fund Board .... 1 500 1 500 .... 4 600 4 600 Rivers and Water Supply Commission .... 129 129 .... 70 70 Southern Regional Cemetery Trust .... 177 177 .... 291 291 State Fire Commission .... 7 700 7 700 .... 6 400 6 400 Tasmanian Dairy Industry Authority .... 85 85 .... 160 160 State Development .... 31 799 31 799 .... 11 851 11 851 Tasmanian Grain Elevators Board .... 464 464 .... 440 440 Tasmanian International Velodrome Management Authority .... 50 50 ...... Tasmanian Public Finance Corporation .... 87 87 .... 437 437 Totalizator Agency Board .... 1 467 1 467 .... 3 500 3 500 Transend Networks Pty Ltd1 ...... 11 000 39 000 50 000 TT Line Company Pty Ltd .... 600 600 239 838 1 077
TOTAL 14 900 214 488 229 388 18 239 217 145 235 384
Notes: 1. Aurora Energy Pty Ltd and Transend Networks Pty Ltd were established on 1 July 1998. Total capital expenditure expected by Aurora, Transend and the HEC in 1998-99 is $139.8 million. 2. The $4.1 million capital expenditure expected for the Port Arthur Historic Site Management Authority in 1998-99 is entirely funded from the Consolidated Fund through the Department of State Development.
116 Chapter 6: State Capital Program Major Capital Projects by GBEs, State-owned Companies and State Authorities - Summary The estimated capital expenditure for GBEs, SOCs and State authorities has been provided by each entity. Some of the major projects are detailed below. Further details can be found in the respective annual reports of each GBE, SOC and State authority.
Aurora Energy Pty Ltd 1998-99 Estimated Capital Expenditure: $51.6 million.
During 1998-99, the majority of the capital program ($31.0 million) will be devoted to the maintenance and improvement of Aurora's distribution network, including expenditure on:
continuation of the Launceston CBD supply upgrade;
substandard conductor and switchgear replacement programs;
reliability improvement and system augmentation; and
pole and streetlight replacements.
The remaining capital program ($20.6 million) will be used to fund operational requirements and customer service initiatives, including expenditure on:
pay as you go meter roll out to business customers;
customer connections;
Year 2000 rectification and compliance work; and
automatic meter reading initiatives and upgrades to Aurora's information technology infrastructure.
Burnie Port Corporation Pty Ltd 1998-99 Estimated Capital Expenditure: $2.6 million.
During 1998-99, Burnie Port Corporation's capital program will include expenditure on:
completion of the Brambles terminal development;
improvements to the Cold Store;
commencement of construction of a small craft berth; and
extension of the woodchip export storage facility.
Chapter 6: State Capital Program 117 Forestry Tasmania 1998-99 Estimated Capital Expenditure: $37.7 million.
During 1998-99, Forestry Tasmania's capital expenditure program will include:
$8.3 million on the development and/or acquisition of land and buildings and other property;
$8.3 million on road construction;
$6.0 million on plant and equipment; and
$15.1 million on plantations.
Hobart Ports Corporation Pty Ltd 1998-99 Estimated Capital Expenditure: $3.6 million.
During 1998-99, the Hobart Ports Corporation's capital program will include expenditure on:
upgrading the Marine Board Building;
upgrading of the Port access road;
providing additional facilities for Marina Stage 2;
upgrading the Strahan Wharf;
upgrading the Cold Store blast freezer;
upgrading of the Domain Slip sewerage connection;
upgrading property maintenance;
forklift replacements; and
upgrading of Electrona and Margate infrastructure.
Hydro-Electric Corporation 1998-99 Estimated Capital Expenditure: $38.2 million.
During 1998-99, the major part of the Hydro-Electric Corporation's capital expenditure program is aimed at ensuring the ongoing safe, reliable and efficient operation of the electricity generating assets. This involves major cyclical refurbishment of non-current assets, including turbines, transformers and penstocks, and upgrading of assets that no longer meet present day standards.
Metro Tasmania Pty Ltd 1998-99 Estimated Capital Expenditure: $1.2 million.
During 1998-99, Metro Tasmania's capital program will include the purchase of equipment to upgrade destination blinds, route infrastructure improvements and upgrading and replacement of two-way radios.
118 Chapter 6: State Capital Program Port of Devonport Pty Ltd 1998-99 Estimated Capital Expenditure: $6.2 million.
During 1998-99, the Port of Devonport's capital program will principally involve expenditure on the completion of the Sayers Point Dredging Project.
Port Arthur Historic Site Management Authority 1998-99 Estimated Capital Expenditure: $4.1 million.
During 1998-99, the Port Arthur Historic Site Management Authority's capital expenditure program will include:
construction of the Visitor's Centre, including fitout and associated landscaping and site restoration work; and
conservation work.
Retirement Benefits Fund Board 1998-99 Estimated Capital Expenditure: $4.6 million.
During 1998-99, the Board will continue to develop and upgrade the Board's computer systems.
State Fire Commission 1998-99 Estimated Capital Expenditure: $6.4 million.
The State Fire Commission's station and vehicle replacement program will continue in 1998-99. It is envisaged that construction of a joint fire and ambulance facility at Mornington will commence in 1998-99, along with a number of smaller projects. A number of heavy, medium and light tankers will be fabricated at Bridgewater. The radio and pager replacement and upgrade program will conclude in 1998-99.
TT Line Company Pty Ltd 1998-99 Estimated Capital Expenditure: $1.1 million.
During 1998-99, TT Line's capital program will include expenditure on car carriers and the computerised reservation system.
Totalizator Agency Board 1998-99 Estimated Capital Expenditure: $3.5 million.
During 1998-99, the Totalizator Agency Board's capital expenditure program will include:
$2.7 million for computer development;
$476 000 for furniture and fittings;
$77 000 for motor vehicles;
$155 000 for property improvements; and
$75 000 for plant and equipment.
Chapter 6: State Capital Program 119 Transend Networks Pty Ltd 1998-99 Estimated Capital Expenditure: $50.0 million.
During 1998-99, Transend's capital program will include expenditure on:
construction of the Hadspen substation;
construction of the Liapootah/Palmerston 220 kV transmission line;
new capacitors at Georgetown;
redevelopment of Trevallyn substation;
redevelopment of Devonport and Wesley Vale substations;
upgrading of existing power system protection assets;
development of new substation at West Hobart and associated transmission line;
development of new substation at Mowbray and associated transmission line;
redevelopment of Risdon substation; and
other asset replacement and refurbishment.
120 Chapter 6: State Capital Program 7LIABILITIES OF THE TASMANIAN STATE PUBLIC SECTOR
Features
Total State Government sector Net Debt has declined in nominal terms from a peak of $3 082 million as at 30 June 1994 to $2 719 million as at 30 June 1998.
Total State Government sector Net Debt has declined in real terms from a peak of $3 544 million as at 30 June 1994 to $2 719 million as at 30 June 1998.
The net interest cost ratio for the General Government sector has declined from a peak of 10.2 per cent in 1993-94 to 7.1 per cent in 1997-98, with 6.3 per cent being forecast for 1998-99.
The Government made a contribution of $38.3 million to the Superannuation Provision Account in 1997-98. After payments from the Account through the year, the net impact was an increase in the balance from $161.4 million to $190.0 million.
The Government Actuary has estimated that the unfunded past service superannuation liability in respect of the RBF scheme decreased from $1 374 million as at 30 June 1996 to $1 301 million as at 30 June 1997, due mainly to the good investment returns achieved by the Retirement Benefits Fund Board.
Chapter 7: Liabilities of the Tasmanian State Public Sector 121 DEBT AND DEBT SERVICING COSTS
This chapter provides summary information on debt and other financial assets and liabilities relating to the Tasmanian public sector. Additional commentary on issues associated with the level of debt is contained in Chapters 1 and 12 of this Budget Paper.
The information on debt is reported on a Net Debt basis throughout the Budget Papers, in accordance with the uniform presentation guidelines that were originally endorsed by governments at the May 1991 Premiers' Conference. The Net Debt information is consistent with the Government Financial Estimates (GFEs) and Financial Assets and Liabilities (FALs) data presented in Chapter 12 of this Budget Paper.
The Net Debt basis of reporting has been adopted for the following reasons:
it provides a uniform presentation of debt information that is consistent with that used by Commonwealth, State and Territory Governments;
it is consistent with the data published by the Australian Bureau of Statistics (ABS);
it takes into account a broad range of financial liabilities, rather than just borrowings and Commonwealth advances;
it takes into account the level of financial assets held, thereby providing a meaningful representation of the State's financial position;
the information covers a broad range of agencies and authorities and provides a complete picture of the indebtedness of the State; and
Ratings Agencies rely on the Net Debt basis of reporting when assessing the relative performance of the States.
For the purposes of this chapter, Gross Debt is calculated as the total of financial liabilities, such as deposits held, advances received and borrowings. Gross Debt includes items such as debt incurred by the Government and serviced from the Consolidated Fund, specific purpose loans from the Commonwealth and other borrowings raised from the capital markets. Chapter 12 provides a full description of the categories of Gross Debt.
Net Debt is the difference between Gross Debt, as defined above, and liquid financial assets, comprising the total of cash and deposits and investments or loans. Investments on the short-term money market and fixed deposits held with banks are included as financial assets. Net Debt, rather than Gross Debt, is the more appropriate concept for analytical purposes as an analysis based on Gross Debt will not reflect holdings of financial assets.
The State's Net Debt position, debt servicing costs and other financial assets and liabilities are important measures of the financial position of the public sector. Trends in Net Debt levels and debt servicing costs also provide an indicator of the Government's financial performance.
A credible medium term fiscal strategy is an essential component of prudent contemporary public sector financial management practice. The fiscal strategies pursued by successive governments since 1990-91 have had a significant influence on stabilising the level of debt.
122 Chapter 7: Liabilities of the Tasmanian State Public Sector A new fiscal strategy has been developed by the new Government consistent with its priority policies of industry development and job creation. The strategy has five broad components which are outlined in detail in Chapter 1 of this Budget Paper.
The level of debt remains an important part of the strategy and will be managed appropriately to ensure that the State has budgetary flexibility to continue to provide core government services, such as health and education, at a level expected by the Tasmanian community.
The information presented regarding Net Debt is based on the financial statements of the Government and authorities. The Net Debt information for 1997-98 is prepared on a preliminary basis and some data have been estimated where financial statements have not been finalised in time for inclusion.
Public sector debt has been classified according to the General Government, Public Trading Enterprise (PTE) and Public Financial Enterprise (PFE) sectors. The system of classification is equivalent to the Institutional Sector classifications used by the ABS.
The General Government sector comprises those agencies of government where the primary function is to provide public services, which are mainly non-market in nature, for the collective consumption of the community, or involve the transfer or redistribution of income and are financed mainly through taxes and other compulsory levies. This sector covers inner-Budget agencies and some statutory authorities.
The PTE sector comprises those entities that aim to cover the majority of their expenses by revenue from the sales of goods and services and which are mainly market, non-regulatory and non-financial in nature. Generally, this sector covers the State's Government Business Enterprises and State-owned Companies.
The PFE sector comprises those entities that perform central borrowing functions or have the authority to incur financial liabilities and acquire financial assets in the market on their own account. Generally, this sector covers entities such as the Motor Accidents Insurance Board, the Tasmanian Public Finance Corporation (Tascorp) and the Home Ownership Assistance Program.
This is the first year that the PFE sector, other than Tascorp, has been included within the scope of Public Sector Net Debt. The inclusion of the PFE sector is consistent with developments in standards for government accounting and reporting, specifically Australian Accounting Standard AAS 31: Financial Reporting by Governments. As a result of the inclusion of the PFE sector, Tascorp has been reclassified from General Government to the PFE sector, in accordance with guidelines issued by the ABS. The changes to Tascorp's classification has had little impact on Net Debt of the General Government sector. The ABS has also reclassified Forestry Tasmania and Private Forests Tasmania from the General Government to the PTE sector. Historical information has been adjusted to reflect these changes and Public Sector Net Debt will therefore be different from that published in previous years. In addition, the ABS have also reviewed the historic time series for the early years and made adjustments to the data, which has not been reflected in previous publications.
A detailed dissection of the coverage and classification of public sector entities is provided in Table 12.13 of Chapter 12 of this Budget Paper.
A breakdown of the categories which comprise Net Debt is provided in Table 7.1. The Total State Government sector represents the consolidated total of the General Government, PTE and PFE sectors. The movement in Net Debt for this sector is directly linked to the movement in Net Debt of the
Chapter 7: Liabilities of the Tasmanian State Public Sector 123 component sectors. However, due to the consolidation process, Gross Debt and total financial assets of the component sectors are not additive.
For a more detailed dissection of Net Debt, refer to Table 12.9 of Chapter 12 of this Budget Paper.
Table 7.1: Breakdown of Net Debt1 (as at 30 June) Total Non- Total State General Public Trading Financial Public Public Financial Government Government Enterprises Sector Enterprises Sector 1997 1998 1997 1998 1997 1998 1997 1998 1997 1998 $m $m $m $m $m $m $m $m $m $m
Gross Debt 2 327 2 303 1 963 1 911 3 732 3 710 4 116 4 283 4 606 4 633 less Financial Assets 931 946 160 167 535 609 4 466 4 664 1 758 1 913
Net Debt 1 395 1 356 1 803 1 744 3 198 3 100 (350) (381) 2 849 2 719
Note: 1. Due to the consolidation process, Gross Debt and Financial Assets for the Total Non-Financial Public sector and Total Sector Government sector will not be equal to the sum of the component sectors, however, Net Debt is additive.
As can be seen from Table 7.1, the PTE sector accounts for approximately 56 per cent of Total Non-Financial Public sector Net Debt. This reflects the capital intensive nature of the State's hydro-electric systems and past borrowings by the Hydro-Electric Corporation (HEC) to fund power scheme construction.
In summary, the major points to note are as follows:
General Government sector Net Debt decreased by $39 million, or 2.8 per cent in nominal terms, from $1 395 million to $1 356 million between 30 June 1997 and 30 June 1998. The movement reflects a decrease in the Gross Debt level and an increase in financial assets (cash) mainly represented by an increase in the balance of the Special Deposits and Trust Fund. In real terms, General Government Net Debt decreased by 5.0 per cent.
General Government sector Gross Debt decreased by $24 million, or 1.0 per cent in nominal terms, from $2 327 million to $2 303 million between 30 June 1997 and 30 June 1998. The movement reflects the repayment of borrowings from asset sale proceeds, authority repayments and Commonwealth Compensation funds, which was partially offset by the new cash borrowings required to support the activities of the Budget sector.
Net Debt for the PTE sector decreased by $59 million, or 3.3 per cent in nominal terms, from $1 803 million to $1 744 million between 30 June 1997 and 30 June 1998. The movement is primarily attributable to the repayment of debt by the HEC and the repayment of advances from operating revenues by other entities in the PTE sector.
124 Chapter 7: Liabilities of the Tasmanian State Public Sector Gross Debt for the PTE sector decreased by $52 million, or 2.6 per cent in nominal terms, from $1 963 million to $1 911 million between 30 June 1997 and 30 June 1998. This is a result of the decreased level of working capital required for PTE entities and the repayment of debt by the HEC.
Total Non-Financial Public sector Net Debt has decreased by $98 million, or 3.1 per cent in nominal terms, from $3 198 million to $3 100 million between 30 June 1997 and 30 June 1998. The Total Non-Financial Public sector is the consolidated total of the General Government and PTE sectors. The movement in Net Debt is therefore directly linked to the movement in Net Debt of the component sectors.
Net Debt for the PFE sector is in a negative position which means that it holds net assets. PFE sector net assets increased by $31 million or 8.9 per cent in nominal terms, from $350 million to $381 million between 30 June 1997 to 30 June 1998. The negative position of the PFE sector is primarily because of the net assets held by the Motor Accidents Insurance Board (MAIB). The MAIB holds a significant level of cash and investment assets in order to fund its liability for outstanding claims. According to ABS classifications, this liability is not included in the calculation of Net Debt, but it will be included in the full presentation of Financial Assets and Liabilities, to be issued in December 1998.
Total State Government sector Net Debt has decreased by $129 million, or 4.5 per cent in nominal terms, from $2 848 million to $2 719 million between 30 June 1997 and 30 June 1998. The Total State Government sector Net Debt is the consolidated total of the General Government, PTE and PFE sectors. The movement in Net Debt is therefore directly linked to the movement in Net Debt of the component sectors.
Tables 7.2 and 7.3 show the level of the State Government sector Net Debt in nominal and real terms, respectively.
Chapter 7: Liabilities of the Tasmanian State Public Sector 125 Table 7.2: State Government Sector Net Debt (nominal terms as at 30 June) Total Non- Total State General Public Trading Financial Public Public Financial Government Sector Year Government Enterprises Sector Enterprises $m $m $m $m $m
1989 873 1 850 2 723 (309) 2 414 1990 1 008 1 887 2 895 (339) 2 556 1991 1 213 1 980 3 193 (388) 2 805 1992 1 266 1 978 3 244 (389) 2 855 1993 1 288 1 943 3 231 (367) 2 864 1994 1 357 2 008 3 366 (284) 3 082 1995 1 358 1 956 3 315 (298) 3 016 1996 1 381 1 893 3 274 (308) 2 966 1997 1 395 1 803 3 198 (350) 2 848 1998 1 356 1 744 3 100 (381) 2 719
Source: Australian Bureau of Statistics; Department of Treasury and Finance.
Table 7.3: State Government Sector Net Debt (real terms as at 30 June 1998) Total Non- General Public Trading Financial Public Public Financial Total Public Year Government Enterprises Sector Enterprises Sector $m $m $m $m $m
1989 1 120 2 375 3 494 (396) 3 098 1990 1 245 2 331 3 575 (419) 3 157 1991 1 489 2 430 3 920 (476) 3 443 1992 1 509 2 358 3 867 (464) 3 403 1993 1 524 2 298 3 822 (434) 3 388 1994 1 560 2 309 3 869 (327) 3 544 1995 1 475 2 125 3 601 (324) 3 276 1996 1 452 1 991 3 443 (324) 3 120 1997 1 428 1 846 3 273 (358) 2 915 1998 1 356 1 744 3 100 (381) 2 719
Source: Australian Bureau of Statistics; Department of Treasury and Finance; Consumer Price Index, Australia, ABS Cat. No. 6401.0.
126 Chapter 7: Liabilities of the Tasmanian State Public Sector Chart 7.1 provides a diagrammatic classification of the categories of Net Debt in real terms.
Chart 7.1: Categories of State Government Sector Net Debt (real terms as at 30 June 1998), 1989 to 1998
4 000
3 500
3 000
2 500
2 000
1 500 $ million 1 000
500
0
( 500) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
General Government Public Trading Enterprises Public Financial Enterprises
Source: Australian Bureau of Statistics; Department of Treasury and Finance; Consumer Price Index, Australia, ABS Cat. No. 6401.0.
As can be seen in Chart 7.2, General Government Net Debt as a percentage of Gross State Product (GSP) has fallen from 13.2 per cent as at 30 June 1997 to 12.5 per cent as at 30 June 1998. For the PTE sector, Net Debt as percentage of GSP has fallen from 17.1 per cent as at 30 June 1997 to 16.1 per cent as at 30 June 1998. For the PFE sector, Net Debt as a percentage of GSP has remained relatively stable, increasing from -3.3 per cent as at 30 June 1997 to -3.4 per cent as at 30 June 1998.
Chapter 7: Liabilities of the Tasmanian State Public Sector 127 Chart 7.2: Net Debt to Gross State Product, 1989 to 1998
35
30
25
20
15
Per cent 10
5
0
( 5) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
General Government Public Trading Enterprises Public Financial Enterprises Total State Government Sector Source: Australian Bureau of Statistics; Department of Treasury and Finance; Australian National Accounts: State Accounts, ABS Cat. No. 5242.0.
INTEREST COSTS OF THE GOVERNMENT
The interest costs of the Government are influenced by both average interest rates and variations in the level of Net Debt.
Table 7.4 details the net interest costs paid by the General Government sector and the percentage of General Government total revenue that this represents.
The interest cost ratio is one of the indicators adopted to measure performance against the fiscal strategy targets. Another indicator is Net Debt as a proportion of GSP. Further information on these targets is outlined in Chapter 1 of this Budget Paper.
128 Chapter 7: Liabilities of the Tasmanian State Public Sector Table 7.4: Net Interest Cost Ratio - General Government (as at 30 June), 1990 to 1999(est) 1999 1990 1991 1992 1993 1994 1995 1996 1997 1 998 (est) $m $m $m $m $m $m $m $m $m $m
Interest Paid 240 255 267 274 273 242 233 212 192 173
Interest Received: from PTEs 83 79 74 72 71 67 55 47 40 36 from other enterprises 45 47 47 51 33 19 32 22 15 9 Total Interest Received 128 126 121 123 104 86 87 69 55 45 Net Interest 112 129 146 151 169 156 146 143 137 128
General Government Total Revenue less Interest Received 1 481 1 504 1 625 1 680 1 650 1 716 1 809 1 875 1 919 2 036
Net Interest Cost Ratio 7.6 8.6 9.0 9.0 10.2 9.1 8.1 7.6 7.1 6.3
Source: Australian Bureau of Statistics; Department of Treasury and Finance.
As can be seen in Chart 7.3, net interest costs increased rapidly over the four year period to 30 June 1994. These costs have since shown a downward trend, reflecting the fiscal strategies pursued by successive governments to stabilise the level of debt and reduce the share of revenue required to service that debt.
Chapter 7: Liabilities of the Tasmanian State Public Sector 129 Chart 7.3: Net Interest Costs - General Government, 1989-90 to 1998-99 (est)
180
160
140
120
100
80 $ million 60
40
20
0 (est) 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
Source: Australian Bureau of Statistics; Department of Treasury and Finance.
Net interest costs as a proportion of General Government recurrent receipts increased from 7.6 per cent in 1989-90 to a peak of 10.2 cent in 1993-94. The net interest cost ratio has been falling for a number of years, and it is expected to continue to fall in 1998-99 as a result of the fiscal strategies adopted by successive governments and the current low interest rate environment. This trend is shown in Chart 7.4.
Chart 7.4: Net Interest Cost Ratio - General Government, 1989-90 to 1998-99 (est)
12.0
10.0
8.0
6.0
Per cent 4.0
2.0
0.0 (est) 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
Source: Australian Bureau of Statistics; Department of Treasury and Finance.
130 Chapter 7: Liabilities of the Tasmanian State Public Sector Chart 7.5: General Government Net Interest Cost Ratio - All States
12.0
10.0
8.0
6.0
4.0
2.0
Per cent 0.0
-2.0
-4.0
-6.0
-8.0 NSW VIC QLD SA WA TAS NT ACT
1995-96 1996-97 1997-98 1998-99 (est)
Source: Australian Bureau of Statistics; Department of Treasury and Finance.
Chart 7.5 provides a comparison across the States and Territories of the debt servicing burden on General Government revenues. The chart shows that while Tasmania's net interest cost ratio on a GFE basis decreased between 1995-96 and the 1998-99 estimate, it remains at a level higher than most other States and Territories.
CREDIT STATUS OF THE STATE PUBLIC SECTOR
Since the mid 1980s, as debt has been issued by the States in their own right rather than by the Commonwealth, the two major rating agencies, Moody's Investors Service (Moody's) and Standard & Poor's (S&P), have progressively assigned a credit rating to each State. Tasmania was first rated in 1990. Both of the major rating agencies review the credit ratings of all States on an annual basis.
The primary importance of the credit rating is that it influences the interest rate margin Tasmania must pay over Commonwealth debt or debt of a State with a AAA credit rating. Ratings, therefore, will impact on interest paid on State debt and thus on the State Budget.
A secondary element of importance is the perception of Tasmania by business investors. While not directly influenced by the credit rating, the comments made by the rating agencies in issuing their reports and the relative movements of different States' ratings can have a significant effect on business confidence. Reviews by both Moody's and S&P have commented favourably on the achievements of successive Tasmanian Governments' policies to improve the State's financial position, particularly in relation to debt servicing costs.
Chapter 7: Liabilities of the Tasmanian State Public Sector 131 The current credit ratings for long term domestic debt of the States and the Territories are detailed in Table 7.5. All States have a prime rating of P-1/A-1+ on their short-term debt.
Table 7.5: Government Ratings Standard & Moody's Poor's
New South Wales Aaa AAA Queensland Aaa AAA ACT n.a. AAA Western Australia Aaa AA+ Victoria Aa1 AAA South Australia Aa2 AA Tasmania Aa2 AA- Northern Territory Aa2 n.a.
The ability of a State to manage and service its debt is reflected in the credit rating assigned to the State by the rating agencies. Rating assessments depend particularly on the level of debt relative to Gross State Product (GSP), debt servicing costs relative to revenue and the magnitude of other unfunded liabilities (particularly relating to superannuation). A range of qualitative economic and political factors are also considered, particularly the quality of financial management and commitment to debt containment. The rating agencies have reinforced the need for all State Governments to maintain prudent financial management policies.
During 1997-98, Tasmania maintained its domestic and international credit ratings with Moody's. As at the date of preparation of the Budget, S&P had not released its 1997-98 report for Tasmania.
In April 1998, Moody's noted that Tasmania's rating of Aa2 long term and P-1 short term reflected the stabilisation and gradual improvement in the State's fiscal position and debt profile. However, Moody's also noted that the State's stock of debt and debt servicing costs remain burdensome.
132 Chapter 7: Liabilities of the Tasmanian State Public Sector COST OF DEBT
Chart 7.6: Tascorp Margins over Commonwealth and NSW Treasury Corporation Bonds, 1994 to 1998
50 45 40 35 30 25 20 15
Margin (Basis Points) 10 5 0 Jun 97 Jun 98 Sep 96 Sep 97 Dec 96 Dec 97 Jun 94 Jun 95 Jun 96 Mar 97 Mar 98 Sep 94 Sep 95 Dec 94 Dec 95 Mar 94 Mar 95 Mar 96
Over CGS Over NSW
Source: Tasmanian Public Finance Corporation.
Chart 7.6 shows the cost of Tasmania's borrowing compared with that of a AAA rated State borrower, such as New South Wales (NSW) and the Commonwealth. The chart shows the difference in market yields over time between the Tasmanian Public Finance Corporation's (Tascorp) 12.5 per cent loan stock, which matures on 15 January 2001, and similar stocks issued by the Commonwealth and NSW.
During the period covered by the chart, the credit ratings of both Tasmania and NSW have remained unchanged, yet the margin between the two borrowers has shown a generally declining trend due to other factors influencing interest rate differentials. These include the size of the borrowing program, the types of securities issued, investor perception of the liquidity of the borrower's debt securities (i.e. the investor's ability to sell them before maturity) and the absolute level of interest rates - lower margins will be achieved as interest rates fall.
FOREIGN CURRENCY EXPOSURE
Whilst Tascorp borrows in overseas markets through a number of facilities, it has no foreign currency exposure as all offshore borrowings are immediately swapped into Australian dollars.
There is no debt serviced from the Consolidated Fund which is subject to exchange rate variations.
Chapter 7: Liabilities of the Tasmanian State Public Sector 133 CONTINGENT AND OTHER LIABILITIES
Borrowings Guaranteed by the Government Contingent liabilities of the Government generally arise through specific guarantees given by the Government or through legislation whereby a guarantee is given to secure borrowings.
There has been a significant decline in the value of specific guarantees given by the Government in recent years, as shown by Table 7.6.
Table 7.6: Level of State Guarantees (as at 30 June) Contingent Year Liability $m
1988 30.10 1989 22.74 1990 19.76 1991 8.53 1992 6.46 1993 5.11 1994 3.64 1995 3.22 1996 2.87 1997 2.17 19981 2.52
Notes: 1. This amount includes loans that have been advanced under the Co-operative Housing Societies Act 1963 ($1.2 million), State Loans and Guarantees Act 1976 ($227 000), and Tasmanian Development Act 1983 ($1.1 million)
The Government's contingent liabilities amounted to $2.52 million as at 30 June 1998. The State also guarantees the payment of principal and interest in respect of loans raised by statutory authorities, in accordance with existing legislation. These are recorded in the accounts of statutory authorities as actual liabilities, whereas these items represent a contingent liability for the State.
134 Chapter 7: Liabilities of the Tasmanian State Public Sector LEASE AND OTHER FINANCIAL ARRANGEMENTS
Table 7.7 provides details of interest subsidies paid by the Government in respect of loans to public bodies, water and irrigation projects and leasing charges on major new buildings.
The amount of interest subsidies has remained relatively stable in recent years and was $6.4 million in 1997-98.
Lease costs associated with major properties have increased from $5.7 million in 1988-89 to $19.6 million in 1997-98.
Table 7.7: Interest Subsidies and Leasing Costs (year ended 30 June), 1989 to 1998
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 $m $m $m $m $m $m $m $m $m $m Interest Subsidies Public Bodies Assistance Act 1.5 2.2 2.2 2.2 2.2 2.3 2.3 2.3 2.4 2.7 Irrigation Schemes 2.4 2.7 2.7 2.8 2.8 2.8 2.7 2.4 2.7 2.8 Derwent Entertainment Centre .... 0.4 0.4 0.3 0.3 0.2 0.2 0.2 ...... Non-Government Schools 0.8 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 1.0 Other Subsidies 1.6 1.6 1.5 1.6 1.5 1.3 1.3 1.2 ......
6.4 7.8 7.7 7.8 7.7 7.5 7.4 7.0 6.0 6.4 Major Property Leasehold Executive Building 2.8 3.1 3.4 3.3 3.5 3.1 3.1 2.8 3.0 3.0 Mines Building 0.7 0.7 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.1 Lands Building 1.5 1.5 1.7 1.9 1.9 1.9 2.0 2.3 2.2 3.1 Police Support Building ...... 1.3 1.3 1.6 1.6 1.6 1.7 1.6 1.6 North West Regional Hospital ...... 2.0 4.4 4.4 4.4 47 Liverpool Street ...... 1.3 1.4 1.4 1.8 1.4 1.6 Marine Board Building 0.7 0.9 0.9 1.0 1.0 1.1 1.2 1.1 1.1 1.1 ANZ Centre ...... 1.1 1.2 1.2 1.2 Emily Dobson House ...... 1.4 2.3 2.4 2.4 2.2 2.4 2.5
5.7 6.2 8.2 9.9 12.6 12.5 15.9 18.6 18.4 19.6
Chapter 7: Liabilities of the Tasmanian State Public Sector 135 SUPERANNUATION ARRANGEMENTS IN THE TASMANIAN PUBLIC SECTOR
Overview A number of different superannuation arrangements operate in the Tasmanian public sector for Members of Parliament, the judiciary and public sector employees generally. This section relates to those public sector superannuation arrangements which impact upon the Consolidated Fund.
Superannuation may be provided on a defined benefit basis, a defined contribution basis or a combination of both. A defined benefit scheme is one in which the benefits accruing on resignation, retirement or death are predetermined according to a formula established in the scheme rules or regulations. Since the end benefits are guaranteed under such a scheme, the employer's contribution will vary over time depending on such factors as the earning rate on investments, the longevity of pensioners and the salary of the employee in a defined period (usually three years) immediately before the benefit is assessed.
By comparison, a defined contribution scheme is one in which the employer's contribution is fixed according to the scheme rules. Under such a scheme, the end benefit represents the accumulation of contributions by the employer and employee (if any), together with the investment earnings on those contributions. The end benefit of employees will vary with the earning rate on investments over the period of membership of the scheme.
A superannuation fund may be unfunded, partially funded or fully funded. An unfunded scheme is one in which the employer-financed benefit component is met on an 'emerging cost' basis when the employee retires, resigns or dies without any money being set aside in the scheme for that individual's benefit. A funded scheme is one in which the employer makes a regular contribution to the superannuation fund reflecting the currently accruing liability in respect of employees. Some schemes are partially funded such that there are both funded elements (usually relating to employee contributions) and unfunded elements (normally relating to employer contributions). In the past, most major public sector schemes within Australia have been unfunded in respect of employer contributions, but the pattern is now changing.
The major schemes currently operating in the Tasmanian public sector are those established under the Retirement Benefits Act 1993, the Parliamentary Superannuation Act 1973, the Parliamentary Retiring Benefits Act 1985 and the Judges' Contributory Pensions Act 1968. The defining characteristics of these schemes are summarised in Table 7.8, together with details of the numbers of active members and pensioners where appropriate. For the purposes of this Table, a scheme is characterised as an 'open' scheme if new entrants are able to join that scheme. Conversely, a 'closed' scheme is one which is no longer open to new entrants. In many cases, where a new superannuation scheme is introduced, it is generally the case that contributors are entitled to remain in the scheme in which they started, even if it is closed to new entrants. In such cases, these members would obtain the benefit as determined by that scheme. In other cases, a transfer option to the new arrangements may be provided, either on a voluntary or a compulsory basis.
136 Chapter 7: Liabilities of the Tasmanian State Public Sector Chapter 7: Liabilities of the Tasmanian State Public Sector 137 It should be noted that the figures detailed in Table 7.8 with respect to the Retirement Benefits Fund represent the number of particular accounts that are in existence. In some cases, one person may have more than one account. It should also be noted that it is possible for certain non-contributory members to transfer to the contributory scheme after a defined period of service.
Retirement Benefits Fund (RBF) Background The RBF was first established in accordance with the Retirement Benefits Act 1970. There were major amendments to the scheme in 1982, 1987 and in 1993. The Retirement Benefits Act 1993 provided a framework for new superannuation arrangements, the details of which are set out in the Retirement Benefits Regulations 1994 and the Retirement Benefits (Transitional) Regulations 1994. This scheme comprises both a contributory and a non-contributory element.
The RBF contributory scheme is an unfunded defined benefit lump sum scheme and only applies to public sector employees, including employees of Government Business Enterprises and State-Owned Companies. New permanent state servants must contribute a minimum five per cent of salary and may contribute up to 11 per cent of salary to the fund. Voluntary contributions may also be made. The basic benefit is calculated in lump sum terms. It is based on the length of the employee's contributory service, the average salary of the contributor during the last three years of service and a benefit multiple factor (BMF). The BMF for a person contributing at the basic rate of five per cent of salary is 0.2. For those who elect to contribute at a higher rate, the BMF increases by 0.0125 for each additional one per cent of member contributions made. All or part of the lump sum entitlement may be converted to a pension. Such pensions are adjusted twice a year in accordance with movements in the Consumer Price Index (CPI).
Where a contributor resigns prior to age 55, he or she is entitled to a benefit calculated on the same basis as the age retirement benefit. However, in accordance with Commonwealth legislation, the employer share of the end benefit (approximately 70 per cent of the total benefit) must be preserved until retirement after the preservation age (age 55 for persons born before 1 July 1960, gradually rising to age 60 for persons born after 30 June 1964). Benefits are also payable in the event that the contributor dies, retires on the grounds of ill health or is made redundant. Anti-detriment provisions also exist to protect the entitlements of those contributors who joined the scheme prior to 1 July 1994.
The RBF non-contributory scheme is an unfunded defined contribution scheme for those employees not eligible to join the contributory scheme. The employer contribution in respect of non-contributory employees is the rate required by the Commonwealth's Superannuation Guarantee legislation, which increased to seven per cent of salary as from 1 July 1998. Interest at the Commonwealth long term bond rate is credited to each non-contributory employee's superannuation account. Non-contributory employees are entitled to a lump sum accumulation benefit (which may be converted to a CPI indexed pension) on retirement. Benefits are also payable in the event of death, ill-health or redundancy. If a non-contributor resigns from his or her position prior to age 55, the accrued benefit must be compulsorily preserved in the RBF scheme (except in certain limited circumstances).
Those who formerly contributed to the superannuation scheme under the now repealed Superannuation Act 1938 and did not transfer to the RBF scheme contribute and receive benefits under the new scheme arrangements as amalgamated contributors. The contributions and benefits for amalgamated contributors reflect the arrangements pertaining under the former unit-based scheme.
138 Chapter 7: Liabilities of the Tasmanian State Public Sector The Police Provident Fund (PPF) now operates under the framework of the RBF scheme. The PPF became a closed scheme on 31 December 1963 and there are only four contributors remaining in this scheme. Contributors pay 7.5 per cent of salary and this amount is matched by the employer. The accumulation benefit payable is the aggregate of the employer and employee contributions together with interest credited.
Legislative Developments During 1997-98 there were no amendments to the Retirement Benefits Act 1993 or the Retirement Benefits (Transitional) Regulations 1994.
However, there were two amendments to the Retirement Benefits Regulations 1994 during the year.
The Metro Tasmania (Transitional and Consequential Provisions) Act 1997 amended the Retirement Benefits Regulations 1994 by specifying the arrangements that are to apply where there is a transfer of services to another organisation and the relevant enactment, arrangement or agreement is gazetted by the Minister as a 'prescribed arrangement'.
The Retirement Benefits (Anti-Detriment) Act 1998 also amended the Retirement Benefits Regulations 1994 by specifying the benefits which apply to a person who, having been a contributor as at 30 June 1994, is subject to a 'prescribed arrangement'. This benefit is akin to the benefit that such a person would have received had he or she been subject to a 'transfer arrangement' under the provisions of the now repealed Retirement Benefits Act 1982. In general terms, this benefit would equate to 3.5 times the sum of members' contributions and interest received on those contributions. Following legal advice received by the RBF Board, the then Government agreed that these amendments were required so that the benefits for those persons subject to a prescribed arrangement were made explicit.
Funding The RBF scheme has traditionally been an unfunded scheme with respect to on-budget agencies. However, with effect from 1 July 1994, a superannuation provision has been established in respect of the employees of these agencies. The provision is being maintained in the Special Deposits and Trust Fund, the name of the account being the Superannuation Provision Account. As a matter of Government policy, agencies are required to pay to the provision account 11 per cent of salary in respect of contributory members, the appropriate Superannuation Guarantee rate in respect of non-contributors and 7.5 per cent of salary in respect of Police Provident Fund contributors. From this account, the employer share of pensions and lump sum benefits payable to employees in 'on-budget' agencies are reimbursed to the Retirement Benefits Fund Board.
As at 30 June 1998, the balance accumulated in the Superannuation Provision Account was $190.0 million.
Table 7.9 provides details of the Superannuation Provision Account transactions and balances for 1997-98 and projections, on the same policy basis, for the next five years.
Agency contributions to the Superannuation Provision Account subsequent to 1 July 1994 relate to the currently accruing liability. An additional payment is being made from the Consolidated Fund to the Superannuation Provision Account as a contribution in respect of the accrued past service liability. In 1997-98, the additional contribution to the Superannuation Provision Account was $38.3 million. However, as outlined above, the Government meets from this account the full emerging cost of benefits, not just the proportion of the emerging cost which relates to service on and from 1 July 1994.
Chapter 7: Liabilities of the Tasmanian State Public Sector 139 Table 7.8: Superannuation Provision Account Superannuation 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Provision Account (T780) Actual Estimate Estimate Estimate Estimate Estimate $m $m $m $m $m $m
Opening Balance 161.4 190.0 227.5 262.5 320.4 391.9
Agency contributions 11% contributions 69.2 71.0 73.3 75.6 78.1 80.6 Superannuation Guarantee contributions 15.9 19.0 19.6 23.2 23.9 27.8 Total agency contributions 85.0 90.1 92.9 98.8 102.0 108.3 Interest 7.7 10.2 12.0 17.0 20.7 25.1 Finance-General 38.3 46.9 47.1 68.0 84.0 90.5 Total Available 292.5 337.1 379.5 446.3 527.1 615.8
Payments Pensions 53.4 56.3 59.7 63.3 67.1 71.1 Lump Sums 49.2 53.1 57.4 62.5 68.1 74.3 Other …0.1………… Total Payments 102.6 109.6 117.1 125.8 135.3 145.4
Closing Balance 190.0 227.5 262.5 320.4 391.9 470.3
Liabilities In accordance with the requirements of the Retirement Benefits Act 1993, an actuarial review into the state and sufficiency of the Retirement Benefits Fund was undertaken as at 30 June 1995. Full details of that review were outlined in the 1996-97 Budget Papers. As reported on that occasion, the Fund's Consulting Actuary estimated that the unfunded past service liability of the RBF scheme as at 30 June 1995 was $1.2 billion. As at 30 June 1996, the figure was estimated by the Actuary to be $1.374 billion, while at 30 June 1997 the Actuary has estimated this figure to be $1.301 billion. This represented a decrease of $73 million over the estimate as at 30 June 1996, largely as a result of the exceptional return on investments achieved by the RBF Board and lower than anticipated salary growth.
A further review of the Fund as at 30 June 1998 has commenced, with details expected to be received later in the year.
It should be noted that both the estimates for the unfunded superannuation liability as at 30 June 1996 and 30 June 1997 were calculated on an assumption that the RBF Board's reserves in respect of pensions would generate a four per cent real return. If a five per cent real rate of return was used (as was the case for the triennial review as at 30 June 1995), the unfunded liability in each of those years would have been $1.254 billion and $1.189 billion respectively. Clearly, using either assumption shows
140 Chapter 7: Liabilities of the Tasmanian State Public Sector that there has been a modest decrease in the State's unfunded superannuation liability, due to the investment returns achieved in 1996-97 by the RBF Board.
The report of the Joint Select Committee on Superannuation (JSC) provides a great deal of information in relation to the reasons for the growth in the unfunded superannuation liability over the past decade.
The Terms of Reference for the Inquiry into public sector superannuation were provided in the 1997-98 Budget Papers. The report of the JSC, Public Sector Superannuation in Tasmania, was tabled in the House of Assembly on 4 December 1997. The JSC made numerous recommendations, of which the principal ones were as follows:
the RBF defined benefit contributory scheme be closed to new members;
employer superannuation support for new employees be fully funded and provided through an accumulation scheme;
the level of employer superannuation support be at the rate specified in the Commonwealth's Superannuation Guarantee (Administration) Act 1992 (7 per cent from 1 July 1998, rising to 8 per cent from 1 July 2000 and 9 per cent from 1 July 2002);
new employees be provided with unlimited fund choice as to which complying superannuation fund their employer superannuation contributions are to be paid into; and
existing members of the RBF contributory scheme be offered a transfer right to leave that fund and participate in the new arrangements.
The JSC considered that if the above reforms were implemented, the State's unfunded superannuation liability would be capped (in the sense that no new employees would add to it) and, although it would continue to increase for some years to come, the liability should disappear in or around the year 2064, or sooner if additional outlays were made from the Consolidated Fund.
The Government is currently considering its position in relation to the JSC recommendations.
Parliamentary Superannuation Fund Background The Parliamentary Superannuation Fund is a defined benefit pension scheme established under the provisions of the Parliamentary Superannuation Act 1973 and is the older of the two Parliamentary schemes still in operation. The scheme was closed to new members in 1985. As at 30 June 1998, there were 13 parliamentarians covered by the provisions of this legislation and 29 pension beneficiaries. Following the announcement of the State election, held on 29 August 1998, a number of longer serving members of the House of Assembly announced that they would retire from Parliament. In addition, one member covered by the 1973 Act was not re-elected. As a result, the number of members covered by this Act has declined further.
All but one of the members covered by the legislation contribute at the rate of 12 per cent of their parliamentary salary. Under the scheme, these members have an entitlement to a pension benefit on retirement provided the person:
retires after contributing for at least 15 years; or
Chapter 7: Liabilities of the Tasmanian State Public Sector 141 has completed more than eight years, but less than 15 years, of contributory service and satisfies criteria specified in section 16 of the Act.
In any other circumstances, the member is entitled, on termination, to a refund of contributions plus interest and, if appropriate, a Superannuation Guarantee (SG) payment. In the event of the death of a member, the spouse is entitled to a pension representing five-eighths of the pension to which the member would have been entitled, or 40 per cent of the backbench (basic) salary, whichever is the greater.
A member who has contributed for 20 years is entitled to a pension benefit of 70 per cent of the ratio of the total parliamentary salary received during their period as a member to the total basic salary that would have been received during the member's parliamentary service.
Either 50 per cent or 100 per cent of a contributor's or spouse's pension may be commuted to a lump sum in accordance with conversion factors detailed in schedules to the Act.
Pensions are increased twice a year in accordance with movements in the Consumer Price Index.
Legislative Developments During 1997-98 there were no amendments to the Parliamentary Superannuation Act 1973.
Funding The Parliamentary Superannuation Fund is an unfunded scheme, with the employer share of the benefits being met by the Government on an emerging cost basis.
Fund Management The Parliamentary Superannuation Fund is managed by the Parliamentary Superannuation and Retiring Benefits Trust. The Trust consists of the President of the Legislative Council, the Speaker of the House of Assembly and the Secretary, Department of Treasury and Finance.
Liabilities An actuarial valuation of the scheme was undertaken as at 30 June 1995. This report showed that the State's share of the total service liabilities as at that time was $14 million. A further review of the Parliamentary Superannuation Fund as at 30 June 1998 has commenced, with details expected to be received later in the year.
Parliamentary Retiring Benefits Fund (PRBF) Background The Parliamentary Retiring Benefits Fund is a defined benefit lump sum scheme established under the provisions of the Parliamentary Retiring Benefits Act 1985. The scheme covers those members of Parliament first elected after the scheme came into effect on 12 November 1985.
As at 30 June 1998, there were 41 parliamentarians covered by the provisions of this legislation. Given the recent reduction in the size of the Parliament, there was a reduction in the number of members covered by the provisions of this legislation during 1998-99. Following the House of Assembly election held on 29 August 1998, the number of members covered by the provisions of this legislation stood at 35.
