2003
PARLIAMENT OF TASMANIA
Budget Paper No 1 Budget Overview 2003-04
Presented by the Honourable Dr David Crean, MLC, Treasurer, for the information of Honourable Members, on the occasion of the Budget, 2003-04
CONTENTS
Page 1 The 2003-04 Budget Development Context 1 2 Tasmanian Economy 33 3 Budget Summary, 2003-04 63 4 Revenue and Expense Estimates, 2003-04 73 5 Taxation Revenue 93 6 State Capital Program 113 7 Assets and Liabilities, 2003-04 149 8 Estimated Outcome, 2002-03 183 9 Forward Estimates 197 10 Commonwealth-State Financial Arrangements 211 11 Government Businesses 239 12 Concessions, Subsidies and Community Service Obligations 265 13 Local Government 281 Appendix 1 Uniform Government Reporting 311 Appendix 2 Consolidated Fund Estimates 329 Conventions and Glossary of Terms 355
i
INDEX
Page Contents i 1 The 2003-04 Budget Development Context 1
Overview 2
Major 2003-04 Budget Drivers 3
Tasmania Together – Shaping Our Future 3
Industry Development Plan 4
Partnership Agreements 5
Competitive Business Environment 7
Fiscal Strategy 11
The Budget Position 17
Infrastructure and Major Projects 24
Securing Infrastructure and Major Projects – Direct and Indirect Opportunities 25
Social Policy Initiatives 28
Better Living Standards and More Jobs 29
Our Children – Our Future 30
Healthier and Safer Communities 31
2 Tasmanian Economy 33
Introduction 34
Recent Economic Performance 35
Overview 35
Consumer Spending 37
Wages 38
Labour Market 39
Demographics 45
Private Sector Investment 47
iii The Public Sector in Tasmania 52
Export Activity 54
Economic Outlook 56
2002-03 Estimates 57
2003-04 Forecasts 58
Summary 62
3 Budget Summary, 2003-04 63
Introduction 64
Operating Statement 64
Fiscal Surplus 65
Balance Sheet 66
Net Worth 67
Net Financial Worth 67
Net Financial Liabilities 68
Net Debt 68
Cash Flow Statement 69
Cash Surplus 69
Consolidated Fund 70
4 Revenue and Expense Estimates, 2003-04 73
Introduction 74
Operating Statement 74
Revenue 75
Grants and Subsidies 76
Recurrent Revenue 77
Capital Revenue 78
Other Payments 78
Taxation Revenue 79
Sales of Goods and Services 82
Interest Income 83
iv Dividend and Tax Equivalent Income 84
Other Revenue 85
Expenses 86
Depreciation 86
Employee Expenses 86
Other Operating Expenses 86
Nominal Superannuation Interest Expense 87
Other Interest Expenses 87
Grants and Transfers 87
Net Acquisition of Non-Financial Assets 88
Purchase of New Non-Financial Assets 88
Sale of Non-Financial Assets 88
Depreciation 88
Fiscal Surplus 89
Consolidated Fund Expenditure 89
Explanation of Estimated Major Consolidated Fund Expenditure Variations 91
5 Taxation Revenue 93
Introduction 94
Tax Competitiveness 94
Estimated Taxation Revenue for 2002-03 97
Estimated Taxation Revenue for 2003-04 99
Payroll Tax 100
Land Tax 101
Motor Tax 102
Light Vehicle Registration Fees 103
Financial Transaction Taxes 103
Gambling Taxes 105
Lottery Tax 107
Other Gaming Tax 107
v Casino Tax 108
Guarantee Fees 110
State Fire Commission Revenue 111
Petroleum and Liquor Subsidies 111
Major Legislative and other Changes 112
6 State Capital Program 113
State Capital Program 114
Government Departments 118
Source of Funds 118
Application of Funds 119
Roads Program 132
Housing Program 136
Economic and Social Infrastructure Fund 138
Economic and Social Infrastructure Fund Projects 139
Social Infrastructure Fund 140
Social Infrastructure Fund Projects 140
2001-02 Infrastructure Fund 141
2001-02 Infrastructure Fund Projects 141
GBEs, State-owned Companies and State Authorities 142
Expenditure of Capital Funds 142
Major Capital Projects of GBEs, State-owned Companies and State Authorities - Summary 144
7 Assets and Liabilities, 2003-04 149
Assets and Liabilities 150
Net Worth 152
Net Financial Worth 152
Net Financial Liabilities 152
Net Debt 153
Interstate Comparison 155
Interest Costs of the Government 156
vi Assets 158
Liabilities 161
Contingent and Other Liabilities 165
Borrowings Guaranteed by the Government 165
Superannuation 166
Introduction 166
Retirement Benefits Fund – Defined Benefit Scheme 167
Aggregate Unfunded Liability 170
Tasmanian Risk Management Fund 173
Purpose of the Fund 173
Performance of the Fund 173
Measures to Reduce the Number and Cost of Claims 175
Total State Assets and Liabilities 176
Net Debt 176
Asset and Liabilities 180
Foreign Currency Exposure 180
Credit Status of the State Public Sector 180
8 Estimated Outcome, 2002-03 183
Introduction 184
Fiscal Surplus 185
Revenue 187
Explanation of Estimated Major Revenue Variations 187
Expenses 189
Explanation of Estimated Major Expense Variations 189
Net Acquisition of Non-Financial Assets 190
Consolidated Fund Surplus 191
Explanation of Estimated Major Expenditure Variations 193
Consolidated Fund Surplus and Fiscal Surplus Reconciliation, 2002-03 195
9 Forward Estimates 197
vii Forward Estimates 2004-05 to 2006-07 198
The Forward Estimates Concept 198
Impact of Policy Initiatives 198
Forward Estimates Operating Statement 200
Revenue 201
Explanation of Major Revenue Variations 201
Expenses 202
Explanation of Major Expense Variations 202
Net Acquisition of Non-Financial Assets 202
Forward Estimates Balance Sheet 203
Net Financial Worth 205
Net Financial Liabilities 205
Net Debt 205
Forward Estimates Cash Flow Statement 207
10 Commonwealth-State Financial Arrangements 211
Introduction 212
Summary of Commonwealth Sourced Revenue 213
Major Issues in Commonwealth–State Financial Relations 216
Commonwealth Grants Commission's 2003 Update Report 216
Impact of the Intergovernmental Agreement on Commonwealth Sourced Revenue 216
2003 Treasurers' Conference 218
State and Territory Share of National Revenues 219
Commonwealth Grants Commission 2004 Major Review 219
Major Specific Purpose Payment Issues 219
Commonwealth Sourced Revenue - Detailed Information 223
General Purpose Payments 223
Competition Payments made to Tasmania 227
Health Care Grant (HCG) 228
Specific Purpose Payments 229
viii Total Commonwealth Sourced Revenue 231
Appendix 1 233
Why Commonwealth Revenue is Essential 233
Appendix 2 236
The Commonwealth Grants Commission 236
11 Government Businesses 239
Introduction 240
Rationale for Government Business Ownership 240
Financial Returns from Government Businesses 241
Contribution to Economic Development in Tasmania 243
Divestment Strategy 247
Major Developments in the Governance Framework 248
Profiles of Major Government Businesses 250
Government Business Enterprises 253
Civil Construction Corporation 253
Forestry Tasmania 253
Hydro Tasmania 254
Motor Accidents Insurance Board 254
Port Arthur Historic Site Management Authority 255
Printing Authority of Tasmania 256
Rivers and Water Supply Commission 256
Southern Regional Cemetery Trust 257
Stanley Cool Stores Board 257
Tasmanian Grain Elevators Board 257
Tasmanian International Velodrome Management Authority 257
Tasmanian Public Finance Corporation 258
The Public Trustee 258
State-owned Companies 259
Aurora Energy Pty Ltd 259
ix Burnie Port Corporation Pty Ltd 259
Hobart Ports Corporation Pty Ltd 260
Metro Tasmania Pty Ltd 260
Port of Devonport Corporation Pty Ltd 261
Port of Launceston Pty Ltd 261
TOTE Tasmania Pty Ltd 262
Transend Networks Pty Ltd 263
TT-Line Company Pty Ltd 264
12 Concessions, Subsidies and Community Service Obligations 265
Introduction 266
Agency Concessions 267
Department of Education 267
Finance-General 268
Department of Health and Human Services 271
Department of Infrastructure, Energy and Resources 275
Department of Primary Industries, Water and Environment 277
Department of Tourism, Parks, Heritage and the Arts 278
Department of Treasury and Finance 278
13 Local Government 281
Introduction 282
Development of the Local Government Sector and its Role in the Economy 282
Development of the Local Government Sector 282
Role in the Economy 283
Relationship with Other Levels of Government 284
Commonwealth Grants 285
Partnership Agreements 289
Financial Reform of the Local Government Sector 292
State Subsidies on Local Government Costs 293
State Taxation Exemptions 293
x Local Government Rates Exemptions 293
State Levies and Charges on Local Government 293
State Grants 294
Economic Reform and Local Government 295
Competitive Neutrality 295
Competitive Neutrality Complaints Mechanism 297
Prices Oversight 297
Legislation Review 297
Water Reform 298
Financial Performance 300
Local Government Sector Financial Aggregates 300
Comparison with Other States and the Northern Territory 303
Key Performance Indicators 305
Description of Indicators 308
Appendix 1 Uniform Government Reporting 311
Introduction 312
Government Financial Estimates 313
Loan Council 324
Loan Council Arrangements 324
Loan Council Allocations 324
Consolidation of Transactions 325
Appendix 2 Consolidated Fund Estimates 329
Introduction 330
Estimated Outcome, 2002-03 331
Estimated Consolidated Fund Surplus 331
Estimated Receipts, 2002-03 332
Estimated Expenditure, 2002-03 333
Budget Estimates, 2003-04 336
Consolidated Fund Surplus, 2003-04 336
xi Consolidated Fund Receipts, 2003-04 337
Consolidated Fund Expenditure, 2003-04 345
Recurrent Services 345
Works and Services 345
Forward Estimates 350
Conventions and Glossary of Terms 355
xii 1 THE 2003-04 BUDGET DEVELOPMENT CONTEXT
Features
• The 2003-04 Budget is the first Tasmanian Budget developed within a framework based on accrual accounting principles. This represents a new system of budgeting that results in:
− presentation of the Budget in accordance with a recognised national framework that includes all sources of funds on an accrual basis; and
− new headline measures for presenting the Budget Outcome and Forward Estimates.
• The 2003-04 Budget also represents significant progress towards the Government's ongoing implementation of a range of economic, social and fiscal strategies. It is a Budget based on sharing the rewards: the rewards of strong financial management; and the rewards derived by taking a strategic approach to economic development.
• The key initiatives in this Budget to achieve the Government's objectives include:
− a $124.9 million increase in funding for recurrent services, with specific base funding increases of $49.5 million for health, $35.2 million for education and $10.5 million for police and public safety;
− the establishment of a $107.0 million Economic and Social Infrastructure Fund to support: major projects, including natural gas, wind energy, Basslink, water developments and an optic fibre network; and tourism and other social and economic development opportunities; and
− continued funding of $44.0 million per annum for the cost of one of the two new Bass Straits vessels.
• Significant progress has been made towards the achievement of Fiscal Strategy targets established in the 2002-03 Budget.
• A Fiscal Surplus of $6.9 million is budgeted for 2003-04, following a projected Fiscal Surplus of $121.0 million in 2002-03.
• Continued improvement in the debt position of the State is projected.
• This Chapter outlines the context within which the 2003-04 Budget has been developed and highlights the major strategies, Budget drivers and initiatives the Government is pursuing to ensure Tasmania's continued economic, social and financial development.
Chapter 1: The 2003-04 Budget Development Context 1 OVERVIEW
The 2003-04 State Budget will be influential across the Tasmanian community, not only because it continues to build upon the previous five Labor Government Budgets, but also because it is delivered at a time when there is an unprecedented convergence of positive factors operating in Tasmania. It is a State Budget delivered in an economic environment where many indicators are at record levels, and in an atmosphere where the sense of confidence in Tasmania's future held by business and the community is almost palpable.
All six Budgets have been developed in accordance with the Government's Financial Plan, delivering growing economic development and improving community services. This Budget, more than any previous, clearly defines the hallmark of this Financial Plan: disciplined recurrent spending; provision for the building up of cash assets, to reduce net debt and net interest payments; and a significant provision for one-off expenditure this year through a newly established Economic and Social Infrastructure Fund (ESIF).
General Government net debt is on track to be completely eliminated by June 2008.
Importantly, this is also the first Tasmanian State Budget presented using an accrual accounting system. The move to accrual budgeting is a significant further step in the ongoing financial reform process, leading to further improvement in the presentation and content of government financial information.
The largest and most diverse set of major infrastructure projects, combined with an increasingly competitive business environment compared with the rest of Australia, are the result of major policies initiated by the Government immediately on coming to office in 1998: through the Industry Development Plan; the Fiscal Strategy; Partnership Agreements; Learning Together; and the Competition Index, all underpinning the Tasmania Together process.
All of these major policies have generated increased wealth to set a fresh scene for Tasmania at the beginning of a new century. Jobs remain the Government's number one priority, and along with meeting the increasing demands made by important government services, this is where the State's improving fortunes will be directed.
Because of positive changes to Tasmania's economic circumstances, and because the proportion of long-term unemployed jobseekers remains greater than the national average, it is timely for the State Government to intensify its efforts to optimise the impact of those services made available to jobseekers. Disadvantaged jobseekers in particular will be beneficiaries of this State Budget.
The previous five Budgets delivered an extra $190 million in real terms to improve community services, important for both social and economic reasons. This Budget is no different. $99 million will be provided to community services, with a huge boost again to Health.
The ESIF established in this Budget will provide funding, using a strategic approach, to further assist Tasmania's economy and social well being. A holistic approach to infrastructure development has been adopted by the State Government in the provision of ESIF funds, which will be directed to a diverse set of social projects as well as maximising opportunities around infrastructure developments.
The 2003-04 Budget not only addresses the most pressing issues for Tasmania such as unemployment, health and housing, but also maps a path to manage critical funding pressures ahead, spawned by an ageing population. This is a Budget delivered at a time in Tasmania's history when positive factors are
2 Chapter 1: The 2003-04 Budget Development Context widely recognised across the community now, and provides financial flexibility for the future so that these opportunities can be sustained and built upon.
MAJOR 2003-04 BUDGET DRIVERS
The 2003-04 Budget has been developed within a framework based on full accrual accounting. This represents a new system of budgeting that results in:
• presentation of the Budget in accordance with a recognised national framework that includes all sources of funds on an accrual basis; and
• new headline measures for presenting the Budget Outcome and Forward Estimates.
Budgeting for the full costs of providing government services enables both Parliament and the community to ensure that the Government is living within its means and is able to deliver sustainable services in the future.
Accrual financial reporting was introduced in 1996-97. In 2001-02, departments prepared accrual estimates, which formed the basis for a consolidated accrual Budget for the General Government Sector in accordance with generally accepted accounting principles. This represented Phase 1 of the accrual budgeting implementation process. The presentation of consolidated accrual Budget estimates was a first for Tasmania and was the result of significant efforts by Treasury and departments. Phase 2 of the implementation process undertaken in 2002-03 considered conceptual and implementation issues associated with the introduction of accrual budgeting in 2003-04. The introduction of an accrual Budget in 2003-04 is the final phase of the implementation process and will provide a closer link to financial reporting and further demonstrates the Government's commitment to continuous improvement in financial management.
This reform will be embedded into the financial management framework over the next few years, with education, training and communication strategies planned for key stakeholders, to raise the level of knowledge and understanding of the new framework.
The 2003-04 Budget has also been developed and finalised based upon the Government's commitment to the implementation of a number of key strategies (eg Tasmania Together, the Industry Development Plan, Partnership Agreements and the Fiscal Strategy). Detailed information on the economic Budget drivers and the status of the Tasmanian economy is provided in Chapter 2 of this Budget Paper. The following sections highlight the key Government strategies, progress with these strategies and other major 2003-04 Budget drivers.
Tasmania Together – Shaping Our Future
Tasmania Together is a long-term social, economic and environmental vision that articulates where Tasmanians want to be in 2020. It was developed following the most extensive community consultation processes in Tasmania's history. It sets out 24 goals and 212 benchmarks aimed at creating a safer, fairer, more prosperous and environmentally sustainable State.
The goals and benchmarks of Tasmania Together provide a framework for both Government and non-government action and the targets set in the document provide a basis for measuring progress.
Chapter 1: The 2003-04 Budget Development Context 3 Progress toward achieving Tasmania Together benchmarks is reported regularly to Parliament by the Tasmania Together Progress Board to ensure that all Tasmanians are aware of how well the State is performing against the goals. The Board's first Progress Report was tabled in Parliament in August 2002.
The State Government is committed to making a significant contribution towards achieving the goals set out in Tasmania Together. The benchmarks underpin major Government policy initiatives including the Industry Development Plan and the State-Local Government Partnership Agreements and provide a basis for Agency planning and priority setting.
The Government's performance in implementing Tasmania Together is also regularly monitored and new arrangements have been established within Government to ensure that all Agencies are working together to achieve outcomes.
The Budget process has been amended to link policy and financial planning to achieve the community's objectives for the year 2020. This approach is aimed at providing a more integrated framework and incentives for Agencies to address Tasmania Together benchmarks.
To assist in focussing decision-making and resource allocation, the Government has identified a number of priority areas to ensure that new action or an increase in the rate or level of intensity of existing activities is taken to achieve timely progress against a number of benchmarks. Benchmarks have been identified in the following priority areas:
• Poverty;
• Community Safety;
• Education – Retention and Participation Rates;
• Meeting National Educational Benchmarks;
• Promoting Healthy Lifestyles;
• Employment;
• Population Growth;
• Promoting Cooperation between levels of Government;
• Promoting Tasmania; and
• The Environment.
Priority benchmarks are used internally by the Government to guide resource allocation decisions (for both existing and new resources) and provide a focus for the Government to identify new actions and build on achievements currently being realised.
Industry Development Plan
The Government presented its first Industry Development Plan (IDP) in November 1998, within three months of the 1998 Election. The IDP is the Government's key strategic planning document on industry development. It is a vehicle for an integrated response to the strategic priorities of government, industry and the community and is directed at maximising job creation, investment attraction, net export growth, higher value products and enhanced skills base.
4 Chapter 1: The 2003-04 Budget Development Context The Plan's four cornerstones were all in place by the time the Government's second Budget was delivered in May 1999. Since that time, the implementation of the IDP has continued with the following major steps being taken:
• the release of the Government's document The Way Forward in August 1999 that responded to the range of industry audits;
• the holding of forums to brief industry and the community on the IDP and the Government's response;
• the establishment of the Centre for Research, Industry and Strategic Planning; and
• the formation of Industry Councils and development of their industry plans.
The IDPs since 1998 have focused on first halting, and then reversing, the relative economic disparity between Tasmania and the rest of Australia experienced throughout most of the 1990s. The success of the plans in achieving this aim is reflected in Tasmania's improved economic performance reported in Chapter 2 of this Budget Paper.
The 2003 plan, to be released shortly, is based on a community vision for economic development as expressed by Tasmania Together, and an assessment of recent economic performance. A competitive business environment and specific industry plans and partnership agreements form the foundation of the IDP.
The IDP 2003 aims to maximise opportunities for growth by placing more emphasis on export and market development, encouraging major development, capitalising on the opportunities flowing from past and current infrastructure projects and continuing to improve international competitiveness at the business environment, industry and enterprise levels.
Partnership Agreements
The Government is committed to the development of Partnership Agreements as a key mechanism for strengthening working relations with Local Government. The Government recognises that committed progressive local communities and sound local economies are fundamental to the social and economic development of the State. Hence the process for developing Partnership Agreements takes into account consultative mechanisms at the local level, encourages local input to community and economic development decisions and promotes shared responsibilities for improved targeting of service delivery.
The Government's objectives for the Partnership Agreements were outlined in its Framework for Developing State-Local Government Partnership Agreements, revised in October 2001. The Framework is updated periodically to reflect the dynamic nature of the Partnerships Program.
In summary, these objectives are to:
• identify opportunities to work in partnership with Local Government to progress agreed social, economic and environmental outcomes for Local Government areas; and
• ensure effective service delivery arrangements to meet the reasonable needs of all residents including, where appropriate, options to improve coordination and joint service delivery arrangements or address gaps and overlaps in service delivery.
Chapter 1: The 2003-04 Budget Development Context 5 More broadly, the State Government recognises that Partnership Agreements have a key role to play in facilitating the achievement of agreed social, economic and community development goals. In particular, they provide a vehicle to achieve the following whole-of-government strategic policy objectives:
• economic growth;
• social development; and
• environmental sustainability.
Partnership Agreements will also have a role in facilitating the achievement of agreed social, environmental, economic and community development benchmarks identified in Tasmania Together, the 20 year plan to drive the strategic direction of the State. As far as possible, all schedules in Partnership Agreements are now linked to a specific Tasmania Together benchmark.
The pilot phase of the program was launched in December 1998, commencing with the negotiation of a bilateral Partnership Agreement with the Circular Head Council, which was signed on 1 June 1999. The pilot phase concluded with the signing of a bilateral Partnership Agreement with the Launceston City Council on 10 December 1999. Partnership Agreements have since been commenced with councils in every region of the State.
Bilateral Partnership Agreements have been signed with Circular Head, Launceston City, Glenorchy City, Flinders, Hobart City, Kingborough, King Island, George Town, Glamorgan-Spring Bay, West Coast, Central Highlands, Derwent Valley and Break O'Day Councils. Negotiations have either commenced or are well advanced with Meander Valley, Latrobe, Dorset, Devonport City, Northern Midlands and West Tamar Councils. Regional Partnership Agreements provide the parties with the opportunity to look broadly at issues that extend beyond the boundaries of a single council.
Every council in the State is currently involved in one of three regional Partnership Agreements. Eight northern councils are engaged in the Northern Tasmanian Regional Development Board Agreement, which was signed in July 2001. Nine north western councils are involved in the Cradle Coast Authority Partnership Agreement, signed in October 2001. The 12 southern councils are involved in the development of the Southern Tasmanian Councils Partnership Agreement, to be completed in the near future.
In addition, the Premier's Local Government Council (PLGC) was established in 2000 as a forum for high-level discussions with councils on issues of statewide significance. The Council meets three-four times a year, in both the north and south of the State. The Council is chaired by the Premier and comprises the eight elected council representatives who make up the General Management Committee of the Local Government Association of Tasmania (LGAT). An Officials Committee with a membership of State and Local Government officers supports the Council. Statewide Partnership Agreements are negotiated through the PLGC. These involve all councils and the State Government and are signed by the President of the LGAT on behalf of the councils.
Three statewide Partnership Agreements on waste management, simplifying planning schemes and communications and consultation between the two spheres of government have been developed under the PLGC. Work on these Partnership Agreements has now entered the implementation phase.
Further information regarding Partnership Agreements and the Local Government sector is provided in Chapter 13 of this Budget Paper.
6 Chapter 1: The 2003-04 Budget Development Context Competitive Business Environment
A competitive business environment is a critical driver of economic growth for any jurisdiction. Tasmania's business environment is very competitive compared with the rest of Australia. To create an increasingly competitive business environment, the Government has adopted a strategic approach that has four components:
• measuring and addressing cost aspects impacting on competition;
• promoting business enterprise development;
• reducing regulation and eliminating unnecessary regulation; and
• securing major infrastructure developments. Competition Index
To measure and address cost aspects impacting on competition, the Government introduced the Competition Index in 2000. The Competition Index is now an annual document that objectively compares business and industry sector costs and constraints in Tasmania with other States. The independent consulting firm, KPMG, has assessed the methodology used by in the Competition Index as objective and appropriate.
The Competition Index provides the essential measurement necessary to focus government, business and the community on those competitive areas where the State may be weak and which should be addressed, and those areas where Tasmania is strong and which should be maintained. This type of detailed analysis is unique in Australia.
There is a diverse range of cost aspects impacting on business, of which tax on business is one. For a productive discussion to occur about business costs, it is important the debate is broader that just payroll tax. However, isolating both payroll tax and overall taxation severity in the business cost debate still highlights Tasmania's competitive business environment as shown in the tables below.
Table 1.1: Payroll tax rates effective from 1 July 2003 (using average Australian wages) No of Employees Tas Qld WA Vic SA NSW NT ACT m/rate=6.1% $$$$$$$$
50 47 348 59 293 62 172 64 901 72 701 71 172 74 731 36 730 75 101 827 115 856 115 758 111 788 123 340 124 758 130 996 97 907 100 156 306 169 689 169 344 158 676 173 978 178 344 187 261 159 084 200 374 223 339 378 383 688 346 227 376 533 392 688 412 322 403 794 300 592 139 509 067 598 032 533 778 579 088 607 032 637 384 648 503 500 1 027 972 848 445 1 026 720 908 880 984 199 1 035 720 1 087 506 1 137 922
The effective payroll tax paid by business takes into account the threshold above which payroll tax is paid, and the marginal rate that is applied over the threshold. For the purpose of determining the effective rate of payroll tax, average Australian wages are used.
Chapter 1: The 2003-04 Budget Development Context 7 In terms of payroll tax paid in Tasmania, for businesses employing up to 200 employees, which represents 99 per cent of businesses in the State, the effective rate of payroll tax is below the average of all States.
Overall taxation severity is assessed annually by the independent Commonwealth Grants Commission. Overall taxation severity includes payroll tax, land tax, stamp duty on conveyances, financial transaction taxes, insurance taxation, and vehicle registration fees and taxes.
According to the Commonwealth Grants Commission, Tasmania has the lowest taxation severity outside Queensland. In 1996, Tasmania was ranked second-last. Chart 1.1 illustrates the taxation severity of states and territories in 2001-02.
Chart 1.1: Taxation Severity 2001-02
115
110
105
100
95 Ratio 90
85
80
75 NSW Vic Qld WA SA Tas ACT NT
Although Tasmania is clearly highly competitive in terms of business taxation, there are many other important costs impacting on business that need to be monitored and addressed by the Government. The Competition Index shows Tasmania performs very well on some business cost components, while on other components it performs poorly. The aim of the Government in this regard is to maintain those business cost components where the State performs well, and address those components that can be improved.
For example, in terms of direct business costs, which include wages, payroll tax, workers' compensation, superannuation and fringe benefits tax, Tasmania performs best of all States. The components of labour skills are training and formal qualifications, which shows Tasmania performing poorly in qualifications. This result has occurred in part due to the State's industry sector representation, but importantly the result is due to unmet demand for university places. Currently, the University of Tasmania is short around 600 places to meet demand, and both the University and the Government are strongly lobbying the Commonwealth to address this problem.
Tasmania's energy market has been isolated and reliant on electricity. These constraints are being addressed through the major infrastructure projects commenced or about to commence, which include the diversification of the energy market to include natural gas to business and households and, through Basslink, to open the energy market to competition through connection to the National Electricity Market.
8 Chapter 1: The 2003-04 Budget Development Context Currently, the cost of energy in the State has been kept at a relatively high level primarily through its dependence on bottled gas.
Table 1.2 summarises the rankings of states against the Competition Index in 2002. The next competition Index will be released in the later half of 2003.
Table 1.2: Summary of Ranking of States - 2002 2001 Index NSW Vic Qld SA WA Tas Tas
Cost-Based Indices Direct Labour Costs 6 5 3 2 4 1 1 Labour Skills 5 2 3 4 165 Training 6 5 3 4 212 Qualifications 1 1 4 4 366 Labour Turnover 6 3 4 2 4 1 1 Industrial Disputes 5 6 3 1 4 2 1 Land and Accommodation 6 3 5 2 4 1 1 Taxation Severity 3 4 1 6 5 2 n.a. Energy Cost Index 1 3 2 4 566 Electricity 1 5 3 4 623 Reliability 1 2 5 3 4 6 5 Fuel 3214 466 Gas 2143566 Surface Freight Cost Index 3 5 1 2 4 6 6 Air Freight Cost Index 2 1 4 3 6 5 5 Air Travel Cost Index 1 1 4 3 6 5 4 Access to Ports Index 5 4 6 3 2 1 1 Port Charges Index 6 5 2 3 4 1 1 Planning Index 3 n.a. n.a. n.a. 2 1 n.a. Forestry Endowment Index 3 4 2 5 6 1 1 Mineral Resource Endowment 3625411 Proximity to Markets Index 1 2 3 4 566
Business Enterprise Development
To ensure all growth opportunities for local business are maximised, the Industry Development Plan provides a broad range of enterprise development programs to business which tactically improve Tasmania's chances of grasping growing export and import replacement trade. As part of the Industry Development Plan, Industry Audits were carried out across the State in 1999, which identified a number of issues as constraints to Tasmanian business growth and competitiveness. Issues such as access to finance, networking between complementary business to create greater levels of scale and scope, trade and marketing assistance, and promoting entrepreneurism and innovative ideas are all now encapsulated in industry-based programs.
Chapter 1: The 2003-04 Budget Development Context 9 Following the completion of the Industry Audits, eight Industry Councils were established as a conduit between government and industry and to formulate specific industry-sector plans. Through this process, the Industry Development Plan continues to develop, guided and driven by industry stakeholders.
Business enterprise development delivered through industry-based programs is provided by the Department of Economic Development, the Department of Primary Industries, Water and Environment, the Department of Infrastructure, Energy and Resources, and the Department of Tourism, Parks, Heritage and the Arts.
According to the Australian National Organisation Study (AusNOS) undertaken in 2002, the rate of access to assistance from government programs by business is around 20 per cent higher in Tasmania than the next best performing State (Table 1.3). Over 80 per cent of organisations that had received assistance from government programs claimed that this assistance helped a great deal or somewhat, indicating the importance placed by local business on government programs providing assistance to improve performance and competitiveness. Industry-based programs provided by government are obviously very important to business, and the interaction between government and business in that regard is higher in Tasmania than any other jurisdiction.
Table 1.3: Assistance from any Government Program by State STATE NSW Vic Qld SA WA Tas NT ACT
Yes (%) 35.9 47.3 41.1 53.3 40.9 69.2 50.0 52.6 No (%) 64.1 52.7 58.9 46.7 59.1 30.8 50.0 47.4 Total (No) 153 131 158 45 44 26 12 19
Reducing Regulation or Eliminating Unnecessary Regulation
Unnecessary regulation that constrains business activity is being stripped away by the Government. The Government has in place a comprehensive program to ensure only relevant legislation and regulation remain or are placed on the statute books. Using the principles of National Competition Policy, the Government has put in place a mechanism to review all existing legislation for anti-competitive features and, unless a strong public benefit test shows those features are in the public's best interest, they are removed.
In five years, 134 Acts have been removed or repealed. Complementing this process is a gatekeeper assessment of all new legislation. The repeal of unnecessary legislation will continue in conjunction with the Subordinate Legislation Act 1992. The Government's commitment to reducing and eliminating unnecessary government regulation was recently demonstrated through the successful delivery of legislation to open-up shop trading hours. Securing Major Infrastructure Projects
The largest and most diverse range of major infrastructure projects in the State's history has been secured. In just over four years, $2 billion of major infrastructure projects that include natural gas, wind energy, Basslink, an optic fibre network, the two high-speed ferries plying Bass Strait and water developments to boost agricultural production, have commenced or are about to commence.
10 Chapter 1: The 2003-04 Budget Development Context Major infrastructure projects not only generate employment and economic activity directly in the construction phase, but also deliver indirect opportunities for new major projects, new or expanded business, and underpin increased competitiveness.
The $400 million gas pipeline has been completed by Duke Energy, as has the $50 million first-stage conversion of the Bell Bay power station. The $200 million reticulation of gas to homes and businesses will commence in the first half of 2003. With the rollout of natural gas comes the opportunity to use the open trenches for the establishment of an optic fibre network. Worth in excess of $100 million, Tasmania's high-speed, broadband telecommunications network will not only be unique in Australia, but will make the State one of the few jurisdictions in the world with a comprehensive optic fibre network.