142 Chapter 7: Liabilities of the Tasmanian State Public Sector Members contribute at the rate of nine per cent of their parliamentary salary during the first 20 years of service and thereafter at nine per cent of the amount by which the member's parliamentary salary exceeds the basic parliamentary salary. The benefit upon retirement after 15 years service depends upon the years of contributory service. The maximum entitlement for those with 20 or more years of service is seven times final salary (as defined in the Act).
Legislative Developments During 1997-98 there were no amendments to the Parliamentary Retiring Benefits Act 1985.
Funding This scheme is fully funded, with the Government currently contributing 25.2 per cent of salary for each member of the scheme. This is an increase from the scheme design level of 22.5 per cent of salary, and arises from the recommendation of the Fund's Consulting Actuary at the time of the 30 June 1995 review that the Government's contribution be increased to 2.8 times member contributions, at least until the time of the next actuarial review due as at 30 June 1998.
Fund Management The Parliamentary Retiring Benefits Fund, along with the Parliamentary Superannuation Fund, is managed by the Parliamentary Superannuation and Retiring Benefits Trust.
Liabilities As the Parliamentary Retiring Benefits Fund is a fully funded scheme, there is no unfunded liability.
Judges' Scheme Background Superannuation arrangements for Judges are specified in the Judges' Contributory Pensions Act 1968. There is no Judges' Superannuation Fund as such, with the contributions made by Judges (five per cent of salary) being deposited in, and all benefits being met from, the Consolidated Fund.
For the purposes of this section, references to the Judges' scheme take account of the fact that the Solicitor-General and the Director of Public Prosecutions are covered by the arrangements established under the Judges' Contributory Pensions Act 1968.
As at 30 June 1998, there were nine members of the scheme including the Chief Justice, the five Puisne Judges, the Solicitor-General, the Director of Public Prosecutions and the Master of the Supreme Court. Members are covered by the Judges' scheme in accordance with the provisions of the legislation establishing their respective positions, or the Principal Act itself. Currently, there is a total of nine pension beneficiaries under the three pieces of legislation which establishes the 'Judges' scheme'.
The scheme provides for a pension of 50 per cent of salary following:
retirement after 15 years service;
retirement on grounds of ill-health; or
attainment of the statutory retirement age of 70 years.
Chapter 7: Liabilities of the Tasmanian State Public Sector 143 Pensions are increased once a year in accordance with the movements in Tasmanian judicial salaries. In turn, Tasmanian judicial salaries are determined by the Auditor-General based on the benchmark of the average of salaries of the Chief Justices of South Australia and Western Australia.
Legislative Developments During 1997-98 there were no amendments to the Judges' Contributory Pensions Act 1968.
Funding The Judges' scheme is an unfunded scheme, with all of the benefits being met by the Government on an emerging cost basis.
Fund Management As there is no superannuation fund as such, there are no trustees of the Judges' scheme. The scheme is administered by the Department of Treasury and Finance.
Liabilities The Scheme's Consulting Actuary has estimated the extent of the unfunded liability as at 30 June 1995 as being $10.1 million. Although there is no legislative requirement for an actuarial review to be undertaken as at 30 June 1998, it is expected that such a review will be undertaken, with the report being finalised towards the end of the year.
Aggregate Unfunded Liability As indicated previously, an actuarial review was undertaken of each of the State's superannuation schemes as at 30 June 1995. The outcome of these individual reviews provides an estimate of the aggregate unfunded liability of the State in respect of public sector superannuation. The results of these reviews were detailed in Table 7.18 of Budget Paper No 1 Budget Overview 1996-97.
The nominal unfunded liability across all unfunded schemes, expressed as a percentage of Gross State Product (GSP), is detailed in Table 7.10.
Table 7.9: Unfunded Superannuation Liabilities as a Proportion of Gross State Product Year ended Unfunded Liability GSP2 30 June Nominal Nominal Ratio $'000 $'000 %
1992 885 966 8 664 000 10.23 1993 998 561 8 971 000 11.13 1994 1 111 154 9 143 000 12.15 1995 1 223 749 9 762 000 12.54 19961 1 398 131 10 310 000 13.56 19971 1 324 664 10 587 000 12.51
Notes: 1. These figures are based on assumptions by the Actuary that differ slightly from those used in the 1995 review.
144 Chapter 7: Liabilities of the Tasmanian State Public Sector 2. State GSP figures have been revised by the Australian Bureau of Statistics since the 1997-98 Budget Papers.
This is a ratio measure similar to that used by credit rating agencies. However, the actual figures differ as the rating agencies use the Australian Bureau of Statistics (ABS) definition of unfunded superannuation liability. The ABS definition does not take into account internally funded provisions such as the Superannuation Provision Account and has a different classification of agencies.
Superannuation Outlays Chart 7.7 shows the total superannuation expenditure from 1988-89 to 1997-98 in relation to the public sector scheme, the two parliamentary schemes and the judges' scheme.
It is evident from Chart 7.7 that superannuation outlays from the Budget have increased significantly since 1988-89 - from $32.5 million in 1988-89 to $105 million in 1997-98.
Chart 7.7: Total Superannuation Expenditure,1988-89 to 1997-98 (nominal)
120
100
80
60 $ million 40
20
0 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98
Table 7.11 demonstrates the significance of these figures.
The Table shows that there has been an increase in superannuation expenditure of 223 per cent over this period, compared with a 36 per cent increase in total Consolidated Fund outlays. As a result, superannuation outlays have increased from 2.24 per cent of total outlays in 1988-89 to 5.30 per cent in 1997-98. It should be noted that the increase in superannuation outlays since 1994-95 reflects the fact that the new public sector superannuation arrangements allow beneficiaries to take all their benefit in a lump sum. While this imposes a short-term cost, it provides a long-term gain to the State as lump sums are, on average, inherently cheaper to provide than CPI-indexed pensions.
For the purposes of this Table, outflows from the Superannuation Provision Account (SPA) are regarded as expenditure on superannuation in relation to public servants. This slightly understates the
Chapter 7: Liabilities of the Tasmanian State Public Sector 145 situation, as the pre-1 July 1994 component of any superannuation redundancy payment is met from the Redundancy Trust Account, not the SPA.
The increase in superannuation expenditure is also attributable to the fact that although the new public sector superannuation arrangements took effect from 1 July 1994, they applied to those employees who left Government employment during the period 1 July 1993 to 30 June 1994. The advent of the Commonwealth's Superannuation Guarantee legislation, and its progressive increase over time (see Table 7.12), is another factor influencing the level of superannuation expenditure, as are the redundancy programs that previous State Governments have pursued in recent times.
Table 7.10: Superannuation Outlays as a Proportion of Consolidated Fund Expenditure (nominal), 1988-89 to 1997-98 Superannuation Consolidated Fund Expenditure Year Outlays Expenditure Ratio $'000 $'000 %
1988-89 32 492 1 452 728 2.24 1989-90 38 993 1 684 850 2.31 1990-91 44 732 1 671 808 2.68 1991-92 56 142 1 694 634 3.31 1992-93 55 884 1 806 212 3.09 1993-94 67 353 1 788 988 3.76 1994-95 102 600 1 799 708 5.70 1995-96 112 960 1 890 911 5.97 1996-97 108 379 1 964 306 5.52 1997-98 105 029 1 982 600 5.30
General Superannuation Policy Issues Superannuation Industry (Supervision) Act 1993 The Commonwealth's Superannuation Industry (Supervision) Act 1993 (SIS) was a major initiative of the Commonwealth Government to regulate superannuation schemes throughout the country. The Commonwealth Government proposed, and all State and Territory Governments have supported, an exemption from the provisions of the Act for certain public sector superannuation schemes. This exemption, which recognises the special circumstances that apply to public sector schemes, is provided in an intergovernmental agreement, which has been supported by Commonwealth legislation.
Part 2 of Schedule 1AA of the Superannuation Industry (Supervision) Regulations specifies those State schemes which are regarded as Exempt Public Sector Superannuation Schemes for the purposes of the SIS Act. The Tasmanian schemes which are exempted are those established under the following legislation:
Governor of Tasmania Act 1982;
146 Chapter 7: Liabilities of the Tasmanian State Public Sector Judges' Contributory Pensions Act 1968;
Parliamentary Retiring Benefits Act 1985;
Parliamentary Superannuation Act 1973;
Solicitor-General Act 1983; and
Retirement Benefits Act 1993.
While schemes established under this legislation are exempted from the SIS regulations, other public sector schemes such as those applicable to fire officers and ambulance officers, are not so exempted.
Superannuation Guarantee (SG) The Commonwealth Government's Superannuation Guarantee (Administration) Act 1992 requires employers to provide employees with a prescribed minimum level of employer superannuation support.
In accordance with the legislation, the Superannuation Guarantee Charge for large employers (ie those with a payroll in excess of $1 million per annum) such as the State Government is currently 7 per cent of salary. Table 7.12 shows the SG schedule.
Table 7.11: Superannuation Guarantee - Employer Contributions Prescribed rate of contribution as a percentage of salary Period (large employers)
1 July 1992 to 31 December 1992 4 1 January 1993 to 30 June 1995 5 1 July 1995 to 30 June 1998 6 1 July 1998 to 30 June 2000 7 1 July 2000 to 30 June 2002 8 1 July 2002 onwards 9
As noted elsewhere, on-budget Agencies are currently paying into the Superannuation Provision Account an amount equivalent to 11 per cent of salaries in respect of RBF contributory scheme members. Given that the contributory scheme is a defined benefit scheme, this is an actuarially determined average contribution rate to meet the Government's expected share of the benefits as and when they emerge. The level of actual employer support for each contributor varies, amongst other things, according to age of entry, the nature of benefits taken and gender.
There is also an agreement in place between the Treasurer and the RBF Board to ensure that any person leaving the employ of the State receives a payment sufficient to ensure that the State fulfils its obligations in respect of the SG legislation. Under the agreement, the Board is indemnified to the extent that it is required to make payments not otherwise provided for in State legislation.
Chapter 7: Liabilities of the Tasmanian State Public Sector 147 'Surcharge' on High Income Earners and Others In its 1996-97 Budget speech, the Commonwealth Government first announced its intention to introduce a 15 per cent surcharge on the superannuation contributions made in respect of high income earners. Seven pieces of legislation relating to this issue were passed by the House of Representatives and the Senate in May 1997, and Royal Assent was granted on 5 June 1997. Amendments were made to the legislation in December 1997.
The legislation enables the Australian Taxation Office (ATO) to levy a tax on each superannuation fund. The ATO determines the tax to be paid after receiving advice from each superannuation fund as to the level of employer superannuation support received by each employee. Having received a bill from the ATO, each fund will collect the 'surcharge' from the relevant employees, generally at the time of retirement. For the period until the retirement of the relevant employees, the RBF Board will maintain a surcharge debt account for these employees. Where there is a debt, the liability increases each year in accordance with the Commonwealth Long Term Bond Rate. Legislation to permit Fund Trustees to implement this reduction is being prepared with a view to it being introduced into the Tasmanian Parliament during the Budget session.
The amount to be collected from each individual will be as determined by the ATO. Persons with 'superannuation incomes' in excess of an upper limit (indexed annually) will be required to pay a surcharge tax of 15 per cent of their employer superannuation contributions. The tax is phased in for employees with incomes in excess of a lower limit. The full 15 per cent tax will also apply to many employees who do not supply their Tax File Numbers to the relevant fund. For surcharge purposes, 'superannuation income' is a person's taxable income, including employer superannuation contributions. The surcharge limits are indexed in accordance with Average Weekly Ordinary Time Earnings, and the relevant rates are as follows:
Table 7.13: Commonwealth Superannuation Surcharge Period Divisor Lower limit Upper limit $$$
1996-97 1 000 70 000 85 000 1997-98 1 046 73 220 88 910 1998-99 1 084 75 856 92 111
As an example as to how the surcharge applies, a person who had a taxable income (including say, $10 000 of employer superannuation contributions) in 1997-98 of $80 000 (i.e. in between the surcharge limits), would have a surcharge rate (expressed in percentage terms) equivalent to:
[($80 000 - $73 220)/$1 046]
=6.48%
Therefore, this person's surcharge debt would be calculated as:
6.48% x $10 000
= $648.
148 Chapter 7: Liabilities of the Tasmanian State Public Sector For constitutional reasons, the surcharge does not apply to 'constitutionally protected' funds. As outlined in Table 7.8, the constitutionally protected schemes in Tasmania include the arrangements established under the Judges' Contributory Pensions Act 1968, the Solicitor-General Act 1983 and the Governor of Tasmania Act 1982. However, under Commonwealth legislation, members of such funds (except for Judges who held office prior to the introduction of the surcharge) will be required to pay their surcharge liability to the ATO. This will be able to be done by a member while employed or upon receiving a benefit at retirement.
The surcharge is additional to the normal taxation which applies where a member leaves the workforce and takes a lump sum benefit. These rates are detailed in Table 7.14. Where a person elects to take his or her benefit in the form of a pension, that pension is, subject to any rebates that may be available, taxed as income.
Table 7.14: Taxation of Lump Sum Benefits (1998-99 rates) Age 55 or over Under age 55 (combined total of taxed and untaxed post 30 June 1983 elements) 0 to $93 731 Excess over $93 731 % % % Taxed 20 …. 15 Untaxed 30 15 30
Notes: 1. These rates do not include the Medicare levy of 1.5 per cent. The levy does not apply to a taxed source where the applicable rate of tax is nil. 2. With an RBF lump sum benefit approximately 30 per cent of the end benefit is regarded as coming from a taxed source (as the RBF pays the 15 per cent contributions tax on the investment income which it receives from members' contributions) and the remaining 70 per cent is deemed to come from an untaxed source (this represents the employer share). 3. Five per cent of the pre 1 July 1983 component is taxed at the employee's marginal rate of tax.
Chapter 7: Liabilities of the Tasmanian State Public Sector 149 TASMANIAN STATE SERVICE WORKERS' COMPENSATION SCHEME
Purpose of the Scheme The purpose of the Scheme is to ensure that employees of all participating agencies who suffer illness and injury in the course of their employment are compensated and rehabilitated in accordance with the Workers' Rehabilitation and Compensation Act 1988.
History of the Scheme The Scheme was established following the enactment of the Workers' Rehabilitation and Compensation Act 1988. All inner-Budget agencies and statutory authorities are required to participate in the Scheme. Participation by Government Business Enterprises is optional. All participating agencies pay contributions based on claims experience. These contributions are paid into the State Service Workers' Compensation Account in the Special Deposits and Trust Fund administered by the Department of Treasury and Finance, with all claims being met from this Account. The Account is strategically managed by the Tasmanian State Service Workers' Compensation Committee, an inter-departmental committee with representatives from participating agencies. The services of a Fund Manager are retained on a contract basis to administer claims and report on the operation of the Scheme to the Committee and participating agencies.
Performance of the Scheme Table 7.15 summarises the total contributions paid by agencies to the Scheme since its inception.
Table 7.15: Contributions Made by Participating Agencies to the Scheme, 1989-90 to 1997-98 (est) Average Rate Per $100 Total Salaries Total Contributions of Salary $m $m
1989-90 779.1 8.3 1.07 1990-91 782.7 9.7 1.24 1991-92 754.0 11.2 1.49 1992-93 804.0 12.4 1.54 1993-94 785.7 13.2 1.68 1994-95 800.0 17.5 2.20 1995-96 819.0 28.5 3.48 1996-97 826.9 39.0 4.76 1997-98 (est) 828.4 38.0 4.59
150 Chapter 7: Liabilities of the Tasmanian State Public Sector Two variables determine the total cost of claims made during a particular year, the number of claims and the average cost of each claim. Table 7.16 shows the number and average cost of claims for each year since the inception of the Scheme.
Table 7.16: Number and Average Cost of Claims Against the Scheme, 1989-90 to 1997-98 Number of Claims1 Average Cost Total Estimated Cost2 $$m
1989-90 3 458 3 863 13.354 1990-91 3 592 4 219 15.155 1991-92 3 398 5 751 19.542 1992-93 3 128 7 901 24.714 1993-94 3 125 10 098 31.556 1994-95 2 793 10 303 28.776 1995-96 2 490 10 188 25.368 1996-97 2 148 9 454 20.307 1997-98 2 075 10 637 22.072
Notes: 1. This represents an actuarial estimate of the total number of claims that will occur during each period, regardless of when each claim will actually be reported. This estimate is based on claims information to 30 June 1998. 2. This represents an actuarial estimate of the total cost of all claims that will occur during each period. The estimate includes a provision for the cost of claims that have occurred but have not been reported as at 30 June 1998. This estimate is based on claims information to 30 June 1998.
Table 7.16 indicates that since 1990-91, there has been a downward trend in the number of claims. This downward trend continued in 1997-98. Table 7.16 also shows that since the inception of the Scheme, the average cost of claims has more than doubled, although this upward trend has plateaued in recent years. This plateauing in the average cost of claims will impact not only on the average cost of claims in future years, but also on the average cost of claims occurring in the most recent financial years.
The trends in relation to the number and average cost of claims are consistent with the general Tasmanian experience.
The Scheme was established on the basis that it was to operate on a fully funded basis. However, until 1995-96, contributions made by agencies were consistently insufficient to meet the cost of claims incurred during each year. The single largest factor resulting in contributions being set at a level below claims costs was the rapid escalation of workers' compensation costs experienced in Tasmania since the commencement of the Workers' Rehabilitation and Compensation Act 1988. This resulted in both the public and private sectors consistently under-estimating the cost of claims.
Because contributions were, until 1995-96, consistently less than the estimated total cost of claims, the Scheme accumulated significant outstanding claims liabilities but had no reserves to meet those liabilities. From 1994-95 to 1996-97, the contributions payable by each agency to the Scheme were increased significantly, allowing this trend to be reversed. Contributions are estimated to have stabilised in 1997-98. The Scheme is now well placed to achieve full funding by 30 June 2000 consistent with the original intention that the Scheme should operate on a fully funded basis.
Chapter 7: Liabilities of the Tasmanian State Public Sector 151 Measures to Reduce the Number and Cost of Claims The Scheme has a number of measures in place to improve the management of the potential workers' compensation liability of the State Service, including:
• the division of agency contributions to the Scheme into a component to meet the estimated cost of claims resulting from injuries occurring in the coming financial year and a component to meet the unfunded outstanding cost of past claims. This enables agencies to better monitor current and past performance;
• the production of an Annual Report which includes an analysis of the Actuary's report on the performance of the Scheme, and information on the number and type of claims made and the associated costs. This provides comprehensive information to agency managers on the performance of the Scheme and the development of trends in the preceding 12 months;
• the provision of a Newsletter to keep agency managers better informed about the performance of the Scheme and workers' compensation issues in general; and
• the progressive implementation of the recommendations resulting from a project on the prevention and management of stress-related conditions. The project was initiated by the Division of Employment Policy of the Department of Premier and Cabinet and partially funded by the Scheme.
It is anticipated that these measures, coupled with an increasing emphasis on occupational health and safety and rehabilitation by agency managers, will lead to further reductions (or, at the least, stability) in the number and cost of claims in 1998-99.
152 Chapter 7: Liabilities of the Tasmanian State Public Sector 8SPECIAL DEPOSITS AND TRUST FUND
Features
The information presented in this chapter reflects all financial transactions of agencies which are managed through specific Accounts in the Special Deposits and Trust Fund.
The balance of the Special Deposits and Trust Fund at 30 June 1998 was $327.5 million, an increase of $82.4 million on the previous year.
The balance of the Superannuation Provision Account increased by $28.5 million, further increasing the level of provisions held against the State's unfunded superannuation liability.
The Tasmanian State Service Workers' Compensation Account balance increased by $18.3 million in line with the objective of achieving full funding of the Scheme's liabilities by June 2000.
Chapter 8: Special Deposits and Trust Fund 153 THE FUND
The Special Deposits and Trust Fund is established under the Public Account Act 1986. Under the provisions of the Act, the Treasurer may establish special deposit and trust accounts in the Fund and define the purpose for which they can be used and the conditions applying to the operation of the accounts.
Details of balances and yearly transactions through the Fund during 1997-98 are included in Table 8.2. In addition, full details are included in departmental Annual Reports submitted to Parliament in accordance with the Financial Management and Audit Act 1990. Table 8.3 provides details of major balances and movements in selected accounts in the Special Deposits and Trust Fund.
STRUCTURE OF THE FUND
Recent financial reforms adopted by the Government have resulted in more efficient and effective utilisation of the total resources managed by agencies. The Output methodology and full financial reporting have resulted in a major shift from the previous limited focus on the Consolidated Fund, which excluded a range of activities that are managed through the Special Deposits and Trust Fund.
All financial operations of agencies are conducted through one of the following types of accounts in the Special Deposits and Trust Fund:
all agency related transactions are recorded through individual Department Operating Accounts. Department Operating Accounts receive funds appropriated to agencies from the Consolidated Fund by the annual Consolidated Fund Appropriation Act. These accounts also receive revenue collected by agencies and specific Commonwealth funds not paid into the Consolidated Fund. In addition, agencies are permitted to retain in their Operating Account other revenues not specifically identified for return to the Consolidated Fund;
commercial and semi-commercial activities of government agencies are undertaken through a Business Unit Account. These activities are usually funded from income generated by the Business Unit, on a full cost recovery basis, although some Business Units may receive a contribution from the Consolidated Fund. Examples of Business Units are the Office of the Valuer-General and the Tasmanian Audit Office;
Legislative Accounts have been created where an Act requires a specific account to be established in the Special Deposits and Trust Fund to record transactions associated with a specific purpose. Examples of these accounts are the Crown Lands Administration Fund and the State Highways Trust Fund;
Trust Accounts are accounts in which funds are held by the Government on behalf of a third party. These funds are not available to the Government to spend for its own purposes. Examples of Trust Accounts are the Port Arthur Victims Appeal Account, the Tsuneichi Fujii Fellowship Account and the Supreme Court Suitors Fund Deposit Account; and
those accounts which record transactions of the Government that are not agency specific but deal with activities of a general nature (such as superannuation, debt management, workers'
154 Chapter 8: Special Deposits and Trust Fund compensation etc.) are classified as Whole-of-Government Accounts. The majority of these accounts are administered by Finance-General.
FUND BALANCES
Due to the diverse nature of activities recorded through the Special Deposits and Trust Fund, the overall balance can fluctuate widely throughout a financial year and from year to year.
The accumulated balance of the Special Deposits and Trust Fund at 30 June 1998 was $327.5 million, an increase of $82.4 million from 30 June 1997. More than half of this increase is due to the increasing provisions held against the State's superannuation liability and the continued move towards full funding of the State's workers' compensation liabilities.
The gross receipts and gross expenditure through the Special Deposits and Trust Fund have not been adjusted to reflect inter-agency transactions. In many cases, a revenue source for certain accounts is expenditure from another agency. For example, the expenditure from Account T793 Agency Accommodation Charges, which is administered by the Department of Treasury and Finance, is funded by way of rental payments from agencies.
FUNDS AVAILABILITY
The use of internal funds within the Special Deposits and Trust Fund has been adopted in varying degrees by successive Governments. Access to those funds is achieved by overdrawing certain accounts in the Special Deposits and Trust Fund. In effect, this amounts to internal borrowings that reduce cash reserves.
In establishing the amount of internal cash available for temporary financing purposes in any one year, the upper limit is restricted to that part of the Special Deposits and Trust Fund balance which relates to groups of accounts other than those established to administer funds which are external to general government activities and those which are designated 'trust' accounts. That is, only funds contained in operating, suspense, deposit and provision accounts, representing cash resources generated from general government activities, are used for temporary financing activities.
The various Employment Rationalisation Programs established over the past six years for the restructuring of the public sector have been funded in this manner. Forward planning has been undertaken to provide for the return of the cash reserves used for this purpose. The balance of internal funds used for temporary financing purposes amounted to some $78.5 million at 30 June 1998.
Chapter 8: Special Deposits and Trust Fund 155 MAJOR BALANCES AND ACTIVITIES
Chart 8.1 provides details of balances of accounts in the Special Deposits and Trust Fund at 30 June 1998 according to the type of account outlined previously in this chapter. Those activities which are funded through the use of the Government's internal reserves as outlined above (specifically through the Employment Rationalisation Account and the Central Car Pool Account, with overdrafts of $59.0 million and $19.5 million respectively), are included as Overdraft Accounts.
Chart 8.1: Special Deposits and Trust Fund Balances by Account Type at 30 June 1998
300
250
200
150
100
$ million 50
0
- 50
- 100 Agency Legislative Trust Whole of Business Unit Overdraft Operating Accounts Accounts Government Accounts Accounts Accounts Accounts
It should be noted that in previous years' Budget Papers, for the purpose of the above Chart, the Central Car Pool Account has not been shown as an Overdraft Account, but as a Business Unit Account. This change has been made in order to adopt a common treatment for all overdrawn accounts in the Special Deposits and Trust Fund, and clearly identify the extent to which internal funds have been used for temporary financing purposes.
Table 8.1 provides details of the total balance of funds held by each agency in the Special Deposits and Trust Fund at 30 June 1998.
156 Chapter 8: Special Deposits and Trust Fund Table 8.1: Balance of Funds by Agency1 Balance at Agency 30 June 98 $'000
Department of Community and Health Services 15 557 Department of Education, Training, Community and Cultural Development 14 808 Department of Environment and Land Management 26 759 Finance-General 221 321 House of Assembly …. Department of Justice 6 338 Legislative Council 33 Legislature-General 49 Office of the Governor …. Department of Police and Public Safety 664 Department of Premier and Cabinet 10 841 Department of Primary Industry and Fisheries 5 017 Tasmania Development and Resources 5 353 Tasmanian Audit Office 854 Tourism Tasmania 2 715 Department of Transport 3 555 Department of Treasury and Finance (17 277) Workplace Standards Authority 30 914
Total 327 500
Note: 1. The above Table is based upon the Tasmanian State Service departmental structure as at 30 June 1998.
Table 8.2 provides details of all accounts in the Special Deposits and Trust Fund grouped under the administering agency. It should be noted that the total transactions shown in Table 8.2 will not necessarily be the same as the total expenditure on Outputs shown elsewhere in the Budget documents due to the accounting treatment of certain revenues and expenditures which are included in transactions within accounts but are not classified as Output expenditure.
Chapter 8: Special Deposits and Trust Fund 157 Table 8.2: Special Deposits and Trust Fund1 Account Balance at Balance at Account Name Number 30 June 1997 Receipts Expenditure 30 June 1998 $'000 $'000 $'000 $'000 COMMUNITY AND HEALTH SERVICES Department of Community and Health T592 4 223 92 253 85 644 10 832 Services Housing Services Operating Account Department of Community and Health T510 9 231 698 658 704 429 3 460 Services Operating Account Department of Community and Health T453 56 ...... 56 Services Purchase Contract Homes Act 1935 Account Home Ownership Assistance Program T647 148 9 701 9 776 73 Operating Account New Town Mothercraft Home Agreement Act T680 31 .... 2 30 1949 Account Patient Trust and Hospital Bequest Account T470 .... 1 147 .... 1 147 Royal Derwent Hospital Task Force Account T923 ...... 40 (40) Total 13 688 801 759 799 890 15 557
EDUCATION, TRAINING, COMMUNITY AND CULTURAL DEVELOPMENT Department of Education, Training, T511 2 238 524 004 517 605 8 637 Community and Cultural Development Operating Account Department of Education, Training, T526 5 998 119 010 118 934 6 075 Community and Cultural Development (Office of Vocational Education and Training) Operating Account Sports Development Account T773 204 232 363 72 State Library Service (Overdue Fines) T648 66 202 245 23 Account Total 8 506 643 448 637 146 14 808
Notes: 1. The above Table is based upon the Tasmanian State Service departmental structure as at 30 June 1998.
158 Chapter 8: Special Deposits and Trust Fund Table 8.2: Special Deposits and Trust Fund (continued) Account Balance at Balance at Account Name Number 30 June 1997 Receipts Expenditure 30 June 1998 $'000 $'000 $'000 $'000 ENVIRONMENT AND LAND MANAGEMENT Crown Lands Administration Fund T635 1 329 21 715 18 891 4 152 Department of Environment and Land T512 17 285 91 828 87 413 21 699 Management Operating Account Department of Environment and Land T814 .... 17 198 17 181 16 Management Service Tasmania Account Environmental Incidents Trust Account T743 78 114 81 111 Parks Development and Maintenance T750 (282) 1 502 1 140 79 Account Valuation Services Operating Account T643 (135) 3 394 2 903 356 Wapping Redevelopment Trust Account T805 (248) 715 220 248 Wellington Park Management Fund Account T765 54 119 75 97 Wellington Park Management Trust Fund T409 2 .... 2 .... Account Total 18 081 136 584 127 906 26 759
FINANCE-GENERAL Agency Targeted Separation Program T789 (8 778) 8 977 199 .... 1994-95 - Department of Community and Health Services Account Assurance Fund - Land Titles Act 1980 T431 3 264 137 .... 3 400 Account Commonwealth/State Housing Agreement T111 .... 9 607 9 607 .... Account Companies Liquidation (Companies Act T432 2 .... 2 .... 1962) Account Employment Rationalisation Account T795 (68 011) 37 847 28 856 (59 019) Finance-General Operating Account T513 .... 2 168 802 2 166 907 1 895 Forestry Tasmania Superannuation T842 .... 11 981 .... 11 981 Provision Account Forests and Forest Industry Strategy Account T711 482 21 200 303 Fringe Benefits Tax Suspense Account T840 75 3 959 4 016 18 Helsham Agreement Grants Account T712 13 311 554 3 457 10 407 Housing Assistance Act 1973 Account T124 .... 14 14 .... Housing Societies Working Account T884 3 942 899 4 841 .... Income Tax Deductions Suspense Account T827 4 591 2 4 592 .... Judges' Pension Fund Trust Account T828 83 75 83 75
Chapter 8: Special Deposits and Trust Fund 159 Table 8.2: Special Deposits and Trust Fund (continued) Account Balance at Balance at Account Name Number 30 June 1997 Receipts Expenditure 30 June 1998 $'000 $'000 $'000 $'000 Lands Resumption Act 1957 (Section 46) T433 41 1 .... 42 Account Liquid Petroleum Gas Subsidy Scheme T195 5 ...... 5 Account Local Government Tax Equivalent Account T846 .... 100 .... 100 Natural Disaster Relief Account T139 .... 347 347 .... Payroll Provision Account T825 12 000 4 000 7 840 8 160 Perpetual Trustees and National Executors T437 15 1 1 15 of Tasmania Limited Account Petroleum Products Subsidies T193 3 ...... 3 Commonwealth Suspense Account Rosetta Landslip Account T775 .... 101 113 (12) Safety Net Revenue Administration Account T737 .... 147 000 145 401 1 600 State Debt Management Account T839 20 337 56 732 59 742 17 327 State Grants Housing Act 1971 Housing T153 .... 157 157 .... Grant Account State Works and Housing Assistance Acts T112 .... 7 107 7 107 .... Account Structural and Performance Initiatives T807 2 963 2 782 1 856 3 890 Program Account Superannuation Provision Account T780 161 431 131 112 102 588 189 955 Tasmanian Permanent Executors and Equity T439 15 1 1 15 Trustees Limited Account Tasmanian State Service Workers' T837 11 687 44 522 26 218 29 991 Compensation Account The Mount Lyell Closure Trust Fund T768 995 .... 100 895 Treasurer's Suspense Account T836 446 61 335 61 619 162 Unclaimed Moneys Account T702 ...... Wheat Freight Subsidy Account T196 .... 1 200 1 200 .... Works Tasmania Commercialisation T759 (317) 608 178 113 Account Total 158 582 2 699 979 2 637 241 221 321
HOUSE OF ASSEMBLY House of Assembly Operating Account T515 .... 5 075 5 075 .... Total .... 5 075 5 075 ....
160 Chapter 8: Special Deposits and Trust Fund Table 8.2: Special Deposits and Trust Fund (continued) Account Balance at Balance at Account Name Number 30 June 1997 Receipts Expenditure 30 June 1998 $'000 $'000 $'000 $'000 JUSTICE Appeal Costs Fund Deposit Account T451 83 99 119 63 Crime (Confiscation of Profits) Account T764 121 7 121 7 Criminal Injuries Compensation Act - T740 240 1 103 1 340 2 Victims Fund Criminal Injuries Compensation Fund T766 .... 3 494 3 494 .... Department of Justice Operating Account T516 1 674 69 072 69 739 1 007 Local Court Act 1896 Trust Fund Account T434 15 15 9 22 Local Government and Other Elections T658 113 517 468 162 Operating Account Prisoners Earnings Deposit Account T404 35 379 374 40 Supreme Court Suitors Fund Deposit T460 10 219 1 621 6 805 5 035 Account Total 12 500 76 308 82 470 6 338
LEGISLATIVE COUNCIL Legislative Council Operating Account T517 2 3 032 3 001 33 Total 2 3 032 3 001 33
LEGISLATURE-GENERAL Legislature-General Operating Account T518 .... 3 466 3 417 49 Total .... 3 466 3 417 49
OFFICE OF THE GOVERNOR Office of the Governor Operating Account T514 .... 1 933 1 933 .... Total .... 1 933 1 933 ....
POLICE AND PUBLIC SAFETY Department of Police and Public Safety T519 2 279 102 285 103 900 664 Operating Account Total 2 279 102 285 103 900 664
PREMIER AND CABINET Department of Premier and Cabinet T520 1 484 40 989 39 720 2 753 Operating Account Department of Premier and Cabinet Service T816 .... 455 455 .... Tasmania Account Port Arthur Victims Appeal Account T806 47 8 .... 56 Regional Forestry Agreement Account T115 .... 27 762 20 390 7 372
Chapter 8: Special Deposits and Trust Fund 161 Table 8.2: Special Deposits and Trust Fund (continued) Account Balance at Balance at Account Name Number 30 June 1997 Receipts Expenditure 30 June 1998 $'000 $'000 $'000 $'000
Telecommunications Management Division T631 (576) 14 704 13 604 523 Operating Account Telecommunications Management Division T915 2 283 257 28 Suspense Account Tsuneichi Fujii Fellowship Account T730 104 5 .... 110 Total 1 061 84 206 74 426 10 841
PRIMARY INDUSTRY AND FISHERIES Department of Primary Industry and T804 231 201 142 290 Fisheries - Recreational Fishing Licences Trust Fund Department of Primary Industry and T521 5 265 56 989 57 702 4 552 Fisheries Operating Account Department of Primary Industry and T706 259 1 176 1 293 143 Fisheries Research Farms Account Department of Primary Industry and T815 .... 1 290 1 290 .... Fisheries Service Tasmania Account Rivers and Water Supply Commission T503 .... 32 .... 32 Deposits on Contracts Account Total 5 755 59 689 60 428 5 017
TASMANIA DEVELOPMENT AND RESOURCES Fire Relief Account T941 ...... Government Guarantees Reserve Account T790 13 11 .... 24 Mining Trust Fund Account T752 131 3 .... 135 Tasmania Development and Resources T466 243 6 12 237 Deposit Account Tasmania Development and Resources T522 4 155 81 570 80 769 4 957 Operating Account Total 4 543 81 591 80 781 5 353
TASMANIAN AUDIT OFFICE Tasmanian Audit Office Operating Account T644 748 3 244 3 138 854 Total 748 3 244 3 138 854
162 Chapter 8: Special Deposits and Trust Fund Table 8.2: Special Deposits and Trust Fund (continued) Account Balance at Balance at Account Name Number 30 June 1997 Receipts Expenditure 30 June 1998 $'000 $'000 $'000 $'000
TOURISM TASMANIA Tourism Tasmania - Product Distribution T659 3 263 3 265 3 902 2 626 and Sales Trading Account Tourism Tasmania Operating Account T523 442 20 563 20 916 89 Total 3 705 23 828 24 818 2 715
TRANSPORT Break O'Day Taxi Area Trust Fund T411 ...... Burnie Taxi Area Trust Fund T800 2 ...... 2 Cab and Hire Car Trust Fund T760 839 46 .... 885 Circular Head Taxi Area Trust Fund T412 .... 1 .... 1 Department of Transport Operating Account T524 1 579 278 303 277 379 2 503 Devonport Taxi Area Trust Fund T421 .... 2 .... 2 Dorset Taxi Area Trust Fund T416 ...... Flinders Island Taxi Area Trust Fund T418 ...... George Town Taxi Area Trust Fund T813 .... 1 .... 1 Hobart Taxi Area Trust Fund T802 16 5 .... 21 Huon Valley Taxi Area Trust Fund T415 ...... King Island Taxi Area Trust Fund T417 ...... Launceston Taxi Area Trust Fund T803 9 ...... 9 Meander Valley Taxi Area Trust Fund T410 ...... New Norfolk Taxi Area Trust Fund T811 .... 1 .... 1 Penguin Taxi Area Trust Fund T414 ...... Perth Taxi Area Trust Fund T812 ...... Port Reform Operating Account T549 (144) 207 63 .... State Highways Trust Fund Account T763 3 80 230 80 206 27 Tasman Taxi Area Trust Fund T420 ...... Taxi Industry General Administration Trust T801 (13) 85 71 .... Fund Traffic Management Operating Account T661 (34) 367 233 101 Ulverstone Taxi Area Trust Fund T422 .... 1 .... 1 West Coast Taxi Area Trust Fund T419 .... 1 .... 1 West Tamar Taxi Area Trust Fund T413 ...... Total 2 257 359 250 357 952 3 555
Chapter 8: Special Deposits and Trust Fund 163 Table 8.2: Special Deposits and Trust Fund (continued) Account Balance at Balance at Account Name Number 30 June 1997 Receipts Expenditure 30 June 1998 $'000 $'000 $'000 $'000
TREASURY AND FINANCE Agency Accommodation Charges Account T793 110 28 275 28 261 124 Central Car Pool Account T905 (15 533) 34 360 38 374 (19 547) Community Support Levy Account T624 60 940 616 384 Department of Treasury and Finance T525 1 024 31 002 31 002 1 024 Operating Account State Purchasing and Sales Contract T615 .... 5 947 5 209 738 Management Account1 State Purchasing and Sales Operating T666 (1 242) 8 360 7 118 .... Account2 Total (15 580) 108 884 110 581 (17 277)
WORKPLACE STANDARDS AUTHORITY Long Service Leave (Construction Industry) T467 28 410 1 530 .... 29 940 Special Funds Deposit Account Long Service Leave Construction Industry T755 104 2 847 2 797 154 Account Workers' Compensation Act 1988 Fund T435 375 3 036 2 668 743 Account Workplace Standards Authority Operating T527 104 8 014 8 042 77 Account Total 28 994 15 428 13 507 30 914
TOTAL SPECIAL DEPOSITS AND TRUST FUND 245 121 5 209 990 5 127 611 327 500
Notes: 1. The State Purchasing and Sales Contract Management Account was established on 1 November 1997. 2. The State Purchasing and Sales Operating Account was closed on 30 June 1998.
164 Chapter 8: Special Deposits and Trust Fund Balances of Selected Accounts Within the Special Deposits and Trust Fund, there are some accounts which, for various reasons, have significant movements in balances from one year to the next. Details of balances of selected accounts in the Special Deposits and Trust Fund where there have been major movements in account balances are provided in Table 8.3.
Table 8.3: Balances of Selected Accounts1
Balance at Account Name 30 June 98
$'000 DEPARTMENT OF COMMUNITY AND HEALTH SERVICES
Department of Community and Health Services Operating Account (T510) 3 460
The balance in this Account represents, in the main, approved commitments which have been carried forward to 1998-99 in relation to the Capital Investment Program ($1.1 million) and Commonwealth funded programs ($1.8 million).
Department of Community and Health Services Housing Services Operating Account (T592) 10 832
The balance in this Account represents commitments against capital projects under the Commonwealth State Housing Agreement which were commenced but not completed during 1997-98.
Patient Trust and Hospital Bequest Account (T470) 1 147
This Account was created in 1997-98 to record transactions associated with the receipt and payment of funds either held in trust for patients or used in accordance with specific bequests for the benefit of public hospitals or patients. These funds were previously held in a range of bank accounts controlled by the former Regional Health Boards. The funds will now be managed by the Department of Community and Health Services through this interest bearing account in the Special Deposits and Trust Fund.
DEPARTMENT OF EDUCATION, TRAINING, COMMUNITY AND CULTURAL DEVELOPMENT
Department of Education, Training, Community and Cultural Development Operating Account 8 637 (T511)
The balance in this Account represents approved commitments which have been carried forward to 1998-99. These include an amount of $1.9 million in relation to Commonwealth funded contractual grants programs, $1.4 million for miscellaneous projects including $750 000 for essential maintenance, $1.4 million for rectification works for the Derwent Entertainment Centre (following delays to these works in 1997-98) and $2.9 million relating to the previous Government's Directions Statement projects (including the School Information Technology Facilities Acquisition Project and the Library Information System Project).
Note: 1. The above Table is based upon the Tasmanian State Service departmental structure as at 30 June 1998.
Chapter 8: Special Deposits and Trust Fund 165 Table 8.3: Balances of Selected Accounts (continued)
Balance at Account Name 30 June 98
$'000
DEPARTMENT OF ENVIRONMENT AND LAND MANAGEMENT
Department of Environment and Land Management Operating Account (T512) 21 699
The balance of this Account represents funds for approved projects, including $3.1 million for the Tasmanian Regional Environmental Rehabilitation Program, $10.1 million for rehabilitation of Savage River and Port Latta, and $6.9 million for a variety of projects funded from the Commonwealth and other sources.
Crown Lands Administration Fund (T635) 4 152
The balance in this Account at 30 June 1998 represents commitments against the proceeds from the sale of government properties and assets.
FINANCE-GENERAL
Employment Rationalisation Account (T795) (59 019)
This Account records the temporary use of cash reserves to fund separation payments as a result of restructuring and rationalisation programs by agencies in 1993-94, 1994-95, 1996-97 and 1997-98. These programs have previously been recorded in separate Accounts, but in 1997-98 the Accounts were combined. The funds are being repaid from the Consolidated Fund over a number of years.
Finance-General Operating Account (T513) 1 895
The large amount of revenue/expenditure recorded through this Account reflects the nature of activities managed through the Finance-General Division. This Account is used to record transactions associated with a range of whole-of-government activities including receipt and subsequent transfer to the Consolidated Fund of Commonwealth general purpose payments, State taxation revenue and other Commonwealth Specific Purpose funds. The balance in the Account at 30 June 1998 represents funding carried forward to 1998-99 for the Training for Jobs in the New Economy initiative.
Forestry Tasmania Superannuation Provision Account (T842) 11 981
This Account was established during 1997-98 for the accumulation of funds to meet Forestry Tasmania's superannuation liability in relation to its current and past employees with entitlements under the Retirement Benefits Fund Scheme.
Helsham Agreement Grants Account (T712) 10 407
The funds held in this Account are being expended on approved projects in accordance with the Commonwealth/State Helsham Agreement. No further receipts to this Account are anticipated.
166 Chapter 8: Special Deposits and Trust Fund Table 8.3: Balances of Selected Accounts (continued)
Balance at Account Name 30 June 98
$'000
Housing Societies Working Account (T884) ….
This Account was transferred from Tasmania Development and Resources to Finance-General from 1 July 1996. The balance of the Account at 1 July 1997 represented repayments of outstanding loans to Co-operative Societies. These funds were used for debt reduction in 1997-98.
Payroll Provision Account (T825) 8 160
A further $4 million was transferred to this Account from the Consolidated Fund in 1997-98 to assist in meeting the costs of the next 27th pay which will occur in the 2003-04 financial year. The expenditure during the year related to an advance to the Department of Community and Health Services on 30 June 1998 to enable the Department to fund its payroll on 1 July 1998. The advance was repaid by the Department in July 1998.
Safety Net Revenue Administration Account (T737) 1 600
The purpose of this Account is to record the receipt of revenue from the Commonwealth under the Safety Net Arrangement between the Commonwealth and the States. The majority of the funds received are transferred to the Consolidated Fund to compensate for the inability of the State to continue to raise business franchise fees on tobacco and petroleum products, and liquor licensing fees. The remainder is applied to a range of subsidies on petroleum products, beer and cellar door sales and, in 1997-98 only, to the refund of liquor licence fees which had been paid prior to the High Court decision which invalidated the State's ability to levy franchise fees.
State Debt Management Account (T839) 17 327
This Account records transactions associated with the management of State Debt, including accounting for the amortisation of discounts and/or premiums, the amortisation of capital losses/profits incurred as a result of debt management activities and the reduction of State Debt utilising funds from the repayment of advances by State authorities, proceeds from the sale of designated assets, and compensation paid by the Commonwealth to refinance Commonwealth Financial Agreement debt from State sourced borrowings. The balance of the Account mainly represents a provision established to meet an accruing liability on zero coupon and capital indexed loans.
Chapter 8: Special Deposits and Trust Fund 167 Table 8.3: Balances of Selected Accounts (continued)
Balance at Account Name 30 June 98
$'000
Structural and Performance Initiatives Program Account (T807) 3 890
This Account records transactions associated with projects approved under the Structural and Performance Initiatives Program. A contribution of $2 million was made from the Consolidated Fund in 1997-98 towards the Program and repayments of $782 000 were received from the Department of Transport and the Department of Police and Public Safety for previously approved projects.
Superannuation Provision Account (T780) 189 955
This Account was established to record contributions received from agencies, certain authorities and the Consolidated Fund to make appropriate provision to meet the employers' liability in accordance with the provisions of the Retirement Benefits Act 1993. The balance in the Account represents the Government's provision to meet emerging liabilities. Further details are provided in Chapter 7, Liabilities of the Tasmanian State Public Sector.
Tasmanian State Service Workers' Compensation Account (T837) 29 991
This Account records transactions associated with the Tasmanian State Service Workers' Compensation Scheme. The balance represents contributions from agencies to meet the future costs of past claims on the Scheme. Further details in relation to the Scheme are provided in Chapter 7, Liabilities of the Tasmanian State Public Sector.
DEPARTMENT OF JUSTICE
Department of Justice Operating Account (T516) 1 007
Of the balance in the Account, $338 000 relates to commitments carried forward under the Capital Investment Program and $331 000 relates to funding provided by organisations for projects extending beyond 30 June 1998.
Supreme Court Suitors Fund Deposit Account (T460) 5 035
The balance of this Account represents payments to the Supreme Court pending the settlement of civil cases before the Court.
DEPARTMENT OF POLICE AND PUBLIC SAFETY
Department of Police and Public Safety Operating Account (T519) 664
The reduction in the balance of this Account during the year was due to the expenditure of $1.9 million in Commonwealth funds under the firearm registration scheme which had been carried forward from the previous year.
168 Chapter 8: Special Deposits and Trust Fund Table 8.3: Balances of Selected Accounts (continued)
Balance at Account Name 30 June 98
$'000
DEPARTMENT OF PREMIER AND CABINET
Department of Premier and Cabinet Operating Account (T520) 2 753
The balance of this Account is largely comprised of unexpended but committed Commonwealth funding, including $300 000 from the Regional Telecommunications Infrastructure Fund (RTIF) and $800 000 relating to the Natural Heritage Trust Program. Contributions from agencies and other sources totalling approximately $800 000 are also being carried forward to meet the cost of major projects and policy development associated with the Government's information technology and telecommunications strategies.
DEPARTMENT OF PRIMARY INDUSTRY AND FISHERIES
Department of Primary Industry and Fisheries Operating Account (T521) 4 552
Of the funds carried forward in this Account, $3.2 million relates to commitments with respect to grants paid by independent bodies for research purposes and funds to be transferred to the University of Tasmania as a result of the formation of the Tasmanian Aquaculture and Fisheries Institute. An amount of $629 000 relates to commitments on projects which are funded jointly by the State and the Commonwealth, whilst $201 000 represents funds from commercial rock lobster licences which are committed for quota management and the monitoring of the rock lobster fishery.
TASMANIA DEVELOPMENT AND RESOURCES
Tasmania Development and Resources Operating Account (T522) 4 957
The balance of the Account largely represents unscheduled client principal repayments from debt funded loans, which were used to reduce debt maturing in July 1998. The Account also includes the State's matching contributions for the provision for bad debts incurred in lending activities associated with the Rural Adjustment Scheme and the Commonwealth's working capital for the Rural Adjustment Scheme.
TOURISM TASMANIA
Tourism Tasmania - Product Distribution and Sales Trading Account (T659) 2 626
The balance of funds carried forward in this Account relates to money held on deposit by Tourism Tasmania in its travel agent role for clients yet to travel and for suppliers of travel related services who are yet to be paid by Tourism Tasmania.
Chapter 8: Special Deposits and Trust Fund 169 Table 8.3: Balances of Selected Accounts (continued)
Balance at Account Name 30 June 98
$'000
DEPARTMENT OF TRANSPORT
Department of Transport Operating Account (T524) 2 503
Of the funds held in this Account, $1.7 million relates to revenue collected on behalf of parties external to the Department including the Motor Accidents Insurance Board (MAIB) and the Fire Service Levy which were collected during 1997-98 but were not disbursed to the relevant organisations until 1998-99. A further $400 000 relates to Rail Infrastructure Funds provided by the Commonwealth as part of the sale of Tasrail.
DEPARTMENT OF TREASURY AND FINANCE
Central Car Pool Account (T905) (19 547)
This Account records transactions associated with the on-going operation of the Central Car Pool. Vehicle purchases are funded from this Account with costs subsequently recovered from agencies through charges for long term and short term hire. During 1997-98, the management of the fleet was contracted to Fleetcare. Some of the temporary and long-term changes associated with this contract, together with delays in the disposal of some vehicles due to the sluggish state of the second hand vehicle market, led to an increase in the overdraft during 1997-98.
State Purchasing and Sales Contract Management Account (T615) 738
This Account records the transactions associated with the administration and management of the contract management activities of the State Purchasing and Sales Division of the Department of Treasury and Finance. It was established during 1997-98 to record the ongoing activities of the Division following the sale of the warehousing operations (SPS Supply).
State Purchasing and Sales Operating Account (T666) ….
The warehousing operations of the State Purchasing and Sales Division were sold to the Blue Star Group on 19 September 1997. Transactions relating to this Account, which reflected the combined warehousing, contracts and purchasing operations of the State Purchasing and Sales Division, were finalised at 30 June 1998. The balance of the account was transferred to T839 - State Debt Management Account.
170 Chapter 8: Special Deposits and Trust Fund 9STATE TAXATION
Features
Total taxation receipts for 1997-98 were $638.4 million, which was $7.6 million, or 1.2 per cent, below the Budget estimate for the year.
Expected taxation receipts for 1998-99 are $664.1 million.
A High Court decision of 5 August 1997 found business franchise fees on tobacco products to be unconstitutional. This decision implied that franchise fees relating to petroleum and liquor products are also unconstitutional and as a result, none of the former business franchise fees have been collected since 6 August 1997.
To replace foregone franchise fee revenues, the Commonwealth, at the request of the States and Territories, implemented a safety net arrangement by increasing the excise on tobacco and petroleum and wholesale sales tax on liquor. The additional revenue raised was distributed to the States and Territories.
An additional off-road diesel subsidy of 3.0 cents per litre is to become effective from 1 March 1999.
Chapter 9: State Taxation 171 INTRODUCTION
The purpose of this chapter is to provide detailed information on State taxation collections for 1997-98 and State taxation revenue estimates for 1998-99.
The first part of this chapter provides, comments on collections for 1997-98 and outlines the projected revenues for 1998-99. For each of the major tax areas a description of the tax base and its operation is provided and an estimate of receipts for 1998-99. A summary of major legislative changes which have occurred is also included.
Finally, a comparison is made of the revenue raising effort in Tasmania in relation to the other States and Territories. The comparison is based on the standardised revenue collections calculated by the Commonwealth Grants Commission and published in its Report on General Revenue Grant Relativities 1998 Update. This measure of revenue raising effort is also referred to in Chapter 10 of this Budget Paper in the context of Commonwealth Grants Commission issues as they impact on the State.
TAXATION RECEIPTS FOR 1997-98
The capacity of Tasmania and the other States and Territories to raise tax revenues is constrained by the Constitution and by Australia's Commonwealth-State financial arrangements. This is reflected in the fact that the Commonwealth now raises some 73 per cent of national taxation revenue while its spending represents only 54 per cent of public sector outlays. On the other hand, the States now collect only about 23 per cent of total taxation revenues but are responsible for 40 per cent of total public sector outlays.
Following reductions in the level of grants available from the Commonwealth, the State substantially increased its own revenue raising effort by increasing rates of taxation and broadening tax bases at the commencement of this decade.
Until 1995-96, State taxation receipts had grown steadily in nominal terms, as shown in Chart 9.1. While the level of receipts shown for 1996-97 implies a significant rise in total taxation revenue, this was due to the imposition of payroll tax on the general government sector. In 1997-98 a small decline in real terms receipts was experienced for the year. The estimated revenue position for 1998-99 compared to 1997-98 shows modest growth, indicating the underlying static behaviour of State taxation revenue as a whole.
Taxation receipts for 1997-98 totalled $638.4 million. This result represents an increase of $5.9 million, or 0.9 per cent over receipts for the previous year, but $7.6 million or 1.2 per cent below the Budget estimate. There were increases in payroll tax (2.2 per cent), casino tax (13.2 per cent) and financial transaction taxes (stamp duties and Financial Institutions Duty) (6.6 per cent). Declining revenues were recorded for racing and gaming tax, land tax and business franchise fee revenues due to a shortfall in anticipated safety net payments from the Commonwealth. The shortfall in safety net payments was largely due to revenue foregone when large quantities of tobacco product were moved out of bond before the safety net arrangements came into effect.
172 Chapter 9: State Taxation Table 9.1 sets out the collections for each State tax during 1997-98 and the preceding three years and details the Budget estimates for 1998-99. Chart 9.2 illustrates the contribution of each tax to total State taxation revenue in 1997-98.
Chart 9.1: Total State Taxation 1993-94 to 1998-99
700
650
600
550 $ million
500
450
400 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 (Est) Nominal Dollars Real (1998-99) Dollars
The substantial increase in FID collections ($5.2 million) was primarily the result of extra revenue received from compliance audits carried out during the year. The combined decrease in business franchise fee revenue and safety net revenue of $17.9 million (compared with the budget estimates for the former franchise fees) was due to the shortfall in safety net revenue as explained above.
Payroll tax collections were $205.6 million in 1997-98, which represented an increase of $4.3 million, or 2.2 per cent, on the previous year, but 0.3 per cent below the Budget estimate. The increase in revenue primarily reflects the full year effect of the additional receipts from the extension of payroll tax liability to government departments, which took effect from 1 August 1996.
Land tax assessed for general land for the year was $25.9 million, a decrease of $1.6 million, or 5.6 per cent, over the corresponding figure for the previous year. The lower than expected land tax receipts was the result of the reclassification of land for some major land holdings.
Motor tax receipts for 1997-98 were $39.1 million, an increase of $2.3 million, or 6.2 per cent, over the previous year, and 2.8 per cent higher than the Budget estimate.
Stamp duty receipts for 1997-98 were $124.1 million, an increase of $4.6 million over stamp duty receipts for 1996-97. This was an increase of 3.8 per cent over receipts for the previous year and 4.0 per cent higher than the Budget estimate.
Chapter 9: State Taxation 173 Table 9.1: State Tax Revenue 1994-95 to 1998-991 Actual Estimate 1994-95 1995-96 1996-97 1997-98 1998-99 $'000 $'000 $'000 $'000 $'000
Payroll tax 142 108 146 468 201 257 205 594 211 678 Land tax 30 761 29 846 27 468 25 940 25 783 Motor tax 28 130 33 574 36 856 39 129 40 690 Financial Transaction Taxes Stamp Duties 125 308 124 785 119 485 124 057 124 517 Financial Institutions Duty 20 951 21 528 21 121 26 311 22 811 Franchise Fees and Levies Electricity Levy 13 968 14 435 14 346 14 879 14 600 Electricity Consumption Levy 10 639 869 ...... Tobacco Franchise Licence Fees2 76 284 82 681 84 765 6 314 .... Liquor Licence Fees2 17 161 17 517 18 682 2 089 .... Petroleum Products Licence Fees2 47 442 48 439 47 008 3 791 .... Safety Net Revenue2 126 418 159 146 Gambling Taxes Lottery Tax 21 519 20 735 19 282 18 813 19 613 Racing and Gaming Taxes 11 932 12 035 10 494 9 197 7 837 Casino Tax and Licence Fees 16 411 20 562 31 580 35 763 37 258 Soccer Football Pools Tax 127 105 84 79 71 Other Sundry Licences 71 83 59 56 60
Total 562 812 573 663 632 486 638 431 664 064
Notes: 1. The figures shown in this table represent the amounts received and paid into the Consolidated Fund for each head of taxation and duty in a financial year. The electricity consumption levy was reduced from 1992-93 and was abolished on 1 July 1995. 2. From 5 August 1997 the business franchise fees on tobacco, petroleum and liquor products were no longer collected. To replace the State and Territory franchise fee revenue, the Commonwealth implemented a safety net arrangement by increasing excises on tobacco and petroleum and wholesale sales tax on liquor and distributed the additional revenue raised to the States and Territories.
The major increase in stamp duty revenues related to conveyances, duty on the sale of motor vehicles and duty on marketable securities. Revenue from conveyances grew by $2.8 million, or 7.3 per cent, over the previous year. Duty on the sale of motor vehicles increased by $0.7 million, or 2.5 per cent, over the previous year. Duty on marketable securities rose by $1.9 million, or 264.6 per cent, over the previous year (reflecting a significant level of share transactions during the period). These increases were offset to a degree by nominal decreases in receipts for other heads of duty such as mortgage duty and hire purchase duty.
Collections from the Electricity Levy for the year were $14.9 million, an increase of $0.5 million, or 3.7 per cent, over 1996-97 and 0.7 per cent above the Budget estimate.
174 Chapter 9: State Taxation Lottery tax collections for the year were $18.8 million, which represented a decrease of $0.5 million, or 2.4 per cent, compared with the previous year and were 1.6 per cent below the Budget estimate.
Total racing and gaming tax receipts for 1997-98 were $9.2 million, which represented a decrease of $1.3 million, or 12.4 per cent, over the previous year and 11.0 per cent below the budget estimate.
Revenue from bookmakers’ tax continued to fall, with a decline from $46 000 in 1996-97 to $36 000 in 1997-98, or 21.7 per cent.
Minor gaming fees totalled $122 000 in 1997-98, which comprised fees on bingo tickets ($98 800), raffle permits ($22 000) and calcutta sweepstakes ($1 200).
Casino tax and licence fees receipts for 1997-98 were $35.8 million, which represented an increase of $4.2 million, or 13.2 per cent, over the previous year and were 8.6 per cent above the budget estimate. The overall increase in collections reflected the continuing substantial growth in gaming machine gross profit, which was up by 74.6 per cent. The progressive tax rate applying to gaming machines has also impacted positively on revenues. At 30 June 1998, some 1 050 gaming machines were installed in Tasmanian casinos, while another 1 256 gaming machines were installed in 93 external venues, comprising 16 licensed clubs and 77 hotels. The introduction of additional gaming machines into hotels and clubs accounted for much of the increase in casino tax revenue for the year.
In addition to the growth in gaming machine activity, there was also a small increase in Keno gross profit during the year. At 30 June 1998, 147 clubs and hotels were operating Tas Keno compared to 135 at 30 June 1997.
The total revenue from the monthly licence fees paid by the Launceston Country Club and Hobart Wrest Point Casinos amounted to $1.8 million for the year.
Chart 9.2: State Taxation Collections, 1997-98 - Dollar Amounts and Percentage of Total
Gambling Taxes $63.9 m (10.0%) Payroll Tax Business Franchise Fees $205.6 m (32.2%) $12.2 m (1.9%)
Safety Net Revenue $126.4 m (19.8%)
Electricity Levy Land Tax $14.9 m (2.3%) $25.9 m (4.1%)
Financial Institutions Motor Taxation and Fees Duty $39.1 m (6.1%) $26.3 m (4.1%) Stamp Duties $124.1 m (19.4%)
Chapter 9: State Taxation 175 ESTIMATED TAXATION RECEIPTS FOR 1998-99
Total taxation revenue for 1998-99 is estimated to be $664.1 million, an increase of $25.6 million or 4.0 per cent on 1997-98. This expected outcome is primarily due to the following factors:
• growth in casino tax receipts;
• the full year effect of the safety net payments relating to tobacco, petroleum and liquor; and
• growth in payroll tax collections.
Payroll Tax Description Payroll tax is imposed under the Pay-roll Tax Act 1971 and is levied on employees' wages and salaries, commissions, bonuses, fringe benefits and allowances, directors' remuneration and employer superannuation contributions. The tax also applies to contract payments where an employer-employee relationship is deemed to exist.
Employers are required to submit returns, usually monthly, to the Commissioner of Taxes. Frequency of lodgement may be varied where employers' payrolls are close to the exemption level, or where seasonal employment occurs.
The current rate of tax is 6.6 per cent with a general exemption level of $600 000.
Table 9.2 details payroll tax received in 1997-98 by tax liability range.
Estimated Receipts for 1998-99 Receipts from payroll tax in 1998-99 are estimated to be $211.7 million, representing an increase of 3.0 per cent over 1997-98. The expected increase in collections primarily reflects additional compliance effort planned in 1998-99, the impact of the increase in the Superannuation Guarantee Charge to 7.0 per cent and growth in the value of the tax base.
Table 9.2: Payroll Tax, 1997-98 Number of Tax Liability Range Employers Tax Paid $ $'000 1 - 50 000 1 174 13 970 50 001 - 100 000 165 10 961 100 001 - 250 000 145 23 377 250 001 - 500 000 56 18 547 500 001 - 1 000 000 36 23 913 1 000 001 and over 40 114 826 Total 1 616 205 594
176 Chapter 9: State Taxation Land Tax Description The Land and Income Taxation Act 1910 provides for revenue to be raised through the imposition of a tax on land. Since 1982-83, tax had been levied on the basis of three land categories - general, rural and principal residence land. However, since 1 July 1996, principal residence and rural land have been exempt from land tax. The land tax scales are fixed by a separate rating Act which, under the provisions of the Constitution Act 1934, may be passed by the Parliament from time to time.
The principal residence category applies to land on which there is a dwelling or stratum unit which is occupied as the principal residence of the owner, or a member of the owner's family. This category also includes retirement village units occupied as a principal residence. The rural land category includes land of ten hectares or more which is used principally for primary production, and land of less than ten hectares used principally for primary production and which provides the owners, or occupiers, with their only or principal source of income. General land relates to any land which is not principal residence or rural land. It includes commercial and industrial land, land used for the rental of residential housing and vacant land, whether in urban or rural areas.
Land tax is calculated on the assessed land value and is payable by the owner of the land as at 1 July each year. The assessed land value is the land value adjusted by a valuation adjustment factor, determined by the Valuer-General as at 31 March each year, to bring all property in the State to a common valuation date each year. The valuation adjustment factors are determined for each land category within each municipality and represent estimates of the general movements in land values since the last municipal revaluation was undertaken.
Table 9.3 provides details of the number of properties and the land tax assessed for each category of land in 1997-98.
Estimated Receipts for 1998-99 It is expected that land tax collections in 1998-99 will be $25.8 million, which is $0.2 million or 0.6 per cent, below the previous year. The reduction in land tax revenue expected in 1998-99, compared with actual receipts for 1997-98, reflects the impact of an expected reduction in the tax base due to new exemptions from land tax resulting from the extension of the definition of rural land to include aquaculture and private timber reserves.
Chapter 9: State Taxation 177 Table 9.3: Land Tax Assessed, 1997-98 Principal Residence Rural General Number of Tax Number of Tax Number of Tax Property Value Properties Payable Properties Payable Properties Payable $$$$
1 - 1 000 347 .... 1 .... 875 .... 1 001 - 15 000 9 996 .... 58 .... 11 235 276 575 15 001 - 20 000 9 286 .... 50 .... 7 592 310 075 20 001 - 25 000 10 404 .... 78 .... 6 246 478 541 25 001 - 35 000 18 795 .... 306 .... 10 147 1 314 882 35 001 - 40 000 5 753 .... 233 .... 3 310 621 982 40 001 - 50 000 8 758 .... 535 .... 4 886 1 228 261 50 001 - 65 000 7 464 .... 926 .... 4 680 1 728 994 65 001 - 68 750 1 152 .... 254 .... 829 391 236 68 751 - 100 000 3 838 .... 1 444 .... 3 524 1 762 000 100 001 - 125 000 1 238 .... 874 .... 1 453 910 955 125 001 - 170 000 827 .... 1 119 .... 1 363 1 468 937 170 001 - 210 000 262 .... 665 .... 653 1 170 841 210 001 - 250 000 103 .... 516 .... 400 1 005 476 250 001 - 500 000 108 .... 1 463 .... 942 4 597 012 500 001 - 1 000 000 5 .... 582 .... 292 3 728 134 1 000 001 and over ...... 177 .... 158 7 992 347
Total 78 336 .... 9 281 .... 58 585 28 986 248
Motor Tax Description Motor tax is imposed under the Motor Vehicles Taxation Act 1981 on the owners of motor vehicles or trailers, at the time of initial registration or annual renewal. Depending on the type of vehicle, the tax is determined either by the number of cylinders and/or weight, or seating capacity, or number of axles and mass of each vehicle. The legislation specifies six classes of vehicles, each attracting its own scale of rates.
Estimated Receipts for 1998-99 Motor tax collections are estimated to be $40.7 million in 1998-99, an increase of 4.0 per cent over the previous year. The increase in motor tax revenue expected in 1998-99, compared with 1997-98 actual receipts, reflects the impact of expected growth in the base combined with the indexation of rates by the consumer price index.
178 Chapter 9: State Taxation Financial Transaction Taxes Taxes classed as financial transaction taxes are stamp duties (including debits duty) and financial institutions duty (FID). The yield from financial transaction taxes in 1997-98 was $150.4 million, or 23.6 per cent of total taxation receipts. Chart 9.3 shows the relative collections of various stamp duties and FID.
Chart 9.3: Financial Transaction Taxes, 1997-98 - Dollar Amounts and Percentage of Total
Other Stamp Duties Financial Institutions Duty $18.5 m (12.3%) $26.3 m (17.5%)
Debits Duty $16.4 m (10.9%)
Conveyances $41.6 m (27.7%)
Insurances $18.2 m (12.1%)
Motor Vehicles $29.4 m (19.5%)
Stamp Duties Description The Stamp Duties Act 1931 provides for revenue to be raised through the imposition of stamp duty on a range of instruments, transactions and arrangements which are generally of a commercial character. All stamp duties are collected by the Commissioner of Stamp Duties, except duties on motor vehicle registrations and transfers and third party insurance, which are collected by the Department of Infrastructure, Energy and Resources on behalf of the Commissioner.
Stamp duty receipts for 1997-98 are reported by category in Table 9.4.
Estimated Receipts for 1998-99 Stamp duty receipts for 1998-99 are estimated to be $124.5 million, an increase of 0.4 per cent over receipts in 1997-98. A decline in revenue is expected in the area of stamp duty on conveyances, but this is expected to be offset by increased receipts in duty on motor vehicles, insurance duty and debits duty.
Chapter 9: State Taxation 179 Table 9.4: Stamp Duties, 1993-94 to 1997-98 1993-94 1994-95 1995-96 1996-97 1997-98 $'000 $'000 $'000 $'000 $'000
Conveyances1 45 916 47 858 45 167 38 774 41 609 Motor Vehicles 22 446 25 609 28 951 28 656 29 360 Insurances 18 977 19 385 18 326 18 348 18 177 Debits Duty 9 296 15 337 15 493 16 484 16 418 Rental Business 2 781 2 903 3 172 2 883 2 916 Bank Returns1 6 645 6 411 6 395 1 870 2 054 Mortgages1 2 289 2 430 2 302 7 172 6 947 Sundry Legal Documents 846 702 637 571 334 Lucky Envelopes 895 1 024 850 888 707 Credit Cards 938 997 1 164 1 502 1 635 Marketable Securities 1 144 971 547 729 2 660 Hire Purchase and Related Agreements 946 1 237 1 386 1 140 739 Leases 409 412 409 486 544 Adhesive Revenue Stamps2 84 40 6 .... (20) Betting Tickets 4 ...... Less General Refunds (46) (8) (22) (17) (25)
Total 113 570 125 308 124 785 119 485 124 057
Notes: 1. Bank returns includes duty relating to mortgages and conveyances paid by way of return. For 1996-97 and 1997-98, this item has been disaggregated and distributed between its components. 2. In 1997-98 $20 000 was paid on return of stamps.
Financial Institutions Duty Description The Financial Institutions Duty Act 1986 currently provides for the imposition of financial institutions duty at the rate of 0.06 per cent on the taxable receipts of registered financial institutions, subject to a maximum of $1 200 for any single receipt.
Receipts include bills of exchange and promissory notes. Financial institutions with receipts of less than $5.0 million per annum are not required to be registered except where they are a subsidiary of, or associated with, another financial institution. The $1 200 maximum was introduced in order to limit the liability for duty on large value transactions, which tend to operate on small margins.
The Act provides for a concessional rate of duty, of 0.005 per cent of the average daily balance of short- term dealings, for registered short-term money market dealers.
Registered financial institutions are required to submit monthly returns within 21 days from the commencement of the month to the Commissioner of Taxes. Duty is paid in respect of the number of
180 Chapter 9: State Taxation dutiable receipts of $2.0 million or more (which attract the $1 200 maximum duty) and on the total of all other dutiable receipts.
Short-term money market operators are required to submit returns on the same basis as other registered financial institutions. However, the information furnished by these operators is required to specify the average daily liability in respect of short-term dealings during that month and the daily amounts used in calculation of that average daily liability.
Estimated Receipts for 1998-99 Revenue from financial institutions duty in 1998-99 is expected to be $22.8 million, representing a reduction of 13.3 per cent over receipts for 1997-98. However, the anticipated fall in receipts in 1998-99 is due to the one off collection of significant additional tax as a result of compliance activity during 1997-98, which boosted revenue over the level which would otherwise have been collected. This additional tax paid in 1997-98 related to tax liabilities in previous years.
Section 90 Safety Net Arrangements Background Under section 90 of the Commonwealth Constitution, the imposition of excises is an exclusive power of the Commonwealth. Over time, the High Court has broadened its interpretation of an excise from an indirect tax on goods, relating to the quantity or value of such goods based on current period production or manufacture, to any tax which impacts on the production, distribution or sale of goods.
Until August 1997, State and Territory Governments used business franchise fee arrangements to collect taxation revenue from certain classes of products. Franchise fees were intended to differ from excise duties in that they were licences to engage in an otherwise proscribed activity. The licence fee was determined on the basis of the volume or value of sales or purchases in some previous period.
Over the years, numerous High Court actions have been initiated which have challenged the constitutional validity of the States and Territories imposing franchise fees. The general argument has been that franchise fees are in fact a form of excise and therefore such revenue raising measures are unconstitutional.
On 5 August 1997 the High Court, in the case of Ngo Ngo Ha and Anor, and Walter Hammond and Associates Pty Ltd vs the State of New South Wales and Ors, found in favour of the plaintiffs, determining the imposition of business franchise fees by the States and Territories to be constitutionally invalid. Effectively, this decision meant that all franchise fees were no longer enforceable, resulting in the removal of a significant source of State and Territory revenue. The Commonwealth, at the collective request of the States and Territories, responded by imposing excise and wholesale sales tax surcharges, so as to replace the revenue lost from the former business franchise fees. These surcharge revenues are collected by the Commonwealth and returned to the States and Territories.
Description Revenues raised through the safety net arrangements are passed onto the States and Territories net of the Commonwealth’s administration costs and according to a distribution devised by the Commonwealth Grants Commission. The Commonwealth must impose the same rate of excise and sales tax on all States and Territories, including the safety net surcharges. For some jurisdictions this results in revenues greater than would have otherwise been received under the previous
Chapter 9: State Taxation 181 arrangements. In order to keep price rises to a minimum following introduction of the Commonwealth surcharges, the States and Territories agreed to return any excess revenue back to taxpayers by way of subsidy arrangements. These subsidy arrangements are discussed below.
Safety Net Subsidies In Tasmania, subsidy arrangements have been put in place for all petrol and diesel, low alcohol and full strength beer, and wine sold by vignerons at the cellar door. In addition, a separate additional off-road diesel subsidy is now provided. The subsidies have been designed to prevent product price increases arising solely from the Commonwealth’s uniform rate of excise and wholesale sales tax surcharge. They have not been implemented as a means of ameliorating price increases which result from Commonwealth tax indexation or commercial actions by producers or suppliers.
The safety net subsidy which is paid to petroleum wholesalers is equivalent to the difference between the new Commonwealth uniform petroleum excise surcharge rate and the old Tasmanian petroleum franchise fee rates for petrol and diesel. A separate safety net off-road diesel subsidy is available to diesel consumers who are already eligible for the Commonwealth diesel fuel rebate scheme. To offset the 15 per cent surcharge on the Commonwealth wholesale sales tax on liquor products, the following subsidies are paid to liquor wholesalers. Full strength beer is subsidised at two per cent of the wholesale sales value. Low alcohol beer, Tasmanian cider and Tasmanian cellar door wine sales are all subsidised equal to the full amount of the Commonwealth tax surcharge. Table 9.5 details the rates applicable.
Table 9.5: Safety Net Subsidy Rates1 Subsidy Type Amount
Petroleum Products Petrol 1.95 cents per litre Diesel 1.99 cents per litre Additional off-road diesel 3.00 cents per litre
Liquor Products Full strength beer 2% of wholesale value Low alcohol beer 15% of wholesale value Tasmanian cider (under 6.5% alcohol) 15% of wholesale value Tasmanian wine cellar door sales 15% of wholesale value
Note 1. An additional off-road diesel subsidy of 3.0 cents per litre becomes effective from 1 March 1999.
Total safety net revenues retained as franchise fee equivalents (net of subsidy payments) in 1997-98 were $126.4 million. In addition, $12.2 million in franchise fee revenue was collected in 1997 prior to the abandonment of the franchise fee arrangements following the 5 August High Court decision. Total revenue from the safety net arrangements and former business franchise fee revenue was $138.7 million. In aggregate, this was $17.9 million or 11.4 per cent less than the combined Budget estimates for the three business franchise fees on tobacco, petroleum and liquor products.
182 Chapter 9: State Taxation Negative impacts on safety net revenue receipts in 1997-98 included: the impact of one-off transitional timing differences between receiving the old franchise fee payments in advance, to receiving the new safety net payments in arrears; provision of refunds of the unexpired portion of licence fees to the liquor industry; and revenue foregone when large quantities of tobacco product were moved out of bond immediately following the High Court decision and prior to the commencement of the safety net arrangements.
Estimated Receipts for 1998-99 Total safety net revenues retained as franchise fee equivalents (that is, net of subsidy payments) are expected to be $159.1 million for 1998-99. The apparent nominal increase of $20.5 million over related revenues for 1997-98 reflects in most part the full year effect of the excise surcharge on tobacco products.
Electricity Levy Description The Electricity Entities (Contributions) Act 1997 requires that prescribed electricity entities pay to the Consolidated Fund five per cent of the revenue received each quarter in respect of the retailing of electricity. Electricity entities are not required to pay the levy in respect of sales to eligible pensioners and certain exempt contracts.
Estimated Receipts for 1998-99 Based on modelling, receipts for 1998-99 are estimated to be $14.6 million.
Gambling Taxes Revenue from gambling provided the State with $63.9 million in 1997-98, or 10.0 per cent of total State taxation revenue. Sources of gambling revenue in Tasmania include lotteries, casinos, Keno and video gaming machines in hotels and clubs, TAB and bookmakers, and minor gaming activities.
The Tasmanian Gaming Commission, together with the Revenue and Gaming Division of the Department of Treasury and Finance, are responsible for the supervision of gambling activities at Tasmanian casinos, gambling on board the Spirit of Tasmania, keno and gaming machine operations in hotels and clubs and minor gaming activities such as raffles and bingo. Regulation of racing is the responsibility of the Tasmanian Racing Authority.
The Racing and Gaming Act 1952 provides the overall framework for racing and gaming activities within the State. The Gaming Control Act 1993 provides the legislative framework within which Tasmanian casinos operate and for the operation of keno and video gaming machines. The TT-Line Gaming Act 1993 governs gaming operations aboard the Spirit of Tasmania.
Chart 9.4 provides details of gambling receipts for 1997-98.
Chapter 9: State Taxation 183 Chart 9.4: Gambling Revenue, 1997-98 - Dollar Amounts and Percentage of Total Minor Gaming $0.1 m (0.2%) Casino Lotteries $35.8 m (55.9%) $18.8 m (29.4%)
Racing $9.2 m (14.4%)
Soccer Football Pools $0.1 m (0.1%)
Lottery Tax Description Since 1960 there has been in place an agreement between the Governments of Tasmania and Victoria regarding the sale of lottery tickets in Tasmania and the sharing of duty attributable to Tasmanian subscriptions. The arrangements under that agreement have been varied from time to time. The current agreement was due to expire on 30 June 1998 but has been extended for six months pending further discussions to finalise negotiations between the Tasmanian and Victorian Governments. Under the agreement, Tasmania receives 100 per cent of the duty on Tasmanian subscriptions to Tattslotto, Tattslotto Extra, Powerball and Oz Lotto, 90 per cent of the duty on Tasmanian subscriptions to Tatts Keno and 75 per cent of the duty attributable to Tasmanian subscriptions to all other lotteries.
Lottery tax is collected by the Victorian Government, which remits the required payment to Tasmania each month.
The permit held by the Tattersall's organisation, enabling it to sell lottery tickets in Tasmania, expired on 30 June 1998 and was renewed for a further six months to 31 December 1998 to allow negotiations on the revenue sharing arrangements to be finalised.
The Racing and Gaming Act provides for the issue of a soccer football pools licence. The soccer football pools licence is currently held by Tattersall's.
Estimated Receipts for 1998-99 It is expected that revenue in relation to Tasmanian lottery and soccer pools subscriptions will be $19.6 million in 1998-99, representing an increase of 4.3 per cent on receipts in 1997-98.
The forecast revenue increase is due to an expected increase in subscriptions in all lottery types.
184 Chapter 9: State Taxation Racing And Gaming Tax Description The Racing and Gaming Act provides for the imposition of taxes and fees on racing and minor gaming. The tax rates applicable to on-course and off-course totalizator betting vary according to the type of bet placed. Bookmakers are subject to a different rate of tax depending, amongst other things, on whether the bet is placed on a local or an interstate race.
Table 9.6 provides details of racing and gaming revenues according to the various components for 1997-98.
Estimated Receipts for 1998-99 The estimated revenue from racing and gaming taxes in 1998-99 is $7.8 million, which represents a decrease of 14.8 per cent over 1997-98. The expected reduction in revenue is primarily the result of relief provided to the racing industry worth $1.2 million through a reduction in the share of the tax payable to the Consolidated Fund (with effect from 1 July 1998). In addition, a modest contraction of TAB betting, a further decline in bookmakers betting and a small drop in minor gaming receipts is also expected.
Table 9.6: Racing and Gaming Receipts, 1997-98 $'000 Totalizator Tax1 Off-Course 8 709 On-Course 278 Tri-Win 43 Sport 7 Total Totalizator Tax 9 037 Bookmakers Tax Interstate Racing 28 Local Racing 9 Sports Betting .... Registration and Related Fees 2 Total Bookmakers Tax 38 Total Racing Revenue 9 075 Gaming Permit Fees 122 Total Racing and Gaming Revenue 9 197
Note: 1. The dissection of Totalizator tax receipts shown has been estimated using information relating to tax due.
Casino Tax Description The Gaming Control Act 1993 provides for the payment of licence fees by Tasmania's two casinos and a tax on the gross profit from casino operations. The tax payable by the casinos is 15 per cent of the gross
Chapter 9: State Taxation 185 profits derived from Keno and table gaming, while the gross profits derived from gaming machines are taxed on a sliding scale as follows:
• 25 per cent of annual gross profits that do not exceed $30 million;
• 30 per cent of annual gross profits that exceed $30 million but do not exceed $35 million; and
• 35 per cent of annual gross profits that exceed $35 million.
The licence fee payable by the casino operator in respect of each casino is indexed by movements in the Consumer Price Index. In 1997-98, the fees paid by the two casinos totalled $1.6 million.
The Act grants exclusive rights to Federal Hotels Limited to conduct casino operations and operate gaming machines in Tasmania until 31 December 2008. In consideration of these rights, the company agreed to:
• undertake significant building and upgrading work at the Hobart and Launceston casinos;
• guarantee revenue to the Government from the operation of gaming machines at Tasmania's casinos of $21.4 million per year from 1997-98 to 1999-2000 inclusive;
• operate gaming machines in licensed clubs and hotels from 1 January 1997;
• introduce Keno into licensed clubs and hotels;
• maintain both casinos as international standard casinos; and
• continue to promote tourism.
The Act also provides for the payment of a community support levy, calculated at 2 per cent and 4 per cent of the gross profit derived from gaming machines in licensed clubs and hotels respectively. It is estimated that the levy will raise $1.1 million in 1998-99, to be distributed as follows:
• 25 per cent for the benefit of sport and recreation clubs;
• 25 per cent for the benefit of charitable organisations; and
• 50 per cent for the provision of:
research into gambling;
services for the prevention of compulsive gambling;
treatment or rehabilitation of compulsive gamblers;
community education concerning gambling; and
other health services.
A total of $0.9 million was paid pursuant to the levy in 1997-98.
In late July 1998 a deed of agreement was signed between the Crown and Australian National Hotels (ANH) to permit ANH to operate a virtual, or internet, casino from its premises at Wrest Point in Hobart. It is expected that the internet casino will be operating by the end of 1998. The internet casino will offer a range of approved casino games, including simulated table games.
The TT-Line Gaming Act 1993 provides for the payment of licence fees and tax on gross profits from gaming operations on board the Spirit of Tasmania. The Act also provides for the Treasurer to enter into an agreement for revenue sharing arrangements in respect of the tax on gaming operations aboard the
186 Chapter 9: State Taxation Spirit of Tasmania. An agreement has been concluded under which 25 per cent of the tax received is paid to the Victorian Government in order to ensure gaming operations continue when the ship is in Victorian waters.
Chart 9.5 details the components of total casino revenue for 1997-98.
Chart 9.5: Casino Receipts, 1997-981 - Dollar Amounts and Percentage of Total
Unclaimed Prizes Licence Fees Table Gaming $0.1 m (0.4%) $1.8 m (5.0%) $1.3 m (3.7%)
Spirit of Tasmania $0.3 m (0.9%) Keno $3.0 m (8.3%)
Video Gaming Machines $29.2 m (81.7%)
Note: 1. The amount shown for the Spirit of Tasmania is net of the amount paid to the Victorian Government under the revenue sharing arrangement.
Estimated Receipts for 1998-99 Taxation revenue from casino operations for 1998-99 is estimated to be $37.3 million, representing an increase of 4.2 per cent over the previous year. The expected growth reflects continued modest growth in the level of activity on casino games, the continued growth in the popularity of Tas Keno and the further extension of video gaming machines into hotels and clubs.
Collections from casino operations aboard the Spirit of Tasmania are expected to be in line with those for 1997-98.
Sundry Licences Sundry licences includes revenue from minor licences, primarily from those issued under the Commercial and Inquiry Agents Act 1975 and the Firearms Act 1932.
Revenue receipts for 1997-98 decreased by 5.1 per cent to $56 000, compared with $59 000 in 1996-97. Estimated revenue for 1998-99 is expected to be $60 000.
Chapter 9: State Taxation 187 MAJOR LEGISLATIVE CHANGES
A summary of legislative changes made during 1997-98 and tax reforms relating to specific taxes are provided in this section.
Taxation Administration Act 1997 The purpose of the Taxation Administration Act is to provide for the uniform administration and enforcement of State taxation laws. This Act is the culmination of a joint project between five jurisdictions: New South Wales; Victoria; South Australia; Tasmania; and the Australian Capital Territory. The Act will ensure more uniform application of administrative provisions for all major taxation legislation across the participating jurisdictions.
Electricity Entities (Contributions) Act 1997 The Electricity Entities (Contributions) Act 1997 replaced the Hydro-Electric Corporation (Contributions) Act 1980. The new Act requires electricity entities to make contributions to the Consolidated Fund equal to five per cent of the total revenue received each quarter in respect of the retailing of electricity, excluding revenue from eligible pensioners receiving a discount and certain exempt contracts.
Land Tax Act 1997 This Act prescribed the scales of land tax in respect of various classes of land for the financial year beginning 1 July 1997.
Revenue Legislation (Miscellaneous Amendments) Act 1997 This Act amended:
the Pay-roll Tax Act 1971, to include employer superannuation contributions in the definition of wages for the purpose of determining payroll tax liability. The rate of payroll tax was also reduced from 7.0 per cent to 6.6 per cent and the general exemption level was increased from $565 000 to $600 000 in order to ensure a neutral impact on revenue from this tax;
the Stamp Duties Act 1931, to provide an exemption from liability to pay stamp duty on the refinancing of loans used for primary production purposes, on any commercial business undertaking or loans secured by a charge over residential property; and
the Constitution Act 1934 and the Land and Income Taxation Act 1910, so as to remove the restriction that Land Tax Rating Acts could only fix the rates of land tax for a single financial year.
Land and Income Taxation Amendment Act 1998 This Act was passed to put in place some of the recommendations of the Fletcher Inquiry into the Land and Income Taxation Act 1910. The recommendations included extension of the definition of rural land to include aquaculture and private timber reserves, and the use of apportioned assessed land value in respect of land where only part of the land is used for primary production purposes. In addition, the amendments provided for the payment of land tax in instalments and an exemption for land which is subject to a conservation covenant. The amendments became effective from 1 July 1998.
188 Chapter 9: State Taxation Racing and Gaming Amendment Act 1998 The purpose of this Act was to provide for the Chairperson of Racing Tasmania to be a member of the Board of Directors of the Totalisator Agency Board (TAB). The Act also reduced the various commission rates payable by the TAB to the Consolidated Fund to 3.75 per cent from 1 July 1998; the difference is transferred to the racing industry as additional funding.
NATIONAL TAX REFORM
The Commonwealth has proposed broad ranging tax reform which is planned to be introduced from 1 July 2000. While there are many elements to the reform package, the greatest impact on State and Territory governments will arise from the planned abolition of indirect taxes and the section 90 safety net payments, together with major changes to Commonwealth-State financial arrangements (see chapter 10 for further comment on this latter aspect).
The main elements of the package as proposed are:
reform of indirect taxes by replacing the wholesale sales tax and nine State and Territory taxes with a 10 per cent value-added based goods and services tax (GST);
personal income tax reductions and increased (welfare) family benefits (together with an easing of means tests) to compensate for the introduction of a GST;
increased rebates as an incentive to retain, or take up, private health insurance;
changes to pension rates and eligibility arrangements to increase effective assistance;
introduction of a first home buyer grant scheme;
changes to Commonwealth-State financial relations including the Commonwealth giving the States all of the GST revenue, abolishing Financial Assistance Grants and the States taking over Local Government funding; and
a major review of tax arrangements which impact directly on industry and the business community generally.
Under the existing Commonwealth proposal, the State taxes that are to be abolished as part of the reform package are financial institutions duty and a range of stamp duties including: debits tax; stamp duty on marketable securities; conveyancing duty on business properties; stamp duty on credit arrangements, instalment purchase arrangements and rental agreements; stamp duty on leases; stamp duty on mortgages, bonds, debentures and other loan securities; and stamp duties on cheques, bills of exchange and promissory notes. Bed taxes are also to be abolished in the Northern Territory and New South Wales.
To date, little detail has been forthcoming about how the GST will be introduced, the full extent of its application, how it will interact with the remaining State and Territory taxes or administration of the GST system. It is expected that the full impact of the Commonwealth’s proposals upon Tasmania will become evident as negotiations are undertaken between the Commonwealth and the States and Territories over the coming months.
Chapter 9: State Taxation 189 The Government is opposed to the introduction of a goods and services tax (GST) as, on balance, it is not considered to be in the best interests of individual Tasmanians. It remains to be seen whether or not the Commonwealth Government’s proposal will become law.
Tasmania will fully participate in discussions with the Commonwealth, both at the Ministerial and Officer level, to ensure that the State’s views and concerns are considered and the State’s interests are protected.
If the Commonwealth Government proposal proceeds, the State Government will be fighting to ensure that:
Tasmanian families are compensated properly through the welfare system for the impact of the GST;
Tasmania’s share of the total GST collections is no less than our share of the existing Financial Assistance Grants; and
Tasmania’s budget position is protected through the transition.
COMPARISON WITH OTHER STATES AND TERRITORIES
During the past decade there has been a significant real terms reduction in the funds received by the State from the Commonwealth. Tasmania has therefore been required to increase its own revenue raising effort over this period in order to adjust to the reduced levels of Commonwealth funding. Tasmania responded to the real terms decline in Commonwealth funding by increasing its revenue raising effort during the late 1980s, such that for a time the severity of taxation in Tasmania was higher than in any other jurisdiction. In more recent years, other States and Territories have been required to increase their tax effort and, together with Tasmania's efforts to keep tax increases to a minimum and reduce taxes where possible, Tasmania's severity of taxation and overall revenue raising effort has reduced relative to the other States and Territories such that it is no longer appreciably different from the national average.
The Commonwealth Grants Commission collects data on all revenues and expenditures of each State which are standardised in order to determine the per capita relativities for distributing Commonwealth general revenue grants between the States and Territories. To do this, the Commission must determine the capacity of each State and Territory to raise revenue. It does this by assessing the level of revenue each State and Territory could raise if it applied, to its available revenue base, tax rates and other revenue measures equal to the average of all States and Territories. This is referred to as the 'standardised revenue' of each State and Territory.
In the past, there has been a focus on taxation severity alone, in assessing the comparative revenue effort of jurisdictions. However, despite the turnaround in Tasmania’s taxation severity, from significantly above to about equal to the national average, this does not portray a comprehensive picture of Tasmania’s overall revenue effort. A focus on taxation effort alone tends to suggest that Tasmania’s revenue raising effort is higher than it otherwise would be.
The revenue raising effort in each State and Territory can be measured by comparing revenue actually raised with standardised revenue as assessed by the Commonwealth Grants Commission. This
190 Chapter 9: State Taxation measure includes State taxation, income from interest earnings, property and mining royalties, and contributions to Government from public trading enterprises. A revenue raising effort index has been calculated for each State and Territory and is shown for the five years to 1996-97 in Table 9.7 and is displayed graphically in Chart 9.6 for the 1996-97 financial year, being the most recent year for which Commission data are available.
Chart 9.6: Revenue Raising Effort Ratios, 1996-97
130
120
110
100
90
80 NSW Vic Qld WA SA Tas NT ACT
Source: Report on General Revenue Grant Relativities 1998 Update - Commonwealth Grants Commission.