The introduction of natural gas will provide competition in the energy market, and will also allow some manufacturers to diversify their products where a gas flame is required. The establishment of the optic fibre network will provide new options for homes and businesses and create competition in the telecommunications market.
A $200 million wind energy project has commenced at Woolnorth and another $270 million project at Heemskirk on the West Coast is to be approved. Now that Basslink has been approved, there is the opportunity for $1 billion worth of wind energy projects over the next ten years.
Indicative of how infrastructure projects not only create employment and economic activity in the construction phase, Danish wind turbine manufacturer, Vestas, has committed to a $50 million plant to produce nacelles for windmills. Vestas has also flagged the possibility of a much more substantial investment in Tasmania to manufacture the windmill blades for the Asia Pacific region.
The $500 million Basslink project, which will allow the State to sell its surplus energy to the National Electricity Market (NEM) via a cable across Bass Strait, has commenced. The entry of Tasmania into the NEM brings with it around 60 per cent of the nation's renewable energy certificates. An optic fibre cable will be laid across Bass Strait with Basslink, supporting competition in telecommunications.
The Government has provided $290 million for two high-speed, monohull ferries, which commenced service across Bass Strait in September 2002. The introduction of the two ferries has doubled the capacity for both passengers and freight, and has the capability of doubling that capacity again when demand necessitates double crossings within a 24-hour period by each ferry. The introduction of the two new ferries has brought record tourist numbers, creating increased demand for local goods and services. The introduction of the two new ferries has also brought, for Tasmanian businesses, unprecedented access to interstate markets.
The Government's approach to creating a more competitive business environment has been strategic and comprehensive, using the measurement of Tasmania's relative performance compared with other jurisdictions as a yardstick, and recognising the unique qualities possessed by the State.
Fiscal Strategy
A credible and achievable medium-term Fiscal Strategy is an essential component of prudent contemporary financial management practice. It represents not only an effective planning tool for the Government, but also provides clear signals to financial markets, the business sector and the community of the Government's direction in financial management. A Fiscal Strategy also provides a framework for the Government to demonstrate to credit rating agencies the financial focus of the Government, any identified issues or problems and how these will be addressed.
Chapter 1: The 2003-04 Budget Development Context 11 The Fiscal Strategy
Having achieved all of the targets established in the previous Fiscal Strategy some two years ahead of schedule, the Government developed a new Fiscal Strategy in 2002. The current Fiscal Strategy builds on the significant achievements of the previous Fiscal Strategy and focuses on continuing the Government's record of strong financial management.
The Fiscal Strategy supports the Government's priority initiatives such as Tasmania Together, the Industry Development Plan and Partnership Agreements by delivering quantifiable benefits to the community in the form of improved service provision, tax cuts and infrastructure development. Key elements of the Fiscal Strategy include ongoing Budget surpluses, the elimination of General Government Net Debt and net interest payments, a significant reduction in Total State Sector Net Debt and the elimination of the Government's unfunded superannuation liability within a reasonable time frame.
The current Fiscal Strategy extends for a period of six years, and commenced in 2002-03. Extending the period of the Fiscal Strategy to six years represents an appropriate medium-term timeframe in which to set Tasmania's fiscal goals. The conclusion of the current Fiscal Strategy will also coincide with major achievements such as the elimination of General Government Sector Net Debt.
The principles and targets, which form the basis of the Fiscal Strategy, are outlined in detail below. Budget Position Principle - To strengthen the State's financial position, the State Budget will be managed in surplus on a long-term sustainable basis to achieve the Government's net debt targets.
Target - The annual General Government Sector Budget will be maintained in surplus; and
- The General Government Sector cash surplus will be sufficient to achieve the Government's established net debt targets.
The annual Budget outcome is a vital factor in the long-term management of the State's finances. In the absence of asset sales being directed towards debit reduction and additional financial assets, the only means of achieving a significant reduction in net debt is through the achievement of ongoing surpluses. In order for the net debt targets established as part of the Fiscal Strategy to be achieved, it is necessary that the targeted levels of Budget surpluses be achieved. Debt and Liability Reduction Principles - The debt and liability burden on the Tasmanian community will be further reduced.
Targets - General Government Sector Net Debt will be below $450 million by June 2005;
- General Government Sector Net Debt will be eliminated by June 2008;
- General Government Sector Net Interest Costs will be zero by June 2008;
- Total State Sector Net Debt will be below $1 000 million by June 2008;
- The State's unfunded superannuation liability will be extinguished within 15 years (that is, by June 2018); and
- Net Financial Liabilities for the General Government Sector will be eliminated within 14 years (that is, by June 2017).
12 Chapter 1: The 2003-04 Budget Development Context Achieving a reduction in the level of net debt is a critical factor in the achievement of further improvements in the State's financial position while also reducing the pressure on the annual Budget from increases in interest rates. A reduction in the level of debt is also of great importance due to the strong focus rating agencies place on the liability side of the State's Balance Sheet.
In addition to these significant benefits, the reduced interest costs associated with debt reduction also mean that savings are generated which can then be applied to major Government initiatives such as tax cuts, improved services to the community and increased spending on public infrastructure. This has been a significant factor in the increased funding which the Government has been able to apply in recent Budgets to a range of services and initiatives. Chart 1.2 details the estimated reduction in net debt in the Total State and General Government Sectors. The small temporary rise in Total State Sector Net Debt in 2001-02 is due to the purchase of the two vessels for the Bass Strait service.
Chart 1.2: Total State Sector and General Government Sector Net Debt
3 000
2 000
1 000
0 $ million (nominal terms) (1 000) 1999 2000 2001 2002 2003 (est) 2003 (est) 2004 (est) 2005 (est) 2006 (est) 2007 (est) 2008 General Government Total State Sector
Chart 1.3 illustrates the targeted reduction in General Government Sector Net Interest Costs to zero by June 2008.
Chapter 1: The 2003-04 Budget Development Context 13 Chart 1.3: General Government Sector Net Interest Costs
180 160 140 120 100 80 $ million 60 40 20 0 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 (est) 2002-03 (est) 2003-04 (est) 2004-05 (est) 2005-06 (est) 2006-07 (est) 2007-08 Net Interest Cost
Taxation Competitiveness Principle - Maintain a competitive State tax environment.
Targets - Tasmania's tax severity (as measured by the Commonwealth Grants Commission) will remain below the average of all states and territories and below that of Victoria; and
- There will be no new taxes and no increase in the rate of any existing taxes.
The Government is committed to fostering an increasingly competitive business environment in Tasmania and to ensuring that Tasmania is an attractive place for people to live. These are both major factors in increasing the level of employment in Tasmania.
Through its Industry Development Plan and a range of other major strategies and initiatives, the Government has actively sought to achieve these important objectives. Foremost amongst these strategies and initiatives has been the creation of a competitive State tax environment through the implementation of State tax reform.
The principles and targets relating to taxation competitiveness established in the Fiscal Strategy will ensure that Tasmania continues to be highly competitive with the other states and territories when it comes to levels of business and other taxation. Infrastructure Maintenance Principle - Maintain infrastructure to support the delivery of Government services and to foster economic and industry development.
Target - The State funded component of the Capital Investment Program will be maintained in real terms.
The proper maintenance of Tasmania's public infrastructure assets and investment in new public assets is essential to the effective delivery of services to the community and to promoting growth within the State. Appropriate levels of ongoing capital expenditure also assists in reducing the likelihood and impact of significant one-off capital expenditure 'hits' on the Budget.
14 Chapter 1: The 2003-04 Budget Development Context The focus on infrastructure maintenance as part of the Fiscal Strategy will ensure that the significant additional expenditure which has been allocated by the Government to infrastructure maintenance in recent years will be supported by the maintenance, in real terms, of the level of State funding provided in the Capital Investment Program over the next five years. Risk Management Principle - Ensure that adequate mechanisms and financial provisions are in place to minimise the risks to the Tasmanian Government.
Target - The Tasmanian Risk Management Fund will operate on a fully funded basis and have reserves that are sufficient to meet estimated outstanding liabilities.
While it is prudent financial management to reduce levels of net debt and unfunded superannuation liabilities and to seek to increase the level of Budget surpluses, it is also prudent financial management to seek to reduce the impact which other risks could have on the Government's overall financial position. Through the establishment of the Tasmanian Risk Management Fund in December 1998, the Government has taken important steps to reduce the potential impact of a range of risks on government agencies.
The inclusion of this principle and target in the Fiscal Strategy emphasises the importance of the Government continuing to take appropriate action in relation to minimising all risks to the Government's financial position. Progress on the Fiscal Strategy Targets
With the move to an accrual Budget, the Fiscal Strategy measures were reviewed to assess the impact of the new framework; it was found that the measures and targets continue to be relevant and that it was not necessary to amend the strategy.
Table 1.4 below shows the current Fiscal Strategy and an assessment of the progress to those measurable targets based on Budget estimates.
Chapter 1: The 2003-04 Budget Development Context 15 Table 1.4: Fiscal Strategy Targets 2002-03 Assess- Tactical target 2001-02 Revised 2003-04 2004-05 2005-06 2006-07 ment of Actual Estimate Estimate Estimate Estimate Estimate Progress
Consolidated Fund to be maintained in 4.9 5.6 4.7 5.2 5.9 8.1 surplus ($ million) Maintain General Government Cash 211 173 83 124 117 135 surplus sufficient to achieve the Government's Net debt Targets ($ million) General Government net debt to be below 751 573 461 337 220 85 $450 million by June 2005 and to be eliminated by June 2008 ($ million) General Government Net Interest Costs1 to 66 65 52 47 33 20 be zero by June 2008 ($ million) Total State Sector Net Debt to be below 2 089 1 789 1 614 1 437 1 275 1 119 $1 000 million by June 2008 ($ million) State's Net Unfunded Superannuation 1 314 1 342 1 324 1 300 1 271 1 234 Liability to be extinguished by June 2018 ($ million) General Government Net Financial 2 557 2 529 2 495 2 442 2 390 2 315 Liabilities be eliminated by June 2017 ($ million) Tasmania's Tax Severity (as measured by Tas 93.3 n.a n.a n.a n.a n.a. the Commonwealth Grants Commission) Vic 106.7 be maintained below the average of all states and below that of Victoria (Avg = 100) State-Funded component of the Capital 4.62 5.02 3.6 3.0 3.0 3.0 Investment Program (Annual Appropriation) to be maintained in real terms (%) Sources: Department of Treasury and Finance, Commonwealth Grants Commission and the Australian Bureau of Statistics (ABS) Notes: 1. Net Interest Costs excludes nominal interest on superannuation. 2. The State-Funded Component of the Capital Investment Program (CIP) in 2001-02 and 2002-03 does not include the CIP expenditure of approximately $5 million in both years for the replacement of the fire damaged Reece High School.
Key: On Target, ☯Issues to be addressed, X Remedial action required, n.a data not available
Table 1.4 shows that the Government will achieve all elements of the Fiscal Strategy, while also:
• addressing the major risks that have impacted on the management and development of the State Budget over previous years arising from past inadequate funding of health and community services and the growth in the State's unfunded superannuation liability;
16 Chapter 1: The 2003-04 Budget Development Context • fully providing for all of the Government's insurable risks;
• providing significant additional recurrent funding to agencies for social services;
• establishing Infrastructure Funds to facilitate the improvement of Tasmania's economic and social infrastructure; and
• implementing a range of initiatives to improve the Tasmanian economy.
The Budget Position
The financial position of the State has been the subject of considerable debate for many years. Much of the focus of initiatives of successive Governments over the past decade has been on improving the State's financial position. In assessing the State's financial position, attention is focused on a range of financial factors such as the annual Budget position, the State's liabilities and the State's assets.
Historically, Governments have incurred an annual cash Budget deficit ie Government expenditure has exceeded Government revenue. This excess of expenditure over revenue is referred to as the Net Financing Requirement (NFR). A cash Budget surplus is described as a Consolidated Fund Surplus (CFS). The Budget deficit was funded by successive Governments undertaking borrowings each year which in turn increased the level of expenditure on debt servicing costs. Such a position was unsustainable in the long-term, adversely affected the State's financial position and significantly impacted on the Government's capacity to provide services to the community.
In 1990, the Field Labor Government introduced the first Fiscal Strategy to be adopted by a Tasmanian Government. Between 1990 and the election of the Bacon Government in 1998, the implementation of a number of fiscal strategies by successive Governments resulted in a significant reduction in the NFR.
The Bacon Government introduced a new Fiscal Strategy as part of the 1998-99 Budget. Consistent with the requirements of that Fiscal Strategy, since 1999-00 the Budget deficit (NFR) has been eliminated and small, but increasing, Budget surpluses achieved. In addition, through strong financial management, all other targets under the Fiscal Strategy were achieved two years ahead of schedule. The achievement of a CFS and meeting the fiscal targets represented a significant milestone in the improvement of the financial position of the State.
Having achieved all of the targets established in the previous Fiscal Strategy some two years ahead of schedule, the Government developed the current Fiscal Strategy in 2002. Details of the Fiscal Strategy are provided earlier in this Chapter.
Chart 1.4 shows the reduction and eventual elimination of the NFR during the 1990s and the achievement of a CFS from 1999-00. The Chart also shows the projected CFS result for the next four years.
The Government's new headline accrual Budget measure, the Fiscal Surplus, is shown in Chart 1.5. Chart 1.5 shows the Fiscal Surplus for the period 2001-02 to 2006-07.
Chapter 1: The 2003-04 Budget Development Context 17 Chart 1.4: Elimination of Net Financing Requirement1
20 0 - 20 - 40 - 60 - 80 - 100
$ million (nominal) - 120 - 140 - 160 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 (est) 2002-03 (est) 2003-04 (est) 2004-05 (est) 2005-06 (est) 2006-07
Note: 1. Figures for 2002-03 to 2006-07 are estimates only based on the Forward Estimates. The positive NFR shown in the above chart from 1999-00 onwards represents a Consolidated Fund Surplus. Fiscal Surplus
In 2003-04, the Fiscal Surplus is estimated to be $6.9 million, a decrease of $19.1 million on the 2002-03 Budget estimate of $26.0 million.
The Fiscal Surplus outcome for 2002-03 is estimated to be $121.0 million, an increase of $95 million on the 2002-03 Budget estimate of $26 million. The estimated increase is largely due to an increase in State taxation revenue and, to a lesser extent, Commonwealth revenue and lower than anticipated capital works in 2002-03. For further information on the 2002-03 Fiscal Surplus outcome, refer to Chapter 8 of this Budget Paper. This surplus has resulted in a once-off build up of funds, which will be paid into the new Economic and Social Infrastructure Fund (ESIF). The reduction in the 2003-04 Fiscal Surplus reflects increased expenditure from the ESIF and from other one-off cash reserves established in 2002-03.
The achievement of a Fiscal Surplus is in line with the Government's Fiscal Strategy and indicates that the Government is saving more than enough to finance all of its operations and capital spending. Whilst maintaining a Fiscal Surplus, the 2003-04 Budget delivers substantial Budget initiatives to support the Government's strategic approach to social and economic development.
18 Chapter 1: The 2003-04 Budget Development Context Chart 1.5: Fiscal Surplus, 2001-02 to 2006-07
200 180 160 140 120 100
$ million 80 60 40 20 0 2001-02
2002-03 (est) 2002-03 (est) 2003-04 (est) 2004-05 (est) 2005-06 (est) 2006-07 Note: 1. The reduction in the 2003-04 Fiscal Surplus reflects increased expenditure from the ESIF and from other one-off cash reserves established in 2002-03. Assets
As at 30 June 2002, the Tasmanian State Government Sector controlled assets (on a Uniform Presentation Framework (UPF) basis) of $14 737 million.
On an individual sector (unconsolidated) basis, this comprised:
• General Government Sector assets of $11 018 million;
• Public Non-Financial Corporations Sector assets of $6 383 million; and
• Public Financial Corporations Sector assets of $5 882 million.
The General Government Sector assets at 30 June 2004 are estimated to be $10 599 million.
The most significant estimated General Government Sector asset holdings at 30 June 2004 are in the areas of:
• cash assets ($351 million) – this includes cash and deposits, advances paid and investments, loans and placements;
• land and fixed assets ($5 672 million) – this includes assets such as schools, hospitals, other buildings and Crown land (including national parks and conservation areas), together with plant and equipment held by the Government for the production of goods and services, and infrastructure assets, such as roads and bridges;
• other non-financial assets ($64 million) – this includes other assets used for the production of goods and services; and
• other non-equity assets ($335 million) – this includes accounts receivable of $127.6 million, income tax equivalents and dividends receivable of $192.9 million, prepayments of $3.8 million, accrued revenue of $3.7 million, GST receivable of $5.9 million, and other receivables of $1.3 million.
Chapter 1: The 2003-04 Budget Development Context 19 Further information on the Government's assets can be found in Chapter 7 and Appendix 1 of this Budget Paper. Liabilities
As at 30 June 2002, liabilities of the Tasmanian State Government Sector (on a UPF basis) totalled $7 882 million.
On an individual sector (unconsolidated) basis, this comprised:
• General Government Sector liabilities of $4 167 million;
• Public Non-Financial Corporations Sector liabilities of $2 588 million; and
• Public Financial Corporations Sector liabilities of $5 810 million.
The General Government Sector liabilities at 30 June 2004 are estimated to be $3 427 million.
The level of debt which a state holds at a particular point in time, and trends in the level of debt, are significant factors in the assessment of the overall financial position of the State. These indicators provide a guide to the financial position of the state and the Government's financial performance. This in turn impacts on business confidence in investing in the state and, through assessments of the State's credit rating, it also impacts on the cost of borrowings to the State. The resulting debt servicing costs limit the level of resources available to fund the provision of community services.
As with the State's Budget position, Tasmania's relatively high debt position has been a strong focus of the Fiscal Strategies which were implemented by successive Governments during the 1990s.
Further information on the Government's liabilities can be found in Chapter 7 and Appendix 1 of this Budget Paper. Net Debt
The standard measure to assess the State Government's indebtedness is Net Debt as defined by the Uniform Presentation Framework (see Chapter 3 and Appendix 1 of this Budget Paper).
The estimated Total State Government Sector Net Debt at 30 June 2004 is (in nominal terms) $1 614 million. This represents a decline , in nominal terms, of 10 per cent from the 30 June 2003 estimate of $1 789 million. In real terms, a decrease in Total State Government Sector Net Debt of 57 per cent or $2 183 million has been achieved since the peak Net Debt level of $3 797 million at 30 June 1994. The substantial progress in reducing debt has been endorsed by Ratings Agencies, as underscored by Standard and Poor's confirmation of Tasmania's AA rating and upgrading the outlook from 'stable' to 'positive' in October 2002. Moody's Investor Services (Moody's) has assigned Tasmania an Aa2 rating. However, in November 2002 Moody's provided an encouraging indication that an upgrade to Aa1 is likely when it assigned Tasmania a positive outlook.
Chart 1.6 shows that Tasmania's General Government Sector Net Debt as a proportion of Gross State Product (GSP) has been comparable with South Australia and the Northern Territory, but significantly higher than New South Wales, Victoria, Queensland, Western Australia and the Australian Capital Territory (ACT). The Chart shows a significant decrease in Net Debt as a proportion of GSP for South Australia in 2000-01 as a result of the long-term lease of its electricity assets. However, unlike Victoria and South Australia, Tasmania has retained its electricity businesses in public ownership. These businesses make significant annual contributions to Tasmania's Budget position. There has also been a steady decrease,
20 Chapter 1: The 2003-04 Budget Development Context over the five years to 2000-01, in Net Debt levels as a proportion of GSP for all other states and territories, with the exception of Queensland.
Chart 1.6: General Government Sector Net Debt as a percentage of GSP1
20
15
10
5
Per cent 0
-5
-10
-15 NSW Vic Qld SA WA Tas NT ACT 1996-97 1998-99 2000-01 2001-02
Sources: Government Financial Estimates, Australia 2000-01, ABS Cat No 5501.0; Australian National Accounts: State Accounts, 2000-01, ABS Cat No 5220.0. Note: 1. The 2001-02 figure for Tasmania is an estimate only. Outcomes for other states are unable to be calculated until debt information is published by the Australian Bureau of Statistics in its 2001-02 Government Financial Statistics publication Cat No 5512.0. GFS Cash Surplus/(Deficit)
Chart 1.7 emphasises the substantial improvement in the level of Tasmania's Total State Government Sector Net Debt, as a percentage of GSP, which has occurred since June 1998.
Chapter 1: The 2003-04 Budget Development Context 21 Chart 1.7: Tasmania Total State Government Sector Net Debt as a percentage of GSP
40
35
30
25
20
Per cent Per 15
10
5
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 (est) 2004 (est) General Government Total Non Financial Public Sector Total State Government Sector
The acquisition of two vessels by the TT-Line in 2001-02 resulted in a temporary increase in Total State Sector Net Debt as at 30 June 2002, after which there is a projected substantial decrease in net debt, consistent with the Government's Fiscal Strategy. It is estimated that despite the purchase, Total State Sector Net Debt at June 2003 will be less than it was at June 2001. In terms of the Government's overall debt strategy, the purchases will have no impact on the stated financial target of eliminating General Government Sector Net Debt by 2007-08. Net Worth
The Net Worth of Tasmania is represented by the difference between the level of the State's assets and its liabilities. The net assets of the Total State Government Sector, as at 30 June 2002, totalled $6 855 million. Further details of the State's Net Worth are provided in Chapter 7 of this Budget Paper. Superannuation
The Government's unfunded superannuation liability is a significant component of Tasmania's overall liabilities. Prior to 1994, the Government's liability for the vast majority of public servants was met on an emerging cost basis, that is when the public servant retired. In 1994, a Superannuation Provision Account (SPA) was established in the Special Deposits and Trust Fund in order to accumulate funds over time to offset the unfunded superannuation liability associated with the Retirement Benefits Fund (RBF) scheme.
Agencies are required to pay into the SPA an annual amount determined by the Treasurer, currently 11 per cent of the salary of each public servant who is a member of the RBF defined benefit scheme. The employer share of emerging RBF pensions and lump sum benefits payable to, or in respect of, former public servants of those agencies that contribute to the SPA is then reimbursed to the Retirement Benefits Fund Board from that Account. The balance of the SPA as at 30 April 2003 was $557.3 million, which is $136.3 million more than at 30 June 2002 ($421.0 million).
22 Chapter 1: The 2003-04 Budget Development Context It should be noted that while the agency contributions into the SPA relate to service after 1 July 1994, the payments made from that Account often relate to the service of employees before that date. This is the reason why annual contributions into the SPA from Finance-General are required.
In 1999, the Government made significant superannuation reforms, closing the defined benefit scheme to new entrants and establishing a fully funded, and hence fully portable, superannuation scheme for new entrants and those current employees who were not members of the RBF defined benefit scheme. This reform, which had been introduced into most other states a few years earlier in respect of public servants, went further than in all other jurisdictions in that it was also applied to the State's parliamentary and judicial superannuation arrangements.
The effect of these changes is that all new public servants appointed after 15 May 1999, all new members of Parliament elected after 1 July 1999 and all new judges and Solicitors-General appointed after 1 July 1999 are now members of fully funded superannuation schemes. As at 31 December 2002, over 63 per cent of all Tasmanian public sector employees are now members of fully funded superannuation schemes. This percentage will clearly increase over time, as members of the closed defined benefit schemes exit. These developments ensured that the Government met its Fiscal Strategy commitment that the accruing superannuation liabilities of all new public sector employees would be fully funded on and from 1 July 1999.
The purpose of the 1999 reforms was to ensure that the State's unfunded superannuation liability was firstly capped and then eventually eliminated over a reasonable time period. In the first instance, the reforms capped the unfunded liability in the sense that no new employees would add to that liability. It was accepted, however, that the unfunded liability would continue to increase in nominal terms for a number of years (as salaries increased, members worked additional years of service and so on), but that eventually it will disappear as membership of the closed schemes declines.
Notwithstanding the minor increase in the unfunded liability of the RBF scheme as at 30 June 2002, in nominal terms, the most recent advice from the State Actuary confirms that the State's net unfunded liability is expected to be eliminated by June 2018. That is, at that date, the balance of the SPA is forecast to exceed the RBF net liabilities.
The most recent estimates of the State's future net unfunded liability are also shown in Chart 1.8. On the most recent economic, financial and demographic assumptions, and on current and planned funding efforts, the State Actuary has estimated that this net unfunded liability will be eliminated within 15 years. Had the Labor Government not taken the decision to close the unfunded RBF defined benefit scheme in mid-1999 and increase provisions to meet the emerging costs of the RBF defined benefit scheme, the State would be facing a crippling superannuation liability over future decades, which would have put increasing and unsustainable pressure on the General Government Sector Budget.
Chapter 1: The 2003-04 Budget Development Context 23 Chart 1.8: Projected Unfunded Liability
5 500 5 000 4 500 4 000 3 500 3 000 2 500 $ million 2 000 1 500 1 000 500 .... 2002-03 2007-08 2012-13 2017-18 2022-23 2027-28 2032-33 2037-38 2042-43 2047-48 2052-53 2057-58 2062-63
1996-97 JSC projections 2003-04 projections
Source: Department of Treasury and Finance
Further information on superannuation is provided on Chapter 7 of this Budget Paper.
INFRASTRUCTURE AND MAJOR PROJECTS
Promotion of infrastructure and major project development is a key feature of the Government's strategic approach to the Tasmanian economy.
Major infrastructure like natural gas, wind energy, optic fibre, Basslink and water developments are not only important in terms of jobs in the construction phase, but because of the contribution they make to a more competitive business environment and the many indirect opportunities that arise because of the very nature of the infrastructure.
For decades, Governments of all persuasions in all States have provided substantial funds to promote industry development. Every State has an industry development agency of some description, resourced by significant budget funds to carry on the day-to-day operations and policy development, as well as significant funds to develop and maximise economic opportunities. The issue therefore is not about whether Governments provide funds, but whether they are wisely spent and whether the Government is accountable for the spending.
Tasmania is no different.
The 2003-04 Budget provides for the facilitation of direct and indirect opportunities arising from infrastructure and major projects through a new fund: the Economic and Social Infrastructure Fund (ESIF).
The ESIF is complemented by specific funding to the Department of Economic Development (DED) to manage issues affecting the securing of major projects and promoting enterprise development. In addition, a number of other government agencies and business enterprises involved with energy and infrastructure
24 Chapter 1: The 2003-04 Budget Development Context devote considerable expenditures to infrastructure developments, which have economic as well as social and community consequences.
Every dollar committed to pursue industry development is accounted for through a range of publicly available processes, the most significant of which is reporting and accountability through the annual State Budget process.
The Bacon Government has worked strategically to deliver the largest and most diverse range of infrastructure developments in the State's history.
The range of infrastructure developments includes natural gas, wind energy, Basslink, and optic fibre, transport and tourism capacity through the two new monohull ferries, and increased agricultural capacity through the State's water infrastructure plan.
Through its industry development resources, both human and financial, the Government will ensure the direct and indirect opportunities arising from infrastructure developments are achieved and maximised. The consultative arrangement with stakeholders structured into the Industry Development Plan, specifically with Industry Councils and through Partnership Agreements, will effectively identify these opportunities.
Harnessing these opportunities is the Government's number one priority and its biggest challenge.
Securing Infrastructure and Major Projects – Direct and Indirect Opportunities
Significant human resources through government agencies and financial resources from the ESIF will be tactically provided to ensure further infrastructure and major projects are secured. Funding provided to secure infrastructure and major projects is detailed in Chapter 4 of Budget Paper No 2 Operations of Government Departments 2003-04. Natural Gas – Direct Opportunity
Natural gas infrastructure includes:
• $400 million pipeline constructed by Duke Energy across Bass Strait;
• $200 million reticulated pipeline constructed by Powerco; and
• $50 million - $100 million conversion of Bell Bay power station from oil to gas.
The State Government provided significant human resources and accepted a limited contingent liability on the sale of gas through the pipeline as a part of the $400 million project and $50 million - $100 million upgrade of Bell Bay power station by Duke Energy.
In terms of the $200 million reticulated pipeline being controlled by Powerco, the Government's intention is for as much as possible of the ongoing project to be funded by the private sector. However, the State Government has agreed to provide funds to achieve an optimum rollout into the future. Stage one of the gas distribution rollout by Powerco has seen an injection of $8 million from the Government to ensure the gas backbone is extended to major industrial customers and provides the basis for further reticulation.
Further Government funds, in the event that this is required, will be fully budgeted for. In situations like this, the Government considers not only the financial returns from providing such funds, but also the economic outcome of the application of such funds.
Chapter 1: The 2003-04 Budget Development Context 25 Natural Gas – Indirect Opportunities and Major Projects
The rollout of natural gas will deliver indirect opportunities to Tasmanian homes and businesses.
For both homes and businesses, the competition natural gas brings to the energy market in Tasmania will immediately deliver lower prices to those currently using bottled gas, and will make gas competitive with electricity.
Tasmania has a well established and diverse manufacturing base. A significant proportion of these businesses, previously constrained by not having reticulated natural gas available, will have the opportunity to diversify their manufacturing base and/or lower production costs.
Complementing Tasmania's competitive business environment, it is anticipated the widespread reticulation of natural gas will also enable the promotion of a more diverse manufacturing base in the State. Optic Fibre – Direct Opportunity
Natural gas reticulation has provided Tasmania with the opportunity to reticulate optic fibre in the gas trenches to the businesses and households being supplied with gas.
This opportunity is presented because trenching represents a significant proportion of the costs involved in establishing optic fibre infrastructure.
The State Government has ensured that it remains in control of three critically important components of telecommunications infrastructure. Those components are:
• the optic fibre to be laid with Basslink connecting Tasmania to the mainland;
• the optic fibre that has been laid with the Duke gas backbone; and
• the option to access the trenches and install conduit and optic fibre as the Powerco reticulation of gas continues to homes and businesses across the State.
The private sector will be integrally involved in bringing these three components together in the development of a competitive telecommunications market in Tasmania for the first time ever. The development of this project will create jobs and significant private sector investment in the construction phase and in the management of the asset and delivery of telecommunications services on completion. Optic Fibre – Indirect Opportunity
By developing the roll out of optic fibre through natural gas reticulation, the State will be one of the few jurisdictions in Australia that enjoys access to a genuinely competitive telecommunications market. In having an independently owned telecommunication infrastructure in competition to the dominant market player, Tasmanian businesses, homes and educational facilities can expect to see:
• competition in the provision of standard telecommunication services;
• access to more innovative telecommunications applications that provide solutions to Tasmanian specific issues such as a disbursed population; and
• advanced research activities looking to exploit the opportunities that will emerge by having a highly connected community.
26 Chapter 1: The 2003-04 Budget Development Context Just as the delivery of natural gas and the more competitive energy market it will deliver in Tasmania will create opportunities for industry development, so too will the provision of a competitive telecommunications market provide opportunities for emerging and future industries to flourish.
Tasmania's Information Technology sector has seen 100 per cent growth over the last four years, but as recognised in the Government's 1999 ITC Industry Audit, one of the major constraints to continued growth in this and the Financial Services sectors is access to low cost telecommunications. The development of a competitive telecommunications market enable these key sectors to grow and it will also be a major attraction for innovative technology companies in determining where they establish development and service offices.
Through this development, Tasmanian communities will get access to improved online and digital services and will be better able to access online educational services, creating further lifelong learning opportunities. Opportunities for Tasmanian education institutions to export online education products and services will also increase. Wind Energy – Direct Opportunity
Wind energy development is being progressed entirely through the private sector, with Hydro Tasmania managing this approach in accordance with discussion and input from the State Government through the two Shareholders Ministers.