As can be seen, the revenue raising effort in Tasmania is below the average effort of all the States and Territories (represented by 100).
Table 9.7: Trends in Revenue Raising Effort Indices State 1992-93 1993-94 1994-95 1995-96 1996-97
New South Wales 104.11 97.99 104.80 101.87 102.32 Victoria 105.41 125.86 109.61 108.04 106.13 Queensland 85.99 76.72 85.16 83.73 86.69 Western Australia 88.97 84.83 87.49 89.70 86.61 South Australia 110.34 105.21 97.36 118.99 122.63 Tasmania 102.94 97.32 102.83 99.08 99.22 Northern Territory 98.24 100.46 108.70 114.86 104.65 Australian Capital Territory 100.76 88.49 95.75 97.20 90.95
Source: Report on General Revenue Grant Relativities 1998 Update - Commonwealth Grants Commission.
Chapter 9: State Taxation 191 It is apparent from Table 9.7 that Tasmania's total revenue raising effort ratio has been close to the average of all the States in each of the five years shown. However, on the basis of this measure of total revenue, Tasmania’s revenue raising effort has declined from 2.94 per cent above the average in 1992-93, to 0.78 per cent below the average in 1996-97.
It should be noted that this measure of relative revenue raising effort, as developed by the Commonwealth Grants Commission, is also referred to in Chapter 10 of this Budget Paper in the context of Grants Commission issues as they impact on the State.
Excluding contributions to Government from public trading enterprises offers yet another perspective on Tasmania’s revenue raising effort. On the basis of this measure, Tasmania’s revenue raising effort has declined from 2.40 per cent below the average in 1992-93 to 5.10 per cent below the average in 1996-97.
192 Chapter 9: State Taxation 10 COMMONWEALTH- STATE FINANCIAL ARRANGEMENTS
Features
In 1998-99 Commonwealth grants to Tasmania are estimated to total $1 177.3 million. This represents a real terms decrease over the amount provided in 1997-98 of $9.4 million, or 0.8 per cent.
General purpose grants will total $724.3 million, a rise in real terms in 1998-99 over the previous year of 4.3 per cent, or $29.7 million. Specific purpose recurrent and capital grants will total $453.0 million, a decrease in real terms of 7.9 per cent, or $39.1 million.
The expected real terms increase in general purpose funding in 1998-99 is the net result of ongoing real per capita indexation of the Financial Assistance Grants pool; the second instalment of the first tranche of Competition Payments ($5.4 million for Tasmania); an increase in Tasmania's relativity factor as recommended by the Commonwealth Grants Commission in its 1998 Update Report; and the last of three expected State Fiscal Contributions to the Commonwealth ($15.6 million for Tasmania).
In its 1998-99 Budget, the Commonwealth has reaffirmed real per capita maintenance of the Financial Assistance Grants pool for three years to 2000-01 and that the per capita (national population) component of the indexation and the additional Competition Payments would be linked to substantial progress by States and Territories towards implementing the National Competition Policy (NCP) Agreements. Together, the per capita indexation and Competition Payments components are estimated to be worth $18.9 million to Tasmania in 1998-99. On 19 August 1998, the Commonwealth confirmed that the State will receive the second half of its first tranche NCP payment in 1998-99.
Chapter 10: Commonwealth-State Financial Arrangements 193 INTRODUCTION
This chapter covers:
• the nature and level of Commonwealth payments to Tasmania;
• the institutional arrangements that govern these payments; and
• current issues in Commonwealth-State financial relations of significance to Tasmania.
The estimates for Commonwealth Specific Purpose Payments (SPPs) used in this chapter are derived from the Commonwealth's 1998-99 Budget Paper No 3 Commonwealth Financial Relations with Other Levels of Government, information provided as part of the 1998 Premiers' Conference process and program-specific information.
Although all Commonwealth payments are formally provided through the Commonwealth Budget, there are important institutional arrangements that determine or influence the amount of assistance that each State and Territory receives from the Commonwealth. These institutional arrangements comprise the Premiers' Conference, the Loan Council and the Commonwealth Grants Commission (CGC). Premiers' Conference and CGC arrangements are discussed later in this chapter. Detail regarding Loan Council arrangements is provided in Chapter 12 of this Budget Paper.
All real terms variations have been calculated using the national Consumer Price Index (CPI). This differs to the approach used elsewhere in the Budget Papers because Commonwealth grants are indexed by national CPI and in some instances, national population growth.
COMMONWEALTH PAYMENTS
The Need for Commonwealth Payments Since Federation, a financial relationship between the Commonwealth Government and the State and Territory Governments (referred to hereafter as the States) has evolved in which the dominant characteristic is the fundamental imbalance between the revenue raising powers and functional responsibilities of each level of government. While the seeds of the present imbalance lie in the original Constitution agreed at Federation, it has since been reinforced by Constitutional amendments and by High Court interpretations of the Constitution. The extent of 'vertical fiscal imbalance' (VFI) between the States and the Commonwealth continues to be substantial. VFI is now such that the Commonwealth raises 73 per cent of total public sector (general government) revenues, but has direct responsibility for functions that account for approximately 54 per cent of public sector (general government) outlays. The States have direct responsibility for 40 per cent of public sector outlays, but raise only 23 per cent of public sector revenue (see Chart 10.8).
As a result of VFI, there is a requirement for significant Commonwealth financial transfers to the States on an ongoing basis. Commonwealth financial assistance is provided in a variety of ways, but basically comprises recurrent untied grants, otherwise referred to as General Purpose Payments (GPPs), and tied grants, otherwise known as Specific Purpose Payments (SPPs), for both recurrent and capital purposes.
194 Chapter 10: Commonwealth-State Financial Arrangements Classification of Commonwealth Payments GPPs can be applied at the State's discretion, whereas SPPs must be spent in accordance with purposes agreed between the Commonwealth and the State (or as prescribed by the Commonwealth). The largest component of Commonwealth payments is the Financial Assistance Grant (FAG), which is a GPP. Other grants classified as GPPs in this document are Special Revenue Assistance (SRA) and National Competition Payments. The Health Care Grant (HCG), by convention, is identified as an SPP in Commonwealth and State Budget papers, but in Tasmania is applied as if it were general purpose funding, because of its link with the FAG (which is described below). There are no general purpose capital grant programs currently in place. Chart 10.1 shows the relative importance of the main Commonwealth payments to Tasmania.
In 1998-99, estimated total Commonwealth payments are expected to comprise around 51.8 per cent of total Consolidated Fund receipts, with the FAG alone contributing 36.0 per cent.
Chart 10.1: Estimated Commonwealth Recurrent and Capital Payments to Tasmania, 1998-99
SPPs (other than FAG and Other HCG) $326.7m General Purpose (27.8%) Payments $724.3m (61.5%)
HCG $126.3m (10.7%)
Financial Assistance Grant and Special Revenue Assistance The size of Tasmania's FAG in any year is linked to decisions made at the Premiers' Conference and is mainly determined by:
• the size of the pool of FAGs and base HCGs made available by the Commonwealth for distribution between all States;
• the per capita relativity factors recommended by the CGC and agreed by the Premiers' Conference;
• the State's share of the national population; and
Chapter 10: Commonwealth-State Financial Arrangements 195 • Special Revenue Assistance for other States funded out of the combined FAG/HCG pool, before the relativity factors are applied.
The FAG Pool and its Interstate Distribution At the 1995 Premiers' Conference it was agreed that the size of the FAG pool would be maintained in real per capita terms on a rolling three year basis, conditional on States making satisfactory progress with implementing National Competition Policy (NCP) reforms. That is, the FAG pool is to be increased annually by the inflation rate and the national population growth rate. The addition of a 'per capita' element to the escalation factor represents an important step forward in improving the adequacy of Commonwealth funding to the States. This is despite it being conditional on States making satisfactory progress with implementing the NCP reforms.
In 1998-99, the States will once again be required to make payments to the Commonwealth as a contribution to its so-called Budget deficit reduction program. All States have objected to making these payments, especially in light of an estimated Commonwealth Budget surplus for 1998-99. However, the Commonwealth has ignored the objections of the States and maintained that the final instalments of the State Fiscal Contributions (SFCs) must be made.
In 1996-97 and 1997-98, the States made State Fiscal Contributions totalling $619 million and $626.5 million, of which Tasmania's share was $15.9 million and $8.1 million respectively. In 1998-99 the States will contribute $313.4 million. The Commonwealth has left it to the States to decide how this contribution will be made. Tasmania's share of this final contribution will represent an effective reduction in total FAG payments for 1998-99 of $15.6 million. This contribution comprises a scheduled third and final payment of $7.5 million, plus $8.1 million deferred from 1997-98.
Each State's share of the FAG pool (net of any SRA to be paid from the pool) is equal to its weighted population share of the national population. State populations are weighted by per capita relativity factors. The relativity factors are recommended by the CGC, an independent statutory body, which calculates them in accordance with the principle of horizontal fiscal equalisation. This principle requires that the FAG pool be distributed between the States in a way which ensures that each State has the capacity to provide a level of services similar to the other States, without necessarily having to resort to greater revenue raising effort than all States on average. The CGC, in its 1998 Update Report, recommended an increase in Tasmania's relativity factor for 1998–99. The 1998 Update Report is discussed later in this chapter. Impact of Population Changes Tasmania's share of the Australian population as at 31 December 1998 (which on present estimates will be 2.5 per cent) will also be used in calculating the State's 1998–99 FAG. Tasmania's population share is continuing to decline. For the year ended 31 December 1997, Tasmania's annual population declined by 0.52 per cent, compared with a national growth rate of 1.1 per cent. This has an adverse impact on Tasmania's share of the FAG pool, as the State's relativity factor could increase and yet its FAG may still decline in real terms as a result of its declining share of the national population. Although a real terms decline in Tasmania's FAG is still possible, real per capita maintenance of the FAG pool helps to lessen the impact of the State's declining population share.
196 Chapter 10: Commonwealth-State Financial Arrangements Special Revenue Assistance (SRA) SRA has been paid to States for a variety of reasons. These reasons include:
• where there has been a change in Commonwealth SPPs for health funding. Substantial SRA was provided as a result of the 1988 and 1993 Medicare Agreements;
• where there has been a transfer of Commonwealth programs to the States, changes in roles and responsibilities between both levels of government, or because of Commonwealth actions adversely affecting States' finances; and
• where the Territories have been assisted in the adjustment process towards the same funding arrangements which apply to the States.
In the past, SRA has also been paid where a reduction in a State's relativity factor, and hence in its FAG, has been considered to be too great for that State to adjust to in a single year. However, the Commonwealth indicated prior to the 1996 Premiers' Conference that SRA for such circumstances will no longer be forthcoming, either from the FAG pool or as additional Commonwealth funding. No new SRA has been provided since then.
In past years, SRA has been provided to the two Territories to assist in their transition to State-like levels of funding. However, in 1998-99, such assistance will only be provided to the Australian Capital Territory and this will be $25.0 million, provided directly by the Commonwealth.
In 1998–99, the Commonwealth will cease to provide Victoria and New South Wales with SRA in the form of Medicare guarantee payments, which it has done since the 1993 Premiers' Conference.
Table 10.1 quantifies the impact on Tasmania's FAG for 1998-99 of each of the factors discussed in this section, together with the negative adjustment required as a result of Tasmania's SFC of $15.6 million towards the Commonwealth's Budget deficit reduction program. The net FAG estimate for Tasmania for 1998–99 is $718.9 million. Before the deduction of Tasmania's SFCs, the estimated 1998–99 FAG will be 5.3 per cent higher in real terms than for 1997-98.
A large proportion of the increase in Tasmania's FAG for 1998-99 will arise from changes to the treatment of HCGs in the CGC's fiscal equalisation assessments. Under the previous Medicare Agreements, the Commonwealth had directed the CGC, through its terms of reference, to 'quarantine' the bonus pool payments to States. These payments comprised around 25 per cent of total hospital funding grants. This had the effect of allowing some jurisdictions the benefit of receiving FAG payments above the levels that would have been provided under fiscal equalisation, while at the same time receiving hospital funding grants at levels greater than would have been suggested by fiscal equalisation.
Under the recently negotiated Australian Health Care Agreements (AHCAs), the extent to which HCGs will be 'quarantined' from the fiscal equalisation assessments will average less than 4 per cent for any of the five years of the Agreements. Therefore, as the CGC's relativity factors will now apply to a larger combined pool of FAGs/HCGs, Tasmania's FAG in any year will adjust more readily to reflect changes to the level of HCGs it will receive in a corresponding year.
Chapter 10: Commonwealth-State Financial Arrangements 197 Table 10.1: Estimated Financial Assistance Grant - Tasmania, 1998–99 $m $m
Tasmania's FAG for 1997-981 680.4
Add contribution to SRA for other States in 1997-982 14.5 Add indexation component for inflation in 1998-993 13.1 Add indexation component for national population growth in 1998-994 6.9 Add increase due to updated CGC relativity factors5 1.6 Add effect of increase in unquarantined HCGs 32.5 Less impact of Tasmania's declining population share (11.2) Less estimated impact of quarantining Health Care Grants (3.3) 54.1 Tasmania's 1998-99 FAG, excluding State Fiscal Contribution 734.5
Less State Fiscal Contribution for 1998-99 (15.6) Tasmania's net estimated FAG for 1998-99 718.9
Real terms change over 1997-98 (%)6 5.3
Notes: 1. This is gross of Tasmania's SFC for 1997-98 which was $8.1 million and paid by way of a reduced FAG. 2. In 1997-98, FAG pool funded SRA comprised $367 million in Medicare guarantees to New South Wales and Victoria and $10 million for transitional funding to the Northern Territory. 3. This reflects real terms maintenance of the FAG pool. 4. This reflects per capita maintenance of the FAG pool. 5. Increase due to the CGC's (1998 Update Report) recommended relativity factor. 6. The real terms change compares the FAGs for 1997-98 and 1998-99 before consideration of SFCs.
National Competition Payments At its April 1995 meeting, the Council of Australian Governments (COAG) signed a number of Agreements, based on the recommendations of the National Competition Policy - Report by the Independent Committee of Inquiry (the Hilmer Report), to give effect to a package of micro-economic reform measures that represent the National Competition Policy (NCP). Three Agreements were signed; the Conduct Code Agreement; the Competition Principles Agreement; and the Agreement to Implement the National Competition Policy and Related Reforms.
The main reform measures required by the NCP Agreements relate to: the extension of Part IV of the Commonwealth's Trade Practices Act 1974 (TPA) to all business activities (public and private); the structural reform of public monopolies; the application of competitive neutrality principles to public sector businesses; processes for reviewing anti-competitive legislation; the establishment of State-based prices oversight regimes to apply to public sector monopolies; and guaranteed third party access to the services provided by means of significant infrastructure facilities.
The NCP Agreements also commit Australian governments to achieving sector specific reforms in relation to the electricity, gas, water and transport industries.
198 Chapter 10: Commonwealth-State Financial Arrangements The Agreement to Implement the National Competition Policy and Related Reforms provides, in addition to the per capita maintenance of the FAG pool, for the States to receive general revenue grants which reflect a share of the expected revenue gains to the Commonwealth arising from States' implementation of the NCP. These Competition Payments are to be made in three tranches according to a schedule agreed between the Commonwealth and the States.
An indicative schedule of payments (in 1998–99 prices) to be made by the Commonwealth to the States, together with Tasmania's expected share, over the first nine years of implementing the NCP reform agenda is provided in Table 10.2. The payments will be distributed on an equal per capita basis. Actual payments will depend on national population growth, Tasmania's population share, decisions taken at the Premiers' Conferences and the national CPI. The per capita indexation of the FAG pool is notionally identified and because it is paid as part of FAGs is of course distributed according to the CGC's recommended relativity factors.
Table 10.2 shows that Competition Payments for Tasmania are estimated to be $5.4 million in 1998-99, building to an annual payment of $15.7 million in 2001-02 and thereafter to 2005-06. The indicative per capita indexation component of FAG payments to Tasmania is $13.4 million in 1998-99 of which $6.9 million is an increment to the $6.5 million paid in 1997-98 and maintained in 1998-99. It is projected that annual NCP related payments to Tasmania will build to $54.4 million in 2005-06. Together, annual general revenue payments to Tasmania associated with the NCP are expected to rise from $18.9 million in 1998-99 to $70.1 million by 2005-06.
The National Competition Council has been charged with the task of assessing the compliance by each State with the conditions governing the Competition Payments. In regard to the second instalment of the first tranche of payments, Tasmania advised the Council earlier this year of the progress made since its main report for the first tranche assessment in 1997 in regard to outstanding issues. The Council has since advised the Commonwealth that Tasmania's progress on outstanding issues has been satisfactory and the Commonwealth in turn advised the State on 19 August 1998 that it would receive its remaining first tranche payments during 1998-99.
Further detail associated with Tasmania's progress to date in implementing NCP and related reforms can be found in a paper distributed with the 1998-99 Budget Papers, entitled National Competition Policy Progress Report: November 1998.
Chapter 10: Commonwealth-State Financial Arrangements 199 Table 10.2: National Competition Payments (1998–99 prices)1 Per Capita FAG Guarantee Competition Payments National Tasmanian National Tasmanian Cumulative Total Total Share Total Share Tas. Payments $m $m $m $m $m
1997-98 166.5 6.5 216.5 5.5 12.0 1998-99 347.2 13.4 216.5 5.4 18.9 1999-00 516.0 19.7 433.0 10.7 30.3 2000-01 681.2 25.5 433.0 10.5 36.0 2001-02 840.8 31.5 649.5 15.7 47.2 2002-03 999.6 37.5 649.5 15.7 53.2 2003-04 1 154.2 43.3 649.5 15.7 59.0 2004-05 1 304.8 48.9 649.5 15.7 64.6 2005-06 1 451.3 54.4 649.5 15.7 70.1
Note: 1. Based on the following assumptions: a continuation of current national and State population growth rates, and a constant 4.2 per cent share of the total FAG pool for Tasmania.
Health Care Grant In 1998-99, all States and Territories will have signed an AHCA with the Commonwealth. The AHCA will replace the Medicare Agreements (which expired on 30 June 1998) and provide for HCGs to be paid to States and Territories for the five years ending 2002-03.
The HCG is the single largest revenue item after the FAG. The size of the HCG, and mechanisms for its escalation, are stipulated in Schedule E of the AHCA. The amount received by each State does not, therefore, result from decisions taken at the Premiers' Conference.
The AHCA funding consists of three main elements:
• a base grant to assist States in providing the full range of hospital services and to assist with public hospital quality improvement and the provision of palliative care. This is the largest component of the HCG and will comprise 98 per cent of the total HCG in 1998-99. The total HCG base grant will be distributed largely on the basis of public hospital output (separations) across jurisdictions and will be taken into account in the distribution of FAGs, as the CGC's relativities are applied to the combined pool of FAGs and HCGs;
• payments to assist with implementing the National Mental Health Strategy, which will comprise 1.0 per cent of the total HCG in 1998-99. These payments are to be quarantined from the CGC's assessments; and
• a grant, representing 1.0 per cent of total HCG in 1998-99, from the National Health Development Fund (NDF) to help finance significant health system restructuring (as agreed between Tasmania and the Commonwealth) as one means of improving the performance of the system (1.0 per cent of the total HCG in 1998-99). These amounts will also be quarantined from the CGC's relativity factor assessments.
200 Chapter 10: Commonwealth-State Financial Arrangements For 1998-99 only, States will receive an adjustment payment to assist with the transition in funding arrangements from those in place under the previous Medicare Agreements. It is expected that these one-off payments will also be quarantined from the CGC's recommended relativities when it next reports in 1999. Tasmania's adjustment payment will be $5.0 million.
It is important to note that apart from the mental health and NDF components, the HCG is not specifically earmarked for expenditure on hospitals and there are no matching funding obligations, although all States are required to provide free public hospital services under the AHCA.
Table 10.3 provides details of the (Medicare) Hospital Funding Grant (HFG) payments received by Tasmania in 1997-98 and an estimate for HCGs in 1998-99. The table shows a real terms decrease in the 1998-99 estimate of 12.9 per cent over 1997-98 payments. This decrease is due to a change in the basis for distributing HCGs relative to what used to occur under the Medicare Agreements. However, as explained in the section describing FAGs, accompanying this change is a substantial reduction in the amount of HCGs to be quarantined from the CGC's fiscal equalisation assessments than was the case under the former HFG arrangements. This will result in Tasmania receiving increased FAGs, more than offseting this decrease in HCGs.
The States and the Commonwealth have agreed to arrangements which offer a higher degree of certainty in funding from year to year than was the case under the Medicare Agreements and for the Commonwealth to acknowledge that the provision of public hospital services is the policy domain of the States. Importantly, the Commonwealth has also acknowledged the financial impact on the States arising from declining participation in private health insurance. The Commonwealth will, under the AHCAs, provide an additional $82 million annually to the States in aggregate for each one per cent decline in private health insurance relative to the level recorded in December 1998.
Table 10.3: Health Care Grant - Tasmania 1997-98 1998-99 Components Actual Estimated $m $m
Base Grant 107.9 120.8 Other payments 34.1 0.5 Net adjustments …. 5.0 Nationally Funded Centres contribution (0.5) .... TOTAL 141.5 126.3
Real terms percentage change (1998-99 over 1997-98) (12.9)
Specific Purpose Payments SPPs are grants provided for specific purposes, either agreed between the State and the Commonwealth, or as prescribed by the Commonwealth.
SPPs are usually determined through the Commonwealth Budget, not the Premiers' Conference, process. Recurrent SPPs normally result from specific fixed term funding agreements, usually of three or five years duration. Often the State has had to commit to matching these grants dollar for dollar in
Chapter 10: Commonwealth-State Financial Arrangements 201 order to receive the funds made available. Conditions such as this reduce the State's control over its own Budget priorities by limiting its discretion on how its financial resources can be applied. However, all States are continually looking to remove such conditions from new or renegotiated intergovernment agreements.
From 1988-89 through to 1992-93, there was a significant increase in the share of total Commonwealth assistance provided by way of SPPs. This increase was financed by the Commonwealth reducing its payments to the States in the form of GPPs. Chart 10.2 shows that the SPP share of total payments has declined since 1996-97, so that the estimated share in 1998–99 of 47.2 per cent is approaching the 1984-85 level of 48.3 per cent. However, this is in large part due to the fact that from 1997-98 onwards, some program funding, such as grants to Universities, is no longer classified as SPPs.
Chart 10.2: Specific and General Purpose Payments as a Percentage of Total Commonwealth Payments to the States since 1984–85
55
50
45
40 Percentage
35
30 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 (est) GPP SPP
States generally prefer Commonwealth assistance paid as general purpose payments because it provides them with greater flexibility in providing services. This greater flexibility allows the Government to pursue Tasmanian priorities in ways it may determine to be the most effective.
Table 10.4 presents estimates for the major tied grant programs for 1998-99 compared with 1997-98.
The largest SPPs are for public hospitals (discussed above), roads, housing and education. Together, the Home and Community Care (HACC), Supported Accommodation Assistance (SAAP) and Disability Services programs also constitute substantial tied funding. Total SPPs to Tasmania are estimated to be $453.0 million in 1998-99, representing a real terms decrease of 7.9 per cent over the 1997-98 level of $480.1 million. The overall decrease in tied funding is largely due to a $14.9 million reduction in health care grants (discussed above) and a $3.0 million reduction in gun buy-back funds following the winding up of the scheme.
202 Chapter 10: Commonwealth-State Financial Arrangements A portion of the reported reduction also relates to Natural Heritage Trust (NHT) payments, classified as 'Other' in Table 10.4. While Tasmania received $14.5 million in 1997-98 for a range of NHT initiatives, the Commonwealth is yet to provide details on the amount to be provided to Tasmania for further programs in this financial year. Accordingly, the 1998-99 SPP estimates currently show no payments relating to NHT programs (although funding is anticipated).
Table 10.4: Specific Purpose Payments - Tasmania 1998-991 Real Terms 1997-98 1998-99 Change Over Program Actual Estimated 1997-98 $m $m %
Health Care Grants2 141.5 126.3 (12.9) Housing3 27.3 26.9 (3.9) Education4 33.2 34.2 0.4 Roads 28.0 31.1 8.5 HACC and SAAP 18.9 19.1 (1.4) Disability Services 12.4 13.2 4.1 Companies and Securities Regulation 3.1 3.1 (0.8) Debt Transfer Compensation 7.4 2.1 (71.9) Local Government General Purpose Payments 41.1 41.5 (1.4) Other 167.3 155.5 (9.3)
Total 480.1 453.0 (7.9)
Notes: 1. Payments do not necessarily correspond with items in the Consolidated Fund estimates because some payments are for on-passing to non-State organisations and others are paid into the Special Deposits and Trust Fund. 2. Comprises grants under the AHCA. 3. This comprises mostly capital grants paid under the Commonwealth-State Housing Agreement. 4. Excludes funding for non-government schools, which are included under 'Other'. Also included under 'Other' are grants for TAFE purposes which the Commonwealth classifies as own purpose outlays through the Australian National Training Authority.
It is important to note that the amounts in this Table represent capital as well as recurrent grants transacted through both the Consolidated Fund and the Special Deposits and Trust Fund; and to the benefit of both the State Government and other organisations. There are two categories of SPPs: those involving payments directly to the State Government that assist in meeting its expenditure responsibilities; and those involving payments through the State Government for on-passing to other bodies and individuals. These categories are referred to as SPPs 'to' the State and SPPs 'through' the State respectively.
'Through' payments constitute about 21.1 per cent of total SPPs received by Tasmania. These include payments for non-government schools and general purpose assistance to Local Government and therefore do not assist in meeting the expenditure obligations of the State. 'Through' payments are expected to total $95.5 million in 1998-99.
Chapter 10: Commonwealth-State Financial Arrangements 203 As indicated above, the estimates for SPPs in this chapter will not necessarily correspond to the estimates used for the purposes of presenting the State's Consolidated Fund estimates in Chapter 4 of this Budget Paper, because of the transfer of some Commonwealth payments through the Special Deposits and Trust Fund. Table 10.5 provides a reconciliation of the total SPPs transacted through each Fund, and to the direct benefit of the State Government or to other beneficiaries.
Table 10.5 shows that practically all of the decline in SPPs from 1997-98 to 1998-99 relates to grants paid for the benefit of the State Government. As discussed above, a large component of this 9.8 per cent real terms reduction is in the form of a transfer of SPPs to FAGs as a result of quarantining arrangements for the AHCAs, agreed to by the Commonwealth. For SPPs through the State, a real terms decrease of 0.2 per cent is estimated between 1997-98 and 1998-99.
Table 10.5: Classification of Specific Purpose Payments by Destination Real Terms 1997-98 1998-99 Change Over Destination Actual Estimated 1997-98 $m $m % Through the Consolidated Fund: For on-passing to Local Government 41.1 41.6 (1.4) To the benefit of the State Government 319.1 299.0 (8.6) Total 360.2 340.6 (7.7) Through the Special Deposits and Trust Fund: For on-passing to other organisations 52.3 54.0 0.7 To the benefit of the State Government 67.6 58.5 (15.6) Total 119.9 112.4 (8.5) TOTAL SPECIFIC PURPOSE PAYMENTS 480.1 453.0 (7.9) Total for the State Government 386.7 357.5 (9.8) Total for other beneficiaries 93.4 95.5 (0.2)
Trends in Commonwealth Payments GPPs represent the largest single source of funds to the Tasmanian Government. Historically, GPPs have comprised FAGs, SRA, identified funding grants such as identified road grants (IRGs) and general purpose capital grants. IRGs were progressively absorbed into the FAG pool from 1995-96 to 1997-98. General purpose capital grants were abolished at the 1994 Premiers' Conference.
GPPs currently comprise FAGs (less SFCs) and Competition Payments. Chart 10.3 traces the real terms change (calculated in 1998-99 prices) in GPPs from 1984-85 to 1998-99, both to Tasmania and to the States as a whole. Charts 10.4 and 10.5 trace the real terms changes for SPPs and total Commonwealth payments respectively between 1984-85 and 1998-99.
204 Chapter 10: Commonwealth-State Financial Arrangements Chart 10.3: Percentage Change in General Purpose Payments Since 1984-85 (Real Terms)
25 20 15 10 5 0 -5 -10 -15
% Change from 1984-85 Level -20 -25 (est) 1984-85 1986-87 1988-89 1990-91 1992-93 1994-95 1996-97 1998-99
Tasmania Australia
Between 1984-85 and 1990-91, GPPs to Tasmania declined by about 22 per cent in real terms (see Chart 10.3). This decline resulted from a significant real terms reduction in the size of the FAG pool in the mid to late 1980s and a significant decline in general purpose capital assistance.
The level of GPPs to Tasmania increased notably in 1991-92 due to a marked rise in Tasmania's relativity factor and the untying of IRGs. Between 1991-92 and 1997-98, the level of GPPs in real terms to Tasmania remained between 16 per cent and 18 per cent below the level received in 1984-85. This trend parallels GPPs to all States; although the increase to Tasmania since 1991-92 has been marginally greater reflecting the CGC's assessments regarding fiscal equalisation. Nevertheless, the percentage reduction in GPPs to Tasmania since 1984-85 is greater than that for all States on average.
The real terms level of GPPs to the States as a whole (and to Tasmania also) has been supported to some extent by the real terms maintenance of the FAG pool since 1991-92 and additional per capita maintenance since 1994-95. However, the abolition of general purpose capital assistance in 1994 did much to offset these gains.
The level of Tasmania's GPPs in 1998-99 are estimated to be 12 per cent lower in real terms than the level received in 1984-85 notwithstanding the continuation of Competition Payments and the transfer of funds from HCGs to FAGs. For the States as a whole, it will be 9 per cent lower.
Chapter 10: Commonwealth-State Financial Arrangements 205 Chart 10.4: Percentage Change in Specific Purpose Payments Since 1984-85 (Real Terms)
15 10 5 0 -5 -10 -15 -20 -25 -30 % Change from 1984-85 Level -35 -40 (est) 1984-85 1986-87 1988-89 1990-91 1992-93 1994-95 1996-97 1998-99
Tasmania Australia
Chart 10.4 shows that for all but one year since 1984-85, Tasmania has received smaller increases or larger decreases in SPPs than was the average experience for all States. Fluctuations in the real terms level of SPPs between 1989-90 and 1992-93 were largely due to variations in the receipt of tied capital grants over the period. However, while there was an increasing trend in SPPs between the late 1980s and the early 1990s, there has been a marked decline since then (both to Tasmania and all States), with total SPPs to Tasmania in 1998-99 estimated to be 37 per cent lower in real terms than the level received in 1984-85.
As mentioned previously, the decline in both national and Tasmania's SPPs that occurred between 1996-97 and 1997-98 was largely due to program funding for universities no longer being classified as an SPP. Payments for Tasmania are estimated to decline further in 1998-99, largely due to the reduced Health Care Grants. However, the change for Tasmania will be more than offset by an increase in FAGs. SPPs to all States on average are estimated in 1998-99 to be 13 per cent lower in real terms than the level received in 1984-85.
Chart 10.5 shows that total Commonwealth payments to Tasmania increased substantially in real terms from 1990-91 to 1992-93; from 23 per cent below to 13 per cent below the level received in 1984-85. The increases in 1991-92 and 1992-93 were mainly due to increases in Tasmania's relativity factor and increases in SPPs (experienced by all States on average). Since then, total payments have steadily declined to a level 23 per cent below that received in 1984-85. The reduction since 1992-93 has resulted from a combination of a declining pool of GPPs which has affected all States (but offset for Tasmania by an increasing relativity factor) and a significant reduction in Tasmania's share of SPPs.
206 Chapter 10: Commonwealth-State Financial Arrangements Chart 10.5: Percentage Change in Total Commonwealth Payments Since 1984-85 (Real Terms)
25 20 15 10 5 0 - 5 - 10 - 15
% Change from 1984-85 Level - 20 - 25 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 (est) Tasmania Australia
Table 10.6 shows the (nominal) amounts and shares that Tasmania has received in general purpose, specific purpose and total Commonwealth payments over the period 1970-71 to 1998-99. The last column of the table highlights the continual decline in Tasmania's population as a proportion of Australia's population.
Chapter 10: Commonwealth-State Financial Arrangements 207 Table 10.6: Commonwealth Payments to Tasmania, 1970-71 to 1998-99 General Tasmania Specific Tasmania Tasmania Tasmania Purpose Grant Purpose Grant Total Grant Population Year Grants1 Share Grants Share Grants Share Share $m % $m % $m % %
1970-71 94.7 5.6 33.2 4.6 127.9 5.3 3.1 1971-72 94.8 5.4 33.0 4.7 127.8 5.2 3.0 1972-73 104.5 5.4 40.5 4.4 145.0 5.0 3.0 1973-74 121.6 5.5 60.4 3.8 182.1 4.8 3.0 1974-75 166.2 5.8 116.7 3.9 282.9 4.9 3.0
1975-76 187.2 5.3 168.5 4.1 355.7 4.6 3.0 1976-77 218.2 5.2 149.4 3.7 367.6 4.5 2.9 1977-78 247.6 5.1 164.5 3.7 412.1 4.4 2.9 1978-79 274.2 5.2 156.1 3.5 430.4 4.4 2.9 1979-80 301.8 5.2 163.0 3.5 464.8 4.3 2.9
1980-81 329.1 4.8 189.6 3.5 518.8 4.2 2.9 1981-82 357.3 4.1 202.7 4.3 560.0 4.2 2.9 1982-83 400.1 3.7 244.2 4.1 644.3 4.1 2.8 1983-84 465.8 3.9 307.7 4.3 773.5 4.3 2.8 1984-85 512.7 4.0 308.0 3.8 820.6 4.2 2.8
1985-86 532.7 3.9 287.5 3.4 820.1 3.9 2.8 1986-87 548.7 3.8 302.2 3.4 851.0 3.8 2.8 1987-88 547.3 3.7 314.8 3.4 862.1 3.6 2.8 1988-89 516.4 3.8 367.2 3.2 883.7 3.6 2.7 1989-90 528.8 3.9 483.8 3.9 1 012.6 3.8 2.7
1990-91 549.4 4.1 433.8 3.0 983.3 3.5 2.7 1991-92 592.0 4.3 496.2 3.3 1 088.2 3.7 2.7 1992-93 605.8 4.3 537.8 3.1 1 143.6 3.6 2.7 1993-94 615.7 4.2 498.8 3.0 1 114.6 3.5 2.7 1994-95 628.8 4.2 497.6 2.8 1 126.4 3.5 2.6
1995-96 661.9 4.2 538.2 2.9 1 200.1 3.5 2.6 1996-97 662.8 4.2 552.4 2.9 1 215.2 3.5 2.6 1997-98 677.7 4.2 480.1 3.3 1 157.8 3.7 2.5 1998-99 (estimate) 724.3 4.3 453.0 3.0 1 177.3 4.3 2.5
Note: 1. GPPs for 1996-97 onwards are net of the deduction for Tasmania's SFC and include Competition Payments for 1997-98 and 1998-99.
208 Chapter 10: Commonwealth-State Financial Arrangements INSTITUTIONAL ARRANGEMENTS
1998 Premiers' Conference Negotiations at the annual Premiers' Conferences determine the amount and distribution of GPPs. Although the 1998 Premiers' Conference did not proceed to a conclusion, the principal decisions which were implicitly taken by the Commonwealth were as follows:
• the 'equalisation' per capita relativity factors as recommended by the Grants Commission in its 1998 Update Report were adopted without amendment to distribute the pool of FAGs and base HCGs;
• the Commonwealth reaffirmed its requirement for the States to make SFCs towards its deficit reduction program. These payments will total $313.4 million in 1998-99, with the States having already made similar payments in 1997-98 of $626.5 million and in 1996-97 totalling $619.0 million. Tasmania's share for 1998-99 is $15.6 million;
• the Commonwealth has maintained the FAG pool in real per capita terms in line with its commitment relating to the implementation of the NCP Agreements;
• the Commonwealth will make the scheduled payments agreed at the 1995 COAG Meeting with respect to the NCP dividend pool, subject to the States fully meeting their obligations under the NCP Agreements. Competition Payments totalling $216.5 million will be made on an equal per capita basis for 1998-99 (of which Tasmania's share will be $5.4 million);
• no new SRA funded from the FAG pool will be provided to any State in 1998-99;
• assistance previously provided from the FAG pool to New South Wales and Victoria regarding their Medicare guarantee payments ($191.8 million and $218.2 million respectively in 1997-98) will cease from 1998-99; and
• the Commonwealth is to directly fund $25.0 million to the Australian Capital Territory in 1998-99 for transitional assistance to State-like levels of funding and special fiscal needs.
Commonwealth Grants Commission The CGC is an independent Commonwealth Government statutory body which was established in 1933. It is charged with the task of making recommendations, in the form of per capita relativity factors, to the Premiers' Conference each year on how the FAG and base HCG pool should be distributed between the States. The basis for its recommendations (since 1981) is an assessment of the relative fiscal capacities of the States. These assessments are carried out in accordance with the principle of horizontal fiscal equalisation (HFE), a principle which addresses the fiscal imbalance that exists between the States due to their differing capacities to raise revenue and the relative cost differentials they face in delivering similar levels and standards of service. The assessments are based on a five year 'period of review' which for the 1998 Update was 1992-93 to 1996-97 inclusive. The CGC conducts major reviews of its methodology usually on a five year cycle, with annual updates to account for changes in fiscal circumstances since its last recommendation. The results of the next major review will be announced in the Commission's 1999 Report.
Chapter 10: Commonwealth-State Financial Arrangements 209 The Principle of Horizontal Fiscal Equalisation (HFE) An important characteristic of financial relations in the Australian Federation is the degree to which the fiscal capacities of the States differ. This refers to the difference, in per capita terms, between the cost to a State of providing a range of services common to all States and the financial resources available to it, including own source revenues and certain grant monies paid from the Commonwealth (apart from FAGs). The causes of such horizontal fiscal imbalance are complex and varied (demographic, geographic and economic to name a few). These causes over which a State has no control are the explicit focus of the HFE process.
It seems clear that at the time of Federation there was recognition of the need for States to be treated equitably, both in relation to the Commonwealth and each other. However, the degree to which the economic and financial capacities of the States has since diverged could not have been anticipated. Furthermore, the need for a systematic means of effecting transfers between the Commonwealth and the States in a manner which overcame this divergence was largely overlooked until the CGC was established. Until then, the process through which the special financial needs of particular States were addressed was cumbersome, costly and to a large extent arbitrary.
The HFE framework which is now used takes, as its starting point, the scope of State transactions and functions including all related recurrent expenditures and revenues which are considered the normal responsibility of State Governments. The actual expenditures and revenues for each State are taken to differ from the experience of all States on average, due to influences beyond the State's control (disabilities) as well as differences in policy, practice and operating efficiency. The Commission makes adjustments to the average expenditure and revenue for individual States to reflect their disabilities relative to the situation faced by other States, but it does not 'compensate' for differences attributable to policy, practice and relative efficiency. In this way the smaller States such as South Australia, Tasmania and the Northern Territory, which on the whole face higher than average per capita costs and lower than average revenue raising abilities, are granted a greater than proportional share of general revenue assistance to enable them to discharge their normal functions without necessarily having to impose above average revenue raising measures on their communities.
In the absence of an arrangement whereby FAGs are distributed in accordance with HFE, those States which face unduly high costs and/or a lesser ability to raise revenues, through no influence of their own, would be required to deprive their communities of the opportunity to access similar levels and standards of service than those offered elsewhere in Australia. Thus, the principle of HFE, and the CGC process, are integral parts of Commonwealth-State financial transfers. Moreover, the trend in relativity factors, as recommended by the CGC, is testimony to the fact that the present system is responsive (albeit with a lag) to changes in States' fiscal circumstances over time. Those States which are experiencing growth in their revenue bases, relative to the average of all States, have relativity factors which are gradually declining, while those States for which such growth has been slower (such as Tasmania) have relativities which are tending to increase over time.
The Commonwealth Grants Commission's 1998 Update Report In its 1998 Update Report, the CGC recommended increased relativity factors for Victoria, South Australia, Tasmania and the Australian Capital Territory. Lower factors were recommended for the other States. This recommendation means that, had the 1998-99 grant shares for each State been applied to the FAG pool for 1997-98 - before adjustment for inflation and population change - Tasmania would have received a combined FAG and HCG entitlement $1.6 million greater than for the last financial year. The estimated FAG for Tasmania reported in the 1998 Update Report differs
210 Chapter 10: Commonwealth-State Financial Arrangements from the estimated FAG reported in Table 10.1 because of: differences in the size of the FAG pool between 1997-98 and 1998-99 (arising from escalation for inflation and population growth); the change in Tasmania's share of the national population; changes to the CGC's treatment of HCGs; and SFCs.
Implications of the Commission's Assessments The Commission's calculations provide the States with an important source of comparable data on which to assess their relative performance in the areas of expenditure efficiency and tax burdens. It is, therefore, instructive to examine the latest trends in these areas as they affect Tasmania, using the Commission's 1998 findings as a basis.
Two ratios obtained from the Commission's 1998 Report provide indications of the extent to which this State makes a greater or lesser effort in raising revenue (the revenue-raising-effort ratio) or provides a greater or lower level of services (the level-of-service-provision ratio) compared with the other States.
Chart 10.6 compares the aggregate levels of revenue raising effort across all States for 1996-97. It shows that Tasmania has imposed a revenue raising effort marginally below the average of all States once allowances have been made by the CGC for the variation in revenue bases across States. This is consistent with the previous year's result.
Chart 10.7 shows a comparison of the aggregate levels of service provision across all States (excluding the effects of debt servicing costs) for 1996–97, after allowance is made for the cost disabilities faced by each in providing services. Tasmania's level of service provision was just above the national average.
The above ratios can be calculated for individual areas of State taxation (see Chapter 9 of this Budget Paper) and expenditure and have provided a useful means of identifying areas, on a prima facie basis compared with other States, in which the State significantly over or under spends or raises revenue.
Chart 10.6: Revenue Raising Effort 1996-97
125.00
120.00
115.00
110.00
105.00
Ratio 100.00
95.00
90.00
85.00
80.00 NSW Vic Qld WA SA Tas ACT NT
Chapter 10: Commonwealth-State Financial Arrangements 211 Chart 10.7: Level of Service Provision 1996–97
115.00
110.00
105.00
100.00
Ratio 95.00
90.00
85.00
80.00 NSW Vic Qld WA SA Tas ACT NT
CURRENT ISSUES IN COMMONWEALTH-STATE FINANCIAL RELATIONS
Vertical Fiscal Imbalance The term Vertical Fiscal Imbalance (VFI) refers to the difference between own source revenue and own purpose expenditure commitments for a level of government. This is illustrated in Chart 10.8 which compares the percentage shares of revenue and expenditure for the Commonwealth Government, State Governments and Local Government on a consolidated basis. It shows that in 1997-98 the Commonwealth is expected to have raised 73 per cent of total national general government revenue, whereas its own purpose spending would have represented only 54 per cent of total general government outlays. In contrast, the States' share of this revenue will have been only 23 per cent, while combined State general government outlays will have represented 40 per cent of the national total. Revenues and expenditures for Local Government were broadly in balance.
212 Chapter 10: Commonwealth-State Financial Arrangements Chart 10.8: Vertical Fiscal Imbalance for 1997-98
80
70
60
50
40
30 Expenditure 20
10
0 Commonwealth State Local % of Total Own Source Revenue or Purpose
Own Source Revenue Own Purpose Outlays
The extent of vertical fiscal imbalance in Australia means that State Governments are heavily dependent on Commonwealth funding to supplement their own revenue sources. This has limited the budgetary flexibility of the States where Commonwealth assistance is in the form of tied funding. Following a High Court decision of 5 August 1997, which found business franchise fees on tobacco products to be unconstitutional and cast significant doubt over the entire $5.2 billion franchise fee revenues of the States, VFI has been increased further. This is because at present, the States are reliant on the Commonwealth to raise excise surcharge revenues on tobacco and petroleum products and wholesale sales tax surcharge revenue on liquor, equivalent to what the States had raised annually from business franchise fees. These Commonwealth revenues are then transferred to the States in order to maintain their respective budget positions broadly in line with the position which would have ensued in the absence of the 5 August 1997 High Court decision.
While this episode has highlighted the vulnerability of the States' revenue raising powers, it has also provided a strong example of the willingness of the Commonwealth to act cooperatively with the States on crucial issues of financial relations.
The problem of VFI has been considered on many occasions since Federation. The most recent attempt at a resolution was the work undertaken by the Working Party on Tax Powers in October 1991, which concluded that a reduction in the degree of VFI would improve the accountability of the various levels of government.
The recommendations of the Working Party on Tax Powers were rejected by the Commonwealth in November 1991. Since that time, the States have pushed for greater adequacy and certainty in Commonwealth grants, but with mixed success. The Commonwealth and the States now have another opportunity to work together with the aim of improving Commonwealth State financial relations through the national tax reform proposal which is outlined in Chapter 9. Although the States will not gain, in a technical sense, a greater autonomy in revenue raising powers through a reduction in VFI, the prospect of negotiating significantly improved grant arrangements may realise in part, at least, the long-term aspirations of the States for adequate growth funding.
Chapter 10: Commonwealth-State Financial Arrangements 213 Reform of Arrangements Under Which SPPs are Provided Shortly after taking office, the Commonwealth Government indicated a willingness to progress reform of Commonwealth-State relations, particularly with respect to the restrictive financial arrangements which govern the payment of most SPPs. The reform agenda included mention of the possible realignment of roles and responsibilities between the Commonwealth and States, such that the Commonwealth would be responsible for national standards where appropriate and focus on its more traditional role of income support where this is applicable. On the other hand, it was understood that the States would assume greater responsibility for the direct management and coordination of service provision. The possibilities for exploring reform opportunities commenced during 1996 under the Council of Australian Governments (COAG) and the areas of health and related services, public housing and education were some of the main areas in which major reform initiatives were suggested.