Tasmania has some of the world's best sites suitable for the generation of wind energy, and the Tasmanian brand is highly compatible with the generation of clean energy. $200 million has been committed to wind energy development at Woolnorth and another $270 million wind energy project has been proposed for Heemskirk on Tasmania's west coast. Windmill towers are constructed in Tasmania and the Danish firm, Vestas, is establishing a composite plant for the manufacture of the nacelles for windmills. Basslink – Direct Opportunity
Linking Tasmania into the National Electricity Market (NEM) via a transmission cable across Bass Strait, Basslink is a $800 million infrastructure project which has commenced. Basslink will enable surplus energy generated in Tasmania to be sold interstate, providing Australia with a significant amount of its renewable energy needs. It is estimated that around 360 direct and indirect jobs will be created in the construction stage until the end of 2005. Basslink – Indirect Opportunity
Previously constrained by the availability of electricity to attract industry, through Basslink, Tasmania now has new energy generating industries and the capacity to provide energy to new industries interested in Tasmania's competitive business environment.
Tasmania is rich in resources, including minerals and forestry, but the downstream processing of those resources is often energy intensive. Energy provision is no longer a constraint. Local industry expansion and attraction of resource processing industries will be strategically pursued. Bass Strait Ferries – Direct Opportunity
Access to Tasmania has been an historical constraint on the State. The introduction, at a cost of $290 million, of the two, of the two high-speed ferries servicing Bass Strait heralds a new era for access to the State, both in terms of tourism and freight. The dual ferry service has already delivered record numbers of tourists and vehicles through increased capacity.
Chapter 1: The 2003-04 Budget Development Context 27 Bass Strait Ferries – Indirect Opportunity
Demand is the most critical driver of growth for local business. Demand in Tasmania is at historic levels, evidenced by record levels of State Final Demand which in more recent times has been growing at a rate faster than the nation. This positive economic impact is already being contributed to by the two ferries and will be supplemented into the future by the increased number of tourists they bring.
As a direct result of increased access to Tasmania, over $300 million in private investment towards tourism infrastructure has already been committed or planned.
To maximise this positive impact through increased access to the State, significant funds from the ESIF are provided for tourism marketing, infrastructure for national parks, York Park and for Highfield House in Tasmania's northwest.
Since the new ferry service came into operation, ABS estimates of Tasmania's population have also risen markedly. Complementing the return to population growth brought about by Tasmania's economic recovery, increased access to the State provided by the two ferries already appears to be accelerating population growth. Water Infrastructure Development – Direct Opportunity
In the 2001-02 State Budget, the Government set aside $10 million in its Infrastructure Fund for water infrastructure. As a direct result, the Meander Dam will be the first major water infrastructure development in Tasmania for almost 20 years. The new wine industry established in the Coal River Valley arose from the Craigborne Dam, which was the last major water infrastructure development.
Similarly, the Meander Dam and ensuing water infrastructure developments will not only provide direct opportunities in the construction phase, but also generate new industries and greater levels of production. Water infrastructure development also has the direct benefit of generating hydropower, controlling environmental flows and attracting significant investment funds to Tasmania. Water Infrastructure Development – Indirect Opportunity
Increasing and diversified agricultural production lends itself to many indirect opportunities. For example, the Coal River Valley wine growing area that arose as a result of the Craigborne Dam has become a wine route and is now a popular tourist destination. Significant investment has been placed in wine cellars and restaurants, while local small and medium sized businesses have enjoyed increased demand for their goods and services.
By increasing the volume and reliability of agricultural water supply, the indirect opportunities experienced following the establishment of the Craigborne Dam can be replicated in other areas of Tasmania.
SOCIAL POLICY INITIATIVES
The 2003-04 Budget builds on the foundation established in previous years. Funding allocations in this Budget are directed to ensuring all Tasmanians obtain just entitlements to health, education, jobs, child care, concessions, housing, community safety and protective services.
People excluded from participating in our community cannot fully contribute either in the labour market or in providing family and social support. It is for this reason that social policy is at the core of the State Budget.
28 Chapter 1: The 2003-04 Budget Development Context In this Budget, the Government has focused on ensuring that all Tasmanians share in the rewards of an improving economy through providing funding for government services and initiatives aimed at directly assisting vulnerable children and young people, as well as members of our community who are jobless, in poor health or on low incomes.
Many people rely on government services to moderate social inequalities that otherwise prevent them from taking up the social and economic opportunities enjoyed by others. Basic government services – health, housing, education, child care, concessions, community safety - provide for immediate need and also provide the way to a secure future for families and individuals.
The 2003-04 Budget is about social priorities. It shares the rewards by providing greater equality of opportunity for Tasmanians in three main priority areas. These are:
• Better Living Standards and More Jobs;
• Our Children – Our Future; and
• Healthier and Safer Communities.
Better Living Standards and More Jobs
Tasmania's growing economy is the most important driver of jobs, delivering optimism and opportunity. However, disadvantaged jobseekers - such as the long-term unemployed, the mature aged, indigenous Tasmanians and people searching for work in rural and regional areas - face workforce participation barriers that make it harder for these groups to be lifted up on a rising tide of employment.
The Budget provides $1.4 million for the 'Partnership to Jobs' program which will identify and seed fund community based enterprise opportunities that are job generating, innovative or entrepreneurial and suitable for disadvantaged jobseekers. This will be a true partnership working with community groups, other organisations and other levels of government to develop job creating businesses.
Money provided through the 'Partnership to Jobs' program will be used to attract funding and support from existing organisations and the Commonwealth Government.
Funding of $10 million will also be provided over two years to create jobs in our parks.
Many Tasmanians who suffer hardship live in jobless households, the majority receive Commonwealth income security benefits whilst an increasing number are the 'working poor'. The State Government cannot influence the level of income security payments because that is a Commonwealth Government responsibility.
However, the living standards of too many Tasmanians are threatened by hardship and poverty. The Government has provided $2.8 million to extend the electricity concession to 30 000 low income Tasmanian holders of a Health Care Card for the two winter quarters.
A further $320 000 has been set aside to increase availability of wheelchair accessible taxis for those confined to a wheel chair, whilst $250 000 has been allocated to establish a fund to help ensure low income people get equal access to the civil justice system.
Affordable housing is also critical in protecting the living standards of low income Tasmanian. An ageing population, significant increases in house prices, a very tight rental market and the trend towards smaller family units requiring housing, have all increased demand on public housing in Tasmania
Chapter 1: The 2003-04 Budget Development Context 29 $3.0 million from the Economic and Social Infrastructure Fund will be combined with $5 million from Housing Tasmania's $30 million Capital Investment Program, providing a total of $8 million to be used to buy homes over the next six months for Tasmanians with the most urgent housing needs. Over this period, this funding will deliver homes to around 150 Tasmanians in acute housing need.
Our Children – Our Future
All children should be given the best possible start in life and the opportunity to grow up and participate fully in our community. This not only benefits the child in later life through increased success in employment, greater productivity and improved health but also, more importantly, brings a broader benefit to the community in terms of social capital, reduced inequality and sustainable economic growth.
Every parent wants the best for their child but many families, for a wide variety of reasons, are struggling to cope with the pressures they face and need assistance in their parenting role. Funding of $1.6 million will be provided to boost child protection, including $1.1 million to more closely match services to demand and $450 000 to improve the early assessment of children at risk.
Access to quality, affordable child care is important to support children's early development and increase full and part time employment opportunities for parents. Since the Commonwealth Government's withdrawal of operational and capital funding to child care centres in 1997, growing demand for child care places, coupled with a limited supply has resulted in long waiting lists in urban areas. This Budget allocates $4.0 million over two years to assist with the costs of establishing child care facilities on school sites. This will help make available badly needed child care places in situations that will most benefit children and their parents.
Funding for the successful Managing and Retaining Secondary Students at School (MARSSS) program continues and maintains the Department of Education's capacity to improve the educational outcomes for students at risk.
$5.3 million will be provided in the 2003–04 Budget through the Department of Education to help low income families cover the cost of schooling. This is an increase of $1.0 million over the $4.3 million provided as a concession under the Student Assistance Scheme in 2002 –03.
Children and young people are growing up in a rapidly changing world of technology where information, communication skills and knowledge are essential to job outcomes. This Budget provides funding of $16.7 million over four years to maintain the information and communication technology system in our schools and ensure students do not miss out.
To demonstrate the strong commitment to addressing social policy issues, the Government has established the new Social Projects Unit in the Department of Premier and Cabinet.
Answering to the new Social Policy Sub-Committee of Cabinet, the Social Projects Unit will deliver better outcomes in social policy through the targeting of coordinated efforts on specific social projects. It will work with key social policy agencies: Education; Health and Human Services; Justice and Industrial Relations and Police and Public Safety and take a leadership role in the Government's response to priority social issues.
$1.3 million is provided as a new initiative in this Budget to establish the Unit and fund two new projects - 'At School, On Time, Ready For Work' and 'Kids In Mind'.
'At School, On Time, Ready For Work' will look at the reasons behind the non-attendance at school of as many as 6 000 children each week. Absence from school affects a student's capacity to learn and their future
30 Chapter 1: The 2003-04 Budget Development Context prospects as well as increasing each student's immediate exposure to risk taking behaviours and offending. Poor school attendance and early school leaving are both linked to reduced life chances. There is no one single cause of school absenteeism and no one single response and this is why the Government has drawn the key agencies together in a concerted whole-of-government approach.
'Kids In Mind' supports children in families where a parent suffers from mental illness or a substance abuse problem. Not all children of parents with a mental illness will experience difficulties as a result of their parent's ill health. However, these children are at an increased risk and this project will develop and provide support to the child as well as family focused practical assistance which will help children to cope effectively with a parent's mental illness or substance abuse problem.
Healthier and Safer Communities
This Budget continues to deliver the means for building a strong health system. Additional recurrent funding of $49.5 million has been provided to the Health and Human Services portfolio to improve health services, especially in regional areas.
The additional funding in 2003-04 will support a range of measures including the State's nurses and new pay arrangements for specialist surgeons and doctors on the North-West Coast.
$5.6 million is provided to extend the Government's rural health rebuilding program, including works at Deloraine, Huonville, New Norfolk, Sorell, the West Coast and Tasman.
For a second year in a row, there has been a significant boost for dental services, with $2 million this year being provided for oral health.
In addition, the Budget provides funding for renal dialysis, for services to people with a disability and for young people with acquired brain injury.
Tasmania is the safest state in Australia, and the State Government is keen to maintain this standing. We are continuing our work to make our communities even safer.
In particular, Tasmania has joined with the Commonwealth and other jurisdictions to implement a buy-back scheme for handguns. Some $715 000 will be made available to ensure that as many handguns as possible are removed from the community.
The State has also committed more than $3.7 million to establish and operate a state security unit as part of the national counter-terrorism project.
Just as all children must be given the best start in life through early intervention programs, the Government will not abandon those young people who at a later age face difficulties. Early intervention, whether at an early age or early on in an offending pathway, or early in the pattern of absenteeism from school, is the point where research indicates that assistance is most effective. $2.4 million will be provided to the Ashley Youth Detention Centre to boost their efforts to help young offenders turn away from a life of crime.
Further information on the wide range of agency initiatives can be found in individual agency chapters in Budget Paper No 2 Operations of Government Departments 2003-04.
Chapter 1: The 2003-04 Budget Development Context 31
2 TASMANIAN ECONOMY
Features
• Tasmania's recent economic performance has been characterised by:
− improved rates of economic growth and solid growth in final demand;
− sustained growth in overseas merchandise exports, to record levels;
− higher levels of both full time and part time employment;
− a modest reduction in unemployment; and
− a return to population growth, primarily as a result of higher levels of interstate in-migration.
• The key feature of the Tasmanian economy over the past two years has been the very strong growth in private investment (incorporating business and dwellings investment).
• Consistent with the improvement in economic performance over the past three years, business confidence has recently been on a generally rising trend, notwithstanding the impact of the slowdown in key overseas economies.
• The fiscal stimulus package announced by the State Government in the 2001-02 and 2002-03 Budgets has contributed to the growth in the Tasmanian economy.
• The Economic Outlook section highlights a number of positive developments that are expected to underpin continued solid economic and employment growth in Tasmania in 2003-04. These include projects that will be funded from the newly created Economic and Social Infrastructure Fund.
• Tasmania's economic outlook is positively influenced by the impact of the purchase of the two Bass Strait ferries, the commencement of the distribution stage of the Tasmanian Natural Gas Project, the commencement of Basslink construction, and other energy projects such as wind generation.
• Monetary conditions remain favourable for future growth, with low and stable inflation and historically low levels of interest rates.
• As an open economy, the Tasmanian economy is exposed to issues outside the State's control, including global market conditions and exchange rates. The recent appreciation of the Australian dollar against the US dollar may have a negative impact on the State's economy, especially if there is further appreciation, as it increases export prices and may place some pressure on profit margins of Tasmanian exporters.
Chapter 2: Tasmanian Economy 33 INTRODUCTION
This Chapter provides an account of the recent performance of Tasmania's economy and provides projections of key economic variables for 2003-04.
The first section provides a comprehensive analysis of the State's recent economic performance and this is compared with the performance of the Australian economy as a whole. A brief overview of Tasmania's relative performance over the past five years is also presented.
The final section presents an overview of Tasmania's economic outlook for 2003-04. Note
• All data measured in dollars, unless otherwise indicated, are expressed in real (2000-01) prices.
34 Chapter 2: Tasmanian Economy RECENT ECONOMIC PERFORMANCE
Overview
This section provides a brief overview of Tasmania's economic performance since the mid-1990s and a more detailed analysis of recent economic trends.
Following the 1991-92 national recession, the Tasmanian economy fell behind the national average on nearly all measures of economic performance and this gap widened over subsequent years. Some of the factors that contributed to the State's relatively subdued economic performance over much of the 1990s include:
• an industry structure that lacked sufficient growth sectors;
• job shedding in the private and public sectors;
• the centralisation of financial services and corporate management in Sydney and Melbourne and restructuring in the finance industry more generally;
• the continued poor economic performance of Japan, the State's largest single export market;
• a period of generally low prices for some of the State's key commodity exports, including beef, wool, aluminium and copper;
• low levels of private business investment; and
• negative population growth for the latter half of the 1990s.
The Tasmanian economy has not kept pace with the very strong national economic performance over the past decade, although there has been a marked improvement more recently across most economic indicators.
Tasmania's total production is distributed across three areas of demand: about half to local markets; around 20 per cent as overseas exports; and the remainder as exports to the rest of Australia. Demand for around half of the goods and services produced in this State is therefore vulnerable to changes in external factors, and there is little or nothing that local businesses or the State Government can do to influence these factors.
Japan is the State's largest overseas export market and has been in recession for a number of years. The slowdown in the US (and most Western economies) since early 2001 has been exacerbated by uncertainty in global markets due to terrorism, war and other geopolitical factors. In addition, growth in the Australian economy was halved in the year following the introduction of the GST. While there has been a subsequent recovery and the underlying fundamentals of the Australian economy appear robust, concerns remain over future economic performance in the face of the uncertain global economic environment.
In terms of reported economic growth rates, Treasury urges caution in the use of the most recent state Gross State Product (GSP) data from the Australian Bureau of Statistics (ABS). State GSP data, especially for a small economy such as Tasmania, tend to be quite volatile and often subject to substantial revision. The GSP data have not always been consistent with partial economic indicators over recent years and the ABS continues to classify this series as 'experimental'.
According to ABS estimates, the Tasmanian economy contracted by 1.9 per cent in the two years to 2000-01. However, other partial economic indicators show that the State's economy has been growing over this
Chapter 2: Tasmanian Economy 35 period. For example, the same set of national accounts containing the GSP estimates reported that state final demand (the aggregate level of spending on goods and services in Tasmania by residents and visitors to the State) rose by 5.7 per cent in that two year period. Similarly, employment rose by 2.8 per cent (or 5 400 jobs) in the two-year period and the total number of hours worked in Tasmania in 2000-01 was 4.5 per cent higher than in 1998-99.
The ABS's estimates of state final demand are also an indicator of Tasmania's performance, but are more transparent in terms of their components than GSP estimates. Chart 2.1 shows the percentage change in State and national final demand in recent years.
Chart 2.1: Economic Performance – Final Demand: Tasmania and Australia
10
8
6
4 (real prices) 2
% change from year previous % change 0
-2 1997-98 1998-99 1999-00 2000-01 2001-02
Tasmania Australia
Source: Australian National Accounts, State Accounts, ABS Cat No 5220.0.
The components of state final demand are consumer spending, private sector investment and total expenditure by the public sector. Over the past four years, the average annual Tasmanian growth rate has been higher than the national average for private sector investment and public sector spending, but lower than the national average for consumer spending. The relatively better performance for private sector investment and public sector spending is due, in part, to spending on the transmission stage of the natural gas project, a recovery in dwelling investment and the purchase of the new Bass Strait ferries in 2001-02.
Historically, the total amount spent in Tasmania on goods and services has exceeded the total value of goods and services produced in the State (as measured by GSP). In the four years to 2001-02, the level of GSP was, on average, 87.7 per cent of the level of state final demand, compared to 99.5 per cent nationally. Despite concerns over the reliability of GSP estimates, it is clear that aggregate production is not matching aggregate spending in Tasmania. Setting aside any inventory changes, it is likely that the value of imports from interstate and overseas has been exceeding, by some margin, the value of Tasmania's exports.
In a small open economy such as Tasmania, exports to other regions can contribute significantly to economic growth, especially in an environment where growth in state final demand has been constrained due to weak population growth. The extent to which Tasmania's economy is open to overseas markets is
36 Chapter 2: Tasmanian Economy about the same as that for the nation as a whole, with overseas exports comprising about 20.9 per cent of Tasmanian GSP in 2001-02, compared with 21.7 per cent for Australia.
Consumer Spending
Consumer spending, or household final consumption expenditure (HFCE), represents approximately 60 per cent of final demand and has been one of the stronger performing components of the Tasmanian economy over recent years.
In real terms, growth in consumer spending in Tasmania has risen at an annual average rate of 2.4 per cent since 1997-98 compared with an average growth rate of 3.4 per cent in state final demand. Although still below the growth rates recorded nationally (as shown in Chart 2.2), HFCE has been the economic indicator that has most consistently and closely tracked the national average.
Chart 2.2: Consumer Spending: Tasmania and Australia
124
120
116
112
108
Index: 1997-98 = 100 = 1997-98 Index: 104 (real prices, trend series) trend (real prices,
100
96 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: National Income, Expenditure and Product, ABS Cat No 5206.0.
In 2001-02, real HFCE increased by 3.2 per cent in Tasmania, above the increase of 2.0 per cent recorded in 2000-01. National growth in consumer spending also improved over the same period, from 3.0 per cent in 2000-01 to 3.8 per cent in 2001-02. The increased growth in Tasmania in 2001-02 is likely to have resulted from a combination of growth in average earnings, employment, private investment activity and population.
Retail trade in Tasmania has experienced positive growth in recent years, averaging 3.2 per cent annually in the past four years in real terms; however, this is below the average growth rate of 6.2 per cent nationally. In 2001-02, Tasmania experienced strong growth in retail sales of 5.0 per cent, but less than the national growth of 8.0 per cent.
Growth in consumer spending has consistently exceeded growth in retail turnover since the mid-1990s. This implies sustained growth in non-retail spending, such as for health care, recreation and motor vehicle purchases. Data on nominal HFCE show strong gains over the past four years in expenditure on
Chapter 2: Tasmanian Economy 37 communications (49.2 per cent); health (40.5 per cent); alcoholic beverages and tobacco (38.3 per cent); education services (29.6 per cent); and recreation and culture (20.7 per cent).
Visitors (tourist and business arrivals) to Tasmania also contribute to consumer spending. In 2001-02, visitor expenditure was estimated to account for 8.0 per cent of Tasmanian HFCE. Data from Tourism Tasmania show that visitor numbers have risen at an average annual rate of 2.4 per cent over the four years to 2001-02. Visitor expenditure has risen by 6.2 per cent per annum in nominal terms for the same period, despite a reduction in the duration of the average stay. In 1997-98, visitors to Tasmania stayed an average of 9.3 nights, but by 2001-02 the average stay had fallen to 9.0 nights.
Visitor arrivals are expected to have increased strongly in 2002-03. This can be attributed to the introduction of the two Bass Strait ferries in the September quarter 2002 and anecdotal evidence of a decreased propensity for holidaymakers to venture overseas due to uncertainty in the international environment. The impact of the Iraqi conflict and the outbreak of the Severe Acute Respiratory Syndrome (SARS) may see increased travel to Tasmania by mainland Australians as they forego overseas travel opportunities and instead take their holidays interstate.
Major determinants of changes in consumer spending include growth in earnings and employment, and population trends. The increase in HFCE in 2001-02 was supported by a continuation of the employment growth that had been evident since January 1999 and a return to population growth from the beginning of 2001. These factors were aided by consistent growth in average earnings. Trends in each of these components are examined below. Other determinants of spending, such as direct taxation rates and interest rates, are not discussed in this Chapter.
Wages
The rate of wages growth in Tasmania has not kept pace with that of Australia as a whole over recent years, although it has held up comparatively well during those periods when the State's labour market has been subdued.
In the four years to 2001-02, average total earnings in Tasmania rose at an average annual rate of 2.4 per cent in nominal terms, below Australia's 3.6 per cent growth rate. While the change in full time average weekly ordinary time earnings (AWOTE) is the benchmark measure for growth in wage rates, changes in total earnings provide a better guide to movements in average income levels as this includes juniors, part time workers and overtime payments. It is also particularly relevant in the Tasmanian context, given the relatively high proportion of employed persons in part time work.
The level of average total earnings in Tasmania has been the lowest of all the Australian states and territories since 1993-94. The level of Tasmanian total earnings was 85.5 per cent of the Australian average in 2001-02 ($582.00 per week in Tasmania compared to $680.88 nationally), down from an average of 95 per cent prior to the mid-1990s. This decline is due, in part, to the greater importance of part time labour in Tasmania relative to Australia as a whole. In 2001-02, part time positions accounted for 30.9 per cent of all jobs in Tasmania (28.0 per cent nationally), up from 25.6 per cent a decade earlier (23.1 per cent nationally).
Tasmanian AWOTE has recorded considerably stronger growth than average total earnings since the mid-1990s and has risen by an average (nominal) rate of 3.3 per cent in the four years to 2001-02, compared to the national growth rate of 4.5 per cent. The level of AWOTE in Tasmania remains below the national average at just over 91 per cent of the Australian level ($778.90 per week compared with $853.63).
38 Chapter 2: Tasmanian Economy Labour Market Employment and Hours Worked
Through most of the 1990s, one of the most obvious areas of the State's economic underperformance was weakness in the labour market, with Tasmania recording a slower rate of employment growth than the national average in each year since 1990-91. There has, however, been a general, underlying improvement in the State's employment performance since the most recent trough in late 1998. This improvement has continued, notwithstanding downturns in the first half of 2001 due to the GST-induced slowdown in the national economy, and from late 2001 to early 2002 as global economic prospects deteriorated following the 11 September 2001 terrorist attacks in the US.
Table 2.1: Tasmanian Employment 2002-03 2003-04 1997-98 1998-99 1999-00 2000-01 2001-02 Estimate Forecast
Total Employment (year average, '000s) 195.3 195.3 198.8 200.7 198.4 200.3 204.7 Total Employment (per cent change) (1.1) 0.0 1.8 1.0 (1.2) 0.9 2.2
Source: The Labour Force, Australia, Preliminary Data on Floppy Disk, ABS Cat. No 6271.0 and Department of Treasury and Finance.
Employment fell in the two years to 1997-98, and was unchanged in the following year, before increasing solidly in 1999-00 and 2000-01. The decline in 2001-02 has been reversed by further improvement in 2002-03, which is expected to continue in 2003-04. This is reinforced by Chart 2.3, which shows that employment has recorded steady growth since early 2002.
Chart 2.3: Employment: Tasmania and Australia
114
112
110
108
106
(trend series) (trend 104 Index: 1997-98=100 Index: 102
100
98 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: The Labour Force, Australia, Preliminary Data on Floppy Disk, ABS Cat. No 6271.0.
Chapter 2: Tasmanian Economy 39 The labour market weakened in early 2001 as a result of the national economy slowing considerably. The arrest of the decline in mid-2001 reflects, in part, the $152 million stimulus package introduced by the State Government as part of the 2002-03 Budget to counter the impact of the national and international economic slowdown. Notwithstanding the economic stimulus package, further erosion of the State's key markets saw employment fall again from late 2001, easing by 1.2 per cent in 2001-02, the first such decline in four years, as highlighted in Table 2.1. As explained in the Economic Outlook section, it is expected that the recovery in 2002-03 will be followed by stronger growth in 2003-04.
In January 1999, total trend employment in Tasmania slumped to 193 800, a decline of 4 300 from only nine months earlier and 8 500 below the State's employment peak of 202 300 persons in May 1990. However, in the two years to January 2001, employment grew by 7 900 to reach a level of 201 700 – only marginally below the May 1990 peak. After declining through much of 2001 and early 2002, trend employment has risen in each of the past 12 months to be currently at 202 600 persons (April 2003). In the period since early 1999, employment growth in Tasmania has totalled 4.6 per cent, equivalent to 8 900 jobs.
The weakness in employment in the late 1990s was due to a decline in full time positions. The level of full time employment in 1998-99 (135 900 persons) was the lowest for the State in at least 20 years, having fallen for three consecutive years. In 1999-00, however, there was a solid recovery in the average level of full time employment for the year (140 100 persons), which was 3.1 per cent (or 4 200 persons) above the level of 1998-99 and the biggest rise in a decade. Since then, full time employment has continued to ease, but remains above the 1998-99 low. While there has been a long-term easing in full time employment levels in Tasmania, there has been a solid improvement from early 1999, with the trend level of full time employment in March 2003 (139 500 persons) up by around 3.5 per cent (or 4 700 persons).
In contrast to the decline in full time employment, the level of part time employment in Tasmania has generally continued to rise. The number of part time positions rose in each of the 17 years to 1998-99 but fell in 1999-00, coinciding with the strongest growth in full time employment in a decade. Part time employment rose by 6.4 per cent (or 3 700 persons) in 2000-01 to establish a new record level of 62 400. Despite the occasional period of decline, the long-term trend towards greater use of part time labour continues, with the number in part time work in April 2003 (63 400 persons) greater by 7.4 per cent (or 4 400 persons) than the level of early 1999.
The improvement in employment recorded since the beginning of 1999 is therefore attributable to growth in both full and part time positions. Further analysis reveals that this has been shared between male and female employment, with female employment setting a new record level in March 2003 and male employment reaching a peak in December 2000, its highest level since March 1997.
While Tasmania's labour market under performed in the mid to late 1990s, particularly following the cessation of Working Nation funding by the Commonwealth Government in 1996, the strategies put in place by the State Government to address Tasmania's relative economic underperformance (including the Industry Development Plan) have had a positive impact on the State's labour market.
The impact of the relative decline in full time employment over the late 1990s is evident in Tasmanian hours worked data. The aggregate number of hours worked in Tasmania stood at a six-year low in 1998-99, having fallen for four consecutive years. While there was solid growth in part time employment and hence part time hours worked, this was more than offset by the decline in full time hours.
Consistent with the improvement in the State's labour market since early 1999, the hours worked series has since rebounded quite strongly. Aggregate hours worked rose by 4.7 per cent in 1999-00, above the 3.4 per cent growth recorded nationally, to 6.535 million hours per week, which is the second highest level
40 Chapter 2: Tasmanian Economy on record. While the aggregate hours series eased 0.2 per cent lower in 2000-01, it remained at a historically high level. The 1.9 per cent fall in 2001-02 reflects reductions in employment resulting from the impact of weaker national and international economies. Data for the 2002-03 year to date indicate that aggregate hours worked has recovered, with an average of 6.426 million hours worked per week in the year to March 2003.
Data on hours worked per employee show that those in full time and part time employment are working a relatively large number of hours. In the year to March 2003, average hours worked per week by part time employees is at a record level of 15.84 hours. The average working week for full time employees, however, has been trending down over recent years, from the record level of 40.32 hours per week in 1999-00 to 39.62 hours in the year to March 2003. These trends are indicative of the structural change in the labour market towards the increased use of part time labour, with those in part time employment working, on average, more hours per week, and less overtime for full time workers. Labour Force Participation and Unemployment
The weakness in the labour market during the late 1990s is reflected in the State's low labour force participation rate. Tasmania's recorded participation rate has always been below the national average, but the gap widened around the middle of the 1990s.
Chart 2.4: Participation Rate: Tasmania and Australia
65
64
63
62
61
60
59
58
% series) of (trend working agepopulation 57 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: The Labour Force, Australia, Preliminary Data on Floppy Disk, ABS Cat. No 6271.0.
As shown in Chart 2.4, there has been an underlying upward trend in the national participation rate over the past few years while the Tasmanian rate has been more volatile, increasing slowly in 1999 and 2000, falling sharply in two periods to early 2002 and rising solidly since late 2002. Since the mid-1990s, the gap between the Tasmanian and national participation rates has widened from 3.1 percentage points in 1995-96 to 5.4 percentage points in 2001-02. Tasmania's average participation rate in 2001-02 of 58.3 per cent was the lowest annual rate since the early 1980s. As with the employment series, the participation rate had improved from the downturn in 2001 and early 2002. In March 2003, the trend participation rate reached 58.9 per cent, its highest level since early 2001.
Chapter 2: Tasmanian Economy 41 The participation rate measures the proportion of the population aged 15 and above that are either working or actively seeking employment. There are many possible reasons why Tasmania has a lower participation rate than the nation as a whole, apart from labour market conditions, including:
• the State's relatively older population base;
• the lower cost of living (particularly housing), which may reduce the necessity for a second income in a household, allowing one partner not to work; and
• the higher proportion of people on disability pensions, which effectively removes them from the labour force.
The recent weakness in the State's participation rate is likely to reflect, in part, a trend towards increased post-secondary education as students generally withdraw from the labour force.
Not surprisingly, Tasmania's employment record since the mid-1990s is reflected in the highest unemployment rate in Australia, although the rate has been fairly stable since mid-1999, as shown in Chart 2.5. In late 2002 the State's unemployment rate started to rise, even though employment had been increasing. This was because employment growth was been unable to match the strong growth in the labour force. More recently, however, employment growth has strengthened to surpass labour force growth, reducing unemployment.
Chart 2.5: Unemployment Rate: Tasmania and Australia
11
10
9
8
7
6 % offorce series) labour (trend
5 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: The Labour Force, Australia, Preliminary Data on Floppy Disk, ABS Cat. No 6271.0.
Tasmania's unemployment rate averaged 8.8 per cent in 2001-02, which was 2.1 percentage points above the Australian average, but only slightly above the 11 year low of 8.7 per cent recorded in 2000-01. This is a significant improvement on the 10.5 per cent unemployment rate recorded in 1997-98. As at April 2003, the State's trend unemployment rate stood at 8.7 per cent and remains the highest rate of all the states and territories.
42 Chapter 2: Tasmanian Economy Consistent with movements in the unemployment rate, there was an underlying reduction to early 2002 in the number of persons unemployed, with a 12 year low recorded in April 2002. The number unemployed averaged 19 000 in 2001-02, which was the lowest annual level since 1989-90, and as at April 2003 there were 19 400 persons unemployed. The labour force rose by 4 200 persons in the six months to April 2003, which is above the strong rise in employment of 3 400 over the same period. As a result, the number of persons unemployed has risen by 800 in the six months to April 2003, with the unemployment rate increasing by 0.2 percentage points to 8.7 per cent over this period. Industry and Regional Developments
The growth in employment since early 1999 has been evident in most of the major sectors of the economy, indicative of the general improvement in business confidence in Tasmania. The volatility of the industry data, however, makes it difficult to draw firm conclusions about the short term performance of some sectors. Despite this, there appear to be only a couple of industry sectors, according to ABS data, that have recorded a fall in employment over this period.
Chart 2.6 shows the trends in employment by industry sector over the past three years. Over this period, employment grew solidly in property and business services and in agriculture, forestry and fishing, with smaller increases in: electricity, gas and water supply; wholesale trade; retail trade; communication services; government administration and defence; cultural and recreational services; and personal and other services. The manufacturing sector experienced the largest decline in employment in the past three years, while other sectors to have recorded lower employment in this period include: mining; construction; accommodation, cafés and restaurants; transport and storage; education; and health and community services.