The States have maintained that the reform process will only be meaningful if it leads to reduced intrusion from the Commonwealth and greater flexibility in the way the States can provide services. The commitment to such reform will be measured by the extent to which the Commonwealth is prepared to streamline a wide range of SPPs into a very few broadly defined payments and its agreement to shift the focus of Commonwealth-State agreements away from the existing unnecessarily prescriptive and restrictive arrangements which govern most 'joint' programs, towards broad jointly agreed policy outcomes.
The COAG process has not progressed since mid-1996 and it would now seem that some of the reforms are being pursued independently of COAG, particularly in the area of health services. The Commonwealth has, at least in relation to many areas of health funding, offered some meaningful reform in regard to issues of policy control by the States and how this links with intergovernment financial arrangements. The focus of the States will, however, remain on achieving substantially reduced Commonwealth intrusion into all areas of States' service responsibility, together with the removal of program boundaries in other funding arrangements which at present constrain the States in developing innovative service delivery. Adequate levels of Commonwealth payments provided in a manner which offers the States certainty in funding outcomes are also imperatives from a State perspective.
214 Chapter 10: Commonwealth-State Financial Arrangements National Fiscal Outlook The National Fiscal Outlook (NFO) Report was initiated at the May 1992 Heads of Government meeting. At that meeting, the States indicated that they faced a very serious budget outlook and sought reforms to Commonwealth-State financial arrangements. The communiqué from the meeting stated that the Commonwealth acknowledged that the States needed to be adequately resourced and that predictability, flexibility and growth in State funding were agreed objectives. As a result, a working party of Treasury officials was established to report on the medium term budgetary outlook. It was stated that the report would assist in developing longer term Commonwealth-State financial arrangements.
The first NFO report was presented to the 1993 Premiers' Conference. Five subsequent reports were completed in each year up until the current year. The original intentions of the NFO process have not been fully achieved and as a consequence, has not to date led to any meaningful reforms in Commonwealth-State financial relations. Nevertheless, it provides a useful commentary on prospective Commonwealth and State Budget positions for the next three years following each report.
The 1998 NFO Report analyses the General Government fiscal outlook for the Commonwealth and States using agreed assumptions about economic parameters (CPI, employment growth, wages growth and Gross Domestic Product (GDP) growth) and assumptions about the level of Commonwealth payments to the States. Projections are made on the basis of current policy settings (as at February 1998) for the period 1998-99 to 2000-01.
The Report:
• shows a projected improvement in the national fiscal position over the medium term, reflecting reduced General Government deficits in both the Commonwealth and State sectors. The Commonwealth underlying surplus is projected to rise from 0.4 per cent of GDP in 1998-99 to 1.6 per cent of GDP in 2000-01. The combined State and Territory position is also projected to be a surplus over the same period, remaining relatively stable at around 0.1 to 0.3 per cent of GDP;
• forecasts that combined State and Territory and Commonwealth Government total net debt to GDP will fall from about 15 per cent to 10 per cent of GDP over the period 1998-99 to 2000-01. This is primarily due to the Commonwealth Government's net debt ratio stabilising in line with the Commonwealth's fiscal consolidation strategy and asset sales. The States and Territories' projected combined surpluses will reduce their net debt as a share of GDP, contributing to the fall in the combined net debt ratio. The ratio of State net debt to GDP has been declining since the early 1990s and is projected to decline further over the projection period reflecting the underlying surpluses and the application of the proceeds of asset sales to debt reduction;
• notes that Commonwealth outlays are projected to decrease as a percentage of GDP from 24.7 per cent in 1998–99 to 23.3 per cent in 2000-01. This reflects ongoing current outlays restraint, including reductions in payments to the States, and the relative responsiveness of Commonwealth outlays to economic conditions with continued economic growth. The report also projects that Commonwealth revenue as a share of GDP is expected to remain broadly stable for the projection period;
• indicates that aggregate State General Government outlays are projected to fall from 13.2 per cent of GDP in 1998-99 to 12.3 per cent of GDP in 2000-01. This largely reflects continuing improved
Chapter 10: Commonwealth-State Financial Arrangements 215 efficiencies in the public sector and reduced interest payments due to declining net debt to GDP ratios. The report also indicates that aggregate revenue is projected to fall from 13.3 per cent of GDP to 12.6 per cent of GDP over the same period; and
• indicates that gross Commonwealth grants to the States are expected to decline from 5.7 per cent of GDP in 1998-99 to 5.4 per cent of GDP in 2000-01.
For Tasmania, the Report shows a steady decline in the underlying deficit over the NFO projection period (1998-99 to 2000-01) from 0.3 per cent of GSP to 0.2 per cent of GSP. However, this predicted outcome reflected the then policy position of the previous Government to partly privatise the State's Hydro-Electric Corporation. There was a projected reduction in outlays as a proportion of GSP (19.1 per cent in 1998-99 to 17.1 per cent in 2000-01) which was mainly attributable to reforms aimed at increasing public sector efficiency and to lower interest payments (due to the repayment of debt and expected lower interest rates). This reduction in outlays was expected to offset increased demand for health, education and welfare services arising from Tasmania's particular demographic and income characteristics.
216 Chapter 10: Commonwealth-State Financial Arrangements 11 LOCAL GOVERNMENT
Features
The National Competition Policy, which was agreed to by the Commonwealth and State and Territory Governments in 1995, continues to have significant implications for Local Government.
In 1996-97, the Local Government sector returned a deficit of $9 million after surpluses in the preceding six years.
Compared to the Australian average, Tasmanian Local Government has high per capita revenue and expenditure; average grants as a proportion of revenue; the second highest expenditure as a proportion of Gross State Product (GSP); and the second highest net debt per capita.
The Commonwealth has advised that Local Government general purpose payments for 1998-99 will be indexed for movements in national inflation and national population growth.
Chapter 11: Local Government 217 INTRODUCTION
This chapter provides information on:
the development and role of the Local Government sector in the economy;
the financial relationship Local Government has with both the State Government and the Commonwealth Government;
financial reform of the Local Government sector;
the implications of current economic reform initiatives for Local Government;
the financial position of Local Government in general; and
the recent financial performance of individual councils and Local Government as a whole.
DEVELOPMENT OF THE LOCAL GOVERNMENT SECTOR AND ITS ROLE IN THE ECONOMY
Development of the Local Government Sector Local Government originated in the early years of European settlement in Tasmania and existed in a variety of forms including municipal districts, cities, rural municipalities, town boards and road trusts, until the Local Government Act 1906 provided for their replacement with municipalities which administered all Local Government functions. A total of 52 municipalities (including the cities of Hobart and Launceston) were formed.
Under the Local Government Act 1962 another four cities were proclaimed: Glenorchy, Devonport, Clarence and Burnie. By this time there were 46 Local Government Authorities (LGAs) in total. The 1962 Act was very prescriptive about how Local Government could function.
In 1992, the State Government and Local Government agreed to a reform and modernisation program which would:
review the Local Government boundaries in Tasmania;
review the Local Government Act 1962;
review council management, administration and procedures, with a view to meeting the contemporary needs of a changing Local Government structure; and
review the roles and functions of Local Government and the revenue bases required to fund them.
A new Local Government Act was proclaimed in 1993. The new Act provides for a high level of general competence powers for councils to carry out their responsibilities, which has changed the focus of Local Government accountability from the State to the communities that they serve. This contrasts with the more detailed and prescriptive approach taken by the previous legislation.
In April 1993, the number of LGAs in Tasmania was reduced from 46 to 29.
218 Chapter 11: Local Government An independent review of roles and functions between the State and Local levels of government commenced early in 1994 and was completed in July 1996. It recommended, among other things:
simplifying the financial relationship between the State Government and Local Government to improve the financial autonomy and independence of Local Government, make transparent the level of government that is responsible for taxation and expenditure decisions and allow for more economically efficient decision making by the two levels of government through the use of market-based prices and charges. These reforms are detailed later in this chapter;
that as a long-term objective, all water and sewerage bulk supply, treatment and reticulation services should be provided by three integrated regional enterprises owned by Local Government and operated under expert independent Boards, but with the State Government retaining regulatory responsibility; and
that three formally constituted regional bodies be established to develop strategies for promoting waste management practices which meet contemporary standards in the most effective manner. These bodies should represent the entire region and include a mix of Local Government and external expertise. Final accountability will remain with the councils which form the regional body.
The previous State Government moved on water and sewerage reform, with the recommendations in relation to water, sewerage and drainage already having been given impetus with the transfer of the Hobart Regional Water Board (HRWB) to the southern councils on 1 January 1997 and the North-Esk and West Tamar Schemes operated by the Rivers and Water Supply Commission to the northern councils on 1 July 1997. Legislation was passed to enable the North West Regional Water Authority (NWRWA) to be transferred to Local Government after 1 July 1998 (which is expected to occur during 1998-99).
The previous State Government outlined major reforms for Local Government in Tasmania, including the development of a model planning scheme which would provide common definitions, compliance clauses, formats and ranges of zones as a basis for introducing a single planning scheme. The previous Government also initiated a review of Local Government boundaries and subsequently recommended to the Governor that an Order be made to reduce the number of Councils from 29 to 14. Following action by several Councils, the Supreme Court held that elections for the newly created Councils could not proceed without amendment to the Local Government Act.
With respect to the reform of State-Local financial relations, a Local Government Financial Relations Reference Group has been established by the Local Government Association of Tasmania (LGAT), made up of representatives from both urban and rural councils, to assist in the consultation and development of the financial reforms.
Future Local Government Developments The new Government has undertaken to enter into bilateral Partnership Agreements with each Council in the State.
The Partnership Agreements will be part of a broader social and economic plan to drive the strategic direction of the State. The Partnership Agreements will set out ways in which State and Local Governments can work together to coordinate the delivery of government services in the areas of job creation, the joint provision of community services, shared environmental responsibilities and other relevant aspects of the economic and social plan.
Chapter 11: Local Government 219 The Partnership Agreements will be negotiated separately with each and every council in order to satisfy their own particular requirements and those of the State Government.
The Partnership Agreements will also involve:
the development and implementation of Local Government performance criteria for financial management and service delivery. The criteria and timetable for implementation will be done in conjunction with Local Government;
promotion of joint venture partnerships between both tiers of government for service delivery;
improved processes to ensure better coordination and information sharing between the two levels of government; and
application of the report of the Tasmanian Roles and Function Review Committee to ensure the roles and responsibilities of State and Local Government are clearly defined and to improve the efficiency and effectiveness of government services.
The first Partnership Agreements are to be developed with the Circular Head Council and the Launceston City Council.
The Partnership Agreements between Local and State Government will be actively supported by 40 Cabinet meetings conducted around the State. These local Cabinet meetings are an additional strategy to draw upon key areas of growth in local communities.
In addition, the Government has committed to the finalisation of a protocol on financial relations prior to September 1999.
Role in the Economy Local Government produces public services that are generally suited to delivery at the community or local/regional level. Functions of councils are prescribed under section 20 of the Local Government Act 1993. Broadly, these include to:
provide for the health, safety and welfare of the community;
facilitate and encourage proper planning and development;
represent and promote the interests of the community;
provide for peace, order and good government; and
formulate, implement and monitor policies, plans and programs for the provision of appropriate services and facilities to meet the present and future needs of the community.
Local Government functions include: the provision of water reticulation and sewerage services; local roads; garbage collection and disposal; and the provision of community recreational amenities. Expenditure is funded from:
rates, fees, fines and charges;
Commonwealth Government and State Government grants; and
borrowings.
220 Chapter 11: Local Government Local Government activities have a significant impact on, and role within, the State economy. For example, water and sewerage represent significant inputs for many key industry sectors. The development, planning approval and control functions of Local Government also have a fundamental economic impact.
Outlays by Tasmanian Local Government totalled $295 million in 1996-97 (the latest year for which ABS data is available). This represents around 11.1 per cent of total outlays for the combined State and Local Government sectors. Local Government outlays were equivalent to 2.8 per cent of Tasmanian GSP in 1996-97.
Local Government own-source revenue in 1996-97 totalled $199 million, of which $140 million was rates which are a direct charge on owners of property. Other major sources of revenue include: law and order services such as parking and licence fees; net operating surpluses of trading enterprises, such as water and sewerage services; and government grants. By comparison, the majority of State Government revenue stems from Commonwealth transfers.
Chart 11.1 shows the sources of revenue of the State and Local levels of government in Tasmania.
Chart 11.1: State and Local Government Revenue Sources, 1996-97
60
50
40
30
20 Per cent of total revenue 10
0 Taxes, Surpluses Interest Grants Other fees and of PTEs Received for own revenue fines purposes State Local
Source: Government Finance Statistics, Australia 1996-97, ABS Cat No 5512.0.
It is important for the promotion of economic growth that both the State and Local levels of government participate, through genuine improvements in efficiency, in the reduction of the costs that they impose on business and the community. Local Government can assist economic reform by keeping the burden of rates and charges to the minimum level necessary. This can be achieved by Local Government continuing to improve the efficiency of its service delivery and by focusing expenditure on core activities. Modernisation reforms for Local Government, including past reductions in the number of LGAs, have achieved significant advances in this regard.
Local Government financial management is also important with regard to external monitoring of the State Government's financial position. Rating agencies and the Loan Council include Local
Chapter 11: Local Government 221 Government in their assessments of State Government finances. The opinions of rating agencies have a direct impact on the cost of servicing the State’s debt. The State Government must also manage the annual financial performance of the State public sector (including Local Government borrowing) within the constraints set by Loan Council. These constraints seek to ensure that the demands placed on financial markets by the public sector, including Local Government, are at a level which will not significantly disadvantage the availability of capital to the private sector, and that the various jurisdictions within the public sector are adopting an appropriate long term fiscal position.
RELATIONSHIP WITH OTHER LEVELS OF GOVERNMENT
There is a relatively complex financial relationship between Local Government, the State Government and the Commonwealth Government, as there is between the Commonwealth Government and the State Government (see Chapter 10 of this Budget Paper).
The complexity in this relationship arises both from the nature of the institutional arrangements in Australia referred to in Chapter 10, and as a result of the blurred division of the respective roles and responsibilities of the three levels of government, despite the constitutional division of powers. Whilst respective taxing powers are relatively well differentiated, the exact role of Local Government as distinct from other levels of government is not always clear. As with the situation between the Commonwealth and State, this leads to some duplication and overlap and a complex array of financial transfers between governments.
The financial transfers involving Local Government can be categorised as follows:
grants from the Commonwealth Government;
grants from the State Government;
State Government subsidies on Local Government costs;
Local Government exemptions from State taxes and charges and State exemptions from council rates;
levies and charges paid by councils to the State Government; and
fees paid by councils for the use of State Government services.
As mentioned, the 1996 Roles and Functions Review recommended several actions to improve efficiency in these areas. This recommendation is currently being progressed between the State and Local Government.
Commonwealth Grants The Commonwealth Government provides both general purpose and specific purpose funding for Local Government. General purpose assistance has been paid to LGAs since 1974-75. General purpose funding comprises base grants, which are distributed in accordance with the Commonwealth's Local Government (Financial Assistance) Act 1995, and Identified Local Roads Funds (ILRFs). Although local
222 Chapter 11: Local Government road funds are still identified as a separate component, councils have total discretion over how they are used.
Local Government general purpose payments are indexed each year using an escalation factor, which is based on the underlying movement in Commonwealth general purpose payments to the States and Territories. However, in 1997-98 the Commonwealth extended reductions in general purpose payments to the States (arising out of the June 1996 Premiers’ Conference) to Local Government. This reduction was affected by indexing only for national inflation. While indexation for national population growth has been restored for 1998-99, it should be noted that the reduction in the underlying grant base for 1997-98 will carry forward into future years.
The Commonwealth Local Government (Financial Assistance) Act 1995 specifies that the distribution of the base grant (i.e. not including road funds) between States and Territories will be on a per capita basis. ILRFs are distributed not on a per capita basis, but on an historical basis between States and Territories as defined in the Australian Land Transport Development Act 1988. In total, Tasmania receives 3.4 per cent of the total general purpose funds made available nationally to Local Government by the Commonwealth. Commonwealth general purpose payments to Tasmania's LGAs will amount to $41.5 million in 1998-99, a real terms decrease of 1 per cent over the total for 1997-98 of $41.1 million.
Total Commonwealth general purpose payments in 1998-99 to Local Governments in each State and Territory for base grants and ILRFs are shown in the following table.
Table 11.1: Commonwealth General Purpose Grants to Local Government, 1998-99 Identified Local Roads Total State/Territory Base Grants Funds Grants % of Total $m $m $m %
New South Wales 287.9 109.5 397.4 32.4 Victoria 211.2 77.8 289.0 23.5 Queensland 156.6 70.7 227.3 18.5 Western Australia 82.7 57.7 140.4 11.4 South Australia 67.7 20.7 88.4 7.2 Tasmania 21.5 20.0 41.5 3.4 Northern Territory 8.6 8.8 17.5 1.4 Australian Capital Territory 14.1 12.1 26.2 2.1
TOTAL1 850.4 377.4 1 227.8 100.0
Source: Commonwealth Treasury advice - 15 June 1998. Note: 1. These figures represent the cash payments to be made in 1998-99 which consist of the estimated entitlement for 1998-99 adjusted for overpayments made in 1997-98, which are to be deducted from the quarterly instalments paid by the Commonwealth over the 1998-99 financial year.
Over time, Tasmania's share of these grants is declining due to a declining share of national population.
Chapter 11: Local Government 223 Each LGA's share of funds is allocated on the recommendation of the Tasmanian State Grants Commission. The base grant distribution is determined according to the fiscal equalisation principle. This principle broadly provides for each LGA to be able to fund a level and standard of service not appreciably different from the State average, provided that an average revenue raising effort is made. The allocation of ILRFs between LGAs is based on the relative expenditure need of each municipality in order to preserve its road assets.
Table 11.2 details the Commonwealth general purpose grants made to individual Tasmanian councils in 1997-98 and the Commonwealth approved recommended grants for 1998-99. The total figures in Table 11.2 for 1998-99 vary from the Tasmanian figures presented in Table 11.1 which represent the cash payments to be made in 1998-99. The cash payments consist of the estimated entitlement for 1998-99 (presented in Table 11.2) adjusted for overpayments made in 1997-98 which are to be deducted from the quarterly instalments paid by the Commonwealth over the 1998-99 financial year.
224 Chapter 11: Local Government Table 11.2: Commonwealth General Purpose Grants to LGAs, 1997-98 and 1998-99 (Recommended) 1997-98 1998-99 Total Grant Total Grant Base Grant ILRF per capita Base Grant ILRF per capita $'000 $'000 $ $'000 $'000 $
Break O'Day 660.5 747.2 239.9 639.3 767.3 239.7 Brighton 629.6 277.1 71.0 691.5 299.8 77.6 Burnie 1 038.0 661.2 85.6 1 033.6 719.5 88.3 Central Coast 1 169.7 937.4 99.1 1 183.2 912.5 98.5 Central Highlands 569.9 772.8 535.4 574.1 780.7 540.2
Circular Head 805.4 867.1 197.6 781.2 873.4 195.4 Clarence 1 251.7 744.5 40.4 1 118.4 745.5 37.7 Derwent Valley 510.5 474.4 100.0 519.2 471.9 100.7 Devonport 806.5 519.8 53.5 799.2 580.7 55.7 Dorset 773.8 1 017.8 242.4 773.3 1 062.1 248.4
Flinders 340.6 355.0 713.4 347.8 358.8 724.7 George Town 483.3 360.4 123.0 550.1 354.9 131.9 Glamorgan/Spring Bay 338.8 395.5 176.0 349.8 409.6 182.0 Glenorchy 821.0 724.4 34.9 609.1 773.8 31.2 Hobart 648.3 787.0 30.7 643.0 813.9 31.2
Huon Valley 902.6 987.8 139.5 908.8 1 000.4 140.9 Kentish 582.9 600.6 215.8 601.9 643.1 227.0 King Island 337.2 384.0 390.6 347.3 394.0 401.6 Kingborough 979.1 731.4 60.5 989.1 753.1 61.6 Latrobe 346.4 345.5 87.9 400.2 317.5 91.2
Launceston 1 410.4 1 409.8 44.4 1 445.9 1 497.3 46.3 Meander Valley 970.6 1 035.7 116.0 1 041.8 1 061.3 121.6 Northern Midlands 1 038.8 1 207.4 189.7 1 102.5 1 164.4 191.4 Sorell 519.0 468.3 91.5 608.9 466.2 99.6 Southern Midlands 654.8 1 178.7 328.3 683.1 1 192.3 335.8
Tasman 226.4 206.9 194.7 250.7 213.0 208.3 Waratah/Wynyard 964.8 698.1 118.9 965.0 702.0 119.2 West Coast 831.6 307.6 185.9 739.0 326.0 173.8 West Tamar 1 012.8 551.3 78.6 1 025.5 512.9 77.3
TOTAL1 21 625.1 19 754.9 87.4 21 722.4 20 167.9 88.5
Sources: Tasmanian State Grants Commission Annual Report 1997-98; and Commonwealth approved Commission recommendations for 1998-99. Note: 1. To obtain the per capita total grants, the 1996-97 population estimate was used, as this is the most recent available.
Chapter 11: Local Government 225 In addition to general purpose grants, the Commonwealth provides specific purpose grants to Local Government. These grants are largely provided for Aged and Disabled Persons' Homes, Children's Services and Aboriginal Advancement.
State Grants The State Government can provide recurrent assistance to Local Government for specific purposes under the following arrangements:
• direct subsidies under the Public Bodies Assistance Act 1971 representing loan interest on borrowings for approved purposes, such as for new infrastructure or the redevelopment of existing facilities. However, no new loans have been made under this Act since July 1989. Despite this, the estimated cost of subsidising existing loans was $2.6 million in 1997-98;
• sundry grants under the Tourism and Recreational Development Act 1977 for local sport, general recreational and tourism related projects; and
• other, generally minor, payments under programs which embrace wider community issues such as Family and Community Support Services, Sundry Grants administered by the Department of Health and Human Services and Sundry Grants administered by the Department of Premier and Cabinet.
State Subsidies on Local Government Costs The State Government subsidises council costs by providing recurrent subsidies on the annual cost of water and sewerage schemes and by reimbursing pensioner concessions on property rates. In 1997-98, State water and sewerage subsidies amounted to $0.4 million and the cost of pensioner rates remissions amounted to $11.5 million.
State Taxation Exemptions Local Government is exempt from the payment of State taxes. The estimated value of this exemption in 1994-95 was $13.3 million. This is the latest estimate available; however, during the current review of State-Local financial relations, an estimate of this exemption for 1997-98 will be made.
State Levies and Charges on Local Government The State Government receives contributions from local councils towards the cost of providing library, fire protection and planning services.
The Tasmanian Government provides public library services and seeks a contribution from Local Government towards this cost. In all other States, Local Government provides the service and receives a contribution from the State Government towards the cost. A contribution to library services is made annually by each municipality. It is equivalent to 0.35 cents per dollar of the adjusted assessed annual value of all leviable land, less a prescribed amount which is a maximum of 1.5 per cent of the gross assessed contribution. In 1997-98, the library contribution was $5.97 million, which represents about 43 per cent of total expenditure on library services by the State. The funds collected from the library levy are paid to the Consolidated Fund. The State is precluded by statute from imposing direct charges on library users. The levy partially recovers the cost of library services from the wider community.
226 Chapter 11: Local Government The State is responsible for the provision of fire services through the Tasmanian State Fire Commission. However, prior to 1979, the responsibility for fire protection was shared between two statutory bodies and 22 individual fire brigade boards. In 1997-98, the State Fire Commission received $17.5 million from a levy imposed on Local Government, which was equivalent to approximately 54 per cent of the Commission's expenditure. This levy is based on the assessed annual value of rateable property. An administration (collection) charge not exceeding 4 per cent of the gross value of the levy may be retained by Local Government. Municipalities are permitted to recover the levy from individual property owners provided that the component of rates attributable to the contribution is separately identified. The funds collected from the fire service levy are paid direct to the State Fire Commission.
The State Government has involvement in the operation of Local Government through the Local Government Office of the Department of Premier and Cabinet and the Department of Primary Industries, Water and Environment which both have policy, regulatory and advisory roles. A contribution is received from Local Government to meet part of the cost of these authorities equal to 0.15 cents per dollar of the adjusted assessed annual value of all leviable land in each municipality. In 1997-98, the Local Government contribution was $2.6 million.
Fees for Services The Office of the Valuer-General undertakes property valuations for both local rating and State Government purposes. Local Government is charged for the provision of property valuations used for assessing rates. In 1997-98, valuation charges from Local Government were $2.3 million. This comprised $1.9 million from revaluations and $0.4 million from supplementary valuations. This revenue accounted for 79 per cent of the 1997-98 cost of administering the State valuation section of about $2.9 million.
The Tasmanian Audit Office currently charges Local Government for the provision of audit services on a fee for service basis. The Local Government Act 1993 allows Local Government to use private auditors with the approval of, and subject to any terms and conditions determined by, the Auditor- General.
Local Government Rates Exemptions State Government agencies and authorities are currently exempt from Local Government rates on property holdings, although service rates for water and sewerage are generally met. The estimated value of this exemption for 1994-95 was $6.2 million. This is the latest estimate available; however, during the current review of State-Local financial relations, an estimate of this exemption for 1997-98 will be made.
Chapter 11: Local Government 227 FINANCIAL REFORM OF THE LOCAL GOVERNMENT SECTOR
As mentioned earlier in this chapter, the reform of financial relations between the State Government and Local Government was an important element of the 1996 roles and functions review. The areas of financial relations that this reform will address are discussed below.
Rating of State Government Properties State properties are currently exempt from Local Government rates under the Local Government Act 1993. Subjecting State properties to rates will provide councils with revenue in relation to properties that they service within their municipal area, producing a closer alignment between council revenue and expenditure responsibilities. This reform will place Government Business Enterprises, Port Authorities and other State-owned Companies on an equivalent footing with private enterprise in line with the National Competition Policy requirement for competitive neutrality. The introduction of market-based rating will also provide government agencies and authorities with incentives to manage their resources more efficiently.
Application of State Taxes to Councils While the State Government is exempt from rates, Local Government is exempt from a range of State taxes including payroll tax, land tax, motor tax, most stamp duties and the payment of the fire services levy on council properties. The removal of these exemptions will bring a closer alignment between the revenue and expenditure responsibilities of the State Government, as well as providing councils with market-based charges which will provide an incentive for more efficient decision making and resource management.
Removal of Levies on Local Government The State Government currently imposes a number of levies on councils in order to collect a contribution for the administration of Local Government and the provision of library services. However, councils have little input into how these resources are used. The removal of these levies will end this situation and give Local Government greater autonomy in carrying out its own functions. This reform will see the State Government fully fund the library and administrative services over which it has service delivery responsibility.
The State Fire Services Levy is recovered directly from ratepayers and is therefore not considered a direct impost on Local Government. This may be a factor which determines the future of the levy in the context of the reform of State-Local financial relations.
Removal of Recurrent Grants and Subsidies The State Government currently provides Local Government with a range of grants and subsidies, as mentioned in the previous section. In a similar way to the removal of levies by the State Government, the removal of these grants and subsidies will see Local Government take on full funding
228 Chapter 11: Local Government responsibility for the services that they provide, which will improve the accountability of councils to their local communities.
A number of these reforms can be implemented through either amendments to legislation, or a change in Government policy in the provision of recurrent grants by State agencies. However, most of the subsidies are the subject of legally binding agreements and can only be removed with the consent of each council concerned.
It is not proposed that the on-passing of heavy vehicle charges from the State Government to Local Government be stopped. This arrangement is part of a recent agreement between the State Government and councils as part of the National Competition Policy reforms in relation to transport.
The future of State Government reimbursement for pensioner rates remissions will be considered in the context of the reform of State-Local financial relations.
Removal of Concessional Charging Arrangements Councils are currently exempt by statute from paying land title search fees and are charged concessional rates for a range of State Government services, including public and environmental health tests and a number of transport-related services. The removal of these exemptions and the use of full market-based charges will provide an incentive for the more efficient use of both State Government and Local Government resources.
ECONOMIC REFORM AND LOCAL GOVERNMENT
At the April 1995 Council of Australian Governments (COAG) meeting, a National Competition Policy (NCP) for Australia was agreed. This policy, which is embodied in three inter-governmental agreements, has significant implications for all levels of government, including Local Government.
One of the three inter-governmental agreements, the Competition Principles Agreement (CPA), outlined five key principles relating to:
• the prices oversight of public sector trading activities with monopoly, or near monopoly, powers;
• competitive neutrality between the public and private sectors;
• the structural reform of public monopolies;
• the processes for reviewing legislation which restricts competition; and
• a legislated right for the provision of third party access to significant infrastructure facilities.
The CPA provides for these principles to apply to Local Government, notwithstanding that Local Government is not a signatory to the Agreement. Furthermore, each State and Territory Government is responsible for ensuring that these principles apply to Local Government.
In addition, the Conduct Code Agreement (CCA) requires the State Government to introduce legislation to ensure the wider application of the restrictive trade practice provisions of Part IV of the Commonwealth's Trade Practices Act 1974 (TPA), to encompass all private and public sector business
Chapter 11: Local Government 229 activities, including Local Government business activities. This is effected through the Competition Policy Reform (Tasmania) Act 1996.
In June 1996, as required under the CPA, the Government submitted to the National Competition Council (NCC) a Statement of the Application of National Competition Policy to Local Government (Application Statement). This Statement was prepared by the State Government, in consultation with Local Government, and provided a broad policy statement on how it was intended that the five competition principles would be applied to Local Government.
Progress to date in relation to the application of competitive neutrality, legislation review and monopoly prices oversight to Local Government is outlined below.
Competitive Neutrality In accordance with the Application Statement, all councils provided the former Minister for Finance with a list of their significant business activities to which full cost attribution would apply by 31 December 1996. These lists were reviewed by a peer group (established by the LGAT) which provided its recommendations on 11 April 1997 to the former Minister for Finance as to whether the list should be accepted or rejected.
As part of this process, it became apparent that Local Government was embracing the competitive neutrality principles at a much quicker pace than was envisaged when the policy statement was originally developed. This change in priorities arose as councils began to realise the advantages that competitive neutrality could deliver in increasing the efficiency of council operations. This was demonstrated by the fact that 18 of the 29 councils decided to apply full cost attribution to all of their business activities. The majority of the remaining councils chose to apply full cost attribution to their public trading enterprises (water and sewerage services) and road maintenance.
However, given the impact of the Local Government amalgamation program announced in the previous State Government’s Directions Statement, in May 1997 it was considered necessary to temporarily suspend the current timetable for applying the NCP competitive neutrality principles to Local Government. The previous Tasmanian Government recognised that there was little benefit to Local Government in proceeding with this timetable until the new boundaries for councils were finalised, given that the circumstances under which NCP will apply would in all likelihood be different following amalgamations. The implementation timetable and work undertaken to date now needs to be revisited in consultation with Local Government through the LGAT.
Despite the suspension of the timetable for the application of NCP to Local Government, progress toward the implementation of the competitive neutrality principles has continued. The Hobart City Council has adopted full cost attribution for virtually all of its activities, as have Burnie and Glenorchy City Councils. Clarence and Launceston are also close to adopting full cost attribution for their business activities. There are also some examples where service providers have been separated from service purchasers, competitive tendering has been utilised and corporate business structures are being established. A number of businesses such as the Hobart Aquatic Centre, the Derwent Entertainment Centre, the Tasmanian Travel Centre (acquired by the Burnie City Council), and a number of other smaller operations, such as the Killafaddy Sale Yards and Launceston’s four swimming pools, are being run as separate business units on a commercial basis.
230 Chapter 11: Local Government More importantly, the Hobart Regional Water Authority (HRWA) and the Esk Water Authority (EWA) have been transferred from State Government to Local Government and established under the Local Government Act 1993 as joint authorities. Both of these joint authorities are subject to full taxation equivalent, dividend and guarantee fee regimes. Legislation has passed to enable the North West Regional Water Authority (NWRWA) to be transferred to Local Government after 1 July 1998 (which is expected to occur during 1998-99). Similarly, the Dulverton Regional Waste Management Authority, with its four participating owner councils, has taken steps to implement provisions for taxation equivalents and dividend returns on capital invested.
Prices Oversight The Application Statement indicated that Local Government monopoly providers were to be brought under the prices oversight jurisdiction of the Government Prices Oversight Commission (GPOC). The Government Prices Oversight Amendment Act 1997 extends the coverage of the Government Prices Oversight Act 1995 to include Local Government monopoly services.
GPOC has been requested to undertake an investigation into the pricing policies associated with the provision of bulk water by the HRWA, the NWRWA and the EWA. On 31 August 1998, GPOC released a water pricing principles paper as part of this inquiry.
Legislation Review The Local Government Office (LGO) of the Department of Premier and Cabinet has implemented procedures for the review of all proposed or existing by-laws to ensure that any restrictions on competition are fully justified in the public benefit. The By-Law Making Procedures Manual was released in August 1997 and represents the by-law section of the Legislation Review Program (LRP) program. All by-laws proposed since that date have been required to comply with the new procedures.
A number of councils have been progressively reviewing their by-laws and have repealed a number of by-laws. As a result there has been a continued decline in the overall number of by-laws.
Between 1 August 1997 and 31 August 1998, 32 by-law proposals were received by the LGO under the LRP by-law gatekeeper arrangements and 59 by-laws were repealed. Tasmanian councils have also been encouraged to pursue the repeal of their obsolete by-laws and replace them, where appropriate, with governance orientated by-laws which comply with NCP principles.
For a full discussion of progress with NCP implementation in Tasmania, refer to the paper National Competition Policy Progress Report : November 1998, distributed with the Budget Papers.
FINANCIAL PERFORMANCE
Local Government Sector Financial Aggregates The Local Government sector in Tasmania has recorded significant real growth in outlays over the past ten years. As depicted in Chart 11.2 real outlays growth averaged 3 per cent between 1987-88 and 1996-97. The sharp increase in outlays in 1992-93 is largely attributable to a transfer of road
Chapter 11: Local Government 231 maintenance responsibilities from the State Government to Local Government. Funding associated with these responsibilities was also transferred.
During 1996-97, the Hobart Regional Water Board (HRWB) was reconstituted as the Hobart Regional Water Authority (HRWA) and transferred from the State Public Trading Enterprise (PTE) sector to the Local Government PTE sector. Although the transfer took effect on 1 January 1997, the ABS has treated the transfer as if it had occurred at the beginning of the financial year, to lessen the impact of the change in series. Thus, current outlays increased because of the inclusion of the HRWA interest payments. Capital outlays also increased during 1996-97 mainly due to major construction projects by the Hobart City Council on the Hobart Aquatic Centre and the Sandy Bay sewerage treatment project.
Chart 11.2: Local Government Outlays (in 1996-97 dollars) - Tasmania, 1988 to 1997
300
250
200
150 $ million 100
50
0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Year ending 30 June
Sources: Government Finance Statistics, Australia 1996-97, ABS Cat No 5512.0; Consumer Price Index, Tasmania, Treasury and Finance Statistics.
Local Government revenue only increased marginally and has not kept pace with the strong growth in outlays. As shown in Chart 11.3, the sector returned a deficit of $9 million in 1996-97 after surpluses in each of the preceding six years.
232 Chapter 11: Local Government Chart 11.3: Local Government Surplus or Deficit (in 1996-97 dollars) - Tasmania, 1988 to 1997
20
15
10
5 $ million 0
- 5
- 10 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Year ending 30 June
Sources: Government Finance Statistics, Tasmania 1996-97, ABS Cat No 5501.6; Consumer Price Index, Tasmania, Treasury and Finance Statistics.
Tasmanian Local Government net debt was significantly affected by the transfer of the HRWB and the drawing down of cash reserves by the Hobart City Council for the construction of the Hobart Aquatic Centre. This is shown in Chart 11.4.
Chart 11.4: Local Government Net Debt (in 1996-97 dollars) - Tasmania, 1991 to 1997
140
120
100
80
60 $ million
40
20
0 1991 1992 1993 1994 1995 1996 1997
Year ending 30 June
Chapter 11: Local Government 233 Sources: Public Sector Financial Assets and Liabilities, Australia 30 June 1997, ABS Cat No 5513.0; Consumer Price Index, Tasmania, Treasury and Finance Statistics
Table 11.3 details the net worth of each Tasmanian council as at 30 June 1997. It should be noted that the ABS now produces the full balance sheet of councils in Government Finance Statistics, Tasmania, Catalogue No 5501.6, replacing the table in previous issues which was only concerned with financial assets and liabilities. Information relating to the full range of assets (including non-financial assets), liabilities and net worth are presented together with information on the net worth per head of estimated resident population. Thus, net worth has replaced net debt in Table 11.3 because net worth presents a more accurate description of each council’s financial position.
The ABS cautions users to take care when interpreting the measure of net worth per head of resident population, as it can be influenced by the extent to which councils have recognised and valued their fixed assets, particularly roads and variable arrangements related to road funding and construction. For example, councils with a heavy investment in roads relative to their population are likely to show a high net worth per head of resident population.
234 Chapter 11: Local Government Table 11.3: Local Government Net Worth by Council, 1996-97 Net Worth per head of est. resident Net Worth population 1996-97 1996-97 $'000 $
Break O'Day 49 837 8 493 Brighton 49 259 3 855 Burnie 213 252 10 747 Central Coast 149 928 7 049 Central Highlands 40 794 16 266 Circular Head 52 811 6 238
Clarence 247 505 5 009 Derwent Valley 19 842 2 016 Devonport 200 292 8 082 Dorset 73 583 9 957 Flinders 42 523 43 613 George Town 25 874 3 772
Glamorgan/Spring Bay 43 915 10 526 Glenorchy 195 681 4 421 Hobart 375 632 8 040 Huon Valley 17 832 1 316 Kentish 25 729 4 961 King Island 20 310 11 002
Kingborough 157 875 5 585 Latrobe 34 870 4 428 Launceston 562 403 8 846 Meander Valley 85 503 4 942 Northern Midlands 103 323 8 726 Sorell 35 008 3 244
Southern Midlands 41 154 7 369 Tasman 18 860 8 473 Waratah/Wynyard 59 680 4 267 West Coast 45 705 7 460 West Tamar 60 508 3 041
TOTAL 3 049 488 6 440
Source: Government Finance Statistics, Tasmania 1996-97, ABS Cat No 5501.6.
Chapter 11: Local Government 235 Comparison with Other States and the Northern Territory Table 11.4 compares various indicators for the Local Government sector in all States and the Northern Territory for 1996-97.
For 1996-97, compared with other jurisdictions, Tasmanian Local Government raises higher than average per capita revenues and has higher than average per capita expenditure. Grants to Tasmanian Local Government reflect the average share of revenue of all States and the Northern Territory. The size of the Local Government sector in Tasmania, as a proportion of GSP, is the second highest of all jurisdictions.
LGAs within Tasmania have differing expenditure priorities. These priorities are the result of the physical characteristics of the Local Government area and/or differing characteristics and needs of residents. Differences also stem from the policy approaches of individual councils. This is also the case when Tasmanian Local Government in aggregate is compared to the aggregates of other States and the Northern Territory. In addition, the allocation of responsibilities and functions undertaken by the State and Local Government sectors varies from State to State.
Table 11.5 compares the relative proportion of each expenditure category to the total within each State and the Northern Territory. The 1995-96 figures reported in this chapter last year vary significantly from the 1996-97 figures because of the transfer of the local roads network from the State Government to Local Government in New South Wales in 1995-96. This transfer has drastically changed the average of all States for the measures provided in Table 11.5.
Table 11.4: Key Indicators by State and Territory, 1996-97 Local Government Grants as a employment Expenditure Revenue Expenditure proportion of per thousand as a proportion State/Territory per capita per capita revenue of population of GSP $$% %
New South Wales 542 472 20.0 7 1.7 Victoria 431 455 31.0 7 1.6 Queensland 699 724 18.0 11 3.0 South Australia 449 458 19.0 6 1.9 Western Australia 500 482 28.0 7 1.6 Tasmania 549 623 23.0 8 2.8 Northern Territory 321 273 43.0 17 0.9
TOTAL1 521 508 23.0 8 1.8
Sources: Government Finance Statistics, Australia 1996-97, ABS Cat No 5512.0; Australian Demographic Statistics, December Quarter 1997, ABS Cat No 3101.0; Wage and Salary Earners, December Quarter 1997, ABS Cat No 6248.0; Australian National Accounts: State Accounts, June Quarter 1997, ABS Cat No 5242.0. Note: 1. The deficit/surplus for the LGA sector cannot be determined by subtracting the expenditure from revenue figures used in the table, as there are increases in provisions and other financing transactions which affect the deficit/surplus.
236 Chapter 11: Local Government Table 11.5: Relative Importance of Categories of Expenditure, 1996-97 (Outlays by Purpose as a share of Total Outlays (%)) NSW VIC QLD SA WA TAS NT Ave
General Public Services 16.2 10.9 13.5 22.1 17.2 15.9 19.6 16.5 Public Order and Safety 4.9 2.4 1.0 3.2 3.7 1.4 2.0 2.7 Education 0.2 1.4 0.0 .... 0.1 ...... 0.3 Health 2.3 3.1 1.6 1.2 2.4 2.0 .... 1.8 Social Security and Welfare 6.2 14.9 1.3 2.7 5.7 4.1 3.9 5.5 Housing and Community Amenities 24.4 16.7 22.9 17.7 6.3 23.7 11.8 17.6 Recreation and Culture 18.8 20.2 15.3 16.7 25.0 17.3 29.4 20.4 Fuel and Energy (2.2) ...... 0.1 ...... (0.3) Industry Services 1.2 1.3 1.9 1.8 ...... 0.9 Transport and Communications 25.4 22.1 26.9 22.0 32.5 25.1 21.6 25.1 Other 2.5 6.9 15.5 12.5 7.2 10.2 11.8 9.5
TOTAL1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Government Finance Statistics, Australia 1996-97, ABS Cat No 5512.0. Note: 1. Figures may not add to 100 due to rounding.
Table 11.5 shows that Tasmanian Local Government spending priorities are reasonably typical in comparison with other States and the Northern Territory.
Table 11.6 shows the relative debt and debt servicing positions of Local Government sectors.
Table 11.6: Local Government Debt Statistics, 1996-97 Net Interest Net Debt Payments per capita per capita 1996-97 1996-97 $m $m New South Wales (66) (7) Victoria (165) (5) Queensland 527 69 South Australia 86 5 Western Australia (216) (14) Tasmania 180 21 Northern Territory .... 11 AVERAGE1 49 11
Sources: Public Sector Financial Assets and Liabilities, Australia 30 June 1997, ABS Cat No 5513.0; Australian Demographic Statistics, December Quarter 1997, ABS Cat No 3101.0. Note: 1. Negative numbers (in brackets) denote that financial assets are in excess of gross liabilities.
Chapter 11: Local Government 237 Table 11.6 shows that Tasmanian Local Government's debt servicing burden is the second highest among the States and the Northern Territory due to the inclusion of the HRWA in the Local Government PTE sector.
Benchmarking between LGAs Benchmarking is a tool that has become increasingly important in recent years in both the public and private sectors. It is a means by which organisations can assess their own performance by reference to that being achieved by similar organisations in a local, interstate and international context. Benchmarking helps to guide performance toward standards of best practice.
Councils achieving the best standards of performance can be identified and their approaches to management can be emulated by other councils seeking to improve their performance. Moreover, ratepayers and other interested persons or bodies can critically appraise the performance of their local councils and, if comparatively deficient, can pursue with councils the need for improvement. It is also possible that persons or businesses could use benchmarking information, and the implications of that information on expectations about future rate levels, as the basis for deciding where they locate.
Information for benchmarking the performance of Tasmanian Local Government is currently rather limited. Development of more detailed comparative information may be an outcome of further developments in Local Government modernisation. This would be consistent with developments that have been taking place concerning performance monitoring of both General Government and Public Trading Enterprise activities at the Commonwealth Government and State and Territory Government levels in recent years.
Table 11.7 shows some comparative financial performance indicators for each of the 29 municipal areas.
The meaning of each of the indicators in Table 11.7 is described in the section 'Description of Indicators', which follows Table 11.7.
It should be noted that as the Table only contains information about the 1996-97 financial year, it may not be representative of the long term situation for every council. For example, a council's high or low level of extraordinary expenditure on a particular purpose in 1996-97 may cause the ratios in the table for that council to be unrepresentative of its usual performance. Furthermore, the effects of rationalisation may have a significant impact on later year performance figures. The full value of information presented in this way will therefore not be realised until several years of data are available.
It should also be noted that the indicators below are calculated on the basis of Local Government Statistics produced by the Australian Bureau of Statistics (ABS). While consistent definitions are used in compiling the statistics, variation between councils may occur as a result of different approaches which councils may take in allocating expenditure across categories.
238 Chapter 11: Local Government Table 11.7: Comparative Financial Performance Indicators of Local Government, 1996-97 Rate Gov't Gov't Total Admin Admin Admin Net Net Net Rev. Grants Grants Outlays Outlays Outlays Outlays Interest Interest Interest to Total to Total Per Per to Total Per to Rate to Total Per to Rate Rev. Rev. Capita Capita Outlays Capita Rev. Outlays Capita Rev. %% $ $% $%% $% Break O'Day 41.5 38.5 255.0 682.0 11.0 75.0 27.3 (2.8) (19.0) (7.0) Brighton 36.9 35.6 172.0 530.0 28.5 151.0 84.8 0.5 3.0 1.5 Burnie 42.1 18.1 160.0 949.0 13.9 132.0 35.4 (4.9) (46.0) (12.4) Central Coast 47.0 18.1 101.0 580.0 9.7 56.0 21.4 (3.7) (21.0) (8.1) Central H'lands 23.3 39.4 639.0 1 435.0 16.1 231.0 61.3 (1.6) (23.0) (6.1)
Circular Head 45.7 25.5 199.0 823.0 17.9 147.0 41.1 5.2 43.0 12.0 Clarence 58.8 20.5 88.0 399.0 19.5 78.0 30.9 1.7 7.0 2.7 Derwent Valley 48.6 28.5 142.0 519.0 22.1 114.0 47.1 1.7 9.0 3.7 Devonport 51.4 12.7 66.0 662.0 10.4 69.0 26.0 1.3 9.0 3.2 Dorset 38.4 42.5 250.0 563.0 17.5 99.0 43.8 (5.1) (29.0) (12.7)
Flinders 19.6 48.1 866.0 2 312.0 27.7 641.0 182.2 (6.9) (159.0) (45.2) George Town 57.8 23.4 140.0 537.0 24.3 131.0 37.9 7.3 39.0 11.4 Glam'n/Sp. Bay 25.9 42.7 449.0 1 062.0 14.6 155.0 56.8 (1.6) (17.0) (6.2) Glenorchy 50.7 18.1 86.0 732.0 20.7 152.0 62.7 3.6 26.0 10.9 Hobart 53.5 9.5 90.0 1 133.0 12.0 136.0 26.8 (1.0) (12.0) (2.3)
Huon Valley 45.2 32.6 208.0 520.0 9.4 49.0 16.9 (1.2) (6.0) (2.2) Kentish 28.5 42.6 223.0 508.0 16.3 83.0 55.3 (1.4) (7.0) (4.6) King Island 25.9 31.3 500.0 1 492.0 28.4 424.0 102.1 (0.8) (11.0) (2.7) Kingborough 44.5 16.6 88.0 510.0 11.6 59.0 25.0 (2.1) (11.0) (4.5) Latrobe 43.9 18.9 103.0 574.0 16.0 92.0 38.5 0.2 1.0 0.6
Launceston 58.6 11.5 68.0 615.0 8.2 50.0 14.6 (1.5) (9.0) (2.7) Meander V'ley 51.7 26.2 115.0 433.0 17.5 76.0 33.4 0.3 1.0 0.5 Nort'n Midlands 40.6 39.4 254.0 628.0 25.3 159.0 60.7 (5.2) (33.0) (12.4) Sorell 46.1 22.1 140.0 568.0 10.9 62.0 21.2 (3.9) (22.0) (7.6) Sout'n Midlands 24.0 58.4 578.0 950.0 16.5 157.0 66.2 1.9 18.0 7.5
Tasman 25.3 49.0 655.0 1 261.0 16.6 209.0 61.8 (0.5) (6.0) (1.9) Waratah/Wyny'd 50.0 27.3 147.0 571.0 13.9 79.0 29.6 2.0 12.0 4.3 West Coast 42.6 36.1 270.0 832.0 23.5 195.0 61.2 1.9 16.0 4.9 West Tamar 40.1 27.9 122.0 458.0 20.7 95.0 54.0 (1.7) (8.0) (4.5) TOTAL 47.9 21.7 133.4 666.6 15.1 100.4 34.1 (0.5) (3.2) (1.1)
Sources: Population, Tasmania 30 June 1997, ABS Cat No 3234.6; Government Finance Statistics, Tasmania 1996-97, ABS Cat No 5501.6.
Chapter 11: Local Government 239 Information provided in Table 11.7 should only be used to make comparisons between councils from 1993-94 to 1996-97. Comparisons with previous years should not be made. During 1993-94, councils adopted the AAS 27 reporting standard. In addition, the ABS changed presentation of LGA data from the Standardised Local Government Finance System to the Government Finance System. These changes mean that data for 1993-94 and later years are not comparable with previous years.
Table 11.7 indicates that Hobart, Launceston, Clarence and George Town are relatively revenue self sufficient, deriving only a low proportion of revenue from government grants. The opposite applies to Southern Midlands, Central Highlands, Glamorgan/Spring Bay, Tasman, Flinders and King Island.
Administration outlays comprise a high proportion of total outlays for Northern Midlands, Flinders, George Town, King Island, West Coast and Brighton. Launceston, Huon Valley and Central Coast appear to have the best performance in limiting administration expenditure, on the basis of the figures reported to the ABS.
George Town, Waratah/Wynyard, Glenorchy and Circular Head have particularly high net interest expenditure burdens compared to other councils. Flinders, Burnie, Dorset and Northern Midlands stand out as councils with low net interest expenditure levels. These (and most other) councils have negative net interest expenditure costs, which means that they receive more in interest on their investments than they pay in interest on their debts. This indicates a very sound financial position for those councils.
Description of Indicators The indicators in Table 11.7 describe the following.
Rate Revenue as a percentage of Total Revenue A measure of the level of financial independence. The higher the level of rate revenue in proportion to total revenue, the greater the level of financial independence the council has.
Government Grants as a percentage of Total Revenue This indicator measures the reliance that a council has on external funding.
Government Grants per capita This indicator also measures a council's financial independence. It facilitates comparisons across councils of the relative magnitude of support from other levels of government.
Total Outlays per capita An absolute measure of a council's total expenditure in relation to the population of that council.
Administration Outlays as a percentage of Total Outlays Shows the ratio between a council's total expenditure and the day-to-day running costs of the council. That is, the share of administration-related expenditure in total spending by each council.
Administration Outlays per capita An indicator that measures administration expenses per head of population.
240 Chapter 11: Local Government Administration Outlays as a percentage of Rate Revenue Measures the percentage of a council's core revenue that is devoted to the day-to-day running costs of the council. In combination, the three indicators involving administration expenditure describe an aspect of the relative efficiency of each council.
Net Interest Expenditure as a percentage of Total Expenditure This indicator measures the share of a council's net debt servicing obligations (interest paid less interest received) relative to total expenditure. The greater the value of this indicator, the lower the council's budget flexibility and ability to undertake discretionary spending.
Net Interest Expenditure per capita This indicator also measures a council's ability to use its discretion when spending funds, and quantifies the burden imposed per capita of a council's net interest expenditure obligations (interest paid less interest received).
Net Interest Expenditure as a percentage of Rate Revenue This indicator shows that level of a council's core source of revenue that is devoted to servicing the council's net debt. In combination, the net interest expenditure indicators show the relative risk of councils not being able to meet debt obligations, the net debt servicing burden imposed on each person in a municipality, and relative capacity to fund non-debt related expenditures.
Chapter 11: Local Government 241
12 UNIFORM GOVERNMENT REPORTING
Features
This chapter includes uniform information on Government Financial Estimates (GFEs) and Financial Assets and Liabilities (FALs) in a format agreed by all governments at the 1991 Premiers' Conference. The chapter also presents information on Loan Council arrangements together with the Loan Council Allocation (LCA) and a section comparing the financial positions and recent financial performance of State and Territory governments.
The GFE outcome for 1997-98 was a surplus of $8 million for the General Government sector, a surplus of $79 million for the Public Trading Enterprises sector, a surplus of $87 million for the Total Non-Financial Public sector, a surplus of $39 million for the Public Financial Enterprises sector and a surplus of $126 million for the Total State Government sector.
The budgeted GFE forecast for 1998-99 is a surplus of $2 million for the General Government sector, a surplus of $26 million for the Public Trading Enterprises sector and a surplus of $28 million for the Total Non-Financial Public sector.
Between 1996-97 and 1997-98 General Government Net Debt decreased from $1 395 million to $1 356 million, Public Trading Enterprise Net Debt decreased from $1 803 million to $1 744 million, Total Non-Financial Public sector Net Debt has decreased from $3 198 million to $3 100 million, Public Financial Enterprise net assets increased from $350 million to $381 million and Total State Government debt declined from $2 848 million to $2 719 million.
Tasmania's LCA outcome was within its tolerance limit in 1997-98. Tasmania's budgeted LCA for 1998-99 is also within its tolerance limit.
Chapter 12: Uniform Government Reporting 243 INTRODUCTION
This chapter provides details of the outlays, revenues and financing transactions, and financial assets and liabilities for the Tasmanian public sector. Some comparisons with other States and Territories are also provided.
Financial performance information has been prepared in accordance with the revised uniform presentation framework for the development of Government Financial Estimates (GFEs) and Financial Assets and Liabilities (FALs), which was agreed to by the Australian Loan Council in March 1997. The revised framework requires jurisdictions to provide three year forward estimates of General Government sector outlays, revenue, financing transactions and deficits. Each jurisdiction is also required to include three year forward estimates of net debt.
Both GFEs and FALs are prepared by all States and Territories and the Commonwealth on the basis of common concepts and classifications to facilitate inter-jurisdictional comparisons. Details of the concepts and classifications used in the preparation of GFEs and FALs statistics are provided in an appendix to this chapter.
The purpose of this chapter is therefore to:
• report on Tasmania's recent financial performance;
• provide a comparison across State and Territory governments of their financial position and recent financial performance;
• present information on Loan Council arrangements and the Loan Council Allocation (LCA), which is primarily based on GFE aggregates; and
• satisfy information requirements under the uniform reporting arrangements.
Due to timing constraints, only a summary of the standard presentation for FALs data is included in the Budget documents. A full presentation of FALs information will be published by December 1998.
The information published in this chapter is consistent with the information published by the Australian Bureau of Statistics (ABS) on GFEs and FALs. However, it differs from information provided elsewhere in the Budget documents with the exception of Chapter 7 of this Budget Paper, for the following reasons:
• GFEs and FALs present a consolidated view of the transactions of the State Government as a whole, whereas the Budget concentrates on the transactions which impact on the Public Account. A broader range of activities is therefore captured by the GFEs and FALs statistics;
• the classification and coverage of agencies used for GFEs and FALs purposes differs from that used elsewhere in the Budget documents; and
• the definition or valuation of transactions may vary between this and other chapters in the Budget documents.
Greater explanation of the differences between GFEs and FALs statistics and those used elsewhere in the Budget documents is provided in an appendix to this chapter.
244 Chapter 12: Uniform Government Reporting There are two important concepts regarding the deficit which are used in this chapter:
• the ABS concept of a total deficit which, for the General Government sector, is the difference between receipts and outlays adjusted for equity sales and repayment of advances (net advances); and
• the underlying deficit, which is the total deficit further adjusted for extraordinary transactions.
It should be noted that the ABS concept of a deficit adjusted for net advances, which is the total deficit adjusted for equity sales and repayment of advances (referred to in previous Budget Papers as the adjusted deficit) is no longer used. The ABS announced that from 1998-99, it would reclassify net advances from capital outlays to financing transactions. This change removes the necessity to calculate the deficit adjusted for net advances and provides a more useful measure of total outlays.
The total deficit is therefore no longer distorted by major asset sales and the repayment of advances which were accounted for in the adjusted deficit. In the GFEs, these items are treated as negative outlays. The existence of asset sales or the repayment of advances in any given year will therefore mean that both outlays and the total call on financing will be understated. The total deficit, formerly known as the adjusted deficit, now provides a better measure of the Government's total call on financing.
The total deficit can also be affected by extraordinary transactions in any particular year. Adjusting for these extraordinary transactions provides an indication of the underlying deficit. This is the deficit most likely to persist unless policy changes are made. The underlying deficit, however, is not an ABS concept and is therefore not reported in the GFE tables in this chapter. It is, however, referred to in the commentary in order to aid an understanding of underlying financial trends.
Furthermore, the ABS has reviewed the appropriate treatment of central borrowing authorities (CBAs). Although CBAs were formed by governments and act on their behalf, they undertake financial intermediation which is a fundamentally different function from that performed by other general government entities. Consequently, after a process of consultation and consideration of several options, the ABS decided to classify CBAs as public financial enterprises (PFEs) rather than as general government enterprises. This change in the institutional sector classification of CBAs will not have the effect of excluding them from Government Finance Statistics (GFS) because the scope of the collection of ABS data is to be broadened to include PFEs. The PFE sector comprises those entities that perform central bank functions, or have the authority to incur financial liabilities and acquire financial assets in the market on their own account. The inclusion of the PFE sector is consistent with developments in standards for government accounting and reporting, specifically Australian Accounting Standard AAS 31: Financial Reporting by Governments.
ABS investigations have determined that the treatment of CBAs as PFEs would have a significant effect on some GFS series, especially interest paid and received, advances paid and received, and financing transactions. In the past, the ABS has 'netted off' CBA on-lending and interest receipts against their borrowings and interest payments. Overall, there would be relatively little impact on the deficit or most revenue and expenditure items.
As a result of the inclusion of the PFE sector, the Tasmanian Public Finance Corporation (Tascorp) has been reclassified from General Government to the PFE sector in accordance with guidelines issued by the ABS. The PFE sector also brings into coverage of GFS, related entities which implement government social policies. For Tasmania, these are the Motor Accidents Insurance Board (MAIB) and
Chapter 12: Uniform Government Reporting 245 the Home Ownership Assistance Program (HOAP). The MAIB and HOAP have not been included in any institutional sector GFE data before now.
As a result of the inclusion of PFEs, the ABS, in conjunction with Treasury, has revised the GFEs and FALs series from 1994-95. The introduction of the changes described will be published in Government Financial Estimates, Australia, 1998-99, ABS Cat No 5501.0 which is not released until late November 1998. The data in Tables 12.1 to 12.5 covering the revision period have been supplied by the ABS prior to the release of this publication. These data have been classified according to the General Government, PTE and PFE sectors. The system of classification is equivalent to the Institutional Sector classifications used by the ABS. It should be noted that the data published by the ABS may vary from that published in this chapter. Furthermore, two additional tables have been included to take account of the PFE sector and the Non-Financial Public Sector which comprises the General Government and PTE sectors.
Charts 12.1 to 12.3 and 12.5 and 12.6 cover a ten year period for the Tasmanian public sector. The information in more recent years will be different from historical data (prior to 1994-95). Two sources have been used, published ABS historical GFS data and the data supplied by the ABS to Treasury, prior to the release of the GFE publication and Government Finance Statistics, Australia, 1997-98, ABS Cat No 5512.0 to be released in April 1999.
Charts 12.7 to 12.12 compare the financial position of States using published ABS historical GFS data as there is no data available from other States which incorporates the PFE institutional sector. Charts 12.13 and 12.14 compare net debt across States using historical ABS FALs data.
It should also be noted that Forestry Tasmania is no longer part of the General Government sector and is now classified by the ABS as a PTE. The series as noted above for the inclusion of the PFE sector has been revised back to 1994-95 to take account of this change in classification.
246 Chapter 12: Uniform Government Reporting GOVERNMENT FINANCIAL ESTIMATES
Tables 12.1, 12.2, 12.3, 12.4 and 12.5 provide details of outlays, revenue and financing transactions for the General Government, Public Trading Enterprises, Public Financial Enterprises and Total Non-Financial Public Sector and Total State Government sectors respectively.
Table 12.1: General Government - Outlays, Revenue and Financing Transactions 1994-951 1995-961 1996-971 1997-982 1998-992 Actual Actual Actual Actual Estimate $m $m $m $m $m Current outlays Gross current expenditure 1 395 1 469 1 546 1 532 1 696 less Sale of goods and services 177 194 192 177 192 equals Final consumption expenditure 1 218 1 275 1 353 1 355 1 503 Interest payments to Commonwealth Government 101 82 72 61 52 other 141 150 139 131 120 Total interest payments 242 233 211 192 173 Subsidies paid to public trading enterprises 51 40 50 77 78 to other enterprises 12 14 15 16 24 Total subsidies paid 63 54 65 94 102 Personal benefit payments 10 19 19 13 10 Current grants to non-profit institutions 124 123 124 132 124 to Local Governments 42 45 49 45 52 Total current grants 166 168 172 177 176 Other current outlays (2) .... 19 4 5 Total current outlays 1 698 1 750 1 840 1 834 1 968
Capital outlays Gross fixed capital expenditure on new fixed assets 145 164 142 142 134 on secondhand fixed assets (net) (34) (38) (47) (45) (50) Total gross fixed capital expenditure 111 126 95 97 84 Expenditure on land and intangible assets (net) .... 1 4 2 1 Capital Grants to State public trading enterprises 21 32 32 29 25 to Local Government 2 4 ...... to other sectors ...... 5 3 2 Total capital grants 23 37 37 33 27 Total capital outlays 135 164 136 132 112 Total outlays 1 834 1 915 1 977 1 966 2 080
Chapter 12: Uniform Government Reporting 247 Table 12.1: General Government - Outlays, Revenue and Financing Transactions (continued) 1994-951 1995-961 1996-971 1997-982 1998-992 Actual Actual Actual Actual Estimate $m $m $m $m $m
Revenue and grants received Taxes 600 624 631 634 659 Property income and other revenue Income from State public trading enterprises 39 35 71 90 125 Income from State public financial enterprises 12 9 5 18 7 Interest received from public trading enterprises 67 55 47 40 36 from other sectors 19 32 22 15 9 Other property income and other revenue 30 29 46 35 30 Total property income and other revenue 166 159 192 197 207 Grants received from Commonwealth Government 1 035 1 113 1 124 1 143 1 215 Total revenue and grants received 1 802 1 897 1 946 1 974 2 081
Financing transactions Net advances received (142) (82) (116) (94) (15) Net borrowing 83 66 64 47 14 Other financing transactions (9) (32) (2) (31) (86) less Advances paid (net) to State public trading enterprises (104) (45) (82) (42) (68) to Local Government .... (1) (1) (1) (8) to other sectors 4 (18) (3) (27) (10) Total advances paid (100) (64) (86) (71) (86) Total financing transactions 33 17 32 (8) (2) less increase in provisions ...... Equals Deficit/(Surplus) 33 17 32 (8) (2)
Notes: 1. Source: Australian Bureau of Statistics. 2. Source: Department of Treasury and Finance.
248 Chapter 12: Uniform Government Reporting Table 12.2: Public Trading Enterprises - Outlays, Revenue and Financing Transactions 1994-951 1995-961 1996-971 1997-982 1998-992 Actual Actual Actual Actual Estimate $m $m $m $m $m Current outlays Requited current transfer payments Interest payments to State general government 67 55 48 39 35 to other sectors 153 154 160 142 133 Income transferred to general government 74 105 113 149 109 Total requited current transfer payments 294 314 321 330 277 Other current outlays 2 2 2 4 1 Total current outlays 295 316 323 333 278
Capital outlays Gross fixed capital expenditure Expenditure on new fixed assets 116 159 158 172 191 Expenditure on secondhand fixed assets (net) ( 6) ( 4) ( 10) ( 12) ( 12) Total gross fixed capital expenditure 110 155 148 160 179 Increase in stocks (1) (1) (1) (2) .... Expenditure on land and intangible assets (net) (2) (2) (1) (2) .... Capital Grants 2 5 ...... Total capital outlays 109 157 146 156 179 Total outlays 404 473 469 489 457
Revenue and grants received Net operating surpluses Operating revenue Subsidies received 49 43 38 39 42 Other operating revenue 816 839 882 864 886 less Operating expenditure Depreciation charge 139 147 156 155 167 Other operating expenditure 454 460 466 476 499 Total net operating surpluses 273 276 299 272 262 Property income and other revenue Interest received 11 10 12 10 5 Other property income and other revenue 5 5 5 5 4 Total property income and other revenue 16 15 17 15 9 Grants received 23 30 30 32 29 Total revenue and grants received 312 320 347 319 300
Chapter 12: Uniform Government Reporting 249 Table 12.2: Public Trading Enterprises - Outlays, Revenue and Financing Transactions (continued) 1994-951 1995-961 1996-971 1997-982 1998-992 Actual Actual Actual Actual Estimate $m $m $m $m $m Financing transactions Net advances received (109) (51) (84) (42) (68) Net borrowing 26 (42) (11) 1 71 Increase in provisions 177 203 219 250 183 Net advances paid (4) (5) (2) ...... Other financing transactions (8) 38 (2) (37) (28) Total financing transactions 91 153 123 171 158 less increase in provisions 177 203 219 250 183 Equals Deficit/(Surplus) (87) (50) (97) (79) (26)
Notes: 1. Source: Australian Bureau of Statistics. 2. Source: Department of Treasury and Finance.
250 Chapter 12: Uniform Government Reporting Table 12.3: Total Non-Financial Public Sector - Outlays, Revenue and Financing Transactions 1994-951 1995-961 1996-971 1997-982 1998-992 Actual Actual Actual Actual Estimate $m $m $m $m $m Current outlays Gross current expenditure 1 395 1 469 1 546 1 532 1 696 less Sales of goods and services 177 194 192 177 192 equals Final consumption expenditure 1 217 1 275 1 354 1 355 1 503 Requited current transfer payments Interest payments to Commonwealth Government 101 82 73 61 52 other 291 302 299 273 253 Total requited transfer payments 392 384 372 334 305 Unrequited current transfer payments Subsidies paid 63 54 65 94 102 Personal benefit payments 10 19 19 13 10 Current grants to non-profit institutions 124 123 124 132 124 to Local Governments 42 45 49 45 52 Other current transfer payments 2 3 19 5 5 Total Unrequited current transfer payments 241 244 276 289 292 Other current outlays 34 63 43 41 (28) Total current outlays 1 885 1 966 2 044 2 020 2 073
Capital outlays Gross fixed capital expenditure Expenditure on new fixed assets 261 323 300 314 325 Expenditure on secondhand fixed assets (net) (40) (42) (56) (58) (62) Total gross fixed capital expenditure 221 281 244 256 263 Increase in stocks (1) (1) (1) (2) .... Expenditure on land and intangible assets (net) (2) (1) 3 ...... Capital Grants to Local Government 2 4 ...... to other sectors 2 5 5 3 2 Total capital grants 4 10 5 3 2 Total capital outlays 222 290 250 257 265 Total outlays 2 108 2 257 2 293 2 277 2 339
Chapter 12: Uniform Government Reporting 251 Table 12.3: Total Non-Financial Public Sector - Outlays, Revenue and Financing Transactions (continued) 1994-951 1995-961 1996-971 1997-982 1998-992 Actual Actual Actual Actual Estimate $m $m $m $m $m Revenue and grants received Taxes 600 624 631 634 659 Net operating surpluses of public trading enterprises 272 275 297 272 262 Property income and other revenue Interest received 24 40 33 25 14 Other property income and other revenue 49 42 57 40 34 Total property income and other revenue 73 82 90 65 48 Grants received from Commonwealth Government 1 037 1 109 1 124 1 143 1 215 Total revenue and grants received 1 982 2 089 2 141 2 114 2 184
Financing transactions Net advances received (141) (81) (116) (103) (15) Net borrowing 108 25 105 47 85 Increase in provisions 179 204 220 250 183 Advances paid (net) to Local Government .... (1) (2) (3) (8) to other sectors (1) (20) (3) (25) (10) Total advances paid (1) (21) (5) (29) (18) Other financing transactions (20) 41 (52) (2) (80) Total financing transactions 126 168 153 163 155 less increase in provisions 179 204 220 250 183 Equals Deficit/(Surplus) (53) (36) (67) (87) (28)
Notes: 1. Source: Australian Bureau of Statistics. 2. Source: Department of Treasury and Finance.
252 Chapter 12: Uniform Government Reporting Table 12.4: Public Financial Enterprises - Outlays, Revenue and Financing Transactions1 1994-952 1995-962 1996-972 1997-983 Actual Actual Actual Actual $m $m $m $m Current Outlays Interest payments 428 426 406 384 Income transferred to general government 6 5 13 7 Other current outlays ...... Total current outlays 434 431 419 391
Capital outlays Gross fixed capital expenditure 2 5 6 1 Expenditure on land and intangible assets (net) ...... 2 Total capital outlays 2 5 6 3 Total outlays 436 437 425 394
Revenue and grants received Net operating surpluses Operating revenue 55 59 65 78 less Operating expenditure 81 93 107 101 Total net operating surpluses (26) (34) (42) (23) Property income and other revenue Interest received 455 461 449 388 Other property income and other revenue 2 2 3 32 Total property income and other revenue 457 463 452 420 Grants received …. …. …. …. Total revenue and grants received 432 429 410 397
Financing transactions Net advances received 18 22 7 7 Net borrowing (124) (142) (170) 160 Increase in provisions 14 26 44 34 Net advances paid 22 24 7 7 Other financing transactions 119 128 142 (199) Total financing transactions 4 9 16 (5) less increase in provisions 14 26 44 34 Equals Deficit/(Surplus) (10) (18) (28) (39)
Notes: 1. Under the revised Uniform Presentation Framework agreed by the Australian Loan Council, jurisdictions are required to report on PFE outcomes only. 2. Source: Australian Bureau of Statistics. 3. Source: Department of Treasury and Finance.
Chapter 12: Uniform Government Reporting 253 Table 12.5: Total State Government Sector - Outlays, Revenue and Financing Transactions1 1994-952 1995-962 1996-972 1997-983 Actual Actual Actual Actual $m $m $m $m Current outlays Gross current expenditure 1 395 1 469 1 545 1 532 less Sales of goods and services 177 194 192 177 equals Final consumption expenditure 1 218 1 275 1 353 1 355 Requited current transfer payments Interest payments to Commonwealth Government 101 82 73 61 other 432 420 424 389 Total requited transfer payments 533 502 497 450 Unrequited current transfer payments Subsidies paid 55 54 65 94 Personal benefit payments 10 19 19 15 Current grants to non-profit institutions 125 124 124 132 to Local Governments 42 45 49 45 Other current transfer payments 2 ( 1) 19 5 Total Unrequited current transfer payments 234 241 276 291 Other current outlays 34 63 53 33 Total current outlays 2 019 2 082 2 179 2 129
Capital outlays Gross fixed capital expenditure Expenditure on new fixed assets 263 329 305 315 Expenditure on secondhand fixed assets (net) (40) (42) (57) (58) Total gross fixed capital expenditure 223 287 248 257 Increase in stocks (1) (1) (1) (2) Expenditure on land and intangible assets (net) (2) (1) 3 2 Capital Grants to Local Government 2 4 ...... to other sectors 2 5 5 3 Total capital grants 4 9 5 3 Total capital outlays 223 294 255 259 Total outlays 2 243 2 377 2 435 2 388
254 Chapter 12: Uniform Government Reporting Table 12.5: Total State Government Sector - Outlays, Revenue and Financing Transactions (continued)1 1994-952 1995-962 1996-972 1997-983 Actual Actual Actual Actual $m $m $m $m Revenue and grants received Taxes 600 624 631 634 Net operating surpluses of public trading enterprises 246 240 254 248 Property income and other revenue Interest received 203 202 199 132 Other property income and other revenue 37 36 57 72 Total property income and other revenue 240 238 256 204 Grants received from Commonwealth Government 1 037 1 109 1 124 1 143 Total revenue and grants received 2 124 2 212 2 265 2 229
Financing transactions Net advances received (124) (59) (116) (96) Net borrowing (227) (102) 91 135 Increase in provisions 191 226 264 285 Advances paid (net) to Local Government .... (1) (3) (3) to other sectors 21 5 6 (18) Total advances paid 21 4 3 (21) Other financing transactions 258 96 (73) (144) Total financing transactions 119 165 170 159 less increase in provisions 191 226 264 285 Equals Deficit/(Surplus) (73) (62) (95) (126)
Notes: 1. Under the revised Uniform Presentation Framework agreed by the Australian Loan Council, jurisdictions are required to report on PFE outcomes only. 2. Source: Australian Bureau of Statistics. 3. Source: Department of Treasury and Finance.
Chapter 12: Uniform Government Reporting 255 GFE Forward Estimates A review of the uniform presentation framework was initiated at the December 1995 Heads of Treasuries meeting. The resulting revised uniform presentation framework, agreed by the Australian Loan Council in March 1997, requires jurisdictions to provide three year forward estimates of General Government sector outlays, revenue, financing transactions and deficits. Each jurisdiction is also required to include three year forward estimates of net debt.
Table 12.6 presents the required forward estimates for the three year period from 1999-00 to 2001-02 inclusive.
It should be noted that the resultant General Government forward estimates set out in Table 12.6 will not be consistent with similar estimates made for the National Fiscal Outlook reporting process. Differences will be the result of changes to economic parameters, underlying growth assumptions and policy changes.
256 Chapter 12: Uniform Government Reporting Table 12.6: General Government Sector - Forward Estimates of Outlays, Revenue and Financing Transactions 1998-99 1999-00 2000-01 2001-02 Budget Forward Forward Forward Estimate Estimate Estimate Estimate $m $m $m $m Current Outlays Final consumption expenditure 1 503 1 525 1 548 1 594 Interest payments 173 162 151 130 Subsidies paid to PTEs and other enterprises 102 107 87 86 Current grants 186 194 197 203 Other current outlays 5 6 6 6 Total current outlays 1 968 1 994 1 989 2 019
Capital outlays Gross fixed capital expenditure on new fixed assets 134 131 133 137 on secondhand fixed assets (net) (50) (41) (42) (43) Total gross fixed capital expenditure 84 90 91 94 Capital grants 27 25 25 25 Other capital outlays 1 ...... Total capital outlays 112 115 116 119
Total outlays 2 080 2 109 2 105 2 138
Revenue and grants received Taxes, fees and fines 659 679 686 698 Interest received 45 33 24 22 Grants received 1 215 1 252 1 243 1 253 Dividends received from PTEs and PFEs 132 129 139 158 Other revenue 30 26 27 26 Total revenue and grants received 2 081 2 119 2 119 2 157
Deficit and financing transactions Net advances received (15) (4) (7) (7) Net borrowing (52) (8) (10) (19) Other financing transactions (21) (90) (30) (20) less Advances paid (net) (86) (92) (33) (27) Total financing transactions (2) (10) (14) (19) less increase in provisions (net) ...... Equals Deficit/(Surplus) (2) (10) (14) (19)
Net Debt 1 356 1 346 1 332 1 313
Source: Department of Treasury and Finance.
Chapter 12: Uniform Government Reporting 257 Trends in GFEs for Tasmania Chart 12.1 compares, for the General Government sector, trends in total receipts and total outlays for the ten years to 1998-99, in real 1998-99 dollars.
Chart 12.1: Real General Government Receipts and Outlays
2 400
2 300
2 200
2 100
2 000
$ million in 1998-99 prices 1 900
1 800 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 (est) Outlays Receipts
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Department of Treasury and Finance.
Chart 12.1 shows that between 1989-90 and 1991-92, there was a sizeable gap between outlays and receipts in the General Government sector. This gap primarily arose because of a substantial and unanticipated reduction in Commonwealth grants over this period and the failure of the Government of the day to adopt an appropriate policy response. In 1990-91, the first Fiscal Strategy was established, which was followed by the second Strategy introduced in 1994-95. As a result of the adoption of these strategies, the gap between outlays and receipts was closed through a combination of real terms outlays restraint and increases in revenue raising effort. It should be noted that prior to 1994-95, net advances were included in capital outlays and this is another reason why outlays are shown as higher than receipts from 1989-90 to 1992-93.
In 1993-94 receipts were higher than outlays. This result was to some extent affected by the sales of the TGIO and the TDA housing loans portfolio (which are treated in GFEs as offsets to outlays, therefore causing outlays to be reduced), which were partly offset by a capital contribution to TT Line Company Pty Ltd (increasing outlays). From 1994-95 to 1997-98, receipts were lower than outlays, although the results are affected by the change in ABS classification mentioned earlier in this chapter, whereby Tascorp and Forestry Tasmania have been reclassified from the General Government sector to the PFE and PTE sectors respectively. As a result of this change, the GFEs and FALs series have been revised back to 1994-95. Both Tascorp and Forestry Tasmania had higher receipts than outlays and as a consequence, receipts were lower than outlays in the General Government sector from 1994-95 to 1997-98.
258 Chapter 12: Uniform Government Reporting Chart 12.2 shows that real PTE outlays declined marginally from 1989-90 to 1992-93, reflecting the winding down of HEC power scheme construction activity and increasing efficiency across the PTE sector as it developed a stronger commercial focus. An exception to this trend was the result for 1993-94, when outlays were increased by the purchase of the Spirit of Tasmania. From 1994-95 to 1997-98 outlays have been relatively stable. Outlays in the PTE sector include provisions which cause these outlays to be consistently higher than receipts. In 1998-99, the estimated provision amount in nominal terms is $183 million, a decrease over the amount provided in 1997-98 of $250 million. Outlays have decreased in 1998-99 partly as a result of accrual adjustments to dividend and income tax payments. Chart 12.2 also shows that receipts in the PTE sector, in real terms, were relatively stable to 1993-94 and have decreased moderately since then.
Chart 12.2: Real PTE Receipts and Outlays
700
600
500
400
300
200 $ million in 1998-99 prices 100
0 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98
Outlays Receipts 1998-99 (est)
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Department of Treasury and Finance.
Chart 12.3 presents, over the same ten year period, receipts and outlays for the Total Non-Financial Public Sector in real 1998-99 values. The consolidated total is the sum of General Government and PTEs, after adjustment for transactions between the two sectors (see appendix for a more detailed explanation of consolidation).
The PTE sector recorded surpluses from 1991-92 to 1997-98, except 1993-94 and is expected to be in surplus in 1998-99. The General Government sector is estimated to be in surplus in 1998-99, following recorded deficits from 1989-90 to 1996-97 (see Charts 12.5 and 12.6). The deficit/surplus is not only the difference between outlays and receipts, but also includes an adjustment to remove the effect of increases in provisions. Over recent years, the gap between outlays and receipts shown in Charts 12.2 and 12.3 can be viewed as being primarily attributable to available receipts not being sufficient to meet outlays, including increases in provisions, in the PTE sector.
Chapter 12: Uniform Government Reporting 259 Chart 12.3: Real Total Non-Financial Public Sector Receipts and Outlays
2 700
2 600
2 500
2 400
2 300
2 200
2 100 $ million in 1998-99 prices 2 000
1 900 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98
Outlays Receipts 1998-99 (est)
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Department of Treasury and Finance.
Table 12.7 provides details of Total Non-Financial Public Sector outlays by purpose.
260 Chapter 12: Uniform Government Reporting Table 12.7: Total Non-Financial Public Sector - Outlays by Purpose 1994-951 1995-961 1996-971 1997-982 1998-992 Actual Actual Actual Actual Estimate $m $m $m $m $m General public services Current 173 168 156 140 180 Capital (7) 2 (12) (5) (14) Total 166 170 144 135 166
Public order and safety Current 107 117 152 144 154 Capital 16 16 15 13 8 Total 123 133 167 157 162
Education Current 438 454 473 494 533 Capital 33 33 38 26 27 Total 471 487 511 520 560
Health Current 337 375 377 407 410 Capital 17 26 15 12 12 Total 354 401 392 419 422
Social security and welfare Current 105 118 119 125 112 Capital (1) …. 1 …. …. Total 104 118 120 125 112
Housing and community amenities Current 37 31 30 34 43 Capital 26 39 12 5 17 Total 63 70 42 39 60
Recreation and culture Current 50 55 69 66 79 Capital 12 9 15 12 16 Total 62 64 84 78 95
Fuel and energy Current 23 54 36 57 (21) Capital 58 95 106 123 129 Total 81 149 142 180 108
Chapter 12: Uniform Government Reporting 261 Table 12.7: Total Non-Financial Public Sector - Outlays by Purpose (continued) 1994-951 1995-961 1996-971 1997-982 1998-992 Actual Actual Actual Actual Estimate $m $m $m $m $m Agriculture, forestry, fishing and hunting Current 31 34 50 60 78 Capital 4 6 14 16 16 Total 35 40 64 76 94
Mining and mineral resources other than fuels, manufacturing and construction Current 9 8 9 5 6 Capital ...... Total 9 8 9 5 6
Transport and communications Current 88 95 102 94 103 Capital 62 61 48 56 52 Total 150 156 150 150 155
Other economic affairs Current 54 54 56 56 81 Capital ...... (2) .... (2) Total 54 54 54 56 79
Other purposes Current 434 407 415 338 318 Capital ...... 4 Total 434 407 415 338 322
Total Outlays 2 108 2 257 2 293 2 277 2 339
Notes: 1. Source: Australian Bureau of Statistics. 2. Source: Department of Treasury and Finance.
262 Chapter 12: Uniform Government Reporting Chart 12.4: Real Total Non-Financial Public Sector Outlays by Purpose
600
500
400
300
200
$ million in 1998-99 prices 100
0 Education Culture comm'n Services Affairs Safety Recreation & & Welfare Transport and General Public Other Purposes Other Economic Fuel and Energy Health, Housing Public Order and Industry Services 1994-95 1996-97 1998-99 (est)
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Department of Treasury and Finance.
Chart 12.4 shows that the dominant priorities for government spending are education, health, housing and welfare, and other purposes. The high level of the other purposes category primarily reflects payments of interest on government debt.
Over the five year period depicted in Chart 12.4, outlays on other purposes consistently decreased, while outlays on education, health, housing and welfare, and recreation and culture consistently increased over the period. The other categories remained relatively stable.
Chapter 12: Uniform Government Reporting 263 Chart 12.5: Real General Government, PTE and Total State Government Deficits
300
250
200
150
100
50
0 $ milion in 1998-99 prices - 50
- 100 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1997-98 1996-97 1998-99 (est) General Government PTE Total Non-Financial Public Sector
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Department of Treasury and Finance.
Chart 12.5 compares real term trends in the deficit for General Government, PTEs and the Total Non-Financial Public Sector, and demonstrates reductions in deficits achieved in each sector. It is evident that the General Government sector has mostly recorded deficits over the past ten years, but an estimated surplus of $2 million is expected for 1998-99. The improvement overtime has been mainly achieved by containing expenditure increases.
In recent years, the General Government sector, whilst being influenced by special factors, has trended towards a balanced position. When interpreting the above results, the impacts of the following transactions should be considered:
• employment rationalisation outlays and the receipt of a special payment from the Commonwealth to fund employment rationalisation in 1989-90;
• the 27th pay period that occurred in 1992-93;
• the recalculation of superannuation benefits paid in 1993-94 in accordance with the new scheme arrangements; and
• the provision of capital to the TT Line Company Pty Ltd in 1993-94.
A more detailed discussion on the issues associated with each of these special factors is contained in previous years Budget Papers.
264 Chapter 12: Uniform Government Reporting Chart 12.6: Real General Government Underlying Deficit, Adjusted for Selected Factors1
160
140
120
100
80
60
40
20
$ million in 1998-99 prices 0
- 20
- 40 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 (est)
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Department of Treasury and Finance. Note: 1. 'Selected Factors' comprise the removal of the employment rationalisation payments between 1990-91 and 1997-98, the receipt of special assistance from the Commonwealth in 1989-90 to fund employment rationalisation, the 27th pay period in 1992-93, the contribution of capital to the TT Line Company Pty Ltd in 1993-94 and additional superannuation payments in 1994-95 and 1995-96.
Chart 12.6 presents the trend in the underlying deficit in real terms when these four effects are removed. The trend clearly illustrates the progressive reduction in the underlying gap between outlays and receipts in the Tasmanian General Government sector since the deficit peaked in 1988-89. When adjusted for once-off factors, the General Government sector recorded underlying surpluses, in real terms, in 1992-93, 1993-94, 1995-96 and 1997-98 and is expected to record an underlying surplus of $12 million in 1998-99. The $10 million difference compared with the General Government surplus reported in Table 12.1 is due to outlays associated with previous employment rationalisation programs.
Table 12.8 shows taxes collected by the Total State Government sector over the past four years and estimates for 1998-99.
Chapter 12: Uniform Government Reporting 265 Table 12.8: State Government Taxes 1994-951 1995-961 1996-971 1997-982 1998-992 Actual Actual Actual Actual Estimate $m $m $m $m $m
Employers' payroll taxes 137 142 146 147 153
Taxes on property Taxes on immovable property Land tax 31 30 27 26 26 Property owners contributions to fire brigade 16 17 17 17 17 Taxes on immovable property n.e.c.3 ...... Total taxes on immovable property 47 47 44 43 43 Taxes on financial and capital transactions 108 106 97 107 102 Total taxes on property 155 153 141 150 145
Taxes on the provision of goods and services Levies on statutory corporations 14 14 14 15 15 Taxes on gambling Taxes on private lotteries 22 21 19 19 20 Casino taxes 16 21 31 35 37 Race betting taxes 12 12 11 9 8 Taxes on gambling n.e.c.3 1 1 1 1 1 Total taxes on gambling 51 55 62 65 66 Taxes on insurance Insurance companies' contributions to fire brigade 9 9 7 7 7 Third party insurance taxes 2 2 2 2 2 Taxes on insurance n.e.c.3 17 18 19 18 20 Total taxes on insurance 28 29 28 28 29 Total taxes on the provision of goods and services 93 98 105 107 110
Taxes on use of goods and performance of activities Motor vehicle taxes Vehicle registration fees and taxes 48 53 60 64 65 Stamp duties on vehicle registration 26 29 27 27 29 Road transport and maintenance taxes ...... Total motor vehicle taxes 75 82 87 91 94
266 Chapter 12: Uniform Government Reporting Table 12.8: State Government Taxes (continued) 1994-951 1995-961 1996-971 1997-982 1998-992 Actual Actual Actual Actual Estimate
Franchise taxes Petroleum products franchise taxes 47 48 47 47 50 Tobacco franchise taxes 76 83 85 74 90 Liquor franchise taxes 17 18 19 18 19 Total franchise taxes 141 149 150 139 159 Other taxes on use of goods and performance of activities ...... Total taxes on use of goods and performance 216 231 237 230 253 of activities Total Taxes 600 624 631 634 660
Notes: 1. Source: Australian Bureau of Statistics. 2. Source: Department of Treasury and Finance. 3. Not elsewhere classified (n.e.c.).
Interstate Comparison of Government Financial Estimates Comparisons of the relative financial positions and performance of States and Territories can be made using GFE and FALs data.
Data from the ABS publications Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0 released in April 1998; Government Financial Estimates, Australia, 1997-98, ABS Cat No 5501.0 released in November 1997; and Public Sector Financial Assets and Liabilities, 30 June 1997, ABS Cat No 5513.0 released in November 1997 are used in this section. It should be noted that no data are available from other States which incorporates the PFE institutional sector and thus the data presented here is based on the historical ABS institutional sector classification.
Charts 12.7 and 12.8 depict the relative levels of own source revenue as a proportion of GSP for each State and Territory in 1992-93 and 1996-97 for the General Government and Total State Government sectors. The charts show that despite Tasmania's reliance on Commonwealth grants, what was comparatively the highest proportion of State or Territory economic resources allocated to the Government's own source revenue in 1992-93 has decreased to approximate the national average by 1996-97. This is consistent with the reduction in Tasmania's taxation severity over the same period.
Chapter 12: Uniform Government Reporting 267 Chart 12.7: General Government Own Source Revenue as a percentage of GSP
12
10
8
6 Per cent
4
2
0 NSW Vic Qld SA WA Tas NT ACT
1992-93 1996-97
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Australian National Accounts: State Accounts, June Quarter 1997, ABS Cat No 5242.0.
Chart 12.8: Total State Government Own Source Revenue as a percentage of GSP
12
10
8
6 Per cent
4
2
0 NSW Vic Qld SA WA Tas NT ACT
1992-93 1996-97
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Australian National Accounts: State Accounts, June Quarter 1997, ABS Cat No 5242.0.
268 Chapter 12: Uniform Government Reporting Charts 12.9 and 12.10 show changes in the level of outlays as a proportion of GSP between 1992-93 and 1996-97. Tasmania's ratio of outlays to GSP has declined over this period, largely reflecting the impact of Tasmania's first Fiscal Strategy which was introduced in 1990-91 and to a lesser extent the more recent Fiscal Strategy.
Chart 12.9: General Government Outlays as a percentage of GSP
35
30
25
20
Per cent 15
10
5
0 NSW Vic Qld SA WA Tas NT ACT
1992-93 1996-97
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Australian National Accounts: State Accounts, June Quarter 1997, ABS Cat No 5242.0.
On a Total State Government basis, all States and Territories except Queensland experienced a reduction in their respective ratios of outlays to GSP between 1992-93 and 1996-97. The implementation of various fiscal strategies among these jurisdictions has contributed to this result.
Chapter 12: Uniform Government Reporting 269 Chart 12.10: Total State Government Outlays as a percentage of GSP
40
35
30
25
20 Per cent 15
10
5
0 NSW Vic Qld SA WA Tas NT ACT
1992-93 1996-97
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Australian National Accounts: State Accounts, June Quarter 1997, ABS Cat No 5242.0.
Charts 12.11 and 12.12 compare movements in adjusted deficits as a proportion of GSP for the General Government and Total State Government sectors across all jurisdictions. The ABS concept of a deficit adjusted for equity sales and repayment of advances (adjusted deficit) is used because the historical data in Charts 12.11 and 12.12 have not been revised to take account of the changes outlined earlier in this chapter in regard to the reclassification of advances from capital outlays to financing transactions. Chart 12.11 clearly shows the strong trend reduction in the Tasmanian adjusted deficit from 1992-93 to 1996-97. Chart 12.12 also shows a strong improvement in Tasmania's adjusted deficit on a Total State Government sector basis over the same period, bringing Tasmania's adjusted deficit, for both the General Government and Total State Government sectors in 1996-97, to levels comparable with the average of other States and Territories.