Chart 2.6: Employment by Industry Sector: Tasmania
40 30 20 10 0 - 10 - 20 % from change previous year - 30
n s n n s s ng o de nt ge o ces nce es ti a ti nce i e ice ining uri tra vic vice v ct ura ca rv r r fishing M a ruc il a e f nsura s . ser se se & nst est uni Educatio y nu reta r m a Co & i her y, gas & water & & m e omm ot M t e s o min. & def l & rec. l fe nsport &C stor nc d c & rty & bus.a l , forestr trici ca na ura c. c Tra Fi lth & t na i ovt a ul so gr Ele G e r Wholesa Prope C A ccom., H Pe A 2000-01 2001-02 Year to March 2003
Source: Labour Force, Selected Summary Tables, Australia, ABS Cat. No 6291.0.55.001.
In terms of regional labour market performance within Tasmania, the strongest growth in employment over the past year according to ABS data has been in the North-West region, with employment rising 4.3 per cent in the 12 months to March 2003 relative to the previous 12 month period. Much of this improvement, however, is simply a reversal of previous declines in employment in the North-West region, and this
Chapter 2: Tasmanian Economy 43 remains the region with the lowest participation rate and the highest unemployment rate. Employment rose by 0.1 per cent in the Southern region but fell by 2.5 per cent in the Northern region over the same period. Similarly, much of this decline is a reversal of previous strong jobs growth in the Northern region.
A summary of the performance of the State's regional labour markets over the past year is shown in Table 2.2.
Table 2.2: Regional Labour Market Statistics1 South North North-West Total State
Employment Average in 12 mths to March 2003 ('000) 95.2 59.1 45.1 199.3 % change from year to March 2002 0.1 (2.5) 4.3 0.2 Participation Rate Average in 12 mths to March 2003 (%) 58.1 59.5 57.1 58.2 % point change from year to March 2002 0.3 (1.1) (0.2) (0.2) Unemployment Rate Average in 12 mths to March 2003 (%) 8.3 8.5 9.7 8.7 % point change from year to March 2002 (0.5) 0.6 (0.3) (0.1)
Source: Labour Force, Selected Summary Tables, Australia, ABS Cat. No 6291.0.55.001.
Note: 1. The regional labour force data need to be interpreted with caution due to volatility in the series and unexplained variations in working age population in the three regions.
Earlier and current changes in employment in the Northern region mirror those changes in the North-West, with much less variability evident in the aggregate employment series for the North and North-West. This mirroring of changes to regional data series, where one series rises and another falls by a similar magnitude over the same period, has generated concerns about the reliability of ABS regional labour market data for Tasmania.
Notwithstanding issues related to the measurement of region labour market estimates, some of the changes in these series can be explained by changes in Tasmania's industrial structure. Within the manufacturing sector, for example, the basic processing of primary industry output (notably minerals and forest products) remains important to the State. However, the sector has evolved over the past decade and has been increasingly dominated by the production of high value, high-speed catamarans and other marine vessels and value-added food and beverage production. In part, this is a natural progression following the closure of a number of the State's older, more 'traditional' manufacturing plants over the past decade, such as the Burnie pulp mill, Tioxide (minerals processing) and Coats Patons (textiles). Generally this has represented a regional shift in economic activity to the South from the North-West and, to a lesser extent, from the North.
To this end, there has been a greater focus within Government over recent years on attracting location-neutral, technology-based activities to Tasmania. The State's call centre attraction strategy is an example of this and there are currently between 3 500 to 4 000 people employed in the State's call centre industry, mostly in the Northern and Southern regions.
Despite falling by 1.1 percentage points in the year to March 2003 to 59.5 per cent, the Northern region has the highest labour force participation rate in the State. The participation rate rose in the Southern region by 0.3 percentage points in the year to March 2003, but eased in the North-West.
44 Chapter 2: Tasmanian Economy The unemployment rate in the Southern region fell by 0.5 percentage points in the year to March 2003 to 8.3 per cent , which is a 16-year low. In the North-West, the unemployment rate fell by 0.3 percentage points to 9.7 per cent, slightly above the record low recorded in the year to November 2002. The unemployment rate for the Northern region rose by 0.6 percentage points to 8.5 per cent and the region no longer has the State's lowest unemployment rate.
Demographics
A consequence of Tasmania's subdued economic performance through the 1990s was a downward trend in the State's population, caused by a sharp rise in interstate out-migration. However, revised data released incorporating the results of the 2001 Census of Population and Housing indicate that the State's recovery in population growth has continued unabated since March 2001.
In June 1997, following several years of relative economic decline, the State's population declined for the first time since 1941. In the three years to 2000-01, Tasmania's total population declined by an annual average rate of 0.07 per cent, in contrast to the 1.19 per cent growth recorded nationally. As a result of this decline, Tasmania's share of the Australian population slipped to 2.44 per cent in 2000-01 from 2.60 per cent five years earlier.
Chart 2.7: Population Growth: Tasmania
0.4
0.2
0.0 quarter of previous year -0.2 % change from corresponding
-0.4 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02
Source: Australian Demographic Statistics, ABS Cat No 3101.0.
However, as shown in Chart 2.7, data revised after the release of the results of the 2001 Census indicate that the State has returned to population growth, with Tasmania's population as at 30 September 2002 being 1 761 persons higher than one year earlier. In 2001-02, Tasmania's population increased by 682 persons, compared with an average annual population decline of 353 persons in the three years to 2000-01. This recent improvement reflects, in part, the underlying recovery in the State's labour market and the stimulus and increased confidence provided by higher levels of private investment. Further improvements in the performance of the labour market, together with the likely lag between changes in the labour market and changes in net migration, suggest that population growth will continue.
Chapter 2: Tasmanian Economy 45 Tasmania's natural population increase (2 139 persons in 2001-02) has contributed around 0.5 per cent per annum to total population in recent years, similar to the national average of 0.6 per cent. The contribution of net inward migration from overseas fell during the 1990s. Net overseas migration currently has only a marginal, though increasing, impact on changes in the State's population, averaging 297 persons in the four years to 2001-02. This compares to an average of 235 over the 1990s.
Chart 2.8: Components of Population Growth: Tasmania
3 000
2 000
1 000
0
-1 000
-2 000 Population Change (Persons) Change Population -3 000
-4 000 1997-98 1998-99 1999-00 2000-01 2001-02
Natural Increase Net Interstate Migration Net Overseas Migration
Source: Australian Demographic Statistics, ABS Cat No 3101.0.
In recent years, the most significant influence on changes in the State's population has been the level of net out-migration interstate as Chart 2.8 shows. In 2001-02, net interstate out-migration totalled 1 691 persons, or 0.4 per cent of the State's population. In the first half of the 1990s, the average annual level was around 1 146 persons. Nevertheless, the 2001-02 total represents a notable improvement on the peak year of 1997-98, when there was a net loss of 3 633 persons interstate. The improvement has been due to an increase in the number of interstate arrivals to a 21-year high of 13 284 in 2001-02, coupled with no significant change in the number of interstate departures, which stood at 14 975 in 2001-02. This decline in net interstate out-migration is the primary reason for the improvement in Tasmania's population trend.
Data reveal that the rise in out-migration through the 1990s included a higher proportion of people in the 5 to 14 year and 20 to 34 year age groups (that is, young adults and young families). This suggests that economic factors were the primary reason for the increase in out-migration. Consistent with the stabilisation of gross out-migration in 2001-02, more recent data show a reduction in the numbers of persons leaving the State in most of these age groups. This is likely to be a result of the State's improved overall economic performance. However, losses in the 25-29 and 35-39 year age groups have accelerated over the past three years and now represent the major proportion of out-migration.
Net interstate out-migration is not unique to Tasmania. All states and territories except Victoria and Queensland recorded net interstate out-migration in 2001-02. In the medium to long-term, sustained population growth will depend, to a large extent, on sustained improvement in the State's economic performance.
46 Chapter 2: Tasmanian Economy The impact of Tasmania's population on the level of Commonwealth payments to Tasmania is covered in Chapter 10 of this Budget Paper.
Private Sector Investment
A key feature of the Tasmanian economy over the past two years has been the very strong growth in private investment (incorporating business and dwellings investment). In 2001-02, private investment grew by 32.1 per cent, the strongest increase since 1988-89. Data for the September and December quarters of 2002 indicate a continuation of this trend.
Chart 2.9: Private Sector Investment: Tasmania and Australia
140
130
120
110
100 Index: 1997-98 = 100 = 1997-98 Index: (real prices, trend series) trend (real prices, 90
80 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: National Income, Expenditure and Product, ABS Cat No 5206.0.
After the trough in early 1999, investment levels in Tasmania have recovered significantly, as highlighted in Chart 2.9. The improvement reflects an increase in both business investment and dwelling investment. The only period when investment levels eased was in the second half of 2000, although not to the same extent as nationally, due primarily to the post-GST decline in dwelling investment.
Since the beginning of 2001, private sector investment has grown strongly, closely tracking the national average growth. This improvement reflects the investment associated with the natural gas project and substantial growth in dwelling construction, as well as increased investment more generally by businesses in Tasmania. Reasons for the recent trend include increased confidence in the Tasmanian economy, the return to population growth since the beginning of 2001, the low interest rate environment and the impact of the First Home Owners Scheme (FHOS).
Trends in the major components of private investment are discussed in further detail below.
Chapter 2: Tasmanian Economy 47 Dwelling Investment and Construction
Levels of dwelling investment have been volatile over the past five years, due largely to the impact of the GST. Investment in new houses grew sharply in 1999-00, both in Tasmania and nationally, as decisions were brought forward to avoid the increase in cost associated with the introduction of the GST on building services. Immediately following the introduction of the GST, housing investment slumped, exerting a negative influence on state final demand for three consecutive quarters. As evident in Chart 2.10, the level of dwelling investment has subsequently displayed strong growth.
Chart 2.10: Dwelling Investment: Tasmania and Australia
140
130
120
110
100 Index: 1997-98 = 100 = 1997-98 Index: (real prices, trend series) trend (real prices, 90
80 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: National Income, Expenditure and Product, ABS Cat No 5206.0.
The FHOS is a $7 000 payment introduced as part of the Commonwealth Government's tax reform package on 1 July 2000 to compensate first home buyers for the additional GST-related cost of purchasing a dwelling. In response to the significant drop in dwelling construction in the second half of 2000, the Commonwealth Government introduced an additional FHOS payment in March 2001 for those building a new home or substantially renovating an existing dwelling. The additional FHOS was initially a further $7 000, but this was reduced to $3 000 from 1 January 2002 and was phased out completely on 30 June 2002.
The introduction of the FHOS and the additional FHOS for new homes has been one of several factors that have accounted for the strong recovery in dwelling investment. In particular, the FHOS grants have assisted some people who were previously unable to enter the housing market. Other factors include low and stable interest rates, a return to population growth and increasing confidence in the State's economic prospects. This increased confidence is reflected in the greater demand from interstate buyers for the more expensive dwellings in Tasmania, either as investment properties or as principal residences.
Dwelling approval numbers in Tasmania increased by 10.2 per cent in the 12 months to February 2003, compared with an 11.5 per cent increase nationally. The number of dwelling approvals for Tasmania has declined, in trend terms, in recent months from the most recent peak experienced in July 2002, which is likely to reflect the phasing out of the additional FHOS in June 2002. A similar decline has occurred at the national level.
48 Chapter 2: Tasmanian Economy As shown in Chart 2.11, housing finance commitments rose strongly prior to the introduction of the GST in June 2000 and rebounded from the post-GST slump, albeit with some delay, after the introduction of the additional FHOS in March 2001. The number of housing finance commitments has fallen slightly in Tasmania in recent months after reaching the highest level on record in November 2002, but remains at a historically high level. The high level of housing finance commitments is primarily the result of commitments for the purchase of established dwellings, rather than for new dwellings. By comparison, the national housing finance series peaked in August 2001 and has experienced some decline since that time.
Chart 2.11: Secured Housing Finance Commitments: Tasmania and Australia
150
140
130
120
(trend series) (trend 110 Index: 1997-98=100
100
90 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: Housing Finance for Owner Occupation, Australia, ABS Cat No 5609.0.
Following the pre-GST rush on building services and subsequent slump in new dwelling unit commencements, the number of commencements rebounded from a March 2001 trough to reach its highest level in June 2002 for over seven years.
Notwithstanding the inherent difficulties in estimating changes in house prices due to the varied nature of the housing stock, all evidence indicates house prices have risen strongly in Tasmania over recent years, following a relatively long period of modest increases in house prices. Increased house prices reflect the strength in the housing market in Tasmania at present and this has been coupled with very high occupancy rates in rental housing, which is likely to stimulate further dwelling investment.
Activity in the housing market is expected to remain buoyant over the next year in line with continuing low interest rates, further population growth and continued confidence in the Tasmanian economy. Business Investment
The level of business investment in Tasmania is very important for the Tasmanian economy, both as a component of economic activity and as a source of productivity improvements. High levels of business investment lead to increased competitiveness, growth in output and employment, and in higher real wages as a consequence of improved productivity.
Chapter 2: Tasmanian Economy 49 Since the early 1990s, growth in private business investment in Tasmania has lagged well behind the national average. As a result, the level of business investment in Tasmania, measured per capita or as a proportion of GSP, has been significantly below the national average. As a result, Tasmania's private capital stock has not grown at the same rate as nationally, and growth in employment and real wages have consequently been below national levels.
One reason for the relatively low levels of local business investment is that those industries which have expanded in Tasmania in recent years have tended to be labour intensive rather than capital intensive, including transport and equipment manufacturing (eg Incat), cultural and recreational services, finance and insurance and property and business services (such as call centres). The performance of business investment may also reflect the relative decline of the State's more traditional capital-intensive sectors, such as wood and paper products manufacturing. In part, however, the relative weakness in investment has reflected a perception among Tasmania's larger companies – many of which are owned by national or international interests – that there had been a lack of attractive investment opportunities in Tasmania, or insufficient incentives for expansion, over much of the 1990s. One example is the low level of investment in mining in recent years.
Chart 2.12 shows that over the past five years, private investment in Tasmania as a percentage of GSP has been significantly below the national equivalent. The chart also shows, however, that since 1998-99, the share of GSP accounted for by private investment has increased and has been approaching the national share. This indicates a deepening of Tasmania's capital stock, which will lead to improvements in productivity and Tasmania's competitiveness, and to further growth in employment and real wages.
Chart 2.12: Private Investment as a share of GSP/GDP: Tasmania and Australia
25 Tasmania Australia 20
15
10 % of GSP/GDP
5
0 1997-98 1998-99 1999-00 2000-01 2001-02
Source: Australian National Accounts, State Accounts, ABS Cat No 5220.0.
An example of this is the recent investment in natural gas infrastructure. While the one-off economic effects to Tasmania of the natural gas pipeline construction are major, of greater long term importance is the
50 Chapter 2: Tasmanian Economy impact of a new source of low cost energy on the competitiveness of Tasmanian businesses, in national and overseas markets and also within Tasmania, against imported goods.
Chart 2.13 shows the recent trends in private business investment, defined as private gross fixed capital formation (PGFCF) excluding dwelling investment and ownership transfer costs. The chart reveals the strong recent growth, which was 35.1 per cent in 2001-02, following earlier increases.
Chart 2.13: Business Investment: Tasmania and Australia
130
120
110
100
90 Index: 1997-98 = 100 = 1997-98 Index: (real prices, trend series) trend (real prices, 80
70 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: National Income, Expenditure and Product, ABS Cat No 5206.0.
The significant improvement in 2001-02 was due to increased expenditure on all components of business investment, including non-dwelling construction, machinery and equipment, livestock and intangible fixed assets, such as copyrights, patents and mineral concessions. The largest component of business investment is expenditure on machinery and equipment ($737 million in 2001-02), which includes expenditure on items such as plant, machinery and office equipment. In percentage terms, the most significant growth in business investment in 2001-02 was experienced in non-dwelling construction, which grew by 163.0 per cent, reflecting spending on natural gas and associated projects. Interest rates are likely to have supported the growth in investment over recent years as both nominal and real interest rates have been at historically very low levels during this period.
Surveys of business sentiment in Tasmania, such as the Tasmanian Survey of Business Expectations issued jointly by the Tasmanian Chamber of Industry and Commerce and the Commonwealth Bank of Australia, show that, despite some uncertainty surrounding the external environment, Tasmanian businesses are optimistic about their future performance and prospects for the economy are positive. The recent Business Index surveys by Yellow Pages and the Australian Business Expectations publications issued by the Australian Bureau of Statistics confirm these results. It is likely that business confidence has been boosted by the major energy projects in the State, the overall improvement in economic conditions and, most recently, the success of Incat in coming out of receivership and increasing its employment.
Chapter 2: Tasmanian Economy 51 As detailed in the Economic Outlook section later in this Chapter, there are a number of significant developments on the horizon which are expected to support an increase in business investment over the coming year.
The Public Sector in Tasmania
The public sector comprises the Commonwealth, State and Local Government sectors and includes government business activities.
The level of total public spending in Tasmania grew marginally through most of the 1990s. However, it has grown by a solid 21.6 per cent over the past four years, driven by a 12.3 per cent rise in 2001-02. The contribution of public spending to GSP in Tasmania has increased only marginally over the past decade, from an average of around 28 per cent in the early 1990s to 29 per cent over the past four years. By comparison, the contribution of the public sector at the national level to GDP has fallen from 24 per cent to below 22 per cent over the same period.
The largest component of public sector spending is government consumption expenditure, which has recorded significant rates of growth in recent years both nationally and in Tasmania, as Chart 2.14 shows. Over the past decade, government consumption expenditure has risen by an average annual rate of 3.0 per cent in Tasmania (2.9 per cent nationally), including an average increase of 3.8 per cent, in real terms, over the past four years.
Chart 2.14: Public Consumption Spending: Tasmania and Australia
120
115
110
Index: 1997-98 = 100 = 1997-98 Index: 105 (real prices, trend series) trend (real prices,
100 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: National Income, Expenditure and Product, ABS Cat No 5206.0.
The significant increase in the level of public sector spending in Tasmania in 2001-02 was due to higher levels of public sector investment, particularly the purchase of the two Bass Strait vessels, combined with growth in government consumption expenditure. In 2001-02, public sector investment totalled $784 million, equivalent to 6.5 per cent of GSP; 12 years earlier it was $649 million or 6.5 per cent of GSP. Excluding the vessels, public sector investment in 2001-02 would have been close to the level of 2000-01, which was
52 Chapter 2: Tasmanian Economy 4.2 per cent of GSP. While the cost of the vessels is included in the calculation of state final demand, it is not included in the calculation of GSP because the vessels are imported items.
The underlying decline in public sector investment since the early 1990s, as shown in Chart 2.15 (which excludes the purchase of the two Bass Strait ferries), reflects both some winding back of capital expenditure by the major government businesses - notably Hydro Tasmania - as well as a modest decline in investment by the General Government Sector. Nationally, there has been a sharp decline in investment by government businesses over the past decade due to a number of significant privatisations, including Qantas, the Commonwealth Bank, the airports and numerous electricity assets (Telstra remains classified as part of the public sector as less than 50 per cent of its shares are privately owned). To illustrate this point, capital expenditure by government businesses accounted for only 42 per cent of total public sector investment nationally in 2001-02, down from 53 per cent 10 years ago. The corresponding shares for Tasmanian government businesses were 66 per cent and 60 per cent respectively. Excluding the vessels, the figure for 2001-02 would have been close to the level of 2000-01, which was 45 per cent of public sector investment. The relatively greater importance of privatisations in other jurisdictions partly explains the slightly larger decline in the importance of the public sector nationally over the 1990s, relative to Tasmania.
Chart 2.15: Public Investment: Tasmania and Australia
130
120
110
100 Index: 1997-98 = 100 = 1997-98 Index:
(real prices, trend series) trend (real prices, 90
80 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: National Income, Expenditure and Product, ABS Cat No 5206.0.
The long-term trend towards a smaller public sector is reflected in the decline in public sector employment in Tasmania, which had been on a downward trend in the 11 years to 1999-00. Since 1999-00, there has been a moderate increase. The reduction of around 12 100 jobs over the 11 year period to 1999-00 was due to fewer jobs in both the state and Commonwealth sectors. In absolute terms, over 70 per cent of the job losses occurred at the state level, but in percentage terms the decline in Commonwealth Government employment in Tasmania had been nearly twice as large as the decline at the State level. The decline in State public sector employment in Tasmania reflected a program of redundancies undertaken by previous State Governments through the early to mid-1990s.
Chapter 2: Tasmanian Economy 53 In the past four years, however, total public sector employment has risen by 2.4 per cent (or 1 000 persons), comprising a 3.8 per cent increase at the State Government level (about 1 200 persons), no notable change in Local Government employment, and a reduction of 3.7 per cent (or 200 persons) of those employed by the Commonwealth Government.
The privatisation of government enterprises is also relevant here, as it involves the transfer of employment from the public sector to the private sector. At the Commonwealth level for example, employees of Tasrail, Hobart and Launceston airports, the Commonwealth Bank and Qantas have been transferred to the private sector. Recently, the State Government announced its intention to sell the Civil Construction Corporation, the Tasmanian Grain Elevators Board and the Stanley Cool Stores Board, and to investigate the value of retaining non-core assets owned by Hobart Port Corporation, following a review of Government-owned businesses. This divestment activity will be reflected in the future transfer of employment from the public sector to the private sector.
There has also been a major reduction in employment in Tasmania's electricity supply industry, from 5 300 in the integrated Hydro-Electric Commission (then Tasmania's largest government business) at the peak of the dam building era to around 1 600 in the three electricity entities at present – that is, Hydro Tasmania (the generation business), Transend Networks Pty Ltd (the transmission business) and Aurora Energy Pty Ltd (the distribution/retail business).
While most key data are reported for 2001-02, the current year (2002-03) has seen a number of initiatives that will boost public sector spending and employment data. For example, in the 2002-03 Budget, the State Government announced a $30 million Social Infrastructure Fund and significantly increased funding for the State's Capital Investment Program and recurrent agency allocations. Government business expenditure will also rise, reflecting increasing capital expenditure by Hydro Tasmania on wind generation projects, and expenditure by Transend on onshore Basslink related infrastructure and on substation upgrades and replacements throughout the state, including Norwood, Scottsdale, Derby, Mowbray, Risdon and Smithton. Information on the State's Capital Program is provided in Chapter 6 of this Budget Paper.
Further increases will be seen in 2003-04 with the announcement in the 2003-04 Budget of an Economic and Social Infrastructure Fund.
Export Activity
As a small, open economy, exports (both overseas and interstate) have a major impact on the State's overall economic performance. While data are no longer officially compiled for the proportion of exports that are destined for interstate markets, it has been estimated that approximately half of Tasmania's output is exported, with around 60 per cent of the total value of these exports sent interstate and the balance to overseas destinations. The true extent of the State's overseas exports is understated by the available data, as a number of Tasmanian exports leave Australia via other states, and are therefore included in the export data of those states. It is not known how many of the State's exports are recorded in this manner, although some higher profile exports (such as Cadbury chocolates and Blundstone boots) are known to be treated this way.
Over the past four years, overseas exports of goods and services from Tasmania have averaged 20.8 per cent of the total value of State production, below the national average of 21.8 per cent. In 2001-02, this share was an estimated 20.9 per cent for Tasmania (21.7 per cent for Australia). Although a fall from the decade-high of 23.4 per cent recorded in 1997-98, this remains the third highest share of all the states and territories, behind the Northern Territory and Western Australia.
54 Chapter 2: Tasmanian Economy Growth in the real value of Tasmania's overseas exports began to decrease in the mid-1990s, despite growth at the national level. However, a return to positive growth occurred in 1996-97 and the real value of the State's overseas exports has subsequently increased at an average annual rate of 4.1 per cent. Nationally, the average annual rate of growth was 5.1 per cent over the same period.
Chart 2.16: Real International Merchandise Exports – Tasmania and Australia
125
120
115
110
105 Index: 1997-98 100= (real prices, trend series) trend (real prices, 100
95 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03
Tasmania Australia
Source: National Income, Expenditure and Product, ABS Cat No 5206.0.
Tasmania's export performance over the past 12 months has been particularly strong despite weakness in major global economies and the rising value of the Australian dollar. In the 12 months to March 2003, the (nominal) value of overseas merchandise exports rose by 7.3 per cent in year average terms to $2 526 million, which is slightly below the record level of $2 556 million recorded in the year to February 2003. Over this period, solid growth was recorded in exports to Hong Kong, Korea, the European Union (including the United Kingdom and Germany) and China.
The sale of catamarans has a significant impact on the value of exports for Tasmania. The change in export value for the year to March 2003 reflects the timing of catamaran sales as there were two catamarans from Incat Australia Pty Ltd and one from North West Bay Ships exported in the 12 months to March 2003, but only one exported in the previous year.
In 2001-02, Tasmania's major overseas merchandise export destinations were, in order of importance: Japan, ASEAN (which includes Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand), the United States, Hong Kong, South Korea, Taiwan, and the European Union. Japan remains Tasmania's largest single export market, accounting for 23.6 per cent (or $548 million in nominal terms) of total merchandise exports in 2001-02. In terms of the remaining market share, ASEAN countries accounted for 14.7 per cent in 2001-02, the United States 12.3 per cent, Hong Kong 11.3 per cent, South Korea 9.0 per cent, Taiwan 6.5 per cent and the European Union 5.4 per cent. Over the past decade, the importance of Japan has declined, while export shares to Hong Kong and South Korea have increased.
Chapter 2: Tasmanian Economy 55 The single most important export commodity category for Tasmania is 'Other and confidential items', which comprised 34.4 per cent of the value of total State merchandise exports in 2001-02. This category includes woodchip exports, pharmaceutical products and some catamaran exports. Other significant export categories in 2001-02 included non-ferrous metals (31.9 per cent), metallic ores (7.9 per cent) and seafood (7.3 per cent).
As a result of Tasmania's reliance on overseas exports, the State's economic outlook is heavily influenced by the growth prospects of its major trading partners as well as the prices of key commodity exports, notably aluminium, zinc, copper, tin, beef and wool.
Economic trends in the mainland states are also of key importance to Tasmania, given the large proportion of exports that go to interstate destinations. A slowdown in the national economy exerts a negative influence on the Tasmanian economy, often with a lag. This was evident with the national economic downturn in 2000-01 following the introduction of the GST in July 2000, which had an adverse effect on Tasmania's exports to the mainland, and thus on the State's overall economy.
ECONOMIC OUTLOOK
Table 2.3 outlines Treasury's estimates for key economic variables for Tasmania for the current financial year and Treasury's forecasts for 2003-04. The forecasts show that the general recovery since early 1999 is expected to continue into 2003-04, despite some uncertainty surrounding the external environment. It is also anticipated that the recovery will extend into later years as a result of the economic benefits of the suite of energy and related infrastructure projects.
Table 2.3: Tasmanian Economic Aggregates and Forecasts 2001-02 2002-03 2003-04 Actual Estimate Forecast
State economic activity (real, % change)1 ....2 2.5 3.5 Employment (year average, % change) (1.2) 0.9 2.2 Level of employment (as at year end, trend, '000s) 198.2 202.6 205.8 Labour force participation rate (year average, %) 58.3 58.5 59.2 Unemployment rate (year average, %) 8.8 8.8 8.4 Consumer price index (year average, % change) 2.1 2.9 2.3 10 year Treasury bond rate (as at year end, %) 5.95 5.25 5.90 Population (year average, % change) 0.14 0.25 0.30
Sources: Actual data - Australian Bureau of Statistics and Reserve Bank of Australia; Estimates and Forecasts – Department of Treasury and Finance. Notes: 1. Treasury's estimates of growth in real state economic activity for 2002-03 and 2003-04 focus on the underlying movements in output and are derived from trend projections based on a variety of indicators. The estimates are not designed to be consistent with the experimental GSP series produced by the ABS, nor do they purport to forecast the ABS GSP estimates. 2. Actual unavailable. See note 1. The ABS GSP estimate for that year was 3.3 per cent.
56 Chapter 2: Tasmanian Economy 2002-03 Estimates
On the basis of the financial year performance to date, Treasury expects that the Tasmanian economy will experience moderate economic growth in 2002-03. Growth is expected to be higher than forecast in the 2002-03 Budget (1.9 per cent), despite the generally negative external environment, including weakness in key global markets, the mainland drought and the uncertain geopolitical environment over the past year.
State final demand rose by 8.8 per cent in the year to December 2002 (the latest available data), with the strongest contributions from consumer spending and business investment. Dwelling investment also continued its trend of strong growth, which began in calendar 2001. This trend has been assisted by interest rates being maintained at low levels and by sharp falls in stock markets, which resulted in investors favouring property in their investment strategies.
The value of the Australian dollar has increased against the US dollar and some other major currencies since early 2002. Despite this, and a continued weakness in key global markets, Tasmania's overseas export performance since early 2002 has been relatively strong.
On current trends, employment is set to rise by around 0.9 per cent for 2002-03 in annual average terms, following an easing of 1.2 per cent in 2001-02. This equates to an expected increase of 4 400 jobs through the year to June 2003. Consistent with this rise in employment, the participation rate is expected to have increased from an average of 58.3 per cent in 2001-02 to an average of around 58.5 per cent in 2002-03, as more working age persons enter the job market with the confidence of finding work. An increase in the labour force can, in the short-term, have an adverse effect on the unemployment rate as there will be a lag between when persons enter the job market and when they secure employment. As such, a slight increase in the unemployment rate for 2002-03 is estimated.
Tasmania's population grew by 0.14 per cent in 2001-02 and, based on current data, it is expected that population growth will have strengthened to 0.25 per cent over 2002-03. The return to population growth has been a positive for the State's economy, as it has contributed to stronger consumer demand and investment. The growth in population also indicates confidence in the labour market, as it reflects more interstate (and overseas) people arriving and fewer Tasmanians leaving in search of job opportunities.
Treasury estimates that the increase in the Tasmanian CPI for 2002-03 will be 2.9 per cent. The estimate is below the most recent CPI increase of 3.2 per cent for the year to March 2003. The latest CPI increase is likely to be due, in part, to higher oil prices recorded in the March 2003 quarter in the lead up to the military conflict in Iraq, as well as the impact on prices of the mainland drought. Nationally, the CPI for the year to March 2003 increased by 3.1 per cent, although the Reserve Bank believes that the underlying rate of inflation is still within its target range of between 2 per cent and 3 per cent.
In terms of private sector activity, construction of the transmission phase of the Tasmanian Natural Gas Project was completed during 2002-03. Natural gas is now flowing via the undersea pipeline between Longford in Victoria and Bell Bay in northern Tasmania, with one unit of the Bell Bay Power Station successfully converted from oil to gas operation. The two transmission laterals of the pipeline have also been completed, linking the North-West and South of the State to Bell Bay, and some major customers have already been connected.
The Government has signed an agreement with a New Zealand company, Powerco, to commence the development of a gas distribution network. It is expected that the rollout of the gas network to major commercial customers will commence early in 2003-04. The availability of gas will provide a major stimulus to construction and related industries, and to the economy more generally, over a number of years. More
Chapter 2: Tasmanian Economy 57 importantly, however, the arrival of gas in Tasmania will allow for the potential establishment of a new set of industries over the longer term.
Construction of another of the State's major energy projects, the Basslink project, began in 2002-03 following final approval by the Tasmanian, Victorian and Commonwealth Governments and financial close. Basslink involves the construction of a 360 kilometre electricity cable (including a 295 kilometre undersea section) between Loy Yang in Gippsland, Victoria and Bell Bay. Basslink will link Tasmania to the National Electricity Market (NEM) and allow Tasmania to export up to 600 megawatts of hydro and wind power to Victoria during its peak summer months. The cable will be available to import electricity from the mainland, significantly reducing the exposure of the Tasmanian system to low rainfall periods. Linking the Victorian and Tasmanian electricity markets will create more competition in the State's energy market to the benefit of consumers.