270 Chapter 12: Uniform Government Reporting Chart 12.11: General Government Adjusted Deficit as a percentage of GSP
3
2
1
0 Per cent -1
-2
-3 NSW Vic Qld SA WA Tas NT ACT
1992-93 1994-95 1996-97
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Australian National Accounts: State Accounts, June Quarter 1997, ABS Cat No 5242.0.
Over the five year period to 1996-97, Queensland was the only jurisdiction to consistently record adjusted surpluses for both its General Government and Total State Government sectors.
Chart 12.12: Total State Government Adjusted Deficit as a percentage of GSP
2
2
1
1
0
Per cent -1
-1
-2
-2
-3 NSW Vic Qld SA WA Tas NT ACT
1992-93 1994-95 1996-97
Sources: Government Finance Statistics, Australia, 1996-97, ABS Cat No 5512.0; Australian National Accounts: State Accounts, June Quarter 1997, ABS Cat No 5242.0.
Chapter 12: Uniform Government Reporting 271 FINANCIAL ASSETS AND LIABILITIES
Trends in Financial Assets and Liabilities
Table 12.9: Financial Assets and Liabilities as at 30 June 1994 1995 1996 1997 1998 $m $m $m $m $m GENERAL GOVERNMENT Gross Debt Deposits Held 73 46 55 48 60 Advances Received 1 069 929 849 732 640 Other Borrowings1 1 382 1 434 1 515 1 547 1 603 Total Gross Debt 2 524 2 409 2 419 2 327 2 303
Financial Assets Cash, Deposits and Lending Cash and Deposits 138 208 225 248 317 Advances Paid 940 808 736 647 575 Other lending2 89 35 77 36 54 Total Cash, Deposits and Lending 1 167 1 051 1 038 931 946
Net Debt3 1 357 1 358 1 381 1 395 1 356
Unfunded Employee Entitlements4 1 173 1 582 1 705 1 715 1 697
PUBLIC TRADING ENTERPRISES Gross Debt Deposits Held 5 8 6 4 2 Advances Received 772 665 615 520 478 Other Borrowings1 1 507 1 554 1 496 1 440 1 431 Total Gross Debt 2 284 2 228 2 117 1 963 1 911
Financial Assets Cash, Deposits and Lending Cash and Deposits 138 152 105 75 94 Advances Paid 34 26 25 24 24 Other lending2 104 93 94 61 49 Total Cash, Deposits and Lending 276 271 224 160 167
Net Debt3 2 008 1 956 1 893 1 803 1 744
Unfunded Employee Entitlements4 377 343 333 315 318
272 Chapter 12: Uniform Government Reporting Table 12.9: Financial Assets and Liabilities as at 30 June (continued) 1994 1995 1996 1997 1998 $m $m $m $m $m TOTAL NON-FINANCIAL PUBLIC SECTOR Gross Debt Deposits Held 76 45 49 47 37 Advances Received 1 065 930 848 721 638 Other Borrowings1 2 860 2 957 2 965 2 964 3 034 Total Gross Debt 4 001 3 932 3 863 3 732 3 710
Financial Assets Cash, Deposits and Lending Cash and Deposits 275 350 318 319 387 Advances Paid 198 170 145 141 119 Other lending2 163 97 125 75 103 Total Cash, Deposits and Lending 636 617 588 535 609
Net Debt3 3 366 3 315 3 274 3 198 3 100
Unfunded Employee Entitlements4 1 510 1 920 2 039 2 029 1 881
PUBLIC FINANCIAL ENTERPRISES Gross Debt Deposits Held 400 553 469 407 478 Advances Received ...... Other Borrowings1 3 934 3 936 3 767 3 709 3 805 Total Gross Debt 4 334 4 489 4 236 4 116 4 283
Financial Assets Cash, Deposits and Lending Cash and Deposits 152 104 133 184 210 Advances Paid ...... Other lending2 4 466 4 683 4 411 4 282 4 454 Total Cash, Deposits and Lending 4 618 4 787 4 543 4 466 4 664
Net Debt3 (284) (298) (308) (350) (381)
Unfunded Employee Entitlements4 2 .... 1 .... 2
Chapter 12: Uniform Government Reporting 273 Table 12.9: Financial Assets and Liabilities as at 30 June (continued) 1994 1995 1996 1997 1998 $m $m $m $m $m TOTAL STATE GOVERNMENT SECTOR Gross Debt Deposits Held 237 299 251 172 170 Advances Received 1 065 930 848 721 638 Other Borrowings1 3 972 3 957 3 757 3 713 3 825 Total Gross Debt 5 274 5 186 4 856 4 606 4 633
Financial Assets- Cash, Deposits and Lending Cash and Deposits 188 155 184 221 251 Advances Paid 198 171 145 141 119 Other lending2 1 806 1 844 1 561 1 396 1 543 Total Cash, Deposits and Lending 2 192 2 170 1 889 1 758 1 913
Net Debt3 3 082 3 016 2 966 2 848 2 719
Unfunded Employee Entitlements4 1 511 1 923 2 040 2 031 2 017
Notes: 1. Includes finance leases, loans, debt securities and value of derivatives in a net liability position, but excludes accounts payable and prepayments. 2. Includes loans, debt securities and the value of derivatives in a net position, but excludes accounts receivable, prepayments and equity. 3. Gross debt less total cash deposits and lending. 4. It should be noted that it has not been possible to provide an accurate assessment of the unfunded superannuation liability as at 30 June 1998. The unfunded employee entitlements figure as at 30 June 1998 should therefore be regarded as preliminary. A more accurate figure will be available for the full presentation of FALs information, published in December 1998.
Table 12.9 shows the level of Tasmania's public sector debt on a GFE basis.
A significant component of debt in the public sector relates to Financial Agreement debt. This debt represents funds borrowed by the Commonwealth Government on behalf of the State Government and on-lent to PTEs.
In 1994-95, a policy was established enabling PTEs to repay advances from the State Government sourced from Financial Agreement funds. This arrangement was put in place to allow PTEs to more effectively manage their debt.
Authorities make these repayments based on a formula developed to apportion the value of Financial Agreement debt, maturing in the years 1994-95 to 2005-06, between the General Government and PTE sectors. Repayments made by PTEs are to be used by the Government to repay this proportion of Financial Agreement debt maturing in each financial year.
The impact on the level of debt held by the PTEs will depend on the extent to which they re-finance through borrowings from Tascorp, or use internal funds.
274 Chapter 12: Uniform Government Reporting For the General Government sector as at 30 June 1998, the level of net debt was, in nominal terms, $1 356 million, a decrease of 2.8 per cent over the 1996-97 level of $1 395 million.
Preliminary figures for the PTE sector as at 30 June 1997 indicate that the level of Net Debt was, in nominal terms, $1 744 million, a decrease of 3.3 per cent over the 1996-97 level of $1 803 million. The Total Non-Financial Public sector Net Debt has decreased by $98 million, or 3.1 per cent in nominal terms, from $3 198 million to $3 100 million between 30 June 1997 and 30 June 1998.
The PFE sector holds net assets. PFE sector net assets increased by $31 million or 8.1 per cent in nominal terms, from $350 million to $381 million between 30 June 1997 to 30 June 1998. This result is primarily due to the net assets held by the Motor Accidents Insurance Board (MAIB). The MAIB holds a significant level of cash and investment assets in order to fund its liability for outstanding claims. According to ABS classifications, this liability is not included in the calculation of Net Debt, but it will be included in the full presentation of Financial Assets and Liabilities, to be issued in December 1998.
For the Total State Government sector as at 30 June 1998, preliminary figures indicate that the level of Net Debt will be, in nominal terms, $2 719 million; a decrease of 4.7 per cent over the 1996-97 level of $2 848 million. The Total State Government sector is the consolidated total of the General Government PTE and PFE sectors. Movement in Total State Government Net Debt is directly linked to the movement in Net Debt of the component sectors. However, due to the consolidation process, Gross Debt and Total Financial Assets of the component sectors are not additive.
There is a broad consistency between the adjusted deficit on a GFE basis for the General Government sector and the overall increase in net debt for the Total Non-Financial Public sector. It is more difficult to compare movement in the net debt for the PTE sector with the adjusted GFE deficit, due to GFEs being compiled on an accrual basis for this sector. However, the underlying trend for both sets of data is consistent.
Unfunded liability for employee entitlements includes liabilities in respect of long service leave, annual leave, workers' compensation and superannuation.
To ensure consistency with uniform reporting requirements, the liability for employee entitlements is reported on a gross basis. That is, provisions made in the financial statements of authorities and General Government are not deducted from the total liability. From 30 June 1997 to 30 June 1998, unfunded employee entitlements:
• decreased for the General Government sector by $18 million;
• increased for the PTE sector by $3 million; and
• decreased for the Total Non-Financial Public Sector by $148 million.
Interstate Comparison of Financial Assets and Liabilities Charts 12.13 and 12.14 show trends in General Government and Total State Government sector net debt as a proportion of GSP.
Chart 12.13 shows that Tasmania's General Government net debt as a proportion of GSP is relatively in line with South Australia and the Northern Territory, but significantly higher than New South Wales and Victoria, and Queensland which is a significant net lender (as opposed to borrower) in both its General Government sector and on a Total State Government basis. It is also apparent from the chart
Chapter 12: Uniform Government Reporting 275 that there has generally been a steady decrease in net debt levels as a proportion of GSP for most States and Territories, with the exception of the ACT, over the five years to 1996-97.
Chart 12.14 shows that Tasmania, on a Total State Government basis, is the State with the highest net debt burden. This stems from the State's past heavy investment in its electricity system, inadequate past returns from that system and from other PTEs, and a series of substantial deficits in the General Government sector in the 1980s. Nevertheless, despite Tasmania recording the highest level of Total State Government net debt as a proportion of GSP in the five years to 1996-97, the State's net debt ratio has continually fallen since the introduction of the first Fiscal Strategy in 1990-91.
Chart 12.13: General Government Net Debt as a percentage of GSP
25
20
15
10
5 Per cent 0
-5
-10
-15 NSW Vic Qld SA WA Tas NT ACT
1992-93 1994-95 1996-97
Sources: Public Sector Financial Assets and Liabilities, 30 June 1997, ABS Cat No 5513.0; Australian National Accounts: State Accounts, June Quarter 1997, ABS Cat No 5242.0.
276 Chapter 12: Uniform Government Reporting Chart 12.14: Total State Government Net Debt as a percentage of GSP
40
35
30
25
20
15 Per cent
10
5
0
-5 NSW Vic Qld SA WA Tas NT ACT
1992-93 1994-95 1996-97
Source: Public Sector Financial Assets and Liabilities, 30 June 1997, ABS Cat No 5513.0; Australian National Accounts: State Accounts, June Quarter 1997, ABS Cat No 5242.0.
LOAN COUNCIL
Loan Council Arrangements Loan Council arrangements provide for each State and Territory to nominate a Loan Council Allocation (LCA) based on the combined General Government and PTE sector deficit, plus certain memorandum items. Memorandum items are other financing transactions which, for Loan Council purposes, are treated as analogous to borrowings. This measure of the level of financing, therefore, focuses on the call of the public sector on national savings.
The Loan Council considers the appropriateness of LCA nominations from the perspective of consistency of the aggregate LCA with national macro-economic policy, each jurisdiction's current budgetary position and the expected medium-term outlook in cases where a States or Territories' fiscal position is of concern.
New Loan Council arrangements, which were introduced in 1993-94 and published in a 1993 report entitled Future Arrangements for Loan Council Monitoring and Reporting, use the GFE deficit or surplus as the primary element of the LCA. Since that time, revised Loan Council reporting arrangements have been introduced and published in a March 1997 report entitled Uniform Presentation Framework. These arrangments are designed to reduce the complexity and duplication involved in Loan Council reporting by facilitating a framework that will integrate the Loan Council and National Fiscal Outlook reporting arrangements into the Uniform Presentation Agreement first reached at the May 1991 Premiers' Conference.
Chapter 12: Uniform Government Reporting 277 In addition, at its meeting on 14 June 1996, the Loan Council agreed to further refine the LCA process by changing the basis on which jurisdictions report their exposure to infrastructure projects with private sector involvement. From 1996-97, the previous risk weighted estimate has been replaced by the full contingent exposure as measured by governments' termination liabilities. Furthermore, the Loan Council agreed in-principle, subject to further detailed consideration, that these exposures would in future be disclosed as a footnote to, rather than a component of, LCAs.
Loan Council Allocations Table 12.10 details Tasmania's LCA Budget time estimate and actual outcome for 1997-98. A two per cent tolerance band (calculated on total non-financial public sector revenue) applies between the budgeted LCA and the LCA outcome. This band was plus-or-minus $45.2 million in 1997-98, therefore resulting in the outcome for 1997-98 being inside the tolerance limit.
Table 12.10: Tasmanian Budgeted LCA and Actual Outcome, 1997-98 1997-981 1997-98 Budget Estimate Actual $m $m
General Government Deficit (52) (39) PTE Net Financing Requirement .... (37) Total 'LCA Deficit' (52) (76) Memo Items Local Government 16 18 Other2 6 6 Total LCA (30) (52)
Notes: 1. The 1997-98 Budget estimate is different to that previously reported due to a revision in the calculation method. 2. The $6 million in other memo items was for new borrowings undertaken by the Home Ownership Assistance Program.
The LCAs nominated for 1998-99 are listed in Table 12.11. Loan Council considered that the aggregate of 1998-99 LCA nominations is consistent with current marcoeconomic policy objectives and endorsed each jurisdiction's nomination without change. The agreed nominations were announced by the Commonwealth Treasurer on 7 May 1998.
Table 12.11: Approved LCAs for 1998-99 NSW Vic Qld WA SA Tas NT ACT C/W $m $m $m $m $m $m $m $m $m
Nominated LCA (1 478) (9) (867) (37) (279) 17 24 164 (6 918)
278 Chapter 12: Uniform Government Reporting The result from combining the General Government, PTE and Local Government components is a LCA of $16.7 million in 1998-99.
As the State's nominated LCA of $16.7 million is less than two per cent of its total revenue, it cannot be subject to downward adjustment by Loan Council under the agreed arrangements. Tasmania's 1998-99 LCA nomination took into consideration that the total Net Financing Requirement of the PTE sector is forecast to increase from $1.3 million in 1997-98 to $27.7 million in 1998-99. The PTE Net Financing Requirement for 1998-99 has been affected substantially by an increase of $31.6 million in the HEC's repayment of Financial Agreement debt and an increase of $4.6 million in the capital program of the Hobart Ports Corporation. It should be noted that the General Government Deficit and PTE Net Financing Requirement included in the LCA nomination have been affected by the repayment of debt by PTEs to the General Government sector, which under current LCA conventions are treated as outlays by the PTE sector and income by the General Government sector. Without the distorting impact of this transaction, the General Government sector's apparent surplus of $33 million is actually a deficit of $32 million.
Table 12.12 compares the budgeted LCA for 1998-99 with the LCA approved by the Loan Council in March 1998. A two per cent tolerance limit also applies between the LCA approved by the Loan Council and the budgeted LCA. In Tasmania's case, the tolerance limit applicable to Tasmania's nominated LCA for 1998-99 is $74 million.
Table 12.12 shows that Tasmania's budgeted LCA for 1998-99 is within its tolerance limit.
Table 12.12: Comparison of Budgeted Outcome and Loan Council Allocation, 1998-99 1998-99 1998-99 Loan Council Budget Allocation Estimate $m $m
General Government Deficit1 (33) (88) PTE Net Financing Requirement2 28 42 Total 'LCA Deficit' (5) (46) Memo Items Local Government 22 16 Other ...... Total LCA 17 (30)
Notes: 1. For 1998-99 Budget estimate, advances paid are added back to the General Government surplus of $2 million reported in Table 12.1 to produce an unadjusted surplus of $88 million in accordance with LCA conventions. 2. The PTE NFR is reported instead of the deficit to enable the PTE and General Government results to be additive. The 'LCA Deficit' is therefore not the same as the consolidated Total Non-Financial Public Sector deficit appearing in Table 12.3.
Chapter 12: Uniform Government Reporting 279 APPENDIX
Classification Basis of Government Financial Estimates (GFEs) The GFEs are prepared on the basis of concepts and classifications used by the ABS in the preparation of public finance statistics. These, in turn, are based on international standards set out in the International Monetary Fund's A Manual of Government Finance Statistics and the United Nations' A System of National Accounts.
The transaction classifications used in the preparation of the GFEs are:
• the Economic Transactions Framework, which categorises outlays, revenue, grants received and financing transactions according to their effect on to rest of the economy;
• the Government Purpose Classification, which groups outlays on similar functions; and
• the Taxes Classification, which gives detailed dissection of these revenue sources.
Given that the State Budget classifies transactions according to Ministerial portfolio, Output, recurrent services, and works and services accounts, the GFEs presented in Chapter 12 are not directly comparable with estimates presented elsewhere in the Budget documents, but are nonetheless fully consistent with Budget estimates.
Agencies are classified in the GFEs into either the General Government, Public Trading Enterprise (PTE) or Public Financial Enterprise (PFE) sectors. General Government agencies are departments, bodies or offices that provide services free of charge or at prices substantially below their cost of production. PTEs, on the other hand, aim to cover the bulk of their expenses by revenues from the sales of goods and services. The PFE sector comprises those entities that perform central bank functions, or have the authority to incur financial liabilities and acquire financial assets in the market on their own account.
Given that the classification of agencies in the GFEs differs from the classification of agencies for Budget purposes, Table 12.13 compares the classification and coverage of agencies for GFE and FALs purposes with that used for the Budget.
The GFEs provide a comprehensive record of State Government financial transactions. Other information presented elsewhere in this and other Budget documents provides only partial information on particular aspects of the State's finances. The GFEs cover transactions made by the Tasmanian Public Finance Corporation (Tascorp) and other statutory authorities. The GFEs also cover payments to some authorities, such as the University of Tasmania, which do not impact in any way on the State Budget.
280 Chapter 12: Uniform Government Reporting As GFEs are based on common concepts and classifications, they can be compared across State and Territory Governments. In doing so, however, care must be exercised as the varying structures of government administrations and functions may cause groups of transactions that serve similar functions in various jurisdictions to be classified differently.
Financial Assets and Liabilities (FALs) As with GFEs, FALs statistics cover the public sector incorporating the General Government, Public Trading Enterprises and Public Financial Enterprise sectors.
The information presented on FALs in Chapter 12 is not comparable to data published elsewhere in this and other Budget documents for the following reasons:
• the classification and coverage of agencies and authorities differ between Budget chapters;
• the valuation basis adopted for FALs is historic capital value whilst the other chapters employ face value as the measurement basis. Historic capital value measures financial assets and liabilities at the present value of the cash flows associated with their service and eventual repayment, using the interest rate implicit in the original contract as the discount rate;
• the FALs statements include a broader range of liabilities and financing activities, other than borrowings and Commonwealth advances as reported in the other chapters; and
• information on financial assets is incorporated into the FALs statements.
The concepts and definitions used are consistent with those employed by the ABS. The major items used are defined below.
Gross Debt For the purposes of Chapter 12, Gross Debt is calculated as the total of the Deposits Held, Advances Received and Borrowings categories. Gross Debt includes, inter alia, obligations arising from advances from the Commonwealth, securities on issue, financial leases (excluding operating leases), bank overdrafts and unpresented cheques, monies held in trust, repayable amounts held as deposits and inscribed stock.
Net Debt Net Debt is the difference between Gross Debt as defined above and the liquid financial assets comprising the total of the Cash and Deposits, Advances Paid and Investments categories.
Consolidation of Transactions The GFEs and FALs present a consolidated view of the financial transactions, assets and liabilities of the State Government as a whole, and of the component General Government, PTE and PFE sectors. This enables the overall impact of State Government activity and its two component sectors of the Tasmanian economy to be illustrated. The Non-Financial Public sector is the consolidated total of the General Government and PTE sectors.
Chapter 12: Uniform Government Reporting 281 To compile statistics about the financial activities of the whole State Government, or its component sectors, the receipts and payments for certain types of transactions, or holdings of financial assets and liabilities, between units within the chosen grouping have to be matched and eliminated to avoid double counting. This process is known as consolidation.
For instance, in the case of GFEs, transactions between the Department of Treasury and Finance and the Department of Environment and Land Management are netted out as both agencies are classified as General Government. Transactions between the Department of Treasury and Finance and the HEC are not netted out in the General Government and PTE tables as the former agency is classified as General Government while the latter is a PTE. However, such transactions are netted out for the purposes of the whole of State Government tables.
In the case of FALs, special purpose advances that the State has received from the Commonwealth and on-lent to authorities, and transactions with the Central Borrowing Authority (Tascorp) are identified and netted out.
282 Chapter 12: Uniform Government Reporting Table 12.13: Classification of Public Sector Entities Administrative Institutional Name Sector Sector
Health and Human Services excluding Housing Division Budget General Government Education Budget General Government Primary Industries, Water and Environment Budget General Government Office of the Governor Budget General Government House of Assembly Budget General Government Justice and Industrial Relations Budget General Government Legislative Council Budget General Government Legislature-General Budget General Government Police Budget General Government Premier and Cabinet Budget General Government State Development Budget General Government Tasmanian Audit Office Budget General Government Infrastructure, Energy and Resources Budget General Government Treasury and Finance Budget General Government Housing Division (other than HOAP) Budget PTE HOAP Non-budget PFE Civil Construction Services Corporation Non-budget General Government Inland Fisheries Commission Non-budget General Government Marine and Safety Tasmania Non-budget General Government Royal Tasmanian Botanical Gardens Non-budget General Government State Fire Commission Non-budget General Government Tasmanian Racing Authority Non-budget General Government Tasmanian Public Finance Corporation Non-budget PFE Motor Acccidents Insurance Board Non-budget PFE Burnie Port Corporation Pty Ltd Non-budget PTE Egg Marketing Board Non-budget PTE Hydro-Electric Corporation Non-budget PTE Aurora Energy Pty Ltd Non-budget PTE Transend Networks Pty Ltd Non-budget PTE HEC Enterprises Corporation Non-budget PTE
Chapter 12: Uniform Government Reporting 283 Table 12.13: Classification of Public Sector Entities (continued) Administrative Institutional Name Sector Sector
Forestry Tasmania Non-budget PTE Flinders Island Port Company Pty Ltd Non-budget PTE Hobart Ports Corporation Pty Ltd Non-budget PTE King Island Ports Corporation Non-budget PTE Metro Tasmania Pty Ltd Non-budget PTE North West Regional Water Authority Non-budget PTE Port Arthur Historic Site Management Authority Non-budget PTE Port of Devonport Corporation Pty Ltd Non-budget PTE Port of Launceston Pty Ltd Non-budget PTE Printing Authority of Tasmania Non-budget PTE Private Forests Tasmania Budget PTE Rivers and Water Supply Commission Non-budget PTE Southern Regional Cemetery Trust Non-budget PTE Stanley Cool Stores Board Non-budget PTE Tasmanian Dairy Industry Authority Non-budget PTE Tasmanian Grain Elevators Board Non-budget PTE Tasmanian International Velodrome Management Authority Non-budget PTE The Public Trustee Non-budget PTE Totalizator Agency Board Non-budget PTE TT Line Company Pty Ltd Non-budget PTE
284 Chapter 12: Uniform Government Reporting 13 GOVERNMENT BUSINESSES AND AUTHORITIES
Features
Combined, the government businesses employ approximately 4 600 people, have net assets of $4.4 billion and annual operating revenues of approximately $2.0 billion.
In 1998-99, government businesses are expected to contribute $126.35 million to the Government as shareholder/owner, an increase of 31.1 per cent over returns in 1997-98.
The Hydro-Electric Corporation (HEC) was restructured into three separate businesses. Transend Networks Pty Ltd (Transend) and Aurora Energy Pty Ltd (Aurora) were established as separate State-owned companies under the Electricity Companies Act 1997. Transend (transmission) and Aurora (distribution and retail) commenced business on 1 July 1998.
The HEC will retain control of the generation assets and will continue as a Government Business Enterprise (GBE) under the Government Business Enterprises Act 1995.
Legislation was passed by Parliament in December 1997 to establish Metro Tasmania Pty Ltd as a State-owned company under the Corporations Law.
The four major ports were incorporated as State-owned companies under the Corporations Law on 30 July 1997, following the proclamation of the Port Companies Act 1997.
Legislation enabling the north west bulk water supply scheme to be transferred to Local Government was passed by Parliament in December 1997. The transfer will be progressed during 1998-99.
Forestry Tasmania is progressing the establishment of a joint venture with the private sector to expand the State’s softwood forest resource.
Chapter 13: Government Businesses and Authorities 285 INTRODUCTION
This chapter provides summary information on the State's government businesses which comprise Government Business Enterprises (GBEs) and wholly State-owned companies (SOCs). The chapter also reports on certain statutory authorities. In addition, the chapter reports on past reforms and those proposed for government businesses or associated industries. In particular, information is provided in relation to:
• the level of financial returns paid by government businesses;
• the State and Commonwealth reform environment;
• major industry reforms involving government businesses; and
• profiles of State-owned companies, Government Business Enterprises and statutory authorities.
The performance of government businesses has a significant influence on the activities and competitiveness of private sector businesses within the State. Tasmania's government businesses are becoming more efficient and this is reflected not only in the increased financial returns to Government, but in improved services.
Full details on the operations and performance of each GBE, SOC and statutory authority will be available in their respective annual reports, which are required to by tabled in Parliament by 30 November 1998.
PERFORMANCE OF GOVERNMENT BUSINESSES
In 1997-98, financial returns to the State from government businesses totalled $96.4 million. The total return in 1998-99 is estimated to be $126.35 million, an increase of 31.1 per cent over the previous year. Chart 13.1 shows the trend of increasing financial returns from government businesses, in relation to guarantee fees, tax equivalents and dividends, for the past three financial years and the estimate for 1998-99. Guarantee fees have shown a steady reduction since 1994-95, reflecting a reduction in debt held by GBEs, particularly the Hydro-Electric Corporation, and the application of lower guarantee fee rates in a lower interest rate environment. A breakdown of estimated financial returns from individual government businesses during 1998-99 is shown in Table 4.4 in Chapter 4 of this Budget Paper.
286 Chapter 13: Government Businesses and Authorities Chart 13.1: Financial Returns from Government Businesses
140
120
100
80
60 $ million
40
20
0 Guarantee Fees Dividends Tax Equivalents Total
1995-96 1996-97 1997-98 1998-99 (est)
In April 1998, the Productivity Commission published data in relation to GBE performance for the period 1992-93 to 1996-97. The nine Tasmanian government businesses featured in the report cover the following sectors:
• electricity;
• water, sewerage, drainage and irrigation;
• urban transport; and
• port services.
Further information on the comparative performance industry by industry is available in the Productivity Commission’s Report on the Performance of Government Trading Enterprises 1991-92 to 1996-97 published in October 1998.
MAJOR DEVELOPMENTS
During 1997-98, the program of micro economic reform within the inner and outer Budget sectors, driven by both State and national reform imperatives, continued.
This section discusses the major developments, initiated or completed, during 1997-98 relating to government businesses at the State and Commonwealth Government and industry levels.
Chapter 13: Government Businesses and Authorities 287 STATE REFORMS
GBE Act Initiatives The Government Business Enterprises Act 1995 (GBE Act) was introduced in 1995 to place the State's major businesses on a more commercial footing. The GBE Act meets the corporatisation objectives explained in Chapter 12 of the 1997-98 Budget Paper No 1 and has enabled continued improvement in the efficiency and effectiveness of the State's GBEs.
The major initiative achieved under the GBE Act during 1997-98 was the extension of the tax equivalent, guarantee fee and dividend regimes to six GBEs previously exempt under the GBE Act. The Government Business Enterprises (Amendment of Act's Schedules) Order 1997 took effect on 1 July 1997. The only GBE not currently subject to the tax equivalent, guarantee fee and dividend regimes is the Port Arthur Historic Site Management Authority.
During 1997-98, the Board of each GBE revised its corporate plan, which sets out the planning strategies and performance targets for the GBE.
The Department of Treasury and Finance continued to monitor the quarterly financial performance of GBEs against planned performance targets set by the GBEs. To enhance public accountability, the published annual reports of GBEs include a Statement of Corporate Intent which details any proposed major changes in corporate strategy or objectives.
Community Service Obligations The GBE Act provides for the identification, costing, funding and determination of delivery arrangements of Community Service Obligations (CSOs) undertaken by GBEs on behalf of Government. The implementation of these arrangements is integral to the enhanced performance and accountability of GBEs.
Two papers, Community Service Obligations Policy for Government Business Enterprises and Guidelines: Community Service Obligations, were released in July 1996. As well as detailing the CSO implementation framework, the policy framework also provides for the cessation of non-commercial activities by a GBE where these no longer reflect Government policy.
CSOs declared, to date, include:
• the $160 per annum tariff concession provided by the HEC to eligible pensioners and the provision of electricity subsidies to the Bass Strait Islands. The full year cost of providing these CSOs was estimated to be $14.17 million in 1997-98, which was met through acceptance of a lower rate of return on equity from the HEC. This cost will be funded directly from the Consolidated Fund in 1998-99. Under the new structural arrangements for the electricity supply industry in Tasmania, a contract for the provision of electricity subsidies to the Bass Strait Islands will be established during 1998-99 with the HEC and a separate contract for the provision of pensioner concessions will be established with Aurora Energy Pty Ltd. As CSOs have a specific meaning under the GBE Act, the non-commercial services provided by Aurora Energy will be called Community Service Activities;
288 Chapter 13: Government Businesses and Authorities • the administration of very low value estates and minor trusts by The Public Trustee. A contract for the delivery of these CSOs was signed in November 1997. Funding the cost of providing these CSOs directly from the Consolidated Fund will be phased in over two years, with $150 000 having been provided in 1997-98 and $300 000 to be provided in both 1998-99 and 1999-00; and
fare concessions and service levels provided by Metro. Prior to the incorporation of Metro as a State-owned company, there was a substantial CSO component in the public urban transport service provided by Metro. This arose from Metro being limited as to the level of the full and concession fares that Metro can charge and a requirement to provide a level of service in excess of that which would be provided by a commercial operator. Section 9 of the Metro Tasmania (Transitional and Consequential Provisions) Act 1997 provides for the continuation of the CSO contract that was signed in November 1997, prior to Metro’s incorporation. The estimated cost of providing Metro CSOs in 1998-99 is $18.3 million. This is being funded in full directly from the Consolidated Fund.
The Motor Accidents Insurance Board's (MAIB's) application for recognition and declaration of its non-commercial activities as CSOs was deferred pending a review by the Government Prices Oversight Commission (GPOC) in 1997-98. GPOC's report was finalised in August 1997. Following receipt of this report, pensioner discounts provided by the MAIB were not recognised as CSOs under the GBE Act. Additionally, the sale of Rehabilitation Tasmania Pty Ltd to the Medical Benefits Fund of Australia on 3 April 1998 removed the Board's obligation to support the Company and the associated CSO issue. The only outstanding matter relates to the funding of the Government's Brain Injury Program. This matter will be addressed during 1998-99.
Rationalisation of State and Local Government Business Activities During 1997-98, the program to achieve a rationalisation of business activities between State and Local Government was progressed. While the future of each activity must be determined individually, it is clear that there are significant efficiencies to be gained by conducting activities within the most appropriate tier of government. This has been clearly demonstrated by the benefits achieved through the combination of ownership and control of bulk water supply operations within Local Government in the north and south of the State. Legislation to rationalise the distribution and sale of bulk water in the north west was passed by Parliament in December 1997. The transfer of the North West Regional Water Authority to Local Government is expected to occur during 1998-99.
NATIONAL REFORMS
The Tasmanian micro economic reform agenda is being largely driven by National Competition Policy (NCP) reforms (including legislative and government business reforms) and reforms to public sector activity.
The Commonwealth has agreed to provide financial assistance to the States and Territories, subject to the implementation of NCP and related reforms within specified time frames. Successful implementation of the NCP Agreements will see the State receive additional financial assistance grants from the Commonwealth of almost $19 million in 1998-99, rising to approximately $70 million per
Chapter 13: Government Businesses and Authorities 289 annum (in 1998-99 dollar terms) by the year 2005-06. The State has already received competition payments worth $12 million in 1997-98. Further information in relation to National Competition Payments is provided in Table 10.2 of Chapter 10 of this Budget Paper. For a full discussion of progress with NCP implementation in Tasmania, refer to the paper National Competition Policy Progress Report: November 1998, which has been released with the 1998-99 Budget Papers.
The areas of NCP which have the most direct impact upon government businesses are the competitive neutrality principles, and the associated complaints procedures, legislation review, structural reform of public monopolies and monopoly prices oversight.
Implementing the Competitive Neutrality Principles In July 1996, the Application of Competitive Neutrality Principles under National Competition Policy (the Application Statement) was released. The Application Statement addresses, in part, the application to significant Government businesses of the competitive neutrality principles stated within the Agreements and formed the basis of a number of reforms initiated during 1997-98.
The competitive neutrality principles (CNP) require government businesses to operate without any net competitive advantage simply as a result of their public ownership, thus promoting resource use efficiency in government business activities. CNP requires the removal of any advantages to significant government business activities, through exemption from such items as taxation, guarantee fee or dividend regimes. It also requires the removal of any disadvantage that might result from public ownership.
The Government Business Enterprises (Amendment of Act's Schedules) Order 1997, which took effect on 1 July 1997, extended the tax equivalent, guarantee fee and dividend regimes to six GBEs which were not previously subject to these regimes. The six GBEs are:
Egg Marketing Board;
North West Regional Water Authority;
Rivers and Water Supply Commission;
Southern Regional Cemetery Trust;
Tasmanian Dairy Industry Authority; and
Tasmanian International Velodrome Management Authority.
In addition, from 30 July 1997 (the date the ports legislative package commenced), the GBE Act tax equivalent and guarantee fee regimes replaced the partial competitive neutrality regimes which previously applied to the port authorities. The port companies are also expected to make dividend payments to the shareholder/owner (Government) in accordance with the requirements of the Corporations Law.
290 Chapter 13: Government Businesses and Authorities Competitive Neutrality Principles Complaints Mechanism Under NCP, the Tasmanian Government is required to develop a Competitive Neutrality Principles Complaints Mechanism to handle complaints of unfair competition by public sector businesses. The Government Prices Oversight Commission (GPOC) will be responsible for the administration of the Complaints Mechanism. The Complaints Mechanism framework will be embodied in Regulations. The Regulations will set out the operational procedures for handling competitive neutrality complaints and other details.
The Application of the Competitive Neutrality Principles under National Competition Policy, issued in July 1996 states that GPOC, given its responsibility for the administration of the Complaints Mechanism, will:
only consider complaints by a person adversely affected by the failure of an applicable entity to comply with the competitive neutrality principles and associated implementation guidelines; and
only formally consider complaints after the applicable entity against which the complaint is made has had the opportunity to review its actions.
To assist agencies, government businesses and a complainant in understanding their requirements and obligations in regard to the Complaints Mechanism, GPOC will issue National Competition Policy - Competitive Neutrality Principles Complaints Mechanism - Statement of Processes guidelines in 1998-99.
Prices Oversight of Monopoly GBEs The NCP requires prices oversight of monopoly government businesses with significant monopoly power. GPOC was established on 1 January 1996 to investigate and report on the pricing policies of both GBEs and government agencies that are monopoly, or near monopoly, suppliers of goods and services. During 1997-98 the role of GPOC was extended to enable it to investigate and report on the pricing policies of other statutory authorities, local government bodies and State-owned companies.
During 1997-98, GPOC completed a review of the Motor Accidents Insurance Board (MAIB) in August 1997 and commenced an investigation of the pricing arrangements for the three regional bulk water authorities. In addition, GPOC commenced an electricity pricing investigation in April 1998. Responsibility for the investigation into electricity pricing was subsequently transferred to the Office of the Tasmanian Electricity Regulator (OTTER) from 1 July 1998.
In relation to the MAIB, GPOC found that the MAIB scheme in Tasmania offers the most comprehensive personal injury motor accident insurance of any Australian jurisdiction. The MAIB’s premiums are, in general, the second lowest in Australia. GPOC's recommendations of maximum premiums were based on the insurance risk of each class of vehicle and preserved the comparatively low charges for most motorists. GPOC was also asked to consider the desirability of changing the benefits available under the MAIB scheme to be more consistent with those of other jurisdictions. The recommendations were designed to improve the equity of the scheme and ensure it remains fair and equitable for all motorists. Details of the recommendations made by GPOC are set out in the Motor Accidents Insurance Board Premiums Investigation Final Report 1997.
Chapter 13: Government Businesses and Authorities 291 Following consideration of the GPOC report on the MAIB's premiums, a Premiums Order was issued in December 1997 setting maximum prices for each of four classes of vehicles for a period of three years.
In January 1998, GPOC was requested to undertake an investigation into the pricing policies of the three bulk water authorities: Hobart Regional Water Authority; the North West Regional Water Authority; and the Esk Water Authority. As part of the investigation, GPOC released a Pricing Principles Paper for comment on 31 August 1998. The Principles, when finalised, will provide the framework for the development of maximum prices for each water authority. The date for completion of this investigation is 30 November 1998.
INDUSTRY REFORMS
This part summarises the status of reforms in the following areas:
• electricity supply;
• bulk water supply;
• softwood plantations;
• port services;
• urban public transport; and
• racing and totalizator betting.
Electricity Supply Industry (ESI) Fundamental changes to Tasmania's electricity supply industry have been made during the last 18 months. The key elements include:
the disaggregation of the HEC into three separate businesses; and
a significant enhancement of the regulatory framework for the industry.
The ESI nationally has also undergone substantial reform. The National Electricity Market (NEM) is scheduled to commence in November 1998, facilitating open interstate trade in electricity for the south east of Australia. While Tasmania is not a participant in the NEM, the State has been an active participant in the NEM reform process.
Disaggregation of the HEC Following the establishment of two new companies under the Electricity Companies Act 1997, the HEC was disaggregated into three separate, State-owned businesses. Disaggregation will improve the corporate focus of the different businesses that were within the integrated HEC and will provide a structural framework to support the eventual introduction of competitive arrangements in the wholesale and retail sectors of the industry.
292 Chapter 13: Government Businesses and Authorities From 1 July 1998, Tasmania's electricity supply industry comprises:
the HEC, which remains a GBE and is responsible for electricity generation and system control. The HEC has no retail customers, except on King Island and Flinders Island;
Transend Networks Pty Ltd (Transend), a new company which operates under Corporations Law and transmits electricity through the extra high voltage transmission network. Transend is essentially an asset management business and does not trade in electricity; and
Aurora Energy Pty Ltd (Aurora), a new company which also operates under Corporations Law and is responsible for both electricity distribution through the lower voltage networks and for retailing electricity. Currently, Aurora is the monopoly retailer in Tasmania and purchases all its electricity from Transend and the HEC.
A set of contractual arrangements has been established between these three businesses to cover a range of issues, including energy supply, network and connection arrangements.
The Regulatory Regime Accompanying the changes in market structure, the regulatory framework within which the industry operates has been significantly enhanced. The Tasmanian Electricity Code (TEC) has been developed and is in force. The TEC is largely based on the provisions of the National Electricity Code and contains the detailed regulatory arrangements for the Tasmanian ESI (including pricing and network access arrangements). Electricity entities will be required to abide by the Code as part of their licence conditions.
The centrepiece of the regulatory regime, the Electricity Supply Industry Act 1995 (ESI Act), has been amended to provide for the establishment of a fully independent Regulator with responsibilities for both general industry regulation (including entity licensing) as well as determining maximum prices for electricity services where:
an electricity entity has substantial market power in respect of the service; and
the promotion of competition, efficiency or the interests of consumers of the electrical service requires such regulation.
The Regulator is currently conducting a price investigation of electricity generation, transmission, distribution and retailing, with a view to setting maximum prices for the period 2000-03. The current maximum prices Order, prepared following the 1996 Government Prices Oversight Commission review into electricity prices, will continue to apply until December 1999.
The procedural framework that the Regulator must follow in conducting price investigations is contained in the Electricity Supply Industry (Price Control) Regulations 1998. These arrangements are largely based on the framework previously established by the Government Prices Oversight Act 1995.
Prior to the introduction of retail competition, consumers do not have the option to select a retailer of choice. However, to ensure customer protection following the introduction of competition into the marketplace, the Electricity Supply Industry (Tariff Customers) Regulations 1998 set a minimum level of protection for consumers in dealings between electricity suppliers. In addition, an Electricity Ombudsman has been established under the Electricity Ombudsman Act 1998. The Ombudsman has the power to receive, investigate and resolve complaints by consumers against electricity businesses.
Chapter 13: Government Businesses and Authorities 293 Bulk Water Supply The transfer of ownership and control of the southern and northern regional bulk water suppliers to Local Government was completed on 1 January 1997 and 1 June 1997 respectively.
Negotiations with representatives from the North West Regional Water Authority and the relevant Local Government councils to finalise arrangements for the transfer of ownership to a joint management authority were undertaken during the first half of 1997-98. Legislation was passed by Parliament in December 1997 providing for this transfer, but the legislation has not yet been proclaimed and the transfer has not yet taken place. The transfer of the Authority is expected to occur during 1998-99.
Softwood Plantations Forestry Tasmania proposes to increase the scale of its softwood plantation resource by developing two softwood supply nodes of world competitive scale to be located in the north east and north west of the State. This is to be achieved by Forestry Tasmania joint venturing its softwood plantation resource. Such an arrangement will enable the introduction of new sources of capital and plantation management expertise, as well as improving access to world markets.
To progress this initiative, Forestry Tasmania established a Softwood Forests Joint Venture Steering Committee to advise on issues associated with the joint venture proposal. Expressions of interest were issued to the market in early 1998. Proponents were required to submit business plans by early August 1998. It is expected that a decision will be made on the preferred proponent and the agreement establishing the joint venture will be finalised by December 1998. It is anticipated that negotiations will be complete by the end of 1998.
Under the joint venture proposal, the State will continue to own the plantation land, but Forestry Tasmania would sell 50 per cent of its current softwood plantation business to the joint venture investor. Forestry Tasmania would provide forest management services for the joint venture in accordance with a services agreement.
Other Industry Reforms Port Services Competitive transport costs for trade utilising Tasmania's ports is vital to Tasmania's overall prosperity. Corporatisation of the port authorities, with a view to improving their commercial performance, was completed in July 1997 with the commencement of the Port Companies Act 1997. The Port Companies Act established four wholly State-owned companies and two subsidiary companies under the Corporations Law. The new Port Corporations commenced operations on 30 July 1997.
In addition, from 30 July 1997 (the date the ports legislative package commenced), the GBE Act tax equivalent and guarantee fee regimes replaced the partial competitive neutrality regimes which previously applied to the port authorities. The port companies are also expected to make dividend payments to the shareholder/owner (Government) in accordance with the requirements of the Corporations Law.
294 Chapter 13: Government Businesses and Authorities The Marine and Safety Authority was also established on 30 July 1997. The Marine and Safety Authority, in addition to performing the regulatory and non-commercial functions previously undertaken by the port authorities, undertakes the functions of the former Navigation and Survey Authority of Tasmania and is responsible for the safe operation of vessels within Tasmanian waters.
Public Urban Transport Metro was established as a State-owned company under the Corporations Law, in place of the former GBE structure, to provide more flexibility and provide an organisational structure equivalent to private sector urban transport operators. The legislation establishing Metro as a State-owned company received Royal Assent in January 1998 and Metro Tasmania Pty Ltd commenced operations in February 1998.
The Racing Industry and Totalizator Operations As a result of a review of the Tasmanian racing industry by KPMG Management Consulting, a new body, Racing Tasmania, was established to administer the industry. Revised funding arrangements for the industry, which are estimated to inject a further $1.1 million to $1.2 million into the industry each year, were also implemented, effective from 1 July 1998. This additional funding will come from a reduction in the Government's share of the Totalizator Agency Board (TAB) commission on all bet types, from an average of 4.2 per cent to a rate of 3.75 per cent. The difference is passed back to Racing Tasmania for the benefit of the industry.
In addition, the new Government has provided $1.5 million in 1998-99 towards the stakes for thoroughbred, harness and greyhound racing. The additional contribution will be provided to maintain the level of the programs and stake levels from the previous years in each of the codes.
In order to increase the extent of consultation and interaction between the industry and the TAB, the Chairman of Racing Tasmania has been appointed to the Board of the TAB. The TAB and Racing Tasmania will also establish a formal reporting and consultation mechanism between the two bodies.
PROFILES OF MAJOR GOVERNMENT BUSINESSES
The Government owns a diverse portfolio of businesses, ranging in size from the HEC to Private Forests Tasmania. These businesses represent a substantial proportion of the State Government sector and many undertake a major role in the Tasmanian economy.
Combined, the government businesses employ approximately 4 600 people, have net assets of $4.4 billion and annual operating revenues of approximately $2.0 billion. Table 13.1 lists the State's GBEs, State-owned companies and certain statutory authorities.
The following section profiles Tasmanian State-owned companies, GBEs and certain non-commercial statutory authorities. Background information describing the function and future direction of each entity is provided.
Detailed financial and operational information about each government business, and its future direction, is available in the annual report of each government business. These reports are required to be tabled in Parliament by 30 November each year.