While the construction phase of Basslink will provide jobs for Tasmanians, the main economic benefit to the State will come from a more competitive energy market (including gas) and the industry spin-off benefits that will derive from Hydro Tasmania's renewable energy expansion. In particular, Basslink will make wind energy generation (of which some capacity is already installed) viable as mainland retailers and consumers are able to access Tasmanian electricity. These projects are creating a significant number of construction jobs and ongoing jobs after construction. Basslink is expected to be commissioned in late 2005.
The introduction of the two Bass Strait ferries and downward pressure on air fares arising from the entry of Virgin Blue into the State have had a strong positive impact on the State's tourism industry. Visitor numbers have increased significantly and hotel occupancy rates are at very high levels. There is confidence in the industry that the current growth in the tourism industry is sustainable, with strong investment in tourism-related infrastructure projects either completed, underway or planned. These developments have contributed to employment growth, and it is expected that these impacts will continue into 2003-04 and beyond.
Treasury expects the underlying growth rate in the Tasmanian economy for 2002-03 to be 2.5 per cent. This may not be reflected in the ABS GSP estimate for Tasmania. As discussed earlier in this Chapter, Treasury urges caution in the use of the state GSP data from the ABS as they tend to be quite volatile and often subject to substantial revision, especially for a small economy such as Tasmania. These data have not always been consistent with partial economic indicators and hence the ABS continues to classify this series as 'experimental'. As outlined in the footnote to Table 2.3, Treasury's estimates of real state economic activity are designed to reflect the underlying movements in output and are not directly comparable to the ABS estimates.
2003-04 Forecasts State Economic Activity and State Final Demand
Despite a weak global economic environment, and the possibility of a subdued national economy, the Tasmanian economy is expected to remain relatively resilient over 2003-04. This forecast is based on a number of positive factors that are expected to insulate the State to a certain extent from the external environment.
These positives include spending by the State Government from the new Economic and Social Infrastructure Fund (ESIF). It is anticipated that approximately $43.5 million will be spent from the ESIF in 2003-04. Positives also include the commencement of work on the distribution phase of the Tasmanian
58 Chapter 2: Tasmanian Economy Natural Gas Project, continuing construction of Basslink and energy projects (such as wind farms) that will link into Basslink, tourism-related infrastructure developments resulting from the introduction of the two Bass Strait ferries, and historically low levels of official interest rates. With some uncertainty surrounding the contribution that external growth will make to the Tasmanian economy in 2003-04, the State Government's additional fiscal stimulus in this Budget is designed to underpin Tasmania's economic performance and maintain the positive momentum in terms of output and employment growth that has developed since early 1999.
However, if there is prolonged weakness in the global economy, this may have a significant negative impact on the national economy, in turn impacting on Tasmania's economy, particularly through its exports. The rising value of the Australian dollar also has the potential to reduce demand for the State's exports or to erode profit margins for Tasmania's export industries. Furthermore, while Tasmania was relatively insulated from the severity of the drought, growth in the national economy will continue to be constrained until the farming sector has fully recovered from the drought's impact. As such, Tasmania's economy is likely to be affected by general flow-on effects from national economic conditions.
On current trends, Treasury expects that Tasmania's economic growth rate will be 3.5 per cent in 2003-04, a strong improvement on the estimated 2.5 per cent for 2002-03. Commonwealth Treasury, in its Mid-Year Economic and Fiscal Outlook 2002-03, estimates that Australia's GDP will increase by around 4.0 per cent in 2003-04. However, more recent private sector forecasts of growth are generally lower (around 3.0 to 3.5 per cent).
After strong growth in 2001-02, led primarily by the acquisition of the two Bass Strait ferries, it is likely that government spending will have declined in 2002-03. However, without the ferries, government spending would have recorded moderate growth in 2002-03. Government spending, as announced in the 2003-04 Budget (particularly through the Economic and Social Infrastructure Fund), is expected to continue to make a solid contribution to overall economic growth in 2003-04.
The anticipated impact of the energy and related infrastructure projects will continue to provide a major boost to the State's economy in 2003-04. In particular, the expected investment associated with the natural gas, wind power, water infrastructure and Basslink projects will have a significant impact on employment and output.
Driven by the energy and related infrastructure projects, the outlook for business investment has been very positive in recent business surveys. This is despite concerns over weakness in the international environment. As a result, Treasury expects that business investment will continue to be strong in 2003-04, supported by historically low official interest rates, the State Government's fiscal policies, and the impact of energy and related projects. However, there is a downside risk that the external economic environment may have a dampening effect on business investment decisions in the State. In relation to dwelling investment, it is expected that, after two very strong years, growth may not be as high in 2003-04. However, expectations of continued low interest rates in the short term at least, together with population growth and sustained interest in Tasmanian property from interstate investors, are likely to result in continued high levels of dwelling investment.
Growth in the other key component of final demand, consumer spending, is expected to continue in 2003-04. Consumer spending rose by 3.4 per cent in 2001-02 and the year to date performance for 2002-03 points to a similar increase, aided by relatively strong wages growth and population growth. Over the coming year, it is expected that consumer spending will remain strong, supported by solid growth in employment, relatively low interest rates and continued population growth. The downside risks to
Chapter 2: Tasmanian Economy 59 consumer spending are the possibility of an adverse national and international environment, which may affect consumer confidence in Tasmania, and higher interest rates.
Consistent with the improved economic prospects, population growth is expected to strengthen to 0.3 per cent in 2003-04, following estimated growth of 0.25 per cent in 2002-03.
The State's overseas export performance is expected to continue to be relatively strong in 2003-04 following the strong performance during 2002-03. While some of the State's key overseas markets have experienced economic weakness in recent times, this has often not been reflected in a decrease in the State's exports to those markets. Tasmania also has the advantage that a major share of the State's overseas exports go to the East Asian region, which is currently the strongest growing economic region in the world.
The general outlook for commodity prices in 2003-04 is for lower prices than in 2002-03. However, despite the general outlook, official projections by the Australian Bureau of Agricultural and Resource Economics (ABARE) point to an increase in the price of most of the State's key commodity exports next year. For 2003-04, ABARE expects increases in the $US price of zinc (10.1 per cent), copper (9.3 per cent), lead (9.2 per cent), aluminium (7.9 per cent), tin (6.8 per cent), and silver (1.4 per cent). ABARE is also forecasting a 6.2 per cent increase in the price for beef (in $US terms), but an 11.2 per cent decline in the price of wool. However, wool prices have been high in recent years and ABARE's forecast price for wool in 2003-04 is still at a historically high level.
The Australian dollar has appreciated significantly against the US dollar since the beginning of 2002. There is a consensus that further appreciation is likely during 2003, which will have a negative impact on Australia's exports. However, the Australian dollar's performance has been in part due to a weakening in the US dollar against most major currencies. As the Australian dollar has not appreciated significantly against other major currencies, Australia's relative competitive position has not changed significantly to date. Overall, the State's overseas exports are likely to record another year of underlying growth, though the year on year data may continue to be affected by the timing of catamaran sales. Labour Market and Prices
Based on current trends, Treasury expects employment to be 0.9 per cent higher in 2002-03 as a result of a stronger State and national economy. Treasury expects employment growth to further strengthen in 2003-04 to 2.2 per cent, which, as shown in Chart 2.17, is greater than the Commonwealth Government's forecast for the national employment growth rate.
60 Chapter 2: Tasmanian Economy Chart 2.17: Annual Employment Growth – Actual and Forecast: Tasmania and Australia
4
3
2
1
0
-1
% from change previous year -2
-3 1991-92 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04
Tasmania Australia
Sources: The Labour Force, Australia, Preliminary Data on Floppy Disk, ABS Cat. No 6271.0, Department of Treasury and Finance and Commonwealth Government.
There are a number of specific developments that Treasury has taken into account in formulating its employment forecast for 2003-04. These include:
• the impact of the State Government's fiscal stimulus from the past two Budgets and the 2003-04 Budget;
• commencement of construction of the distribution network for natural gas and the opportunities this will provide to businesses;
• continued expansion in the State's call centre industry;
• construction of Basslink, as well as Hydro Tasmania's wind energy projects; and
• a number of tourism developments, supported by the significant rise in visitor numbers following the success of the Bass Strait ferries and cheaper air fares, including the completion of the West Coast Wilderness Railway.
Against the backdrop of a stronger improvement in the labour market in 2003-04, the State's participation rate is forecast to average 59.2 per cent for the year. This will be the second consecutive annual improvement from an average level of 58.3 per cent in 2001-02 and the estimated average level of 58.5 per cent in 2002-03.
Treasury has forecast a fall in the unemployment rate in 2003-04 to an average level of 8.4 per cent, from an estimated 8.8 per cent in 2002-03, as the unemployed take some of the additional jobs.
Consistent with this improvement in the labour market, it is expected that the State's population will continue to grow at a slightly faster rate over the coming year. Treasury expects the recent trend in population growth to continue, with growth of 0.3 per cent in 2003-04.
Chapter 2: Tasmanian Economy 61 In terms of the outlook for prices, Tasmania's CPI is forecast to increase by 2.3 per cent in 2003-04, following an anticipated rise of around 2.9 per cent in 2002-03. It appears that prices have now settled into a steady trend following the abnormal impact of the Commonwealth's tax reform package on the CPI. On the basis of CPI data to date, the local inflation rate is expected to be around the same as that for the rest of Australia. Nationally, inflationary pressures are expected to ease slightly in 2003-04 in line with expected lower oil prices, and the recovery from the national drought. Furthermore, the strengthening Australian dollar will also ease pressure on prices.
Summary
The forecast economic growth rate of 3.5 per cent for 2003-04, following anticipated growth of 2.5 per cent in the current financial year, indicates that prospects for the Tasmanian economy remain strong after the downturn of the 1990s. While the external environment has been a cause for concern since 2001, the measures put in place by the State Government have been supporting the State's economic performance and maintaining the positive momentum, in terms of output and employment growth, that has emerged over the past four years.
The Tasmanian Natural Gas Project, Basslink and the investment arising from these infrastructure developments, together with sustained boosts to tourism due to improved sea and air access to Tasmania, have the potential to significantly boost the Tasmanian economy in the medium to longer term, such that the State's economic performance could again approach that of the national economy.
62 Chapter 2: Tasmanian Economy 3 BUDGET SUMMARY, 2003-04
Features
• The State Budget is presented for the first time on a full accrual basis. This chapter includes key fiscal measures presented in accordance with the Uniform Presentation Framework.
• In 2003-04, the Fiscal Surplus is estimated to be $6.9 million.
• Net Worth is estimated to increase by $355.5 million, or 5.2 per cent in nominal terms, from $6 816.9 million to $7 172.4 million between 30 June 2003 and 30 June 2004.
• Net Debt is estimated to decrease by $250.1 million, or 35.2 per cent in nominal terms, from $711.6 million to $461.5 million between 30 June 2003 and 30 June 2004. This reduction is consistent with the Government's Fiscal Strategy to reduce Net Debt to zero by 2007-08.
• In 2003-04, the General Government Cash Surplus is estimated to be $83.2 million.
• In 2003-04, the Consolidated Fund Surplus is estimated to be $4.7 million.
Chapter 3: Budget Summary, 2003-04 63 INTRODUCTION
The 2003-04 State Budget has been prepared on an accrual Uniform Presentation Framework (UPF) basis and includes all entities within the General Government Sector. The accrual UPF provides details of the expenses, revenues, payments, receipts, and assets and liabilities of the General Government Sector.
The Budget has been developed to meet the objectives of the Government's Fiscal Strategy. Details of General Government Sector estimates and outcomes are presented in three primary statements: the Operating Statement, Balance Sheet and Cash Flow Statement. The primary statements report a number of fiscal measures and assist in the analysis of the financial performance of the General Government Sector.
The Fiscal Surplus is the Government's headline Budget measure. Other key fiscal measures include Net Worth, Net Financial Worth, Net Financial Liabilities, Net Debt and Cash Surplus. This chapter provides information on each of these measures, together with a summary of the three primary statements.
A description of the three primary statements and the key fiscal measures is provided in The Tasmanian Government Financial System and Budget Guide, 2003-04.
In addition, this chapter provides information on expenditure from, and receipts to, the Consolidated Fund and the Government's key measure in relation to the Consolidated Fund, the Consolidated Fund Surplus.
OPERATING STATEMENT
The primary measure reported in the Operating Statement is the Fiscal Surplus, which represents the Government's headline Budget measure.
A high level summary of the 2003-04 Operating Statement is provided in Table 3.1.
Table 3.1: Operating Statement, 2003-04 2002-03) 2003-04) Budget) Budget) Estimate) Estimate) Variation) $'000) $'000) %)
Revenue 2 852 361) 2 989 967) 4.8) Expenses 2 851 824) 3 005 777) 5.4) Less Net acquisition of non-financial assets ( 25 508) ( 22 728) (10.9)
FISCAL SURPLUS 26 045) 6 918) (73.5)
64 Chapter 3: Budget Summary, 2003-04 Total Revenue is estimated to be $2 990.0 million in 2003-04, an increase of $137.6 million or 4.8 per cent on 2002-03 budgeted revenue of $2 852.4 million. The increase in revenue primarily relates to two factors: an increase in State duties revenue due to an anticipated continuation, to at least mid 2003-04, of the high level of activity in the property market during 2002-03 and an increase in payroll tax revenue as a result of anticipated growth in employment in the payroll tax paying sector; and an increase in Commonwealth revenue in 2003-04 due to an increase in the size of the GST Revenue pool and an increase in Tasmania's fiscal equalisation need for Commonwealth financial assistance as assessed by the Commonwealth Grants Commission.
Total Expenses are estimated to be $3 005.8 million in 2003-04, an increase of $154.0 million or 5.4 per cent on 2002-03 budgeted expenses of $2 851.8 million. Three major factors contributing to the increase in Expenses are: wage indexation in accordance with wage agreements; expenditure from the new Economic and Social Infrastructure Fund established as part of the 2003-04 Budget to provide funding for major economic and social initiatives; and initiatives, within agencies, announced as part of the 2003-04 Budget to meet social, environmental and security needs.
Detailed information on General Government Sector revenue and expense estimates for 2003-04 is provided in Chapter 4 of this Budget Paper.
Fiscal Surplus
In 2003-04, the Fiscal Surplus is estimated to be $6.9 million, a decrease of $19.1 million on the 2002-03 Budget estimate of $26.0 million.
The Fiscal Surplus outcome for 2002-03 is estimated to be $121.0 million, an increase of $95.0 million on the Budget estimate of $26.0 million in 2002-03. The estimated increase is largely due to an increase in State taxation revenue and Commonwealth revenue and lower than anticipated capital works in 2002-03. For further information on the 2002-03 Fiscal Surplus outcome, refer to Chapter 8 of this Budget Paper. This surplus has resulted in a once-off build up of funds, which will be paid into the new Economic and Social Infrastructure Fund (ESIF). The reduction in the 2003-04 Fiscal Surplus reflects increased expenditure from the ESIF and from other one-off cash reserves established in 2002-03.
The achievement of a Fiscal Surplus is in line with the Government's Fiscal Strategy and indicates that the Government is saving more than enough to finance all of its operations and capital spending. Whilst maintaining a Fiscal Surplus, the 2003-04 Budget delivers substantial Budget initiatives to support the Government's strategic approach to social and economic development.
Chapter 3: Budget Summary, 2003-04 65 BALANCE SHEET
The primary fiscal measures reported in the Balance Sheet, and incorporated as key measurers in the Government's Fiscal Strategy, are as follows:
• Net Worth;
• Net Financial Worth;
• Net Financial Liabilities; and
• Net Debt.
A high level summary of the Balance Sheet as at 30 June 2003 and 30 June 2004 is provided in Table 3.2.
Table 3.2: Summary Balance Sheet, as at 30 June 2003) 2004) Budget) Budget) Estimate) Estimate) Variation $'000) $'000) % Assets Financial assets 5 419 461) 4 863 608) (10.3)
Non-financial assets 5 615 046) 5 736 015) 2.1)
Total assets 11 034 507) 10 599 623) (4.0)
Total liabilities 4 217 575) 3 427 225) (18.8)
NET WORTH1 6 816 932) 7 172 398) 5.2)
NET FINANCIAL WORTH2 1 201 886) 1 436 383) 19.5)
NET FINANCIAL LIABILITIES3 2 612 561) 2 495 425) (4.5)
NET DEBT4 711 561) 461 470) (35.2)
Notes: 1. Net Worth represents Total Assets less Total Liabilities. 2. Net Financial Worth represents Financial Assets less Total Liabilities. 3. Net Financial Liabilities represents Net Debt plus gross unfunded superannuation liabilities. 4. Net Debt represents gross debt less selected financial assets.
Total Assets are estimated to be $10 599.6 million in 2003-04, a decrease of $434.9 million or four per cent on 2002-03 budgeted assets of $11 034.5 million. The decrease in Total Assets primarily relates to a decrease in cash and deposits of $639.2 million, which are to be utilised to reduce borrowings at the end of the 2003-04 financial year. Surplus cash held in the Public Account is used to repay maturing debt within a financial year, thus delaying borrowing until the last possible point (30 June) and reducing borrowing costs. For this reason, during the year, both cash and actual gross debt are maintained as low as possible. In past years, at
66 Chapter 3: Budget Summary, 2003-04 the end of the financial year, a temporary overnight borrowing was undertaken which had the effect of grossing up the value of both cash and gross debt as at 30 June. With the move to an accrual Budget, the practice of end of year borrowing will be discontinued. The change in end of financial year cash management practices is further explained in Chapter 4 of The Tasmanian Government Financial System and Chapter 7 of this Budget Paper.
Total Liabilities are estimated to be $3 427.2 million in 2003-04, a decrease of $790.4 million or 18.8 per cent on 2002-03 budgeted liabilities of $4 217.6 million. The decrease in Total Liabilities primarily relates to a decrease of $883.4 million in borrowings and reflects the new approach in managing the State's cash reserves and borrowings, as outlined above. The decrease in borrowings is partially offset by an expected increase of $133.0 million in the gross unfunded superannuation liability. It is estimated that the gross unfunded superannuation liability will continue to increase in nominal terms for a number years before the impact of the Government's policy of reducing the liability is reflected in the Balance Sheet.
Detailed information on Assets and Liabilities is provided in Chapter 7 of this Budget Paper.
Net Worth
Net Worth is estimated to increase by $355.5 million or 5.2 per cent in nominal terms, from $6 816.9 million to $7 172.4 million between 30 June 2003 and 30 June 2004.
Net Worth is calculated as total assets minus Total Liabilities. Net Worth incorporates non-financial assets such as land and other infrastructure assets, which may be sold and used to repay debt. It also incorporates certain financial assets and liabilities not captured by the Net Debt measure, most notably accrued employee superannuation liabilities, ownership of equities, debtors and creditors.
The major factors influencing the improvement in estimated Net Worth are increases of $102.6 million in equity assets, and $121.0 million in non-financial assets (including land and fixed assets), offset by an increase in the estimated gross unfunded superannuation liability of $133.0 million. Also contributing to the improvement in Net Worth is the estimated fall in Net Debt of $250.1 million between June 2003 and June 2004.
Detailed information on Net Worth and its components is provided in Chapter 7 of this Budget Paper.
Net Financial Worth
Net Financial Worth is estimated to increase by $234.5 million or 19.5 per cent in nominal terms, from $1 201.9 million to $1 436.4 million between 30 June 2003 and 30 June 2004.
Net Financial Worth is a measure of net holdings of financial assets and is calculated as total financial assets minus Total Liabilities. Net Financial Worth is a broader measure than Net Debt, in that it incorporates provisions for superannuation and other employee entitlements as well as ownership of equity. Net Financial Worth includes all classes of financial assets and liabilities, only some of which are included in Net Debt.
The increase in Net Financial Worth represents the strengthening position of the State's finances as the level of borrowings is reduced by the generation of cash surpluses, which are utilised to build cash reserves, and an increase in equity investments, offset by the increase in unfunded superannuation.
Chapter 3: Budget Summary, 2003-04 67 Detailed information on Net Financial Worth and its components is provided in Chapter 7 of this Budget Paper.
Net Financial Liabilities
Net Financial Liabilities are estimated to decrease by $117.2 million, or 4.5 per cent in nominal terms, from $2 612.6 million to $2 495.4 million between 30 June 2003 and 30 June 2004.
Net Financial Liabilities represents Net Debt plus gross unfunded superannuation liabilities. This measure is used to provide a broader picture of the State's liabilities. This measure is not included in the UPF. However, it is commonly used by international credit ratings agencies as it targets the significant financial assets and liabilities held by most governments.
The decrease in Net Financial Liabilities relates to a decrease in Net Debt of $250.1 million, as outlined above, partially offset by an increase of $133.0 million in the gross unfunded superannuation liability. The reduction in Net Financial Liabilities is consistent with the Government's Fiscal Strategy to eliminate Net Financial Liabilities by June 2017.
Detailed information on Net Financial Liabilities and its components is provided in Chapter 7 of this Budget Paper.
Net Debt
Net Debt is estimated to decrease by $250.1 million or 35.2 per cent in nominal terms, from $711.6 million to $461.5 million between 30 June 2003 and 30 June 2004. This reduction is consistent with the Government's Fiscal Strategy to reduce Net Debt to $450.0 million by 30 June 2005 and to zero by 2007-08.
Net Debt comprises the stock of specified gross financial liabilities less selected financial assets and is the same under cash and accrual-based financial reporting. Targets for the reduction of General Government Net Debt have been a part of the Government's Fiscal Strategy since 1998-99.
Detailed information on Net Debt and its components is provided in Chapter 7 of this Budget Paper.
68 Chapter 3: Budget Summary, 2003-04 CASH FLOW STATEMENT
The primary fiscal measure reported in the Cash Flow Statement is the Cash Surplus.
A summary of the 2003-04 Cash Flow Statement is provided in Table 3.3.
Table 3.3: Summary Cash Flow Statement, 2002-03 and 2003-04 2002-03) 2003-04) Budget) Budget) Estimate) Estimate) Variation) $'000) $'000) %)
Cash receipts from operating activities 2 962 582) 3 106 283) 4.8)
Cash payments for operating activities (2 734 537) (2 891 654) 5.7) Net cash flows from operating activities1 (A) 228 045) 214 629) (5.9)
Net cash flows from investments in non-financial assets (B) ( 124 862) ( 131 477) 5.2)
Net cash flows from investments in financial assets for policy purposes (C) ( 6 659) 19 823) ....)
Net cash flows from investments in financial assets for liquidity purposes (D) 10 146) 5 000) (50.8)
Net cash flows from financing activities2 (E) ( 17 373) ( 164 087) 844.4) Net Increase/(Decrease) in Cash Held3 89 297) ( 56 112) (162.9)
CASH SURPLUS4 103 183) 83 152) (19.5)
Notes: 1. Net cash flows from operating activities primarily reflect transactions in the Operating Statement. 2. The decrease in the net cash flow from financing activities primarily reflects a change in cash management practices, reflecting a discontinuation of end of year borrowings. The 2003-04 net cash flows from financing activities also includes $28.5 million in relation to the proceeds to be realised from the sale of Civil Construction Corporation, the Tasmanian Grain Elevators Board, the Stanley Cool Stores Board and assets of the Hobart Ports Corporation Pty Ltd. The proceeds are included as a cash flow from financing activities because the sale is classified as a withdrawal of equity. Therefore, the cash flow does not contribute to the Cash Surplus. 3. Net Increase/(Decrease) in Cash Held is equal to A+B+C+D+E. 4. Cash Surplus is equal to A+B.
Cash Surplus
The Cash Surplus is estimated to be $83.2 million in 2003-04, a decrease of $20.0 million or 19.5 per cent on 2002-03 budgeted Cash Surplus of $103.2 million.
The Cash Surplus measure represents the net cash flows from operating activities plus the net cash flows from investments in non-financial assets. The achievement of a Cash Surplus in 2003-04 is in line with the
Chapter 3: Budget Summary, 2003-04 69 Government's Fiscal Strategy and is consistent with the Government's target of eliminating Net Debt by June 2008.
The Cash Surplus in 2002-03 is estimated to be $172.9 million (for further information on the 2002-03 Cash Surplus outcome, refer to Chapter 8 of this Budget Paper). The reduction in the 2003-04 Cash Surplus reflects increased expenditure from the cash reserves accumulated during 2002-03. A substantial component of the cash reserves will be spent as part of the Government's new Economic and Social Infrastructure Fund.
CONSOLIDATED FUND
In previous Budgets, a primary focus of the Government was the achievement of a Consolidated Fund Surplus (CFS). A CFS represents the excess of Consolidated Fund receipts over the expenditure of these funds (net of loan repayments) and is available for the retirement of debt.
Table 3.4 provides details of receipts to, and expenditure from, the Consolidated Fund and the estimated CFS for 2003-04.
Table 3.4: Consolidated Fund Surplus, 2002-03 and 2003-04 2002-03) 2003-04) Budget) Budget) Variation) $'000) $'000) %) Receipts Commonwealth Sources 1 657 133) 1 716 454) 3.6) State Sources 779 751) 864 073) 10.8) Total Receipts 2 436 884) 2 580 527) 5.9) Less Expenditure Recurrent Expenditure 2 290 251) 2 425 731) 5.9) Capital Expenditure 138 557) 150 562) 8.7) Total Expenditure 2 428 808) 2 576 293) 6.1) Gross Consolidated Fund Surplus 8 076) 4 234) (47.6) Add Loan Repayments 444) 436) (1.8) Consolidated Fund Surplus 8 520) 4 670) (45.2)
The CFS is estimated to be $4.7 million in 2003-04, a reduction of $3.8 million on the 2002-03 Budget estimate. The decrease is mainly due to a decision by the Government to fund a number of initiatives, such as the winter concession on electricity for Health Care Card Holders, by diminishing the level of CFS to be targeted in the 2003-04 Budget. Further information on Consolidated Fund receipts and payments can be found in Chapter 4 and Appendix 2 of this Budget Paper.
Table 3.5 provides a reconciliation of the Consolidated Fund Surplus to the Fiscal Surplus for 2002-03 and 2003-04.
70 Chapter 3: Budget Summary, 2003-04 Table 3.5: Reconciliation of Consolidated Fund Surplus to Fiscal Surplus, 2002-03 and 2003-04
2002-03 2003-04 Budget Budget $'000 $'000
CONSOLIDATED FUND SURPLUS 8 520 4 670
Add Special Deposits and Trust Fund Movements Transfers from the Consolidated Fund1 115 288 183 132 Statutory Authorities Movements 777 1 680 Other Agency Movements2 ( 21 402) ( 106 330)
CASH SURPLUS 103 183 83 152
Less Accrual Items Nominal Interest on Superannuation3 111 498 115 935 Superannuation4 ( 20 368) ( 30 392) Other Movements5 ( 13 992) ( 9 309)
NET ACCRUAL ADJUSTMENTS 77 138 76 234
FISCAL SURPLUS 26 045 6 918
Notes: 1. Transfers from the Consolidated Fund primarily relate to the contribution to the Superannuation Provision Account and the new Economic and Social Infrastructure Fund. 2. Other Agency Movements consist of payments from the 2001-02 Infrastructure Fund, the Social Infrastructure Fund and the Economic and Social Infrastructure Fund. 3. Nominal Interest on Superannuation represents the notional interest expense on the State's unfunded superannuation liability. 4. The accrual superannuation adjustment reflects the timing difference between the recognition of the superannuation expense and its actual cash payment. 5. Other Movements primarily reflects changes in the level of creditors and debtors, and movements in accrued revenue and expenses and assets and liabilities.
Chapter 3: Budget Summary, 2003-04 71
4 REVENUE AND EXPENSE ESTIMATES, 2003-04
Features
• The Fiscal Surplus is estimated to be $6.9 million in 2003-04.
• Total revenue is estimated to be $2 990.0 million in 2003-04, an increase of $137.6 million or 4.8 per cent on 2002-03 budgeted revenue of $2 852.4 million.
• Total expenses are expected to be $3 005.8 million in 2003-04, an increase of $154.0 million or 5.4 per cent over 2002-03 budgeted expenses of $2 851.8 million.
Chapter 4: Revenue and Expense Estimates, 2003-04 73 INTRODUCTION
This chapter provides detailed information on the major categories of revenues and expenses within the General Government Sector. Details of the components of the net acquisition of non-financial assets and the impact on the Government's headline Budget measure, the Fiscal Surplus, is also provided.
OPERATING STATEMENT
The Operating Statement is designed to capture the composition of expenses and revenues and the net cost of the General Government Sector's activities within a fiscal year.
Table 4.1 details the General Government Sector Operating Statement for 2003-04.
Table 4.1: Operating Statement, 2002-03 and 2003-04 2002-03) 2003-04) Budget) Budget) Estimate) Estimate) Variation) $'000) $'000) %) Revenue Grants and Subsidies 1 803 614) 1 860 697) 3.1) Taxation Revenue 480 928) 533 051) 10.8) Sales of Goods and Services 275 541) 297 627) 8.0) Interest Income 15 742) 17 587) 11.7) Dividend and Tax Equivalent Income 147 337) 139 018) (5.7) Other Revenue 129 199) 141 987) 9.8) Total Revenue 2 852 361) 2 989 967) 4.8) Expenses Depreciation 150 370) 154 205) 2.5) Employee Expenses 1 232 408) 1 293 234) 4.9) Other Operating Expenses 679 679) 725 713) 6.7) Nominal Superannuation Interest Expense 111 498) 115 935) 3.9) Other Interest Expense 82 926) 68 891) (17.0) Grants and Transfers 594 943) 647 799) 8.8) Total Expenses 2 851 824) 3 005 777) 5.4)
NET OPERATING RESULT1 537) ( 15 810) Less Net acquisition of non-financial assets Purchase of new non-financial assets 171 209) 181 020) 5.7) less Sale of non-financial assets 46 347) 49 543) 6.8) less Depreciation 150 370) 154 205) 2.5) Total ( 25 508) ( 22 728) (10.9) FISCAL SURPLUS1 26 045) 6 918)
74 Chapter 4: Revenue and Expense Estimates, 2003-04 Note: 1. The estimated Fiscal Surplus outcome for 2002-03 is $121.0 million. This surplus has resulted in a once-off build up of funds to be paid into the new Economic and Social Infrastructure Fund (ESIF), which is primarily budgeted for expenditure in 2003-04. Due mainly to this expenditure in 2003-04, substantial expenditure is occurring in 2003-04 from cash generated in an earlier year with the effect that the Net Operating Result for 2003-04 is estimated to be a deficit of $15.8 million.
REVENUE
Total revenue is estimated to be $2 990.0 million in 2003-04, an increase of $137.6 million or 4.8 per cent on the 2002-03 Budget estimate of $2 852.4 million.
Chart 4.1 shows the estimated total revenue in 2003-04 and a percentage breakdown of the revenue categories.
Chart 4.1: Total Revenue, 2003-04
Sales of Goods and Taxation Revenue Services $533.1m (17.8%) $297.6m (10%) Dividend Income $139.0m (4.6%)
Interest Income $17.6m (0.6%)
Other Revenue Grants and $142.0m (4.7%) Subsidies $1 860.7m (62.2%)
The single most important source of revenue for the State is Grants and Subsidies. Grants and Subsidies consist primarily of revenues from the Commonwealth Government, through a range of general and specific purpose grants, and account for 62.2 per cent of the State's revenue in 2003-04. The remainder of the State's revenue will be derived by the State from its own sources, the major elements being Taxation Revenue (17.8 per cent), Sales of Goods and Services (10.0 per cent), Interest Income (0.6 per cent), Dividend Income (4.6 per cent) and Other Revenue (4.7 per cent).
Chapter 4: Revenue and Expense Estimates, 2003-04 75 Grants and Subsidies
Grants and Subsidies for 2003-04 is estimated to be $1 860.7 million, an increase of $57.1 million or 3.1 per cent on the 2002-03 Budget estimate of $1 803.6 million. Detailed information on Grants and Subsidies is provided in Table 4.2.