Chapter 13: Government Businesses and Authorities 295 Table 13.1: State-owned companies, Government Business Enterprises and selected statutory authorities as at 1 July 1998 Government Business
Aurora Energy Pty Ltd1 State-owned Company Burnie Port Corporation Pty Ltd State-owned Company Metro Tasmania Pty Ltd2 State-owned Company Hobart Ports Corporation Pty Ltd State-owned Company Port of Devonport Corporation Pty Ltd State-owned Company Port of Launceston Corporation Pty Ltd State-owned Company Transend Networks Pty Ltd1 State-owned Company TT Line Company Pty Ltd State-owned Company
Civil Construction Corporation Government Business Enterprise Egg Marketing Board Government Business Enterprise Forestry Tasmania Government Business Enterprise Hydro-Electric Corporation Government Business Enterprise Motor Accidents Insurance Board Government Business Enterprise North West Regional Water Authority Government Business Enterprise Port Arthur Historic Site Management Authority Government Business Enterprise Printing Authority of Tasmania Government Business Enterprise Rivers and Water Supply Commission Government Business Enterprise Southern Regional Cemetery Trust Government Business Enterprise Stanley Cool Stores Board Government Business Enterprise Tasmanian Dairy Industry Authority Government Business Enterprise Tasmanian Grain Elevators Board Government Business Enterprise Tasmanian International Velodrome Management Authority Government Business Enterprise Tasmanian Public Finance Corporation Government Business Enterprise The Public Trustee Government Business Enterprise Totalizator Agency Board Government Business Enterprise Private Forests Tasmania Statutory Authority Retirement Benefits Fund Board Statutory Authority State Fire Commission Statutory Authority Tasmanian Racing Authority Statutory Authority TAFE Tasmania Statutory Authority
Notes: 1. It should be noted that Aurora Energy Pty Ltd and Transend Networks Pty Ltd are included for the first time in 1998-99. 2. Metro Tasmania Pty Ltd (Metro) is included as a State-owned company for the first time in 1998-99. Prior to February 1998, Metro was a GBE under the Government Business Enterprises Act 1995.
296 Chapter 13: Government Businesses and Authorities STATE-OWNED COMPANIES
Aurora Energy Pty Ltd The HEC was restructured as from 1 July 1998 with the formation of two State-owned companies, Aurora Energy Pty Ltd and Transend Networks Pty Ltd. The HEC remains a GBE, with responsibility for the generation assets and systems control. Aurora commenced business on 1 July 1998.
The functions of Aurora are to distribute and retail electricity in Tasmania and to undertake any other activity, other than the generation of electricity, related to, or associated with, the distribution or retailing of electricity.
Aurora's primary objective is to be a highly regarded and commercially successful distribution network owner and energy retailer, with expanding customer and market bases.
In 1998-99, $7.3 million will be funded directly from the Consolidated Fund for the cost of providing pensioner discounts as a Community Service Activity.
The key factors affecting the operating environment of Aurora are:
the regulatory environment in which Aurora is required to operate, with maximum prices set by the Regulator; and
the current business environment in Tasmania.
The key business directions for Aurora for 1998-99 are:
increased focus on customer service;
improved productivity; and
improved asset management and capital investment program.
To achieve the business objectives, the key initiatives will include:
implementation of a customer charter;
improved processes and systems;
competitive pricing and strong brand positioning; and
appropriate works and asset management programs.
Burnie Port Corporation Pty Ltd The Burnie Port Corporation Pty Ltd (BPC), formerly the Burnie Port Authority, is responsible for the planning, development and operation of the seaport at Burnie and the Burnie Airport.
The BPC will continue to develop and maintain the seaport and airport infrastructure. It will deliver essential services which are not provided by other parties and will, wherever considered appropriate, compete with other service providers within the port.
The key factors affecting the operating environment of the BPC are State, national and international economic activity.
Chapter 13: Government Businesses and Authorities 297 Hobart Ports Corporation Pty Ltd The primary function of the Hobart Ports Corporation Pty Ltd (HPC) is to manage overall port operations covering the movement of vessels and the provision of cargo-handling facilities. Diversification into, principally, port-related property has occurred in more recent years to obtain improved returns from assets not fully utilised for shipping activities. The HPC also holds a 49 per cent shareholding in Hobart International Airport Pty Ltd. The King Island Ports Corporation Pty Ltd is a wholly owned subsidiary of the HPC.
The vision of the HPC is to be a globally competitive provider of integrated trade and transport services for Tasmania. The new structure will enable it to compete effectively and efficiently in a competitive environment for the benefit of Tasmania.
The key factors affecting the operating environment of the HPC are:
the Asian economic slump; and
the level of activity in the Hobart property market.
The key business directions for the HPC for 1998-99 are:
consolidation of core activities to improve profitability; and
development of cargo and stevedoring services.
Metro Tasmania Pty Ltd Metro was established under the Metro Tasmania Act 1997 as a State-owned company, which provides a public urban road transport service in the metropolitan areas of Hobart, Launceston and Burnie.
In 1998-99, Metro's contract with the Government for the provision of CSOs will amount to $18.3 million.
The key factors affecting the operating environment of Metro are:
the level of economic activity, which impacts on Metro's patronage and fares revenue; and
proposed competition for transport services after 30 January 2001.
Metro's strategic directions for the next three years are to focus on meeting its commercial obligations to the Government and its customers by:
making services more cost-competitive and reducing operating costs in real terms; and
structuring Metro's financial, operational and customer activities so as to successfully meet future competition for passenger transport services post 30 January 2001.
Metro is also required to have regard to the Government's obligations under the Council of Australian Governments agreements on future policies, procedures and practices concerning the transport industry.
The key business directions for Metro for 1998-99 are to:
implement measures to halt the decline of patronage by providing services more tailored to the public's needs, including the extension of community service bus, hail and ride and dial-a-bus concepts;
298 Chapter 13: Government Businesses and Authorities reduce operating costs by introducing changes to work practices and through enterprise bargaining agreements that improve efficiency and productivity; and
increase revenue from non-core activities including advertising and the development and promotion of specialist services for the aged and tourism groups.
Port of Devonport Corporation Pty Ltd The Port of Devonport Corporation Pty Ltd (PDC) owns and operates the sea and air ports at Devonport.
The PDC's mission is to provide, maintain and manage port and airport facilities and services in accordance with sound commercial practice so as to facilitate the efficient, reliable and safe movement of ships, aircraft, cargo and passengers through the port and airport for the benefit of the region and the State.
The key factors affecting the operating environment of the PDC are:
regional, national and international economic conditions and trade opportunities;
the competitive nature of the Tasmanian ports system; and
the finalisation of the corporatisation process.
The key business directions for the PDC for 1998-99 are to:
build on the existing cargo mix and to diversify these cargoes; and
provide improved facilities and services.
Port of Launceston Pty Ltd The Port of Launceston Pty Ltd (POL) was incorporated on 30 July 1997. A wholly owned subsidiary, the Flinders Island Ports Corporation Pty Ltd, was also established at this time.
The POL provides, maintains, operates and manages port facilities and services in the Tamar area.
The key factors affecting the operating environment of the POL are:
commodity prices;
the Tasmanian economy;
exchange rates;
competitors' policies; and
productivity of neighbouring industries.
The policy objectives of the POL include:
to be responsive to customer requirements;
to ensure the provision of appropriate facilities and essential operational services from its own resources, or by others; and
Chapter 13: Government Businesses and Authorities 299 to ensure the long term commercial strength of the corporation since its move towards full private enterprise operating principles.
The key business direction for POL for 1998-99 is to continue to expand its trade base.
Transend Networks Pty Ltd Transend Networks Pty Ltd (Transend) was established following the disaggregation of the HEC and commenced operations on 1 July 1998.
The function of Transend is to provide for the transmission of electricity in Tasmania.
The key factors affecting the operating environment of Transend are:
the Tasmanian electricity industry is subject to the recently drafted Tasmanian Electricity Code, which is based on the National Electricity Code;
the establishment of regulations prescribing minimum standards of technical performance which Transend's network will be expected to meet, with financial penalties imposed if these are not met;
the Regulator determining the maximum revenue Transend may earn from its monopoly electricity transmission business; and
the relatively early stage of development of the national and Tasmanian electricity industry regulatory environments.
The key business directions for Transend for 1998-99 are:
resolving transitional issues, including those relating to governance arrangements for Transend and the development of the necessary commercial controls, especially in relation to the administration of major contracts between Transend, Aurora and the HEC; and
the undertaking of a major capital expenditure program, with projected expenditure of $50 million in 1998-99.
TT Line Company Pty Ltd TT Line Company Pty Ltd (TT Line) operated three ferries between Tasmania and Victoria during the 1997-98 period. These were the Spirit of Tasmania, the Devil Cat and an 86 metre catamaran.
The Spirit of Tasmania, a roll on/roll off vessel which carries freight, including containers, or twenty foot equivalent units (TEUs), in addition to passengers and passenger vehicles, was operated between Devonport and Melbourne.
For the 1997-98 period, it is estimated that 271 492 passengers were carried on the Spirit of Tasmania, an increase of 4.6 per cent on 1996-97. In addition, an estimated 19 118 TEUs and 92 753 vehicles were carried.
The Devil Cat was chartered during the summer period on a trial basis and operated between George Town and Melbourne carrying passengers and vehicles. The Devil Cat completed 103 voyages and carried 39 384 passengers and 17 046 vehicles.
300 Chapter 13: Government Businesses and Authorities In addition, an 86 metre catamaran was operated for two weeks between Devonport and Melbourne in July, when the Spirit of Tasmania was in a scheduled dry dock, and carried 3 356 passengers and 1 601 passenger vehicles.
TT Line's strategic directions for the next five years include:
improving the financial performance of the Company;
reviewing the suitability of various vessel types to provide the service and make a recommendation on a replacement for the current vessel;
improving levels of service to all areas of the customer base; and
further strengthening the Company's human resource management and industrial relations capability.
The key business direction for TT Line for 1998-99 is to maximise the carriage of passengers and their vehicles on both the Spirit of Tasmania and the Devil Cat whilst maintaining the current levels of freight business.
GOVERNMENT BUSINESS ENTERPRISES
Civil Construction Services Corporation The Civil Construction Services Corporation, trading as the Civil Construction Corporation (CCC), was established on 19 April 1995 as a civil construction business focusing on core areas of expertise in road, bridge and marine structure maintenance and construction. Whilst still focussing on its core business, CCC also undertakes civil asset management, associated consultancy and earthworks and civil works. CCC promotes a total asset management philosophy.
The mission of CCC is to lead the civil contracting industry in Australia and to develop and maintain a competitive advantage through its quality program, innovation and appreciation of clients' needs and expectations.
CCC's principal objective is to perform its functions and to exercise its powers so as to be a successful business by maximising sustainable returns to the Government and the net worth of the business.
CCC is in a continuing process of transition to an organisation with the capacity to respond to changing market circumstances.
The key factors affecting the operating environment of CCC are:
the economic environment; and
the highly competitive civil construction industry.
The major strategic directions of CCC are to:
tender aggressively for all work that complements corporate objectives;
provide exceptional customer service;
Chapter 13: Government Businesses and Authorities 301 be the industry leader in Australia in civil maintenance, construction and associated operations training and assessment;
provide a total civil asset management service to clients;
develop strategic alliances with complementary specialised organisations to promote the growth of both enterprises; and
retain and expand Quality and Environmental Management Certification.
The key business directions for CCC for 1998-99 are:
the development and implementation of strategic alliances with appropriate organisations;
the promotion of a total asset management philosophy by the provision of civil asset management and consulting services to markets in Tasmania and on the mainland; and
the broadening of the base of the business through the development of new markets.
Egg Marketing Board The Egg Marketing Board (EMB) has the role of ensuring that egg producers generate an adequate supply of eggs to meet demand all year round. Major functions associated with this objective include egg supply management through a hen quota scheme, receipt of surplus eggs for processing into egg products for sale to the bakery/catering market, obtaining eggs for producers in short supply, promotion and quality assurance.
Since the introduction of the Mutual Recognition (Tasmania) Act 1993, the EMB has competed in an open national egg market, with no barriers to entry into Tasmania for interstate producers.
The strategic directions for the 1998-99 financial year include:
retaining egg and egg product production close to demand;
continuation of the in-school education program;
further development of farm quality assurance programs; and
expanding the egg product market.
Forestry Tasmania Forestry Tasmania is a GBE established under the Forestry Act 1920. Its main business is the sustainable production and delivery of forest products and services for optimum community benefit.
The key factors affecting the operating environment of Forestry Tasmania are:
national and international markets for wood fibre and solid wood products; and
environmental requirements to meet sustainable management.
The key business directions for Forestry Tasmania for 1998-99 are:
to expand softwood production by the establishment of a joint venture through the partial sale of the softwood forest plantations and the establishment of new plantations;
302 Chapter 13: Government Businesses and Authorities to improve hardwood forest production capacity through intensive forest management practices and the establishment of new plantations;
to develop other value adding forest management strategies, including the expansion of the Trees Trust and the promotion of tree farms; and
to market the recreational and tourism potential of State forests.
Hydro-Electric Corporation The HEC was restructured as from 1 July 1998 with the formation of two State-owned companies, Aurora Energy Pty Ltd and Transend Networks Pty Ltd, and the HEC remaining a GBE with responsibility for the generation assets and systems control.
Through its operations in the energy, asset and water management sectors the HEC will continue to add value to Tasmania, strengthening those areas of the business which will enhance its market position.
The increasing levels of competition in the energy market, growing the business and responding to electricity supply reform are the dominant factors facing the HEC. At the same time the HEC will continue to focus on improving efficiency and effective risk management.
The HEC also provides CSOs on behalf of the Government through the provision of electricity to residents of the Bass Strait Islands.
Motor Accidents Insurance Board The MAIB, established under the Motor Accidents (Liabilities and Compensation) Act 1973, provides a combined no fault common law insurance coverage to all persons injured in motor accidents in Tasmania. Premiums are levied according to vehicle class and are paid at the time of registration.
The MAIB is proactive in the prevention of road accidents and in rehabilitation and future care. The Road Safety Task Force will again be provided with $1.26 million in 1998-99. The funding of these activities not only results in beneficial outcomes to all road users and people injured in road accidents, but also serves to reduce the cost of claims and maintain premiums at reasonable levels.
The key factors affecting the operating environment of the MAIB are:
the impact of the Asian economic crisis and the consequent potential for volatility in the equity market; and
the benefits to the Board stemming from its funding contribution to the Road Safety Task Force.
The key business directions for the MAIB for 1998-99 are:
to have 'best practice' solutions to meet the challenges created in providing no fault insurance services;
to ensure that an appropriate balance exists between premium income, the cost of claims, the Board's prudential requirements and a sustainable return to the Government;
to reduce serious casualty claims through contributions to road safety programs;
to continually improve the service to claimants;
Chapter 13: Government Businesses and Authorities 303 to effectively manage and fund the Injury Prevention and Management Foundation;
to consider ways of smoothing out dividend returns to the Government; and
to recognise the contribution made by the Board's staff and continue training and professional development on an ongoing basis.
North West Regional Water Authority The North West Regional Water Authority (NWRWA) is responsible for the control and supply of water in bulk to the City of Devonport and the Councils of Circular Head, Waratah-Wynyard, Central Coast, Latrobe and Kentish.
The NWRWA's mission is to provide a safe, high quality and reliable bulk water supply in a safe, efficient, environmentally responsible and economically sound manner.
Key business strategies to achieve this mission include:
ensuring that the quality of water supplied meets national guidelines;
maintaining assets to achieve the longest possible economic life;
implementing environmental best practice; and
supplying water at the lowest possible cost.
Legislation enabling the transfer of the NWRWA to Local Government and the rationalisation of the distribution and sale of bulk water in the North West was passed by Parliament in December 1997. The transfer of the North West Regional Water Authority to Local Government is expected to occur during 1998-99.
Port Arthur Historic Site Management Authority The Port Arthur Historic Site Management Authority is responsible for the care, control, management and conservation of the Port Arthur Historic Site for the purpose of expanding and developing visitor services, while at the same time protecting the integrity of the Site.
The Authority's strategic directions for the 1998-99 financial year include:
increasing revenue whilst reducing operating costs to assist in funding the long-term conservation of the Site through restructuring of its operations; and
upgrading visitor experiences by providing improved walking and Isle of Dead cruise tours. A new visitors centre will be completed and operational by December 1998.
Funding of $4.1 million from the Consolidated Fund is being provided in 1998-99 to support the Authority's conservation activities at the Site and other capital works.
Printing Authority of Tasmania The core business and main undertaking of the Printing Authority of Tasmania (PAT) is to provide a fail safe production facility for the Tasmanian Government and associated authorities and departments for commercially viable, quality, printed and electronically generated communications.
304 Chapter 13: Government Businesses and Authorities In addition, the PAT competes with the private sector for the provision of printing services to public sector departments and other authorities. However, under its legislation, the PAT is restricted from competing in the Tasmanian open market for private work.
The PAT aims to provide the very best quality product for its target market utilising the latest appropriate technology and cost effective innovations available to the printing industry.
The business direction for the 1998-99 financial year is to improve the profitability of the Authority in a secure, sustainable and socially responsible manner by supplying goods and services that provide customer satisfaction.
Rivers and Water Supply Commission The Rivers and Water Supply Commission is responsible for the management of the Prosser River Bulk Water Supply Scheme and various irrigation and drainage schemes throughout the State.
The Commission is also responsible for ensuring the management of Tasmania's water resources is conducted on a sustainable and ecologically sound basis, whilst recognising the needs of industry, agriculture and the Tasmanian community.
The strategic directions for the 1998-99 financial year include:
implementing within Tasmania the water reforms agreed by the Council of Australian Governments (COAG) and maintaining the debt reduction program;
maintaining good liaison with customers and being responsive to their needs;
meeting all statutory environmental requirements and implementing environmental best practices; and
achieving the maximum economic life from assets at the required level of service.
Southern Regional Cemetery Trust The Southern Regional Cemetery Trust is responsible for the control and management of cemeteries and crematoria vested in, or acquired by, the Trust for the burial or cremation of persons who resided in the southern area of the State, and for ensuring that adequate cemeteries and crematoria are available to meet future requirements.
The sale of grave sites at Cornelian Bay has declined since new sites were made available in 1996.
Consequently, the financial strategy to create a reserve fund which will generate sufficient revenue for the maintenance of cemeteries has been curtailed and cross subsidisation from other revenue sources is still necessary.
Furthermore, the intention is to provide a complete range of options for burial and memorialisation areas and investigate feasibility of new developments at the facilities operated by the Trust and the subsequent promotion of the same.
Chapter 13: Government Businesses and Authorities 305 Stanley Cool Stores Board The core business of the Stanley Cool Stores Board is the operation of a profitable and efficient cool storage facility located in the port of Stanley.
The Board's principal strategic directions include:
to ensure that the facility is used to its fullest extent;
to conduct the cool stores in a profitable manner; and
to consider future options for the cool store facility.
The strategic direction for the 1998-99 financial year is to review future opportunities to further improve revenue and profitability whilst maintaining the highest possible level of service to its client.
Tasmanian Dairy Industry Authority The Tasmanian Dairy Industry Authority (the Authority) is responsible for the maintenance and development of the Tasmanian dairy industry and the achievement of economies in that industry. The principal role of the Authority, under the Dairy Industry Act 1994, is to ensure continuity of supply of milk and the administration of a pool system whereby the net income from the fresh milk and cream trade is shared amongst all dairy farmers.
The Authority has two main business divisions, the Market Milk Pool and the Herd Improvement Division. Continuation of its regulatory obligations is dependent on the ongoing operation of the Market Milk Pool.
The major strategic objectives for the Authority in 1998-99 are:
the ongoing development of the Herd Improvement Division's range of services to farmers. This division has now achieved debt free status and operates on a sustainable basis through a system of client charges; and
the strengthening of the two major business divisions, through the ongoing development of the range of services on offer to farmers.
Other strategic objectives of the Authority include:
maintaining the return to dairy farmers;
maintaining the Authority's role in promoting dairy products; and
monitoring and regulating the quality of the Tasmanian dairy industry.
Tasmanian Grain Elevators Board The Tasmanian Grain Elevators Board (TGEB) is responsible for the receipt and distribution of Tasmania's grain requirements and maintaining sufficient grain reserves to meet demand. The business of the TGEB is the storage and handling of wheat supplied by the Australian Wheat Board, the accumulation of locally grown cereals and the trading of other imported grains and legumes.
The TGEB is the major supplier of wheat to the Tasmanian flour milling and intensive animal industries and is the key supplier of stock feed during adverse climatic conditions.
306 Chapter 13: Government Businesses and Authorities Tasmanian International Velodrome Management Authority The Tasmanian International Velodrome Management Authority (the Authority) is responsible for the management and promotion of the velodrome and indoor sports, entertainment, exhibition and convention facilities known as the 'Silverdome' situated at the Kate Reed State Recreation Area near Launceston.
The Silverdome provides high quality entertainment, sport, exhibition and meeting facilities for the people of Tasmania.
The strategic directions for the Authority during 1998-99 are to:
• increase the variety of competitive sports, with particular emphasis on cycling and indoor sports;
• facilitate commercial sports, entertainment and business use of the Silverdome to improve the Silverdome's financial viability;
• develop, in liaison with the Tasmanian Institute of Sport and Office of Sport and Recreation, efficient and effective use of facilities;
• encourage and develop participation in sport, including school sport;
• maximise training and event opportunities arising from the Sydney 2000 Olympics; and
• develop community use of the Silverdome facility.
Tasmanian Public Finance Corporation The Tasmanian Public Finance Corporation (Tascorp), established under the Tasmanian Public Finance Corporation Act 1985, is the Government's central borrowing authority. Its responsibilities include the development and implementation of borrowing and investment programs for the benefit of the State public sector. Tascorp also offers financial advisory services to State and Local Government authorities and wholly State-owned companies.
The key factors affecting the operating environment of Tascorp are:
uncertainty over future economic directions created by the Asian economic crisis and the future direction of interest rates; and
the impact of maturing assets and liabilities in Tascorp's books, combined with reduced borrowing margins, will reduce profitability in 1998-99.
The key business directions for Tascorp for 1998-99 are:
to meet the identified funding needs of clients, at the Tascorp yield curve, in a timely manner;
to provide clients with a rate of return in excess of a relevant market benchmark;
to identify and provide other high quality financial services to the Tasmanian public sector; and
to achieve a reasonable return on net assets, while operating within appropriate levels of financial risk.
Chapter 13: Government Businesses and Authorities 307 The Public Trustee The Public Trustee is empowered to act as executor, administrator or trustee under a will or settlement, as an attorney under a power of attorney, including an enduring power of attorney, and in a number of other capacities. The Public Trustee is also appointed to act on behalf of individuals under a legal, physical or intellectual disability to protect their financial interests.
The strategic direction of The Public Trustee for the 1998-99 financial year is to increase the public profile of The Public Trustee with a marketing plan focused on relationship marketing with existing clients. The Public Trustee will also upgrade its information technology systems to Year 2000 compliance standards.
The Public Trustee administers very low value estates and minor trusts as CSOs. The net costs of providing these CSOs will be met directly from the Consolidated Fund, and phased in over two years. A total of $150 000 was provided during 1997-98, with a further $300 000 to be provided during 1998-99 and 1999-00.
Totalizator Agency Board The Totalizator Agency Board (TAB) conducts totalizator betting in Tasmania in accordance with the Racing and Gaming Act 1952. The TAB sells wagering products to consumers with the majority of these products being pool based such that the return to the TAB is known and fixed for each contingency. The exception to this is the fixed odds bet - Triwin.
The TAB conducts its business through six divisions, while a fully owned subsidiary, Tasradio Pty Ltd, provides a radio service for the racing industry.
The TAB competes for its market with other gambling activities along with gaming and other entertainment, recreation and sporting organisations.
The key factors affecting the operating environment of the TAB are:
the potential loss of income through technology and globalisation of the market. Technological advances e.g. the Internet, and more aggressive marketing by privatised TABs and other suppliers may see gambling products offered on a national and international basis; and
the need to expand the product range to include the development of new wagering systems to counteract competition from other forms of gambling.
The key business directions for the TAB for 1998-99 are:
• to continue to work with the local racing industry to change the nature of the relationship to one of joint cooperation on issues of common interest;
• to expand the product range, improve the standard of customer service and improve the availability, appearance and level of comfort in outlets so as to facilitate and add value to the wagering experience;
• to create a network of distributors based on a range of outlet types so that customer satisfaction is maximised;
• to investigate opportunities for the delivery of the racing product into the home by community, free to air or pay-TV;
308 Chapter 13: Government Businesses and Authorities • to continue market research in order to be able to respond to the needs of existing and potential customers in a market where a trend towards wagering and gaming in a total entertainment environment is evident; and
to introduce a corporate image program, designed to increase community awareness and acceptance of the recreational opportunities offered by the TAB.
STATUTORY AUTHORITIES
Private Forests Tasmania The principal objectives of Private Forests Tasmania (Private Forests) are to provide advice to the Government on private forestry matters and to facilitate and expand the development of the private forest resource in Tasmania. This is to be achieved by planning for the future and promoting forestry products for commercial markets and the use and value of trees in land management.
In addition to Private Forests' regular activities of providing technical and facilitation support to existing and prospective forest growers, Private Forests has played a significant role in enlisting private grower support for, and representing their interests in, the development of the Tasmanian Regional Forest Agreement.
Private Forests' focus will be consistent with the objectives outlined in Schedule 1 of the Private Forests Act 1994. The strategic directions for the 1998-99 financial year are focused on increasing the area and quality of native forest under active management, to increase the area of the plantation estate, encourage market development and increased returns to growers and provide services in relation to the implementation of comprehensive, adequate and representative (CAR) reserves on private land.
Racing Tasmania The responsibilities of Racing Tasmania include the development of an efficient and viable racing and breeding industry, development and implementation of policy on racing and the regulation of bookmakers and racing activities.
The strategic directions for 1998-99 are to:
redefine service delivery mechanisms for racing industry participants;
commence development of a performance based industry funding formula; and
rationalise the operations of public training centres.
Retirement Benefits Fund Board The role of the Retirement Benefits Fund Board (the Board) is to administer public sector superannuation arrangements established in accordance with the provisions of the Retirement Benefits Act 1993. The Board also administers the superannuation arrangements for Members of State Parliament.
Chapter 13: Government Businesses and Authorities 309 The Board is responsible for the prudent investment and management of approximately $1.0 billion of State employees' contributions and is both a statutory corporation and a corporate Trustee Board within the meaning of the Commonwealth Government's superannuation and taxation law. No public money is held or invested by the Board.
Two key issues are likely to impact on the operations of the Board during 1998-99. During 1996-97, Parliament established a Joint Select Committee on Superannuation to examine the superannuation arrangements which should apply to newly appointed public sector employees. The Government is currently considering its position in relation to the Committee's recommendations.
In addition, announcements by the Commonwealth Treasurer in the 1997-98 Commonwealth Budget, particularly those relating to fund choice, may also impact upon the Board's activities.
The strategic directions for the 1998-99 financial year revolve around the implementation of:
any legislation which may result following the State Government's consideration of the Joint Select Committee's recommendations;
the Commonwealth's new superannuation surcharge arrangements for high income earners;
other Commonwealth superannuation and taxation legislation, particularly in the area of spouse contributions and member investment and fund choice; and
the prescribed arrangement option for employees who opt to withdraw from the RBF scheme following the enactment of legislation in 1997-98 with respect to the establishment of Metro Tasmania Pty Ltd, Aurora Energy Pty Ltd and Transend Networks Pty Ltd as State-owned companies.
State Fire Commission The role of the State Fire Commission is to protect life, property and the environment from fire and other emergencies.
The major strategic directions for the 1998-99 financial year are to:
deliver an efficient and effective response to fires and hazardous material incidents;
promote, coordinate and deliver fire safety education in the community; and
position the Tasmania Fire Service as a productive and safe workplace where members are able and willing to contribute towards the achievement of the strategic objectives of the organisation.
310 Chapter 13: Government Businesses and Authorities CONVENTIONS AND GLOSSARY OF TERMS
CONVENTIONS
Figures in tables and in the text have been rounded. Discrepancies in tables between totals and sums of component items reflect rounding. Percentage changes in all tables are based on the underlying unrounded amounts.
The notation for zero or rounded to zero figures is '….'.
Percentages in excess of 999% are shown as '….'.
GLOSSARY OF TERMS Accrual Accounting
Accrual accounting recognises revenue and expenditure at the time it is earned or incurred, rather than when money is actually received or paid. The Budget is not presented on an accrual basis but on a cash basis - that is, receipts and expenditures are recorded when the cash transaction occurs. Administered Payments
Administered Payments, formerly known as Grants, Subsidies and Loans, is a classification of expenditure that relates to payments or concessions made by the Government to individuals, groups or organisations. These payments are determined by the Government and are Non-discretionary. In relation to the Output methodology, these payments are not strictly Outputs, but rather the Government purchases the administration of these payments from departments. Advances
Repayable, interest-bearing loans often provided on concessional terms. Appropriation
An amount which may be spent from the Consolidated Fund under the authority of an Act of Parliament. Auditor-General
A statutory office, established under the Financial Management and Audit Act 1990, responsible for the independent review of State financial matters. The Auditor-General is required to report annually to Parliament on the accounts of departments and other public bodies.
Conventions and Glossary of Terms Benchmarking
The process of comparing the performance of Government agencies in producing goods and services with other governments or the private sector. This process enables analysis of the effectiveness and efficiency of the production of Outputs relative to best practice procedures in other jurisdictions and the private sector and, in turn, assists the Government in making decisions on the level and range of Outputs purchased from departments. Budget Committee
A Cabinet Sub-Committee that is responsible for considering all Budget related matters and making appropriate recommendations to Cabinet. Capital Investment Program
The Capital Investment Program (CIP) replaced the Building Construction Program (BCP) from 1996-97 as the basis for the Government’s investment in built assets. The CIP comprises major capital investment projects for all inner-Budget agencies and is funded through the Works and Services section of the Consolidated Fund. The CIP was introduced to link Government investment in capital and maintenance projects with departmental corporate and asset management plans, and specific Government policy objectives and Outputs. Details of projects included in the CIP are provided in Chapter 6 of Budget Paper No 1 Budget Overview 1998-99. Cash Accounting
Cash accounting recognises revenue and expenditure only at the time cash is received or paid. Commonwealth Grants Commission
An independent body established by the Commonwealth Government to advise on the per capita relativities for distributing general revenue grants among the six States and two Territories. Community Service Obligations (CSOs)
CSOs are activities undertaken by a GBE that would not be undertaken if it was a commercial entity operating in the private sector. In this regard, the GBE Act requires that CSOs can only be declared as such where the function performed, service provided, or concession allowed will result in a net cost to the GBE, is the direct result of a direction given under, or a specific requirement of, an Act of Parliament and would not be performed, provided or allowed if the GBE were a business in the private sector acting in accordance with sound commercial practice. Consolidated Fund
The Fund established by Part II of the Public Account Act 1986 to receive all taxes and the majority of other revenue received by the Government. All payments from the Consolidated Fund must be authorised by an Act of Parliament. Consolidated Fund Appropriation Act
An Act which appropriates moneys from the Consolidated Fund for expenditure by the Government during the financial year. Appropriation Acts are in force from 1 July in one calender year until 30 June in the subsequent year.
Conventions and Glossary of Terms Constant Price Terms
See Real Terms. Consumer Price Index
A measure of the change in prices, over time, of a basket of goods and services representing household expenditure patterns. It aims to measure the changes in the cost of living for the average household. Department Operating Accounts
Accounts created in the Special Deposits and Trust Fund to record all department related transactions. These accounts receive funds appropriated to departments from the Consolidated Fund, all revenue collected by departments and any specific Commonwealth payments that are made directly to a Department Operating Account. Departments are permitted to retain in their Operating Accounts any revenue that is not identified for return to the Consolidated Fund. Department Operating Accounts enable the consideration of the total resourcing of Government Outputs. Discretionary Output Expenditure
Output expenditure over which a department has flexibility to reallocate funds to other Outputs within the limits of budget allocation principles. Equalisation Grants
See Fiscal Equalisation. Fees
Fees from regulatory services are levies not primarily designed to raise general revenue, but which are associated with the granting of permit or privilege or for the regulation of activity. This distinguishes them from charges for services rendered to clients and receipts from the sale of goods and services provided by public sector agencies. Financial Agreement Acts 1927 and 1994
Agreements between the Commonwealth Government and State Governments establishing the Loan Council and prescribing a framework for governmental borrowing and sinking fund arrangements. Financial Assets and Liabilities (FALs)
Financial Assets and Liabilities information covers the whole non-financial public sector incorporating the General Government and Public Trading Enterprises sectors as defined by the ABS. FALs present the consolidated financial assets and liabilities of each sector. Details of FALs are incorporated in Chapter 12 of Budget Paper No 1 Budget Overview 1998-99.
Conventions and Glossary of Terms Financial Assistance Grants (FAGs)
FAGs represent the main form of general revenue assistance provided to the States and Territories by the Commonwealth. The size of the FAG for each jurisdiction is determined by the Premiers' Conference each year, taking into account the pool of FAGs available for distribution between all jurisdictions in that year, the per capita relativity factors agreed by the Premiers' Conference, the State or Territory’s share of the national population, and special assistance for other jurisdictions funded out of the FAG pool. Information on FAGs is presented in Chapter 10 of Budget Paper No 1 Budget Overview 1998-99. Financial Year
The financial year runs from 1 July in one calender year to 30 June in the following year. Fines
Fines are civil and criminal penalties imposed on law breakers other than penalties imposed by tax authorities. Fiscal Capacity
The capacity of a State to meet its financial responsibilities. It reflects the adequacy of the various tax bases available to that State, as well as the existence of any disabilities or advantages faced by that State in the provision of services. Fiscal Equalisation
Also described as horizontal fiscal equalisation, it refers to the method of allocating financial assistance to the States and Territories which, as assessed by the Commonwealth Grants Commission, is designed to provide a jurisdiction with the capacity to provide services at a standard comparable to those of the other jurisdictions provided it makes the same revenue raising effort. Full Time Equivalents (FTEs)
A measure of staffing levels which converts the total number of hours worked by all staff (including part time and casual staff) to an equivalent number of full-time staff. General Government Sector
For the purpose of reporting uniform information on Government Financial Estimates (GFEs - see below) and Financial Assets and Liabilities (FALs - see above), non-financial public sector bodies are categorised as belonging to either the General Government sector or the Public Trading Enterprises (PTEs) sector. General Government agencies are departments, bodies, or offices that provide services free of charge or at prices substantially below their cost of production. PTEs, by comparison, aim to recover the majority of their costs by revenue generated from user charges. The classifications are consistent with those adopted by the ABS. General Revenue Assistance
Grants provided by the Commonwealth to the State and Territory Governments and Local Governments, to be used for purposes determined by the recipients. The main form of general revenue assistance currently provided to the States and Territories is Financial Assistance Grants (FAGs - see above). Another form of general revenue assistance provided is special revenue assistance.
Conventions and Glossary of Terms Government Business Enterprises
Government Business Enterprises (GBEs) are entities which operate outside the Public Account, principally on the basis of funds derived through their operations, and have no impact on Budget expenditure except in circumstances where they receive funding for CSOs or receive payments for services provided. GBEs also may provide returns to the Consolidated Fund in the form of dividends to shareholders (the State) and the payment of taxation equivalents and guarantee fees and are subject to their own enabling legislation and the GBE Act. GBEs prepare annual reports, with financial statements on a commercial, accrual accounting basis, which are tabled in Parliament and are subject to audit by the Auditor-General as the auditor appointed by the shareholders. Government Financial Estimates (GFEs)
Government Financial Estimates provide a comprehensive record of the financial transactions of the whole non-financial public sector incorporating the General Government and Public Trading Enterprises sectors as defined by the ABS. GFEs utilise the framework for statistical classification of transactions adopted by the ABS in the preparation of public finance statistics. Details of GFEs are provided in Chapter 12 of Budget Paper No 1 Budget Overview 1998-99. Governor-in-Council
The Governor acting with the advice of the Executive Council, which consists of two or more Ministers of the Crown presided over by the Governor. Grants
Non-repayable, non-interest bearing assistance. Grants, Subsidies and Loans
See Administered Payments. Gross State Product
The total value added in production in the State economy in a year. Broadly, it equals the total value of goods and services produced less the cost of goods and services used in the production process. Guarantee Fees
Guarantee fees are applied to GBEs and SOCs to compensate for the lower borrowing rates that GBEs and SOCs often receive from the private sector due to their Government ownership. Guarantee fees apply to effectively increase the borrowing rate that GBEs and SOCs receive up to the market borrowing rate. In line with National Competition Policy principles, guarantee fees remove any competitive advantage that a GBE or SOC may receive in terms of reduced debt costs through Government ownership. Horizontal Fiscal Equalisation
See Fiscal Equalisation. Loan Council
A body comprising the Commonwealth, State and Territory Treasurers which meets, usually on an annual basis, to determine the Loan Council Allocation (see below) for the Commonwealth, States and Territories for the forthcoming financial year.
Conventions and Glossary of Terms Loan Council Allocation (LCA)
A State or Territory’s Loan Council Allocation is the borrowing level for the jurisdiction endorsed by the Loan Council, based on its combined General Government and PTE sector deficit, plus a number of memorandum items. These items reflect public sector transactions which may have many of the characteristics of borrowings but do not constitute formal borrowings. One example is operating leases. Thus the LCA provides an indicator of the likely impact of the total State public sector's operations on the economy through its net call on national savings. Major Works
Capital investment projects, including construction and maintenance, which have an estimated total value greater than $100 000. National Competition Policy (NCP)
NCP involves a series of policy initiatives, agreed by all Australian governments, that are aimed at promoting free and open competition, where this is in the public benefit, which in turn will increase efficiency and productivity throughout the Australian economy. The basis of NCP is three intergovernmental agreements between the Commonwealth and State and Territory Governments that were signed on 11 April 1995. These agreements are the Conduct Code Agreement (relating to the extension of Part IV of the Commonwealth’s Trade Practices Act 1974 to all businesses), the Competition Principles Agreement (relating to the implementation of a series of policy elements designed to improve competition in the Australian economy) and the Agreement to Implement the National Competition Policy and Related Reforms (relating to the sharing of the financial benefits expected to flow from the implementation of NCP). Net Debt
The State's Net Debt is defined as the difference between financial assets (claims the Government has on external organisations and individuals) and financial liabilities (claims of external organisations and individuals on the Government) held in the form of cash, deposits, non- transferable loans, transferable debt securities (eg. Treasury notes and bonds) and finance leases. This definition does not include other financial assets and liabilities such as accounts receivable/payable, assets (such as shares) representing equity in other organisations (including public trading enterprises), liabilities for unfunded employee entitlements and assets and liabilities in the form of long term trade credit. Net Financing Requirement (NFR)
The shortfall between payments from the Consolidated Fund, net of loan repayments, and receipts. The NFR measures the borrowing necessary each year to bridge the gap between payments from and receipts to the Consolidated Fund. Net Interest Cost Ratio
The ratio of net interest costs met from the General Government sector (where net interest costs are defined as gross interest costs less interest recoveries and interest received from investments) to total recurrent receipts of the General Government sector net of total interest recoveries.
Conventions and Glossary of Terms Nominal Terms
Values expressed in nominal terms are actual values at a point in time and reflect increasing price levels over time. The term is used to contrast with 'real terms' (see below). Non-Discretionary Output Expenditure
Funds provided for Non-discretionary Output expenditure cannot be transferred to another Output. Outcomes
The effect on the community of the Outputs that are purchased by Government. Output
An identifiable good or service produced by, or on behalf of, a department and provided to customers outside the department. The Government purchases Outputs in order to achieve policy objectives or Outcomes. Output Methodology
A system of operating, budgeting and reporting which focuses attention on the Government's desired policy Outcomes and the level of Outputs required to be purchased by the Government in order to achieve those Outcomes. Premiers' Conference
A meeting of the Prime Minister, State Premiers and the Chief Ministers of the two Territories, usually held annually, to deal with Commonwealth-State financial relations issues. Public Account
The account established by the Public Account Act 1986. It consists of two separate Funds: the Consolidated Fund and the Special Deposits and Trust Fund. Public Debt
The indebtedness to the Commonwealth for the State's share of loan raising under the Financial Agreement. Public Trading Enterprises Sector
For the purpose of reporting uniform information on Government Financial Estimates (GFEs - see above) and Financial Assets and Liabilities (FALs - see above), non-financial public sector bodies are categorised as belonging to either the General Government sector or the Public Trading Enterprises (PTEs) sector. General Government agencies are departments, bodies, or offices that provide services free of charge or at prices substantially below their cost of production. PTEs, on the other hand, aim to recover the majority of their costs by revenue generated from user charges. The classifications are consistent with those adopted by the ABS. Real Terms
Values from which the effects of generally rising prices or inflation have been removed. Often referred to statistically as 'constant price' terms. Except where otherwise stated, figures in the Budget documents expressed in real terms or constant prices are calculated using the Gross State Product Implicit Price Deflator (GSP IPD).
Conventions and Glossary of Terms Recurrent Services
That part of expenditure from the Consolidated Fund which relates to the 'ordinary annual' expenditures of the Government that are incurred in the production of Outputs. The major components of expenditure are salary and administrative and operating expenses, including building services and maintenance and furniture and equipment purchases. In addition, Recurrent Services include Administered Payments and Reserved by Law payments. Reserved by Law Payments
Reserved by Law payments are recurrent expenditures that are made where there is a legislative requirement for funding to be provided for specific purposes without the necessity for an annual appropriation. Royalty
A payment made for the use of publicly owned resources such as timber, minerals or intellectual property. Special Deposits and Trust Fund
A Fund established under the Public Account Act 1986 which comprises various individual accounts designated for specific purposes. Specific Purpose Payments (SPPs)
SPPs (also known as tied grants) are payments made by the Commonwealth to the States and Territories, generally under section 96 of the Constitution, for the purposes, and on such terms and conditions, as may be specified by the Commonwealth. All SPPs of a recurrent nature are in the form of grants, while a small amount of assistance of a capital nature takes the form of advances. State Capital Program
The State Capital Program comprises the capital programs of GBEs and State authorities and the capital expenditure programs of Government departments. Details of the State Capital Program are provided in Chapter 6 of Budget Paper No 1 Budget Overview 1998-99. It provides information on the whole State public sector's capital expenditure in Tasmania. State Debt
The total of debt incurred by the State under the Financial Agreement and borrowings through Tascorp. State-Owned Companies
State-owned companies (SOCs) operate outside the Public Account, principally on the basis of funds derived through their operations and are subject to Corporations Law. They have no impact on the Consolidated Fund except in circumstances where they receive payment for services provided by the SOC to the Government, or provide dividends, taxation equivalents or guarantee fees to the Government. Details of SOCs are provided in Chapter 13 of Budget Paper No 1 Budget Overview 1998-99.
Conventions and Glossary of Terms State Public Sector Debt
The term used to describe the overall indebtedness of the Government and its State authorities, which includes repayable advances from the Commonwealth to the State for specific programs. Statutory Authority
Statutory authorities are each established under specific legislation which defines the purpose for which they are established and the general functions for which they are responsible. Statutory authorities can be classified into two distinct categories, namely:
those authorities that are subject to specific requirements contained in their enabling legislation; and
those authorities which are subject to provisions contained in their enabling legislation and are also subject to the provisions of the Government Business Enterprises Act 1995 (GBE Act). Authorities in this category are those which undertake commercial trading activities. These authorities are described as GBEs. Statutory Office
A position established under an Act of Parliament, for example the office of Auditor-General. Supply Act
The purpose of the Supply Act is to appropriate funds for payments necessary for the ongoing business of the Government during the period between the first day of each financial year and the passing of the Consolidated Fund Appropriation Bill. It lapses when the Consolidated Fund Appropriation Act is passed. Tascorp
The Tasmanian Public Finance Corporation. Tascorp acts as the State's central borrowing authority and raises funds for State authorities, SOCs and the Consolidated Fund under the annually approved Loan Council Allocation. Taxation
A compulsory levy or impost which the Government imposes on transactions, inputs, documents, property and certain activities for the purpose of raising revenue. Unlike a charge, fee or royalty, a tax does not carry an entitlement to goods and services. Taxation Equivalents
Taxation equivalents are tax-like payments that are required to be paid to the Tasmanian Government by GBEs and SOCs, in line with National Competition Policy principles, to compensate for GBEs and SOCs being exempt from Commonwealth income and wholesale sales taxes. Taxation equivalents are applied to ensure that GBEs and SOCs are not placed at a competitive advantage due to their exemption from certain Commonwealth taxes. Territorial Revenue
Revenue arising from the sale, rent or other use of Crown land or property rights.
Conventions and Glossary of Terms Treasurer's Reserve
An appropriation to the Treasurer to provide funds to meet expenditure which could not have been reasonably foreseen at the time of preparation of the Budget. The Treasurer's Reserve is comprised of a statutory amount of $10 million, as provided for in the Public Account Act 1986, together with any additional amount appropriated. See Chapter 4 of this document for a more complete discussion of the Treasurer's Reserve. Vertical Fiscal Imbalance
An imbalance between the expenditure responsibilities of each tier of government and the own-source revenue resources available to that tier. Australia is characterised by significant vertical fiscal imbalance, since the Commonwealth raises around 73 per cent of national tax revenues but has direct responsibility for only approximately 54 per cent of all public sector outlays. Works and Services
That part of Consolidated Fund expenditure relating to the construction, purchase and maintenance of major capital assets such as roads, public housing, schools, hospitals and equipment. There are separate Roads and Housing Programs. All other Works and Services are provided under the Capital Investment Program.
Conventions and Glossary of Terms
Conventions and Glossary of Terms