Table 4.2: Grants and Subsidies, 2002-03 and 2003-04 2002-03) 2003-04) Budget) Budget) $'000) $'000) Recurrent Revenue General Purpose Payments GST Revenue1 1 199 500) 1 299 700) Budget Balancing Assistance2 52 700) 9 300) Competition Payments 17 400) 17 600) Total General Purpose Payments 1 269 600) 1 326 600)
Specific Purpose Payments Health and Human Services Blood Transfusion Service3 1 855) ....) Commonwealth-State Housing Agreement4 17 741) 22 259) Disability Services Grant 17 600) 19 084) Health Care Grant 153 400) 159 700) High Cost Drugs 4 850) 5 950) Home and Community Care Program 15 860) 17 303) National Child Care Strategy 217) 217) Public Health Outcomes Funding Agreement 3 931) 3 931) Supported Accommodation Assistance Program 6 798) 7 016) Education Primary and Secondary Education 44 243) 45 593) Technical and Further Education 22 235) 22 790) Primary Industries, Water and Environment World Heritage Area 5 300) 4 300) Police and Public Safety Natural Disasters Organisations 207) 212) Finance-General Assistance for Concessions 5 531) 5 853) Grant to the State for Local Government 47 000) 49 031) Total Specific Purpose Payments 346 768) 363 239)
Total Recurrent Revenue 1 616 368) 1 689 839)
76 Chapter 4: Revenue and Expense Estimates, 2003-04 Table 4.2: Grants and Subsidies, 2002-03 and 2003-04 (continued) 2002-03) 2003-04) Budget) Budget) $'000) $'000) Capital Revenue Specific Purpose Payments Health and Human Services Housing4 9 982) 2 224) Education Primary and Secondary Education 6 368) 6 411) Technical and Further Education 6 075) 3 284) Infrastructure, Energy and Resources National Highway System5 18 340) 14 696) Total Capital Revenue 40 765) 26 615)
Other Payments6 146 481) 144 243)
TOTAL GRANTS AND SUBSIDIES 1 803 614) 1 860 697)
Notes: 1. The increase in GST Revenue in 2003-04 is primarily due to an increase in the size of the GST Revenue pool, an increase in Tasmania's relative need for Commonwealth financial assistance as assessed by the Commonwealth Grants Commission and an estimated increase in the rate of growth of Tasmania's population. 2. Under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA), the Commonwealth has guaranteed that the states will be no worse off as a result of the introduction of national tax changes. To meet this guarantee, the Commonwealth has agreed to make Budget Balancing Assistance payments to each state and territory as necessary, so as to leave them no worse-off than they would have been under the previous arrangements. 3. Commencing 1 July 2003, the Commonwealth Government will directly fund the costs associated with the supply of blood and blood products through the national funding pool. As such, the states will no longer receive a Specific Purpose Payment for the provision of this service. 4. The increase in revenue for the Commonwealth-State Housing Agreement primarily reflects a transfer of $7.5 million from capital revenue to recurrent revenue. The transfer between revenue categories is the result of a change in Housing Tasmania's treatment of minor works expenditure, which now brings it into line with the accounting policy for the Department of Health and Human Services. The transfer also includes an increase in recurrent maintenance expenditure. However, this increase is partially offset by a decrease in the estimated level of funding to be provided by the Commonwealth under the Commonwealth-State Housing Agreement. 5. The decrease in funding for the National Highway System reflects the completion of a number of roads projects in the 2002-03 Roads Program. Commonwealth funding for the Roads Program is anticipated to increase in 2004-05 as a number of road projects have been approved but construction will not commence until 2004-05. 6. Other Payments includes Specific Purpose Payments that are paid directly to non-government organisations or are paid to these organisations from the Special Deposits and Trust Fund through agencies to undertake activities for external organisations.
Recurrent Revenue
Revenue from Commonwealth sources for recurrent purposes is estimated to total $1 689.8 million, an increase of $73.4 million or 4.5 per cent over the 2002-03 Budget estimate of $1 616.4 million. This revenue is paid directly into the Consolidated Fund and consists of GST Revenue, Budget Balancing Assistance,
Chapter 4: Revenue and Expense Estimates, 2003-04 77 National Competition Payments to the State, and specific purpose revenue, which are tied to specific activities. General Purpose Payments GST Revenue GST Revenue is estimated to be $1 299.7 million in 2003-04, an increase of $100.2 million over the 2002-03 Budget estimate of $1 199.5 million. This increase is primarily due to an increase in the size of the GST revenue pool, an increase in Tasmania's assessed relative need for Commonwealth financial assistance as assessed by the Commonwealth Grants Commission and an estimated increase in the rate of growth of Tasmania's population. Budget Balancing Assistance Under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA) agreed by the states and the Commonwealth in June 1999, the Commonwealth guaranteed that the budgetary position of each individual state or territory will be no worse off under the new arrangements than it would have been had the reforms not been implemented. To meet this guarantee, the Commonwealth has agreed to make Budget Balancing Assistance (BBA) payments to each state or territory as necessary. It is estimated that, in 2003-04, Tasmania will receive a BBA of $9.3 million, a decrease of $43.4 million on the 2002-03 Budget estimate of $52.7 million. National Competition Payments to the State The Agreement to Implement the National Competition Policy and Related Reforms provides for the states and territories to receive general revenue grants, which reflect a share of the expected revenue gains to the Commonwealth arising from the implementation of National Competition Policy by the states and territories. It is estimated that, in 2003-04, Tasmania will receive $17.6 million for this purpose, an increase of $200 000 on the 2002-03 Budget estimate of $17.4 million. Specific Purpose Payments
The Health Care Grant is estimated to be $159.7 million in 2003-04, $6.3 million or 4.1 per cent greater than the budgeted amount of $153.4 million for 2002-03. Negotiations with the Commonwealth on a new Health Care Agreement are not finalised and therefore the Budget estimate for 2003-04 assumes that the current arrangements will in effect be rolled over. The remainder of the recurrent specific purpose payments from the Commonwealth will total $203.5 million (excluding the Health Care Grant) in 2003-04, an increase of $10.1 million or 5.2 per cent on the budgeted amount for 2002-03 of $193.4 million.
Capital Revenue
In 2003-04, capital revenue is estimated to be $26.6 million, a decrease of $14.2 million or 34.8 per cent on the budgeted capital revenue of $40.8 million for 2002-03. The decrease is primarily due to a transfer by Housing Tasmania of $7.5 million from capital revenue to recurrent revenue and a decrease in National Highway System funding due to the completion of a number of roads projects in the 2002-03 Roads Program.
Other Payments
In 2003-04, Other Payments is estimated to be $144.2 million, a decrease of $2.3 million or 1.6 per cent on the 2002-03 Budget estimate of $146.5 million. The majority of this revenue from the Commonwealth is paid
78 Chapter 4: Revenue and Expense Estimates, 2003-04 directly to Government agencies and not paid into the Consolidated Fund. The Departments of Education (DoE) and Health and Human Services (DHHS) are the primary recipients of such Commonwealth monies. DoE receives approximately $102.0 million of funding directly from the Commonwealth, of which $91.8 million relates to grants for non-government schools. DHHS receives approximately $14.9 million of funding directly from the Commonwealth, which mainly relates to subsidies for nursing home clients and radiation oncology services. These payments are reported as Specific Purpose Payments 'through the State'.
Detailed information in relation to Commonwealth revenues is provided in Chapter 10 of this Budget Paper.
Taxation Revenue
Total Taxation Revenue for 2003-04 is estimated to be $533.1 million, an increase of $52.2 million or 10.9 per cent on the 2002-03 Budget estimate of $480.9 million. Details of the categories of Taxation Revenue are provided in Table 4.3.
Table 4.3: Taxation Revenue, 2002-03 and 2003-04 2002-03) 2003-04) Budget) Budget) $'000) $'000)
Land Tax 24 990) 25 547) Motor Taxation 43 466) 45 910) Payroll Tax 146 585) 162 248) Light Vehicle Registration Fees 22 380) 22 917) Financial Transaction Taxes Debits Duties 21 512) 22 769) Duties 116 245) 138 409) Gambling Taxes Casino Tax and Licence Fees 47 031) 50 853) Lottery Tax 20 490) 22 344) Racing and Gaming Taxes 438) 279) Receipts from GBEs, SOCs and State Authorities Guarantee Fees 4 721) 5 425) Other Taxation Revenue 33 070) 36 350)
TOTAL TAXATION REVENUE 480 928) 533 051)
A summary of the expected 2003-04 revenue from major tax sources is as follows:
• Land Tax revenue in 2003-04 is estimated to be $25.5 million, an increase of $557 000 or 2.2 per cent on the 2002-03 Budget estimate of $25.0 million. The estimated increase in 2003-04 reflects an increase in the aggregate land tax assessment over the 2002-03 Budget estimate;
• Motor Tax revenue in 2003-04 is estimated to be $45.9 million, an increase of $2.4 million or 5.6 per cent on the 2002-03 Budget estimate of $43.5 million;
Chapter 4: Revenue and Expense Estimates, 2003-04 79 • Payroll Tax revenue in 2003-04 is estimated to be $162.2 million, an increase of $15.6 million or 10.6 per cent on the 2002-03 Budget estimate of $146.6 million. The estimated increase in 2003-04 is the result of anticipated growth in employment in the payroll tax paying sector;
• Light Vehicle Registration Fees in 2003-04 is estimated to be $22.9 million, an increase of $537 000 or 2.4 per cent on the 2002-03 Budget estimate of $22.4 million;
• Debits Duty revenue in 2003-04 is estimated to be $22.8 million, an increase of $1.3 million or 6 per cent on the 2002-03 Budget estimate of $21.5 million;
• Duties revenue in 2003-04 is estimated to be $138.4 million, an increase of $22.2 million or 19.1 per cent on the 2002-03 Budget estimate of $116.2 million. The estimated increase in 2003-04 is the result of an anticipated continuation of the high level of activity in the property market to at least mid 2003-04, which has resulted in increased property sales and prices;
• Gambling Tax revenue in 2003-04 is estimated to be $73.5 million, an increase of $5.5 million or 8.1 per cent on the 2002-03 Budget estimate of $68.0 million. The expected increase is primarily due to increases in Casino Tax and Licence Fees of $3.8 million, or 8.1 per cent, and Lottery Tax of $1.9 million, or 9.2 per cent. The increase in Casino Tax receipts is mainly due to increased receipts from licence fees and video gaming machines as a result of the tax rates to apply under the new Deed of Agreement between the State and Federal Hotels;
• Returns from Government Business Enterprises, State-owned Companies and State Authorities from Guarantee Fees is estimated to be $5.4 million, an increase of $704 000 or 14.9 per cent on the 2002-03 Budget estimate of $4.7 million, largely reflecting the Government decision in 2002-03 to include TT Line Company Pty Ltd in the guarantee fee regime (refer to Chapter 11 for more information on returns from Government Businesses and Authorities); and
• Other Taxation Revenue represents revenue raised by the State Fire Commission in accordance with the Fire Service Act 1979. In 2003-04, revenue raised by the State Fire Commission is estimated to be $36.4 million, an increase of $3.3 million or 9.9 per cent on the 2002-03 Budget estimate of $33.1 million.
80 Chapter 4: Revenue and Expense Estimates, 2003-04 Chart 4.2: Taxation Revenue, 2003-04
Land Tax Gambling Taxes Other Taxation $25.5m (4.8%) $73.5m (13.8%) Revenue Debits Duty $36.4m (6.8%) Light Vehicle $22.8m (4.3%) Registration Fees Receipts from $22.9m (4.3%) GBEs and SOCs $5.4m (1%) Motor Tax $45.9m (8.6%) Duties $138.4m (26%)
Payroll Tax $162.2m (30.4%)
More detailed information in relation to State taxation revenue is provided in Chapter 5 of this Budget Paper.
Chapter 4: Revenue and Expense Estimates, 2003-04 81 Sales of Goods and Services
Revenue from Sale of Goods and Services is estimated to be $297.6 million in 2003-04, an increase of $22.1 million or 8 per cent on the 2002-03 Budget estimate of $275.5 million. Table 4.4 provides a breakdown of Revenue from the Sale of Goods and Services.
Table 4.4: Revenue from Sales of Goods and Services, 2002-03 and 2003-04 2002-03) 2003-04) Budget) Budget) $'000) $'000) Departmental Fees and Recoveries Economic Development 3 496) 1 100) Education 8 356) 8 556) Health and Human Services 16) 16) Infrastructure, Energy and Resources 10 263) 9 501) Justice and Industrial Relations 7 915) 8 105) Police and Public Safety 643) 294) Premier and Cabinet 2) 2) Primary Industries, Water and Environment 24 460) 25 138) Tourism, Parks, Heritage and the Arts 385) 385) Treasury and Finance 329) 339) Total Departmental Fees and Recoveries 55 865) 53 436)
Other Sales of Goods and Services 219 676) 244 191)
TOTAL SALES OF GOODS AND SERVICES 275 541) 297 627)
Departmental Fees and Recoveries
Revenue from fees and other charges levied for services provided by agencies in 2003-04 is estimated to be $53.4 million, a decrease of $2.5 million, or 4.5 per cent, on budgeted revenue of $55.9 million in 2002-03. The decrease in revenue from these sources is largely attributable to a decrease of $2.4 million in the revenue of the Department of Economic Development due to the continued reduction in the size of the Tasmanian Development and Resources Loan Portfolio. Other Sales of Goods and Services
Revenue from Other Sales of Goods and Services in 2003-04 is estimated to be $244.2 million, an increase of $24.5 million or 11.2 per cent on the 2002-03 Budget estimate of $219.7 million. This category represents revenue raised by General Government departments, authorities and other bodies through a range of fees, charges and recoveries, including revenue raised by the Department of Health and Human Services (DHHS) from inpatient fees, outpatient fees and private patient fees; revenue raised by the Department of Tourism, Parks, Heritage and the Arts from its tourism wholesale business, tourism commissions and park entry fees and donations; and revenue raised by TAFE Tasmania.
82 Chapter 4: Revenue and Expense Estimates, 2003-04 With the introduction of accrual budgeting in the 2003-04 Budget, a detailed examination has been undertaken in relation to revenues raised by the General Government Sector. This examination has allowed for a better identification and estimation of General Government revenue items and is the most significant factor contributing to the increase in 2003-04 revenue estimates compared to the 2002-03 estimates. Other factors contributing to the increase in Other Sales of Goods and Services include:
• higher than anticipated revenue of approximately $7.0 million for DHHS from inpatient fees, outpatient fees and private patient fees;
• additional revenue of $1.3 million for the Department of Education from various programs including the Tasmanian Government Schools International Program and the Teachers' Registration Board;
• additional revenue of $540 000 for Marine and Safety Tasmania from commercial vessels and an increase in the number of registered recreational vessels; and
• an anticipated increase in revenue of approximately $370 000 for Inland Fisheries Service from commercial activities.
Interest Income
Revenue from Interest Income is estimated to be $17.6 million in 2003-04, an increase of $1.9 million or 12.1 per cent on the 2002-03 Budget estimate of $15.7 million. Table 4.5 provides a breakdown of Interest Income.
Table 4.5: Interest Income, 2002-03 and 2003-04 2002-03) 2003-04) Budget) Budget) $'000) $'000)
Recoveries of State Debt Charges – Interest 5 870) 2 755)
Other Interest Income 9 872) 14 832)
TOTAL INTEREST INCOME 15 742) 17 587)
Recoveries of State Debt Charges - Interest
Interest is estimated to be $2.8 million in 2003-04, a decline of $3.1 million or 52.5 per cent from the Budget estimate of $5.9 million for 2002-03. The reduction in interest receipts in 2003-04 is primarily due to the repayment of advances from Hydro Tasmania of on-lent Financial Agreement debt and the early redemption of loans under the Public Bodies Assistance Act 1971. Other Interest Income
Other Interest Income is estimated to be $14.8 million in 2003-04, an increase of $4.9 million or 49.5 per cent from the Budget estimate of $9.9 million for 2002-03. The increase is primarily due to the following:
Chapter 4: Revenue and Expense Estimates, 2003-04 83 • the recognition of $1.8 million of interest income by the Department of Education. This revenue was not previously reported as a revenue to the Budget; and
• an increase in interest on investments for Finance-General, which has increased mainly as a result of a higher level of surplus cash available in the Public Account for investment purposes.
Dividend and Tax Equivalent Income
Dividend Income is estimated to be $139.0 million in 2003-04, a decrease of $8.3 million or 5.6 per cent from the Budget estimate of $147.3 million in 2002-03. This is attributable to slightly lower returns from Government Business Enterprises, State-owned Companies and State Authorities in the form of dividends, special dividends and tax equivalents. Table 4.6 provides a breakdown of Dividend Income.
Table 4.6: Dividend and Tax Equivalent Income, 2002-03 and 2003-04 2002-03) 2003-04) Budget) Budget) $'000) $'000)
Dividends1 59 090) 52 290) Special Dividends2 40 000) 26 500) Taxation Equivalents3 48 247) 60 228)
TOTAL DIVIDEND AND TAX EQUIVALENT INCOME 147 337) 139 018)
Notes: 1. The expected reduction in estimated dividends is primarily a result of reduced profit outcomes for Hydro Tasmania in 2002-03 compared to the previous year, due to higher than anticipated costs associated with the operation of Bell Bay Power Station following lower than expected rainfall during 2002-03; and reduced profit outcomes for Transend Networks Pty Ltd in 2002-03 compared to the previous year, due to higher depreciation expenses arising from an asset revaluation. This decrease is partially offset by a higher than anticipated profit outcome for Forestry Tasmania in 2002-03 compared to the previous year, due to increased domestic and export sales, as well as cost containment. 2. The expected reduction in the special dividend for Hydro Tasmania reflects the phasing out of this form of return to Government. 3. The increase in estimated tax equivalent payments is primarily a result of an abnormally low estimate of tax in 2002-03 as a result of the pre-payment of tax equivalents by Hydro Tasmania during 2001-02.
In 2003-04, it is estimated that Hydro Tasmania will pay $40.0 million in dividends (including a special dividend of $26.5 million) and $30.0 million in tax equivalent payments. Transend Networks Pty Ltd is expected to pay a dividend of $9.0 million and an estimated $8.0 million in tax equivalent payments. Aurora Energy Pty Ltd is expected to pay $11.5 million in dividends and $17.5 million in tax equivalent payments.
In 2003-04, the Tasmanian Public Finance Corporation is expected to pay a dividend of $6.5 million and an estimated $2.5 million in tax equivalent payments. During 2003-04, Forestry Tasmania will contribute $8.3 million by way of an ordinary dividend.
Further information concerning returns from Government Business Enterprises, State-owned Companies and State Authorities is provided in Chapter 11 of this Budget Paper.
84 Chapter 4: Revenue and Expense Estimates, 2003-04 Other Revenue
Total Other Revenue is estimated to be $142.0 million in 2003-04, an increase of $12.8 million or 9.9 per cent on the 2002-03 Budget of $129.2 million. Table 4.7 provides a breakdown of Other Revenue.
Table 4.7: Other Revenue, 2002-03 and 2003-04 2002-03) 2003-04) Budget) Budget) $'000) $'000)
Mineral Royalties 10 000) 8 000) Rent and Fees from Mineral Lands 770) 770) Water Royalties 1 912) 1 911) Fines, Fees and Charges 22 970) 23 007) Duties - Instalment Payments 3 000) 3 250) Miscellaneous Revenue 90 547) 105 049)
TOTAL OTHER REVENUE 129 199) 141 987)
The increase in total Other Revenue is primarily driven by an increase in Miscellaneous Revenue, which is estimated to be $105.0 million in 2003-04, an increase of $14.5 million or 16.0 per cent on the 2002-03 Budget estimate of $90.5 million. The significant revenue items within this category include Motor Accidents Insurance Board (MAIB) premiums collected by the Department of Infrastructure, Energy and Resources on behalf of, and subsequently transferred to, the MAIB and revenue raised by various Government departments, authorities and other bodies.
The primary factor contributing to the increase in Miscellaneous Revenue is the recognition of $20.7 million of revenue by the Department of Education in relation to school revenues. This revenue was not previously recognised in the accrual budget estimates.
The increase in Other Revenue is partially offset by a decrease in revenue received from Mineral Royalties, which is estimated to be $8.0 million in 2003-04, a decline of $2.0 million from the 2002-03 Budget estimate of $10.0 million. This decline is a result of the downturn in base metal prices.
Chapter 4: Revenue and Expense Estimates, 2003-04 85 EXPENSES
In 2003-04, total expenses are expected to be $3 005.8 million, an increase of $154.0 million or 5.4 per cent over 2002-03 budgeted expenses of $2 851.8 million.
Depreciation
Depreciation in 2003-04 is expected to be $154.2 million, an increase of $3.8 million or 2.5 per cent over the Budget estimate of $150.4 million in 2002-03. This is primarily attributable to an increase in the level of depreciation expense for the Department of Infrastructure, Energy and Resources following a revaluation of its road and bridge infrastructure.
Employee Expenses
Employee Expenses in 2003-04 are expected to be $1 293.2 million, an increase of $60.8 million or 4.9 per cent over the Budget estimate of $1 232.4 million in 2002-03. The majority of the increase in Employee Expenses is attributable to wage indexation in accordance with current wage agreements including the State Service Wage Agreement, the Teachers Nexus and Nurses and Police Officers wage agreements. Other significant items contributing to the increase in employee expenses include:
• $18.6 million of the additional funding provided to the Department of Health and Human Services in 2003-04 relates to increased staffing costs of nursing, Ashley Youth Detention Centre, renal dialysis, services to children, oral health, Home and Community Care Program and disability services and application of the Nurses' Post Graduate Allowance;
• $2.1 million of the additional funding provided to the Department of Police and Public Safety for counter terrorism, hand gun law reform and CrimTrac; and
• $1.0 million of the additional funding provided to the Department of Justice and Industrial Relations for corrective services.
Other Operating Expenses
Other Operating Expenses in 2003-04 are expected to be $725.7 million, an increase of $46.0 million or 6.7 per cent over the Budget estimate of $679.7 million in 2002-03. The significant items contributing to the increase include:
• the expense of $20.7 million for the Department of Education in relation to costs funded by school revenues. This cost was not previously recognised in accrual estimates;
• increased expenditure of approximately $13.3 million for the Department of Health and Human Services in relation to the Air Ambulance contract, Breast Screen Tasmania, medical and surgical supplies for hospital and ambulance services, services to children, disability services and the introduction of indexation on service delivery related expenses; and
• increased expenditure of approximately $3.8 million for the Department of Police and Public Safety in relation to the provision of additional funding by the Government for counter terrorism, hand gun law reform and CrimTrac.
86 Chapter 4: Revenue and Expense Estimates, 2003-04 Nominal Superannuation Interest Expense
Nominal interest on superannuation is calculated by applying an appropriate interest rate to the balance of the General Government unfunded superannuation liability. Nominal Superannuation Interest Expense in 2003-04 is expected to be $115.9 million, an increase of $4.4 million or 3.9 per cent over the Budget estimate of $111.5 million in 2002-03. The increase in this item reflects the increasing unfunded superannuation liability. Further information on the General Government unfunded superannuation liability can be found in Chapter 7 of this Budget Paper.
Other Interest Expenses
Other Interest Expenses in 2003-04 are expected to be $68.9 million, a decrease of $14.0 million or 17.0 per cent on the Budget estimate of $82.9 million in 2002-03. The decrease is primarily a result of a reduction in the level of Net Debt.
Grants and Transfers
Grants and Transfers in 2003-04 are expected to be $647.8 million, an increase of $52.9 million or 8.8 per cent on the Budget estimate of $594.9 million in 2002-03.
The increase in Grants and Transfers is primarily due to the following:
• expenditure from the new Economic and Social Infrastructure Fund established as part of the 2003-04 Budget to provide funding for major economic projects and the implementation of social initiatives;
• expenditure of $7.8 million from the Structural and Performance Initiatives Program account held within the Special Deposits and Trust Fund. These funds will be allocated to specific agencies to fund major projects including the redevelopment of the Motor Registry System, the Monetary Penalties Enforcement Project, and other major projects related to information systems development;
• increased expenditure of $3.3 million for the Department of Health and Human Services primarily in relation to additional funding provided by the Government for electricity concessions and increased indexation for non-Government organisations; and
• increased expenditure of $4.1 million for the Department of Infrastructure, Energy and Resources primarily in relation to additional funding provided by the Government for:
− school bus contract and route services;
− Community Service Agreement payments to Metro Tasmania Pty Ltd;
− wheelchair accessible taxis;
− the Conveyance Allowance; and
− the Transport Access Scheme.
Chapter 4: Revenue and Expense Estimates, 2003-04 87 NET ACQUISITION OF NON-FINANCIAL ASSETS
Non-financial assets comprise land and fixed assets such as buildings, plant and equipment, and roads, which are used to facilitate the provision of services by the General Government Sector. The Net Acquisition of Non-financial Assets reflects net capital expenditure (the purchase of new non-financial assets less the sale of non-financial assets) less depreciation expense.
Purchase of New Non-Financial Assets
The Purchase of New Non-Financial Assets is estimated to be $181.0 million in 2003-04, an increase of $9.8 million or 5.7 per cent on the 2002-03 Budget estimate of $171.2 million. The increase in this item primarily relates to the following:
• $6.5 million of funds for the Department of Health and Human Services to be used for the redevelopment of a number of Hospitals. These funds were budgeted to be expended in 2002-03 but are now estimated to be spent in 2003-04;
• $2.2 million of funds for the Department of Infrastructure, Energy and Resources in relation to work on the Westbury/Hagley Bypass. These funds were budgeted to be expended in 2002-03 but are now estimated to be spent in 2003-04; and
• an increase in the level of works to be undertaken in relation to the Prison Infrastructure Redevelopment Program in 2003-04 compared to 2002-03.
Sale of Non-Financial Assets
The Sale of Non-Financial Assets is estimated to be $49.5 million in 2003-04, an increase of $3.2 million or 6.8 per cent on the 2002-03 Budget estimate of $46.3 million. The increase primarily relates to:
• increased revenue of $560 000 for the Department of Health and Human Services in relation to proceeds from the sale of housing properties;
• increased revenue of $800 000 for the Department of Primary Industries, Water and Environment due to an increase in shack site disposals; and
• other increases in sales proceeds as a result of the current level of activity in the property market.
Depreciation
Depreciation in 2003-04, as noted above, is expected to be $154.2 million, an increase of $3.8 million or 2.5 per cent over the Budget estimate of $150.4 million in 2002-03. This is primarily attributable to an increase in the level of depreciation expense for the Department of Infrastructure, Energy and Resources following a revaluation of its road and bridge infrastructure.
88 Chapter 4: Revenue and Expense Estimates, 2003-04 FISCAL SURPLUS
In 2003-04, the Fiscal Surplus is estimated to be $6.9 million. The Fiscal Surplus indicates that the Government is saving more than enough to finance all of its operations and capital spending. The estimated Fiscal Surplus outcome for 2002-03 is $121.0 million (for further information on the 2002-03 Fiscal Surplus outcome, refer to Chapter 8 of this Budget Paper). This surplus has resulted in a once-off build up of funds to be paid into the new Economic and Social Infrastructure Fund (ESIF), of which a significant amount is to be expended in 2003-04. Due mainly to this expenditure in 2003-04, substantial expenditure is occurring in 2003-04 from cash generated in an earlier year with the effect that the Net Operating Result for 2003-04 is estimated to be a deficit of $15.8 million.
CONSOLIDATED FUND EXPENDITURE
Table 4.8 provides information on Consolidated Fund Expenditure by agency.
Table 4.8: Total Consolidated Fund Expenditure, 2002-03 and 2003-04 2003-04 Budget 2002-03) Recurrent) Reserved) Works and) Agency Budget) Services) by Law) Services) Total) Variation) $'000) $'000) $'000) $'000) $'000) %)
Economic Development 45 300) 43 302) ....) ....) 43 302) (4.4) Education 644 779) 654 810) ....) 14 470) 669 280) 3.8) Finance-General 455 526) 305 678) 157 255) 35 464) 498 397) 9.4) Health and Human Services 725 703) 757 090) ....) 14 303) 771 393) 6.3) House of Assembly 4 631) 1 826) 3 045) ....) 4 871) 5.2) Infrastructure, Energy and Resources 164 775) 101 166) 52) 67 145) 168 363) 2.2) Justice and Industrial Relations 64 218) 53 153) 8 986) 14 966) 77 105) 20.1) Legislative Council 3 394) 1 943) 1 831) ....) 3 774) 11.2) Legislature-General 3 545) 3 762) ....) ....) 3 762) 6.1) Ministerial and Parliamentary Support 11 059) 13 269) 550) ....) 13 819) 25.0) Office of the Governor 1 969) 1 835) 217) 8) 2 060) 4.6) Police and Public Safety 116 278) 125 202) ....) 1 921) 127 123) 9.3) Premier and Cabinet 21 270) 23 416) ....) ....) 23 416) 10.1) Primary Industries, Water and Environment 73 255) 76 120) ....) 154) 76 274) 4.1) Tasmanian Audit Office 298) ....) 254) ....) 254) (14.8) Tourism, Parks, Heritage and the Arts 61 028) 58 858) ....) 2 131) 60 989) (0.1) Treasury and Finance 31 780) 32 111) ....) ....) 32 111) 1.0)
TOTAL EXPENDITURE 2 428 808) 2 253 541) 172 190) 150 562) 2 576 293) 6.1)
Chapter 4: Revenue and Expense Estimates, 2003-04 89 Table 4.9 provides a reconciliation of total Consolidated Fund expenditure to total expenses for 2002-03 to 2003-04.
Table 4.9: Reconciliation of Total Consolidated Fund Expenditure to Total Expenses, 2002-03 and 2003-04 2002-03 2003-04 Budget Budget $'000) $'000)
TOTAL CONSOLIDATED FUND EXPENDITURE 2 428 808 2 576 293 Less Capital Expenditure from the Consolidated Fund1 185 098 171 570 Add Expenditure from the Special Deposits and Trust Fund2 120 631 143 791 Total Cash Payments for Operating Activities3 2 734 537 2 891 654
Add Depreciation4 150 370 154 205 Add Nominal Interest on Superannuation5 111 498 115 935 Less GST Payments6 101 896 112 963 Add Other Accrual Items7 (42 685) (43 054)
TOTAL EXPENSES8 2 851 824 3 005 777
Notes: 1. This amount primarily includes Capital Investment Program expenditure and other asset purchases funded from recurrent appropriations. 2. This amount represents expenditure from the Special Deposits and Trust Fund that is not funded by a transfer of funds from the Consolidated Fund. 3. This amount equates to the Cash Payments for Operating Activities shown in the Cash Flow Statement in Chapter 3, Table 3.3, of this Budget Paper. 4. This amount equates to the Depreciation expense shown in the Operating Statement in Table 4.1 of this Chapter. 5. This amount equates to the Nominal Interest on Superannuation expense shown in the Operating Statement in Table 4.1 of this Chapter. 6. GST Payments are a component of Cash Payments for Operating Activities shown in the Cash Flow Statement in Chapter 3, Table 3.3, of this Budget Paper. GST Payments are not reflected in the Operating Statement as they relate to the payment of a liability. 7. This amount represents the movements in debtors, creditors and other accrual items as at 30 June. 8. This amount equates to Total Expenses shown in the Operating Statement in Table 4.1 of this Chapter.
90 Chapter 4: Revenue and Expense Estimates, 2003-04 Explanation of Estimated Major Consolidated Fund Expenditure Variations Expenditure
Expenditure, including Reserved by Law and works and services expenditure for 2003-04, is estimated to be $2 576.3 million, $147.5 million or 6.1 per cent above the original Budget estimate of $2 428.8 million in 2002-03.
The primary reasons for this expected variation are detailed below on an agency basis. Education Expenditure for the Department of Education is expected to be $669.3 million in 2003-04, an increase of $24.5 million or 3.8 per cent above the 2002-03 Budget of $644.8 million. The increase in expenditure in 2003-04 is primarily due to the provision of $14.2 million for costs associated with the 27th pay, additional funding for wage indexation in accordance with the Teacher's Nexus, additional funding of $868 000 to ensure the continuation of Online Access Centres throughout Tasmania, and additional Commonwealth funding of $1.9 million for Technical and Further Education and Primary and Secondary Schools. Finance-General Expenditure for Finance-General is expected to be $498.4 million in 2003-04, an increase of $42.9 million or 9.4 per cent above the 2002-03 Budget of $455.5 million. The increase in expenditure in 2003-04 is primarily due to the following:
• payment of $17.7 million to the Structural and Performance Initiatives Program account held within the Special Deposits and Trust Fund. These funds will be allocated to specific agencies to fund major projects including the redevelopment of the Motor Registry System ($6.5 million), the Monetary Penalties Enforcement Project ($6.2 million), and other major projects related to information systems development ($5.0 million); and
• payment of $28.5 million of proceeds to be realised in 2003-04 from the sale of Civil Construction Corporation, the Tasmanian Grain Elevators Board, the Stanley Cool Stores Board and assets of the Hobart Ports Corporation Pty Ltd into the new Economic and Social Infrastructure Fund account held within the Special Deposits and Trust Fund.
A provision of $13.0 million has been included in the Finance-General Division for unbudgeted wage increases that may occur during 2003-04, the same level as in 2002-03. In addition, Finance-General includes a payment to the Commonwealth of $13.5 million for the administration costs of the goods and services tax, similar to the provision in 2002-03.
An allocation of $20.0 million has been made to the Treasurer's Reserve to provide for unanticipated expenditures that may arise during 2003-04, the same level as in 2002-03. The Treasurer's Reserve provides for unanticipated outlays which may impact on the 2003-04 Budget, and which cannot be included in specific expenditure items, and also provides a cushion in the event that revenue shortfalls occur.
Chapter 4: Revenue and Expense Estimates, 2003-04 91 Health and Human Services Expenditure for the Department of Health and Human Services is expected to be $771.4 million in 2003-04, an increase of $45.7 million or 6.3 per cent above the 2002-03 Budget of $725.7 million. The increase in expenditure in 2003-04 is primarily due to the provision of additional recurrent funding for 2003-04 Budget initiatives and for the maintenance of current services. This includes funding of $18.4 million for hospital and ambulance services, $1.8 million for disability services, $3.3 million for other community rural and population health services, $4.7 million for services to children, $1.4 million of funding for non-government organisations, $2.8 million for electricity concessions and wage indexation in accordance with current wage agreements. Justice and Industrial Relations Expenditure for the Department of Justice and Industrial Relations is expected to be $77.1 million in 2003-04, an increase of $12.9 million or 20.1 per cent above the 2002-03 Budget of $64.2 million. The increase primarily relates to expenditure of $14.9 million on the Prison Infrastructure Redevelopment Program in 2003-04 compared to expenditure of $3.8 million on the Program in 2002-03. Additional funding has also been provided to meet $1.3 million of costs associated with the 27th pay, $1.8 million for additional prisoner numbers and a further $250 000 to create a Civil Cases Disbursement Fund. Ministerial and Parliamentary Support Expenditure for Ministerial and Parliamentary Support is expected to be $13.8 million in 2003-04, an increase of $2.7 million or 25 per cent above the 2002-03 Budget of $11.1 million. The increase in expenditure in 2003-04 is primarily due to the provision of additional funding for the costs of providing support for opposition parties and the appointment of a new Minister to Cabinet, following the 2002 State Election. Police and Public Safety Expenditure for the Department of Police and Public Safety is expected to be $127.1 million in 2003-04, an increase of $10.8 million or 9.3 per cent above the 2002-03 Budget of $116.3 million. The increase in expenditure in 2003-04 is primarily due to the provision of additional funding to meet $2.4 million of costs associated with the 27th pay, funding to meet wage indexation in accordance with current wage agreements, $3.7 million for staffing and equipment for the implementation of new counter terrorism measures, $1.2 million for CrimTrac and $715 000 for hand gun law reform. Premier and Cabinet Expenditure for the Department of Premier and Cabinet is expected to be $23.4 million in 2003-04, an increase of $2.1 million or 10.1 per cent above the 2002-03 Budget of $21.3 million. The increase in expenditure in 2003-04 is primarily due to the provision of additional funding to meet costs associated with the 27th pay, wage indexation in accordance with the State Service Wage Agreement and $1.3 million for the establishment of a Social Projects Unit.
92 Chapter 4: Revenue and Expense Estimates, 2003-04 5 TAXATION REVENUE
Features
• Total taxation revenue is expected to be $540.2 million for 2002-03.
• For 2003-04, estimated taxation revenue is $533.1 million, which is $7.1 million or 1.3 per cent below the estimated outcome for 2002-03.
• Tasmania has the second lowest tax severity of all states and territories.
• Tasmania has the most competitive payroll tax regime for small to medium sized businesses other than the Australian Capital Territory.
Chapter 5: Taxation Revenue 93 INTRODUCTION
Taxation revenue is a vital source of revenue, which assists the Government to provide essential services to Tasmanians, such as health, education and roads. The State is limited in the range of taxes that it is able to levy to pay for these services compared to the Commonwealth Government.
Government tax policy must, however, balance the need to raise revenue with the need to foster a competitive business environment.
The purpose of this Chapter is to provide information on the relative competitiveness of Tasmania's tax regime, historical taxation collections, estimated aggregate taxation receipts for 2002-03, and projected revenue estimates for 2003-04 for these items.
This Chapter has been prepared using the accrual Uniform Presentation Framework (UPF). Consequently, this Chapter will differ from prior years because guarantee fees from Government Business Enterprises and State-owned Companies, light motor vehicle registration fees and State Fire Commission receipts are classified as taxation revenue under the UPF. This results in taxation receipts appearing to be significantly higher than in previous years. However, whilst government departments are liable for payroll tax, under the UPF such receipts from government departments are not included in the payroll tax figures reported in this Chapter.
For each of the major tax areas, a description of the tax base and its operation is provided, including any concessions which may be available, along with an estimate of individual tax receipts for each head of tax for 2003-04. A summary of major legislative changes which occurred in 2002-03 is also included.
The charts and tables in this Chapter generally refer to actual tax collections for 2001-02, while estimates for 2003-04 are compared with Budget estimates for 2002-03. A current estimate for the projected aggregate receipt of taxes in 2002-03 is also provided.
Year-on-year changes in taxation revenue are reported in nominal terms.
TAX COMPETITIVENESS
Tax competitiveness plays a key role in creating a competitive business environment. As a result of the initiatives in the 2001-02 Budget, the State has a very competitive payroll tax regime. The 2002-03 Budget initiatives further enhanced Tasmania's competitive position with changes to land tax and duties from 1 July 2002.
The independent Commonwealth Grants Commission provides a measure of taxation competitiveness across jurisdictions. The latest national comparisons, published in February 2003 (using 2001-02 data), show that Tasmania's tax severity is 6.7 per cent below the national average and is the second lowest of all jurisdictions. This comparison is shown in Chart 5.1. Table 5.1 shows the trend in tax severity from 1997-98 to 2001-02.
94 Chapter 5: Taxation Revenue Chart 5.1: Taxation Severity, 2001-02
115.00
110.00
105.00
100.00
95.00
90.00
85.00
80.00
75.00 NSW Vic Qld WA SA Tas ACT NT
Source: Report on State Revenue Sharing Relatives 2003 Update, Commonwealth Grants Commission.
Table 5.1: Trend in Tax Severity State 1997-98 1998-99 1999-00 2000-01 2001-02
NSW 104.86 107.49 107.41 104.50 102.63 Vic 106.64 102.11 103.04 104.78 106.73 Qld 81.31 81.94 79.36 80.11 81.49 WA 91.51 95.38 94.67 100.41 101.52 SA 105.70 104.65 105.21 107.68 108.65 Tas 101.50 95.04 94.46 94.70 93.30 ACT 102.24 101.58 105.05 103.58 96.60 NT 107.44 102.20 108.46 98.41 103.22
Source: Report on State Revenue Sharing Relatives 2003 Update, Commonwealth Grants Commission.
One of the key components of tax competitiveness from a business perspective is payroll tax. The Budget initiatives in 2001-02 reduced the marginal rate of payroll tax from 6.53 per cent to 6.30 per cent and increased the general exemption threshold from $606 000 to $1.0 million from 1 July 2001. The initiatives also allowed for a further payroll tax rate reduction from 6.30 per cent to 6.24 per cent, and a further increase in the general exemption threshold from $1.0 million to $1.01 million, to take effect from 1 July 2002. From 1 July 2003, the grossed up value of fringe benefits and eligible termination payments will be subject to payroll tax, thus bringing Tasmania in line with other jurisdictions. This will be accompanied by a reduction in the rate of payroll tax to 6.1 per cent to offset in revenue collection terms this minor broadening of the base.
As a result of these changes, Tasmania has the most competitive payroll tax regime for small to medium sized businesses (ie businesses with up to 50 employees) other than the ACT. Furthermore, the payroll tax liability faced by larger businesses in Tasmania is competitive with other jurisdictions. When comparing
Chapter 5: Taxation Revenue 95 payroll tax regimes across jurisdictions, the rate of tax cannot be compared in isolation. Rather, a measure which takes into account the general exemption threshold is more appropriate. Such a measure is the effective payroll tax rate, as shown in Table 5.2 for a range of employee numbers. Chart 5.2 shows the payroll tax liability in all states and territories for a firm with 50 employees.
Table 5.2: Comparison of Effective Payroll Tax Rates, 2003-041 No of Employees Tas Qld WA Vic SA NSW NT ACT Average %% % % % % % %%
50 2.68 3.35 3.50 3.65 4.09 4.00 4.20 2.10 3.45 75 3.82 4.34 4.34 4.18 4.61 4.67 4.90 3.68 4.32 100 4.39 4.75 4.75 4.45 4.88 5.00 5.25 4.48 4.74 200 5.25 4.75 5.38 4.85 5.27 5.50 5.78 5.66 5.30 300 5.53 4.75 5.58 4.98 5.41 5.67 5.95 6.06 5.49 500 5.76 4.75 5.75 5.09 5.51 5.80 6.09 6.38 5.64
Note: 1. Effective payroll tax rates are calculated using the national average weekly earnings average for the four quarters to December 2002 as published by the Australian Bureau of Statistics (ABS). Rates and thresholds used in the calculations are those that will apply in each jurisdiction from 1 July 2003 (as announced at 1 May 2003).
Chart 5.2: Actual Payroll Tax Liability for an Employer with 50 Employees, 2003-041
80000
70000
60000 $ Payroll Tax 50000 Liability 40000
30000
20000
10000
0 Tas Qld WA Vic SA NSW NT ACT
Note: 1. Payroll tax liabilities are calculated using the national average weekly earnings average for the four quarters to December 2002 as published by the Australian Bureau of Statistics (ABS). Rates and thresholds used in the calculations are those that will apply in each jurisdiction from 1 July 2003 (as announced at 1 May 2003).
96 Chapter 5: Taxation Revenue ESTIMATED TAXATION REVENUE FOR 2002-03
The capacity of Tasmania and the other states and territories to raise tax revenues is constrained by the Australian Constitution and by Australia's Commonwealth-State financial arrangements. This results in the states being restricted in the range of taxes they can impose.
Chart 5.3: Total Taxation Revenue 1998-99 to 2003-04
900 800 700 600 500 400 $ million 300 200 100 0 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 (expected) (Budget)
Nominal Dollars Real (2003-04) Dollars
Chart 5.3 shows moderate growth in taxation revenue in nominal terms to 1999-00, with a significant decrease in 2000-01 due to the introduction of the Commonwealth's GST and the associated changes to various State taxes required under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA). The slight decrease in revenue for 2001-02 reflects further change resulting from the IGA, namely the abolition of financial institutions duty and duty on the transfer of quoted marketable securities effective from 1 July 2001. In addition, the tax reductions introduced in the 2001-02 Budget in relation to payroll tax and the electricity entities levy have also had a negative impact on tax revenue for 2001-02. Taxation revenue is expected to increase in 2002-03 in nominal terms due to growth in the tax base together with some carry over of the abnormally high level of activity in the property market experienced in the past two years in particular. This will be offset in part by the impact of the 2002-03 Budget initiatives of a reduction in land tax and the abolition of several duties. Furthermore, increases in budgeted taxation revenue will stabilise in 2003-04 due to an expectation that the abnormally high level of activity in the property market during 2002-03 may moderate in the second half of 2003-04.
The 2002-03 Budget estimate was based on the 2001-02 expected result which was lower than the 2001-02 actual outcome. Therefore, the 2002-03 Budget estimates were conservative. As a result, the 2002-03 estimated outcome is higher than the 2002-03 Budget estimate. Budget to Budget comparisons as provided in this Chapter may therefore show significant increases in receipts in some cases. Variances between the final 2002-03 outcome and 2003-04 Budget estimate are therefore unlikely to be as significant as that shown in the Budget to Budget comparisons.
Chapter 5: Taxation Revenue 97 Table 5.3 sets out the estimates included in the 2002-03 Budget for collections for each State tax and the Budget estimates for 2003-04. Chart 5.4 illustrates the contribution of each tax to total State taxation revenue in 2001-02.
Table 5.3: Taxation Revenue Collection Estimated Actual Budget Outcome Budget 1999-00 2000-01 2001-02 2002-03 2002-03 2003-04 $'000 $'000 $'000 $'000 $'000 $'000
Payroll tax1 144 000 165 000 149 000 146 585 156 285 162 248 Land tax 27 522 26 612 26 367 24 990 24 990 25 547 Motor tax 38 322 40 944 41 983 43 466 43 966 45 910 Light Vehicle Registration Fees 17 036 17 694 18 845 22 380 22 380 22 917 Financial Transaction Taxes Duties 136 279 144 444 148 233 116 245 160 545 138 409 Debits Duty ...... 18 045 21 512 21 512 22 769 Financial Institutions Duty2 23 692 26 835 2 716 .... 700 .... Franchise Fees and Levies Electricity Entities Levy3 14 428 14 163 1 670 .... 100 .... Tobacco Franchise Licence Fees4 1 ...... Petroleum Products Licence Fees4 1 ...... Safety Net Revenue4 175 432 2 109 ...... Gambling Taxes Lottery Tax 21 655 19 711 20 529 20 490 21 590 22 344 Other Gaming Taxes 7 478 791 292 438 438 279 Casino Tax and Licence Fees 47 579 38 237 45 656 47 031 48 531 50 853 Guarantee Fees5 4 459 4 281 4 846 4 721 6 115 5 425 State Fire Commission Receipts 29 071 30 360 33 443 33 070 33 070 36 350
TOTAL 686 955 531 181 511 625 480 928 540 222 533 051
Notes: 1. Budget increase in payroll tax receipts from 2002-03 to 2003-04 is due to an expected increase in employment in the payroll tax paying sector, together with wage increases. 2. FID was abolished from 1 July 2001. Receipts in 2001-02 relate to FID levied on bank accounts prior to 1 July 2001. 3. The electricity entities levy was abolished from 1 July 2001. Receipts in 2002-03 relate to electricity consumed prior to 1 July 2001, but billed after that date. 4. From 5 August 1997, the State's 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 distributing the additional revenue raised to the states. The Commonwealth's Safety Net Arrangements were abolished on 1 July 2000 as part of national tax changes. 5. The increase in budgeted Guarantee Fees between 2002-03 to 2003-04 reflects the introduction of the TT-Line into the Guarantee Fee framework during 2002-03.
98 Chapter 5: Taxation Revenue Chart 5.4: Taxation Revenue Collections, 2001-02 - Dollar Amounts and Percentage of Total
Financial Duties Institutions Duty $148.2m (29.0%) $2.7m (0.5%) Debits Duty Electricity Entities Levy $18.0m (3.5%) $1.7m (0.3%) Gambling Taxes $66.5m (13.0%) Motor Tax Guarantee Fees $42.0m (8.2%) $4.8m (0.9%)
Land Tax State Fire $26.4m (5.2%) Commission Light Vehicle Receipts Registration Fees Payroll Tax $33.4m (6.5%) $18.8m (3.7%) $149.0m (29.1%)
On current estimates, taxation revenue for 2002-03 is expected to total $540.2 million. This represents a nominal increase of $28.6 million, or 5.6 per cent over revenue for the 2001-02 year. The expected 2002-03 estimate over the 2002-03 Budget estimate is primarily the result of higher than expected duty receipts due to increased activity in the property market, with some large unanticipated one-off transactions compounding this result. Expected duty receipts alone are $44.3 million above Budget. Payroll tax receipts are also above the Budget estimate due to better than expected growth in the payroll tax paying sector.
ESTIMATED TAXATION REVENUE FOR 2003-04
Total taxation revenue for 2003-04 is estimated to be $533.1 million, an increase of $52.1 million or 10.8 per cent on the 2002-03 Budget estimate and a decrease of $7.2 million or 1.3 per cent on the estimated outcome for 2002-03. The 2003-04 Budget estimate is primarily due to:
• an increase in payroll tax receipts as a result of the continuing improvement in employment numbers during 2003-04 in the payroll tax paying sector;
• flow on impacts on house prices as a result of the increased activity in the property market over the past two years. This will continue to impact on the conveyance duty base; and
• increased casino licence fees and higher taxation rates on video gaming machines as a result of the new Deed of Agreement with Federal Hotels.
Chapter 5: Taxation Revenue 99 Payroll Tax Description
Payroll tax is imposed under the Pay-roll Tax Act 1971 and is levied on employee 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) and to employment agencies.
Employers are required to submit returns, usually monthly, to the Commissioner of State Revenue. Frequency of lodgement may be varied where payrolls are close to the exemption level, or where seasonal employment occurs. Table 5.4 details payroll tax received in 2001-02 by tax liability range.
Table 5.4: Payroll Tax, 2001-02
Number of Tax Liability Range Employers Tax Paid $ $'000
1 - 50 000 1 285 14 739 50 001 - 100 000 156 11 051 100 001 - 250 000 145 22 790 250 001 - 500 000 67 22 374 500 001 - 1 000 000 34 23 781 1 000 001 and over 39 54 265
TOTAL 1 727 149 000
From 1 July 2003, the grossed up value of fringe benefits and eligible termination payments will be subject to payroll tax, thus bringing Tasmania in line with other jurisdictions. However, the rate of payroll tax will be reduced from 6.24 per cent to 6.1 per cent as at 1 July 2003. The general exemption threshold remains unchanged at $1.01 million.
The Government provides targeted payroll tax assistance, with assistance up to the full value of payroll tax liability provided to Tasmanian businesses engaged in specified Information Technology activities. Payroll tax assistance is also available in respect of increased employment levels, on a case by case basis, to selected and significant new industries and activities which exhibit all of the following characteristics:
• will make a significant contribution to the Tasmanian economy on a long-term sustainable basis;
• have substantial employment growth potential;
• are involved in either exporting or import competing activities; and
• provide services or manufactured goods which do not otherwise currently exist in Tasmania. Estimated Receipts for 2003-04
Receipts from payroll tax in 2003-04 are estimated to be $162.2 million, representing an increase of $15.7 million or 10.7 per cent over the 2002-03 Budget estimate and an increase of $6.0 million or 3.8 per cent
100 Chapter 5: Taxation Revenue on the estimated outcome. The expected increase in collections is the result of anticipated growth in employment in the payroll tax paying sector. There is not expected to be any increase in receipts as a result of the change in the rate of payroll tax, which is effective from 1 July 2003.
Land Tax Description
Land tax is imposed under the Land Tax Act 2000. It is levied on the basis of three land categories: general; primary production; and principal residence land. However, since 1 July 1996, the rate of tax on principal residence and primary production land has been set to zero, thereby effectively exempting such land from land tax. The land tax scales are currently fixed by the Land Tax Rating Act 2000.
The principal residence category applies to land on which there is a dwelling or stratum unit that is occupied as the principal residence of the owner, or a related person as defined by the Act. This category also includes retirement village units occupied as principal residences.
The primary production land category applies to land which is used substantially for the business of primary production. It also includes land that has been declared a private timber reserve under the Forest Practices Act 1985.
General land relates to any land, which is not principal residence or primary production land. It includes commercial and industrial land, land used for the rental of residential housing and vacant land.
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, as determined by the Valuer-General as at 31 March each year, to bring all properties in the State to a common valuation date each year. The valuation adjustment factor for a given municipality is determined for each land category within that municipality and represents an estimate of the general movement in land values since the last full revaluation was undertaken for that municipality.
Certain non-profit sporting organisations and bodies controlling or promoting horse racing, dog racing, athletic sports or motor racing are eligible for a concessional rate of land tax, equal to 0.4 per cent of the assessed land value. All land owned by persons who hold a Commonwealth Pensioner Concession Card is also exempt from land tax.
Table 5.5: Land Tax Scale Assessed Land Value Tax Rate $ below 15 000 Nil 15 000 - 100 000 $25 plus 0.55 cents per $1 above $15 000 100 001 - 200 000 $492.50 plus 1.25 cents per $1 above $100 000 200 001 - 500 000 $1 742.50 plus 2.25 cents per $1 above $200 000 500 001 and above $8 492.50 plus 2.5 cents per $1 above $500 000
A rebate is available to home owners in transitional circumstances who incur a land tax liability when they are moving from one residence to another. The rebate is paid to those home owners who have paid the land
Chapter 5: Taxation Revenue 101 tax liability and have sold their former residence, provided no income is earned from the property during the transitional period.
Table 5.6 provides details of the number of properties and the land tax assessed for each category of land in 2002-03. Assessed land tax differs from tax collected, as shown in Table 5.3, due to the timing of receipts.
Table 5.6: Land Tax Assessed, 2002-03 Principal Residence Rural General Number of Tax Number of Tax Number of Tax Property Value Properties Payable Properties Payable Properties Payable $ $ $ $
1 - 1 000 541 .... 0 .... 1 049 0 1 001 - 15 000 13 038 .... 95 .... 11 588 0 15 001 - 20 000 10 927 .... 72 .... 6 859 259 888 20 001 - 25 000 11 548 .... 107 .... 5 533 354 564 25 001 - 35 000 19 854 .... 307 .... 9 023 912 545 35 001 - 40 000 5 818 .... 220 .... 2 892 421 813 40 001 - 50 000 8 974 .... 501 .... 4 357 810 176 50 001 - 65 000 8 428 .... 761 .... 4 215 1 052 013 65 001 - 68 750 1 540 .... 224 .... 830 255 390 68 751 - 100 000 4 306 .... 1 351 .... 3 377 1 331 659 100 001 - 125 000 1 254 .... 790 .... 1 353 846 857 125 001 - 170 000 1 003 .... 990 .... 1 253 1 298 100 170 001 - 210 000 367 .... 655 .... 631 1 006 622 210 001 - 250 000 161 .... 478 .... 386 913 937 250 001 - 500 000 256 .... 1 519 .... 838 4 057 942 500 001 - 1 000 000 30 .... 651 .... 255 3 193 750 1 000 001 and over 1 .... 219 .... 179 9 000 899
TOTAL 88 046 .... 8 940 .... 54 618 25 716 155
Estimated Receipts for 2003-04
It is expected that land tax collections in 2003-04 will be $25.5 million, which is $600 000 or 2.2 per cent higher than the 2002-03 Budget estimate and the estimated 2002-03 outcome.
Motor Tax Description
Motor tax is imposed under the Vehicle and Traffic Act 1999 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 by the number of cylinders and/or weight, seating capacity, or the number of axles and mass of each vehicle. The legislation specifies six classes of vehicles, each attracting its own scale of rates. A rebate of 40 per cent is available in certain cases to eligible pensioners owning commercial goods vehicles, provided they are not
102 Chapter 5: Taxation Revenue engaged in any trade or business, and commercial vehicles used predominantly for farming or horticultural purposes. Estimated Receipts for 2003-04
Motor tax collections are estimated to be $45.9 million in 2003-04, an increase of $2.4 million or 5.6 per cent over the 2002-03 Budget estimate and $1.9 million or 4.4 per cent higher than the estimated outcome for 2002-03. Motor tax rates, including those that apply to heavy vehicles, which is determined by the National Road Transport Commission, are indexed annually.
Light Vehicle Registration Fees Description
Light vehicle registration fees, payable in accordance with the Vehicle and Traffic Act 1999, refer to the revenue collected for the registration and the transfer of vehicle ownership. Estimated Receipts for 2003-04
Light vehicle registration fees receipts are estimated to be $22.9 million in 2003-04, representing an increase of $500 000 or 2.4 per cent over the 2002-03 Budget estimate and the estimated outcome for 2002-03.
Financial Transaction Taxes
Taxes classed as financial transaction taxes are duties (including debits duty) and Financial Institutions Duty. Financial Institutions Duty was abolished effective from 1 July 2001 and, as a result, no revenue will be received in 2003-04. Chart 5.5 shows the actual collections of financial transaction taxes for 2001-02.
Chart 5.5: Financial Transaction Taxes, Actual Collections 2001-02 Dollar Amounts and Percentage of Total
Financial Institutions Duty Other Duties $2.7m (1.6%) $16.3m (9.6%) Debits Duty Conveyances $18.0m (10.7%) $73.7m (43.6%)
Insurances $28.2m (16.7%)
Motor Vehicles $30.1m (17.8%)
Chapter 5: Taxation Revenue 103 Duties Description Duties (previously referred to as Stamp Duties) are imposed under the Duties Act 2001. The Act imposes duty on a range of instruments, transactions and arrangements, which are generally of a commercial character. The Duties Act was the result of an inter-jurisdictional rewrite of stamp duties legislation, which significantly reduced inter-jurisdictional differences in principles, definitions and structure of the legislation, which resulted in decreased compliance costs for business.
The Commissioner of State Revenue collects all duties except for duties on motor vehicle registrations and transfers, and third party insurance. The Department of Infrastructure, Energy and Resources collects these on behalf of the Commissioner.
The Duties Act provides for payments from the Consolidated Fund to eligible first home buyers to meet the cost of duty on the purchase of their first home. The payments are in the form of an interest-free loan, repayable over two years. Since 1995-96, the scheme has been available to first home buyers purchasing properties to a maximum value of $120 000.
The 2003-04 Budget estimates for duty receipts are reported by category in Table 5.7.
Table 5.7: Duties Estimated6 Actual BudgetOutcome Budget 1999-00 2000-01 2001-02 2002-03 2002-03 2003-04 $'000 $'000 $'000 $'000 $'000 $'000
Conveyances1 47 318 56 031 73 670 49 929 88 229 63 988 Motor Vehicles 27 541 27 736 30 082 28 760 31 260 31 651 Insurances 22 312 25 008 28 175 29 726 30 826 33 593 Debits Duty2 19 129 19 845 ...... Hire of Goods3,5 3 531 3 554 3 601 341 341 .... Mortgages1 5 993 7 260 9 519 6 357 8 757 8 152 Sundry Legal Documents1 5 571 1 776 1 914 1 070 1 070 1 025 Lucky Envelopes4 546 321 ...... Marketable Securities5 3 297 1 903 465 16 16 .... Hire Purchase and Related Agreements2 542 538 ...... Leases5 499 472 806 46 46 ....
TOTAL 136 279 144 444 148 233 116 245 160 545 138 409
Notes: 1. Prior to 2000-01, sundry legal documents included bank returns which also included some conveyance and mortgage duty. From 2000-01, new systems have allowed disaggregation of these receipts. The expected decline in duty on sundry legal documents for 2003-04 is the result of the tax initiatives in this Budget. 2. From 1999-00, figures for debits duty includes duty on credit card transactions. From 2002-03, debits duty is no longer reported as being included with other duties. 3. From 2001-02, duty on hire purchase and related agreements are included in hire of goods duty. 4. Lucky envelope receipts were included in minor gaming tax from 2001-02. 5. Expected receipts for lease duty, marketable securities duty and hire of goods duty for 2003-04 relate to transactions made prior to 1 July 2002 (the date of abolition for these duties), but not receipted until after this date.
104 Chapter 5: Taxation Revenue 6. The estimated 2002-03 outcome is based on the trend in receipts as at 30 April 2003. There may be some variance between the estimated outcome and the actual outcome depending on receipts in the final four months of the financial year.
Estimated Receipts for 2003-04
Duty receipts for 2003-04 are estimated to be $138.4 million, an increase of $22.2 million or 19.1 per cent over the Budget estimate for 2002-03 and $22.1 million or 13.8 per cent below the estimated outcome for 2002-03. The increase from the 2002-03 Budget estimate to the 2003-04 Budget estimate is primarily a carry over into 2003-04 of the unexpected continuing high level of activity in the property market during 2002-03, combined with a notable increase in property prices generally. Debits Duty Description Debits duty is imposed on taxable debits to taxable accounts kept in Tasmania. Debits duty also includes credit card duty, which applies to the number of debits made to an account kept with a credit card provider during the billing period of the preceding month. The rate of duty is 15 cents per taxable debit, except in the case of accounts with cheque access where a sliding scale also applies according to the amount of the taxable debit. Holders of a Commonwealth Pensioner Concession or Health Care Card are eligible for exemptions from debits duty. Only accounts to which at least a portion of the Commonwealth payment is credited can be exempted. Estimated Receipts for 2003-04 Debits duty receipts for 2003-04 are estimated to be $22.8 million, an increase of $1.3 million or 5.8 per cent over the Budget estimate for 2002-03.
Gambling Taxes
Sources of gambling revenue in Tasmania include lotteries, casinos, keno and video gaming machines in hotels and clubs, TOTE Tasmania, bookmakers, sports betting and minor gaming activities.
The Tasmanian Gaming Commission, with the resources of the Revenue, Gaming and Licensing Division of the Department of Treasury and Finance, is responsible for the supervision of gambling activities at Tasmanian casinos, gambling on board Spirit of Tasmania I and II, 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 Director of Racing.
The Gaming Control Act 1993 provides the legislative framework within which Tasmanian casinos operate. It also covers the operation of keno and video gaming machines, and the regulation of fixed odds wagering, sports betting, major lotteries, Internet gaming and other gaming activities, which may be prescribed. The TT-Line Gaming Act 1993 governs gaming operations aboard Spirit of Tasmania I and II.
Casino and gaming machine tax rates were reduced from 1 July 2001 in accordance with the requirements of the IGA. The reduced tax rates replaced the tax credit system, which operated under an interim arrangement from 1 July 2000. This system provided a refund to casino operators for GST paid on casino gaming and gaming machine gross profits. Other adjustments were made to lottery taxes and racing taxes for the impact of the GST. The reduction in tax was to 'make room' for the Commonwealth's GST on gambling operator margins. The estimated loss of taxation revenue as a result of these changes is expected to be $24.5 million in 2002-03 and $25.4 million in 2003-04 (although the State is compensated for this
Chapter 5: Taxation Revenue 105 through higher general purpose payments from the Commonwealth during the IGA guaranteed minimum amount arrangements – see Chapter 10 of this Budget Paper). Table 5.8 disaggregates these figures into the individual gambling activities.
Table 5.8: Gambling Tax Revenue Foregone 2002-03 Estimated 2003-04 Outcome1 Budget1 $m $m
Casino Tax 18.7 19.5 Lotteries 2.4 2.5 Lucky Envelopes 0.2 0.2 Racing 3.2 3.2
TOTAL 24.5 25.4
Note: 1. Estimates calculated as at February 2003 are shown.
Chart 5.6 provides details of actual gambling receipts for 2001-02.
Chart 5.6: Gambling Tax Revenue, 2001-02 - Dollar Amounts and Percentage of Total
Casino and Licence Fees Other Gaming 1 $45.6m (68.7%) Taxes $0.3m (0.4%)
Lottery Tax $20.5m (30.9%)
Note: 1. Casino and licence fees includes receipts from gaming machines in hotels and clubs.
106 Chapter 5: Taxation Revenue Lottery Tax Description
Since 1960, there have been in place successive agreements 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 the agreement between Victoria and Tasmania have been varied from time to time. The current agreement was renewed in September 2001 to conform to the requirements of the Public Lotteries Act 2000 (Victoria). The new agreement retains the same terms and conditions as the previous agreement.
Under the agreement, Victoria remits to Tasmania 100 per cent of the duty paid on all Tattersall's products sold in Tasmania, together with a proportionate share of unclaimed prizes. The agreement is not time limited although under the Gaming Control Act, Tattersall's is authorised to sell lottery tickets in Tasmania until 30 June 2010. All lottery tax is collected by the Victorian Government, which remits the required payment to Tasmania each month.
Tattersall's also has permission to sell tickets to a soccer football pools and an Australian Rules Football tipping competition. Tattersall's exclusive arrangements to sell lottery tickets in Tasmania ended on 31 January 2002.
Tattersall's remains the sole agent of lottery products in Tasmania. Tattersall's also has a major interest in Footy Consortium Pty Ltd, which sells Tipstar products under the Tattersall's banner at all Tattersall's outlets. Tipstar is a footy tipping competition, which is classified as a lottery under the Gaming Control Act. Tipstar began operating in Tasmania at the start of the 2001 AFL season. Estimated Receipts for 2003-04
It is estimated that revenue in relation to Tasmanian lottery and soccer pools subscriptions will be $22.3 million in 2003-04, representing an increase of $1.9 million or 9.1 per cent on the Budget estimate for 2002-03 and $800 000 or 3.5 per cent on the estimated outcome for 2002-03.
Other Gaming Tax Description
Other Gaming Tax consists of minor gaming activities, bookmakers tax and Internet gaming activities conducted by Tattersall's separate from its lottery activities. In January 2003, Tattersall's ceased its Internet gaming operations. The Authorisations to conduct minor gaming activities are issued under the provisions of the Gaming Control Act 1993. Minor gaming activities include:
• bingo;
• lucky envelopes;
• raffles;
• calcutta sweepstakes; and
• gratuitous gaming.
Chapter 5: Taxation Revenue 107 Estimated Receipts for 2003-04
The estimated revenue from minor gaming activities for 2003-04 is $300 000.
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. For 2002-03 the tax rate for keno and table gaming was 5.88 per cent and, for gaming machines, a sliding scale as follows:
• 15.88 per cent of annual gross profits that do not exceed $30 million;
• 20.88 per cent of annual gross profits that exceed $30 million but do not exceed $35 million; and
• 25.88 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 2001-02, the fees paid by the two casinos totalled $1.7 million.
The Act also provides for the payment of a community support levy. It is estimated that the levy will raise $3.8 million in 2002-03, which is available 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;
− the treatment or rehabilitation of compulsive gamblers;
− community education concerning gambling; and
− other health services.
The Government announced on 15 April 2003 changes to the Deed of Agreement between the State and Federal Hotels.
Amendments to the Gaming Control Act will be introduced in the Budget Session of Parliament to facilitate the issue of a new exclusive licence to Federal Hotels for the operation of its two casinos, gaming machines and Keno in Tasmania. This licence will operate on a 15 year fixed period, after which it will convert to a five year rolling licence, renewable annually at the discretion of the Minister.
As part of these new arrangements, a legislated state-wide cap on gaming machine numbers will be set at 3 680, exclusive of the number of machines on the TT-Line vessels, about 290 more than the current number of machines. In addition to the statewide cap, there will also be a cap on the maximum machines in licensed hotels and clubs set at 2 500. Venue limits will be legislated at their current levels of 30 for licensed hotels and 40 for licensed clubs.
108 Chapter 5: Taxation Revenue Other amendments to the Gaming Control Act will include:
• increasing the current casino licence fees payable by Federal Hotels by $1.0 million per annum (indexed by CPI);
• removing the first tier of the current three-tier tax scale applying to gaming machines, whereby the gambling tax rate for the first $35.0 million of gross profit per annum will be 20.88 per cent, and 25.88 per cent for gross profit in excess of $35.0 million per annum;
• providing that from 1 July 2013, a single flat tax rate of 25.88 per cent applies to all gross profit on gaming machines;
• reducing the gambling tax rates applying to casino table games from 5.88 per cent to 0.88 per cent of gross profit to improve the viability of this form of gaming; and
• doubling the contribution rate to the Community Support Levy by the gaming operator, Federal Hotels, from two to four per cent of gross profits from licensed clubs.
Under the Gaming Control Act, the Tasmanian Gaming Commission can issue Tasmanian Gaming Licences (TGLs) for approved gaming activities conducted via any electronic means such as the Internet or telephone.
Two TGLs were grandfathered under pre-existing arrangements to existing operators, with an additional four licences issued to new operators. However, because of the Commonwealth Government's 12 month moratorium on simulated gaming which ended on 18 May 2001, and the subsequent Interactive Gambling Act 2001, a number of TGL holders did not commence operations in Tasmania. Only one operator has actively used its TGL, although it ceased operations in January 2003.
The TT-Line Gaming Act 1993 provides for the payment of licence fees and tax on gross profits from gaming operations on board Spirit of Tasmania I and II. 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 Spirit of Tasmania I and II. Under the agreement, 25 per cent of the tax received is paid to the Victorian Government in recognition of gaming operations which occur when the ship is in Victorian waters.
Chart 5.7 details the components of total casino revenue for 2001-02.
Chapter 5: Taxation Revenue 109 Chart 5.7: Casino Tax Revenue, 2001-02 - Dollar Amounts and Percentage of Total Unclaimed Prizes + Other Table Gaming $0.70m (1.5%) $0.8m (1.8%)
Licence Fees Keno $1.93m (4.2%) $1.02m (2.2)% Spirit of Tasmania $0.27m (0.6%)
Video Gaming Machines $40.9m (89.7%)
Estimated Receipts for 2003-04
Taxation revenue from casino operations for 2003-04 is estimated to be $50.9 million, representing an increase of $3.8 million or 8.1 per cent above the 2002-03 Budget estimate and $2.3 million or 4.8 per cent higher than the estimated outcome for 2002-03. The expected increase in casino tax receipts is primarily due to increased receipts from licence fees and video gaming machines as a result of the licence fees and tax rates to apply under the new Deed of Agreement.
Guarantee Fees Description
Guarantee fees are applied to Government Business Enterprises (GBEs) and State-owned Companies (SOCs) to compensate for the lower borrowing rates that GBEs and SOCs often receive due to their Government ownership. Guarantee fees effectively increase the borrowing rate that GBEs and SOCs receive up to the market borrowing rate. In line with the principle of competitive neutrality required under National Competition Policy, guarantee fees remove any competitive advantage that a GBE or SOC may receive in terms of reduced debt costs through Government ownership. Estimated Receipts for 2003-04
It is expected that revenue from guarantee fees will be $5.4 million in 2003-04, representing an increase of $700 000 or 14.9 per cent on the Budget estimate for 2002-03. This reflects inclusion of the TT-Line as part of these arrangements during 2002-03.
110 Chapter 5: Taxation Revenue State Fire Commission Revenue Description
Revenue for meeting operational costs and for capital of the State Fire Commission is provided in accordance with the Fire Service Act 1979. It is provided from a number of sources as follows: a fire service contribution on property (relating to assessed annual values) and collected by councils; a motor vehicle fire levy on all vehicle registration (excluding motor cycles); a fire levy on prescribed classes of insurance; and from a contribution from the State Government. However, only revenue from outside the Consolidated Fund is estimated. Estimated Receipts for 2003-04
It is expected that revenue generated outside of the Consolidated Fund will be $36.4 million in 2003-04, representing an increase of $3.3 million or 9.9 per cent on the Budget estimate for 2002-03 and the estimated outcome for 2002-03.
Petroleum and Liquor Subsidies Description
For 2002-03, the following subsidies were provided:
• 15 per cent of the pre-tax wholesale value of Tasmanian wine cellar door sales;
• 15 per cent of the pre-tax wholesale value of Tasmanian produced cider with an alcoholic content not exceeding 6.5 per cent;
• 1.95 cents per litre (cpl) for petrol; and
• 1.99 cpl for on-road diesel.
The aggregate cost of providing these subsidies in 2003-04 is estimated to be $14.2 million.
Chapter 5: Taxation Revenue 111 MAJOR LEGISLATIVE AND OTHER CHANGES
A summary of legislative and other changes made during 2002-03 are provided in this section. Taxation Legislation (Miscellaneous Amendments and Repeal) Act 2002
The Taxation Legislation (Miscellaneous Amendments and Repeal) Act 2002 amends the Duties Act 2001, the Taxation Administration Act 1997, the Pay-roll Tax Act 1971 and the Land Tax Act 2000. It also repeals the Taxation (Reciprocal Powers) Act 1993. The amendments are generally of an administrative nature, designed to facilitate the expansion of taxation self-assessment; align provisions with those of other jurisdictions; remove redundancies; ensure the effective operation of a number of concessions; enhance the effectiveness of debt recovery and efficiency in tax collection; and clarify certain provisions.
The Act aligns the definition of wages in the Pay-roll Tax Act with that of other jurisdictions by including eligible termination payments and using the grossed-up value of fringe benefits. These changes are accompanied by a reduction in the payroll tax rate from 6.24 per cent to 6.1 per cent to ensure that no additional revenue is raised from the measures. The Act also transfers the provisions of the Taxation (Reciprocal Powers) Act to the Taxation Administration Act and repeals the Taxation (Reciprocal Powers) Act. These powers allow other jurisdictions to conduct tax investigation in Tasmania and vice versa.
112 Chapter 5: Taxation Revenue 6 STATE CAPITAL PROGRAM
Features
• The planned level of the 2003-04 State Capital Program is $577.4 million, an increase of $69.6 million on 2002-03.
• The 2003-04 State Capital Program includes $36.3 million expenditure on capital projects from the new Economic and Social Infrastructure Fund (ESIF).
• Funding is continuing for the redevelopment of correctional facilities at Risdon prison.
• The Capital Investment Program (CIP) of agencies for 2003-04 is $163.7 million, including a $30.3 million Housing Program and a $71.2 million Roads Program.
• Expenditure on the 2003-04 CIP will decrease from 2002-03 largely as a result of lower expenditure on CIP (Departments) following the completion of the rebuilding of Reece High School, and a decrease in the CIP Housing Program due to the anticipation of a high level of funding to be carried forward to 2004-05. Excluding Reece High School, the State Government funding for the CIP has been maintained in real terms.
• The 2003-04 CIP, while including a number of longer term projects, continues the emphasis on the maintenance of the State's capital stock through smaller, labour intensive projects.
• The three year rolling CIP provides greater certainty for agencies and the building industry.
• In 2003-04, $7.8 million has been provided to fund Essential Maintenance projects for public assets and Government office accommodation projects through the Essential Maintenance and Property Services Office Works allocations.
• Government Business Enterprises, State-owned Companies and State Authorities have an estimated capital expenditure program of $296.3 million in 2003-04.
• Capital projects addressing Social Infrastructure include schools projects in 2003-04 totalling $13.1 million; TAFE projects totalling $4.6 million; and health projects that total $14.4 million.
• Capital works on Social Infrastructure projects funded from the ESIF in 2003-04 total $16.3 million and include $2.0 million to increase the provision of child care in schools, $3.0 million to increase the availability of low cost housing and $1.8 million for health–related capital works at the Launceston General Hospital and the North West Regional Hospital, while $2.5 million will be provided for the redevelopment of York Park. A further, $10.0 million is allocated over two years to infrastructure improvement in parks to enhance visitor services.
Chapter 6: State Capital Program 113 STATE CAPITAL PROGRAM
The State Capital Program comprises the capital programs of Government Business Enterprises (GBEs), State-owned Companies (SOCs) and State Authorities, the Capital Investment Program (CIP), the carry forward from the 2001-02 Infrastructure Fund (IF) and the 2002-03 Social Infrastructure Fund (SIF) and a component of the new Economic and Social Infrastructure Fund (ESIF). The CIP includes major capital works of agencies, the Roads Program, expenditure for public housing and major maintenance projects. The 2003-04 State Capital Program totals $577.4 million.
This chapter first provides an overview of the State Capital Program funding, then provides details of expenditure on the CIP including the works of agencies in Table 6.5, the Roads Program in Tables 6.6 and 6.7, and the Housing Program in Table 6.8. Expenditure from the ESIF is detailed in Table 6.9, from the SIF in Table 6.10, from the IF in Table 6.11 and the expenditure on capital projects of GBEs, SOCs and State Authorities is summarised in Table 6.12.
The 2003-04 State Capital Program includes $36.3 million from the new ESIF, $5.6 million from the 2002-03 Social Infrastructure Fund, and $7.0 million from the 2001-02 Infrastructure Fund. Funding provided under these Infrastructure Funds is additional to projects funded by the current CIP.
The Prison Infrastructure Redevelopment Program is continuing, involving CIP funding of $68.6 million for redeveloping the Risdon site between 2001 and 2007. The redevelopment will place the majority of prisoners in new or refurbished accommodation by 2006-07.
The emphasis of the CIP in 2003-04 will continue to be on maintaining the State's asset stock including schools, hospitals and on infrastructure projects. This approach will result in a significant amount of work being undertaken through small, labour intensive projects. In addition, $7.8 million will be provided for Essential Maintenance projects for public assets and Government office accommodation projects through the Essential Maintenance and Property Services Office Works allocations.
The 1999-00 Budget was the first year of publication of a rolling three year CIP. The three year rolling CIP provides greater certainty and a sound planning framework for agencies and the construction industry. Table 6.5 shows the funding commitments to specific projects over the next three years.
The total funding available for the CIP in 2003-04 has increased from 2002-03, due to a high level of brought forward funding. The increase in brought forward funding more than offsets reductions in Commonwealth roads funding, a transfer of Commonwealth housing funding from capital to recurrent, and the impact of the completion of the $10 million Reece High School project. Excluding the Reece High School project, which was a special once-off addition to the CIP, the State Government funding for the CIP has been maintained in real terms.
Expenditure on the 2003-04 CIP will decrease from 2002-03, largely as a result of lower expenditure on CIP (Departments) following the completion of the rebuilding of Reece High School, and a decrease in the CIP Housing Program due to the anticipation of a high level of funding to be carried forward to 2004-05.
Major projects in the CIP for agencies that were completed or progressed during 2002-03 include ongoing conservation works at the Port Arthur Historic Site, infrastructure improvements at Cradle Mountain, upgrades to Campbell Town District Hospital, Huon Valley Health Centre and Sorell Community Health Centre, the purchase of a new linear accelerator for the Radiology Division of the Royal Hobart Hospital (RHH), upgrading of TAFE buildings at Hobart and Clarence, and the rebuilding of Reece High School.
114 Chapter 6: State Capital Program Major capital expenditure is planned for 2003-04 to upgrade sections of the RHH, complete upgrading of the Deloraine District Hospital, continue the upgrade of TAFE buildings at Clarence, upgrade sections of Taroona High School and Mowbray Heights Primary School, continue conservation works at the Port Arthur Historic Site and continue work on the Prison Infrastructure Redevelopment Program.
Funding for individual agencies and projects varies from year to year due to the size and construction timetable of the projects involved. This should be kept in mind when making inter-year comparisons.
In framing the overall Capital Investment Program, priority has been given to those projects which:
• meet essential community needs;
• are consistent with the Government's priorities, including Tasmania Together;
• provide economic benefit to the State; or
• lead to savings in operating costs.
Table 6.1 and Table 6.2 provide a summary of the source and application, respectively, of funds under the State Capital Program.
Chapter 6: State Capital Program 115 Table 6.1: State Capital Program – Source of Funds 2002-03 2003-04 Budget Budget $'000 $'000 Capital Investment Program Consolidated Fund Appropriation State Funding 99 459 97 092 Commonwealth Funding Education 10 943 9 695 Housing Program 9 815 2 224 Roads Program 18 340 14 696 Total Consolidated Fund Appropriation1 138 557 123 707
Other Funding Balance brought forward 14 700 42 940 Proceeds from Asset Sales 14 400 14 900 Other 1 850 1 840 Total Other Funding 30 950 59 680
Total Capital Investment Program Funding 169 507 183 387
Economic and Social Infrastructure Fund Balance brought forward2 22 028 58 284 Consolidated Fund Appropriation1 61 256 26 855
Social Infrastructure Fund Balance brought forward 14 200 5 600
2001-02 Infrastructure Fund Balance brought forward 15 000 7 000
GBEs, SOCs and State Authorities 247 881 296 270
TOTAL SOURCE OF FUNDS 529 872 577 396
Notes: 1. The Works and Services appropriation within the Consolidated Fund Appropriation Bill 2003 is $150.6 million. This sum includes the appropriation for the Capital Investment Program of $123.7 million and an appropriation of $26.9 million to the Economic and Social Infrastructure Fund. The 2003-04 Consolidated Fund appropriation to the Economic and Social Infrastructure Fund reflects the level of works and services, that will be funded with assets sales revenue from the Governments business divestment program of $28.5 million. 2. The Balance brought forward for the ESIF in 2002-03 represents funds transferred from the Major Projects Fund.
116 Chapter 6: State Capital Program Table 6.2: State Capital Program – Application of Funds 2002-03 2003-04 Budget Budget $'000 $'000 Capital Investment Program1 Departments2 64 995 62 206 Roads3 69 710 71 185 Housing4 34 802 30 296 Total Capital Investment Program 169 507 163 687
Economic and Social Infrastructure Fund5 Economic Development projects 25 000 20 000 Social Infrastructure projects …. 16 300
Social Infrastructure Fund6 Community Renewal Program 8 000 4 000 Water Developments 4 500 …. TAFE Flexible IT 100 1 600
2001-02 Infrastructure Fund7 Meander Dam 7 000 7 000 Strategic Transport and Other projects 8 000 ….
GBEs, SOCs and State Authorities8 247 881 296 270 Total Expenditure 469 988 508 857
Funds to be carried forward 59 884 68 539
TOTAL APPLICATION OF FUNDS 529 872 577 396
Notes: 1. Table 6.3 provides details of the Capital Investment Program, including the split between Commonwealth and State funding. 2. Table 6.5 provides details of the CIP (Departments) allocation by agency. 3. Table 6.6 provides a summary of the CIP Roads Program. 4. Table 6.8 provides a summary of the CIP Housing Program. 5. Table 6.9 provides a summary of projects funded from the Economic and Social Infrastructure Fund. 6. Table 6.10 provides a summary of projects funded from the Social Infrastructure Fund. 7. Table 6.11 provides a summary of projects funded from the Infrastructure Fund. 8. Table 6.12 provides details of capital expenditure by GBEs, SOCs and State Authorities.
Chapter 6: State Capital Program 117 GOVERNMENT DEPARTMENTS
Source of Funds
In 2003-04, 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;
• proceeds from asset sales;
• 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 source of capital funds for departments is shown in Table 6.3.
Table 6.3: Capital Investment Program - Summary of Source of Funds (including Housing and Roads) 2002-03 Budget 2003-04 Budget Common- Common- Department Wealth) State) Total) Wealth) State) Total) $'000) $'000) $'000) $'000) $'000) $'000)
Education 10 943) 19 066) 30 009) 9 695) 7 975) 17 670) Finance-General ....) 8 022) 8 022) ....) 8 609) 8 609) Health and Human Services 9 815) 39 979) 46 982) 2 224) 42 519) 44 743) Infrastructure, Energy and Resources 18 340) 51 370) 69 710) 14 696) 56 489) 71 185) Justice and Industrial Relations ....) 4 309) 4 309) ....) 16 766) 16 766) Office of the Governor ....) 8) 8) ....) 8) 8) Police and Public Safety ....) 1 562) 1 562) ....) 1 921) 1 921) Primary Industries, Water and Environment ....) 4 082) 4 082) ....) 154) 154) Economic Development ....) 2 011) 2 011) ....) ....)) ....)) Tourism, Parks, Heritage and the Arts ....) ....)) ....)) ....) 2 631) 2 631)
TOTAL 39 098) 130 409) 169 507) 26 615) 137 072) 163 687)
118 Chapter 6: State Capital Program 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 and social activity.
A Project Initiation Process (PIP) is used to facilitate the 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.
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 departments;
• the clear definition and documentation of the criteria which are 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 outcome, 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 relevant Local Government Council is consulted on major projects;
• the total project cost, including the life cycle costs such as maintenance and upgrade, is identified; and
• the project timetable is clearly established.
The total estimated expenditure for the CIP by departments in 2003-04, as summarised in Table 6.3, is $163.7 million.
Chapter 6: State Capital Program 119 Table 6.4 provides a comparison of the estimated expenditure for 2002-03 and estimated expenditure for 2003-04 by department. This table does not include details in relation to capital investment in roads and housing, the Social Infrastructure Fund, the 2001-02 Infrastructure Fund, or the new Economic and Social Infrastructure Fund, which are detailed later in this chapter.
Table 6.4: Capital Investment Program (Departments) – Summary 2002-03) 2003-04) Department Budget) Budget) $'000) $'000)
Education 30 009) 17 670) Finance-General 8 022) 8 609) Health and Human Services 14 992) 14 447) Justice and Industrial Relations 4 309) 16 766) Office of the Governor 8) 8) Police and Public Safety 1 562) 1 921) Primary Industries, Water and Environment 4 082) 154) Economic Development 2 011) ....) Tourism, Parks, Heritage and the Arts ....) 2 631)
TOTAL 64 995) 62 206)
Details of departmental projects that are included in the CIP are contained in Table 6.5, which lists individual projects for each department and includes information on individual projects with respect to the estimated total cost and estimated expenditure for 2003-04, 2004-05 and 2005-06.
Table 6.5 reflects details of the estimated cost of projects at the time of the 2003-04 Budget. 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 2003-04.
120 Chapter 6: State Capital Program Table 6.5: Capital Investment Program (Departments) – Project Details Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) DEPARTMENT OF EDUCATION Building Services Maintenance - Education ongoing) 1 624) 1 624) 1 624) Ongoing funding is provided to meet maintenance requirements including occupational health and safety issues and heritage requirements.
Building Services Maintenance – Institute of TAFE Tasmania ongoing) 492) 492) 492) Ongoing funding is provided to the Institute of TAFE Tasmania to meet maintenance requirements including occupational health and safety issues and heritage requirements.
Cambridge Primary School 720) 720) ....) ....) Completion Date: June 2004 Funding is provided for the redevelopment of classroom accommodation and external works.
Clarence High School 1 350) 750) ....) ....) Completion Date: October 2003 Funding is provided for the redevelopment of classroom accommodation.
Hagley Primary School 2 000) 1 400) ....) ....) Completion Date: February 2004 Funding is provided for the redevelopment of classroom accommodation.
Kings Meadows High School 800) 400) ....) ....) Completion Date: November 2003 Funding is provided for the redevelopment of administration, classrooms and speech and drama areas.
Kingston Library 650) 596) ....) ....) Completion Date: March 2004 This project provides for extensions to the existing building.
Mowbray Heights Primary School 1 441) 1 441) ....) ....) Completion Date: June 2004 Funding is provided for the provision of new infant classroom accommodation and administration.
Chapter 6: State Capital Program 121 Table 6.5: Capital Investment Program (Departments) – Project Details (continued) Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) DEPARTMENT OF EDUCATION (continued) Oatlands District High School 800) 800) ....) ....) Completion Date: May 2004 Funding is provided for the redevelopment of the library, technology centre and classroom accommodation.
Prospect High School 1 400) 870) ....) ....) Completion Date: February 2004 Funding is provided for the redevelopment of classroom accommodation, music, and speech and drama.
Rose Bay High School 1 318) 1 059) 259) ....) Completion Date: October 2004 Funding is provided for the redevelopment of classroom accommodation.
Rosetta High School 880) 230) ....) ....) Completion Date: September 2003 Funding is provided for the redevelopment of materials, design and technology plus home economics learning areas.
Rosny College 560) 310) ....) ....) Completion Date: January 2004 Funding is provided for the refurbishment of the materials, design and technology learning areas to meet current standards and statutory requirements.
Scottsdale High School 694) 694) ....) ....) Completion Date: June 2004 Funding is provided to upgrade the multi purpose hall to facilitate speech and drama and performing arts.
Institute of TAFE Tasmania Clarence Campus 8 250) 2 434) 1 916) ....) Completion Date: December 2004 This project funds the redevelopment of Clarence Campus to provide a modern learning environment.
122 Chapter 6: State Capital Program Table 6.5: Capital Investment Program (Departments) – Project Details (continued) Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) DEPARTMENT OF EDUCATION (continued) Institute of TAFE Tasmania Clarence Campus 800) 800) ....) ....) Completion Date: June 2004 This project funds the relocation of Building Trades A.
Institute of TAFE Tasmania - Infrastructure Support ongoing) 850) 850) 850) Funding is provided for general infrastructure support and delivery of vocational education and training.
Taroona High School 2 200) 1 900) ....) ....) Completion Date: June 2004 Funding is provided for the redevelopment of classroom accommodation and specialist facilities.
Tasman District High School 650) 300) ....) ....) Completion Date: August 2003 Funding is provided for the redevelopment of early childhood and primary classroom accommodation.
Bowen Road Primary School 744) ....) 380) 364) Completion Date: November 2005 Funding is provided for the redevelopment of classroom accommodation.
Devonport Primary School 429) ....) 220) 209) Completion Date: August 2005 Funding is provided for the redevelopment of classroom accommodation and specialist facilities.
Library – Multi-sites 350) ....) 350) ....) Completion Date: June 2005 Funding is provided for Library Capital Initiatives.
Mountain Heights School 350) ....) 350) ....) Completion Date: May 2005 Funding is provided for the redevelopment of the administration area.
Chapter 6: State Capital Program 123 Table 6.5: Capital Investment Program (Departments) – Project Details (continued) Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) DEPARTMENT OF EDUCATION (continued) New Norfolk High School 655) ....) 330) 325) Completion Date: September 2005 Funding is provided for the redevelopment of the administration and metalwork areas.
Ogilvie High School 2 669) ....) 1 869) 800) Completion Date: December 2005 Funding is provided for the redevelopment of music, speech and drama facilities.
Rosetta High School 1 554) ....) 800) 754) Completion Date: November 2005 Funding is provided for the redevelopment of classroom accommodation, canteen and specialists learning areas.
Smithton High School 1 943) ....) 1 000) 943) Completion Date: February 2006 Funding is provided for the redevelopment of classrooms and specialist areas.
Institute of TAFE Tasmania Clarence Campus 900) ....) 900) ....) Completion Date: June 2005 This project funds the relocation of Building Trades B.
Institute of TAFE Tasmania Flexible IT Delivery 900) ....) 450) 450) Completion Date: December 2005 Funding is provided for the flexible delivery of Information Technology.
Institute of TAFE Tasmania Infrastructure Upgrades 1 130) ....) 685) 445) Completion Date: December 2006 Funding is provided to undertake upgrading of essential infrastructure.
124 Chapter 6: State Capital Program Table 6.5: Capital Investment Program (Departments) – Project Details (continued) Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) DEPARTMENT OF EDUCATION (continued) Ulverstone Primary School 800) ....) 800) ....) Completion Date: May 2005 Funding is provided for the redevelopment of classroom accommodation in the northern building.
Warrane Primary School 794) ....) 400) 394) Completion Date: October 2005 Funding is provided for the redevelopment of classroom accommodation.
Youngtown Primary School 676) ....) 340) 336) Completion Date: October 2005 This project funds the redevelopment of classroom accommodation and provides a multi-purpose room.
Campbell Town District High School 676) ....) ....) 476) Completion Date: June 2007 Funding is provided for the redevelopment of specialist facilities.
East Launceston Primary School 1 750) ....) ....) 1 750) Completion Date: June 2006 Funding is provided for the redevelopment of classroom accommodation.
Illawarra Primary School 1 400) ....) ....) 1 400) Completion Date: June 2006 Funding is provided for the development of new classroom accommodation.
Yolla District High School 990) ....) ....) 990) Completion Date: June 2006 This project is to provide for the refurbishment of specialised areas within the school to current standards.
TOTAL 17 670) 14 015) 12 602)
Chapter 6: State Capital Program 125 Table 6.5: Capital Investment Program (Departments) – Project Details (continued) Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) FINANCE-GENERAL Building Services Maintenance ongoing) 816) 816) 816) Ongoing funding is provided to agencies to meet maintenance requirements including occupational health and safety issues and heritage requirements.
Essential Maintenance ongoing) 6 655) 7 320) 8 052) This funding is provided to agencies to enable them to source urgent maintenance funding for projects that arise outside the annual process of applying for funding from the Capital Investment Program.
Property Services Office Works ongoing) 1 138) 1 138) 1 138) This funding provides for building consultancies and landlord works for Government owned and leased buildings.
TOTAL 8 609) 9 274) 10 006)
DEPARTMENT OF HEALTH AND HUMAN SERVICES Building Services Maintenance ongoing) 128) 78) 78) Ongoing funding is provided to meet maintenance requirements including occupational health and safety issues and heritage requirements.
Deloraine Hospital 2 450) 1 600) ....) ....) Completion Date: December 2003 This project replaces the existing outdated facility with a new Hospital and Community Health Centre that will provide contemporary standards in health care.
Huon Valley Community and Health Centre 1 500) 600) ....) ....) Completion Date: July 2003 The project involves the construction of a new Community and Health Centre in Huonville.
126 Chapter 6: State Capital Program Table 6.5: Capital Investment Program (Departments) – Project Details (continued) Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) DEPARTMENT OF HEALTH AND HUMAN SERVICES (continued) Linear Accelerator 3 500) 1 752) ....) ....) Completion Date: July 2003 This project replaces a High Energy Linear Accelerator in the Royal Hobart Hospital.
New Norfolk District Hospital 1 850) 950) ....) ....) Completion Date: June 2004 This project involves the construction of a dedicated Health and Community Centre on the site of the existing New Norfolk District Hospital and the construction of a residential facility.
Royal Hobart Hospital Redevelopment Stage 3 11 095) 6 942) 1 345) 2 324) Completion Date: September 2005 This project involves construction of a new facility to accommodate an expanded Department of Emergency Medicine and to enable the strategic relocation of Medical Records Services at the Royal Hobart Hospital.
Sorell Community Health Centre 1 221) 650) ....) ....) Completion Date: September 2003 This project is for a new Community and Health Centre to provide services to the Sorell Municipality.
Tasman Multi-Purpose Centre 829) 825) ....) ....) Completion Date: June 2004 This project will involve building new offices and treatment rooms for community and health services provided on the Tasman Peninsula.
West Coast Multi-Purpose Service Development 3 900) 1 000) 1 870) 780) Completion Date: December 2005 This project is for the construction of a Community Health Centre in Queenstown, including residential aged and in-patient care services.
Chapter 6: State Capital Program 127 Table 6.5: Capital Investment Program (Departments) – Project Details (continued) Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) DEPARTMENT OF HEALTH AND HUMAN SERVICES (continued) George Town District Hospital 2 300) ....) 200) 800) Completion Date: June 2007 This redevelopment project includes the provision of 15 single room in-patient facilities, the development of a general use treatment room and office accommodation for community nurses.
Hospital Information System 6 500) ....) 1 500) 800) Completion Date: December 2008 A project to replace the existing computer systems in the Royal Hobart Hospital, Launceston General Hospital and North West Regional Hospital with a new single, statewide patient information system.
Scottsdale District Hospital 2 100) ....) 1 300) 800) Completion Date: June 2006 This project involves the redevelopment of the Hospital to provide a combined hospital/community health services site for the North-East District.
Smithton District Hospital 3 800) ....) 500) 1 800) Completion Date: June 2007 This redevelopment will respond to the need to upgrade the Smithton District Hospital to contemporary standards and allow community health services to be co-located.
TOTAL 14 447) 6 793) 7 382)
DEPARTMENT OF INFRASTRUCTURE, ENERGY AND RESOURCES Elwick Racecourse Redevelopment 6 000) ....) 2 000) 4 000) Completion Date: June 2006 This project will provide for the redevelopment of Elwick Racecourse.
TOTAL ....) 2 000) 4 000)
128 Chapter 6: State Capital Program Table 6.5: Capital Investment Program (Departments) – Project Details (continued) Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) DEPARTMENT OF JUSTICE AND INDUSTRIAL RELATIONS Building Services Maintenance ongoing) 94) 94) 94) Ongoing funding is provided to meet maintenance requirements including occupational health and safety issues and heritage requirements.
Prisons Infrastructure Redevelopment Program 68 600) 16 672) 13 271) 11 096) Completion Date: 2008 This project provides for construction of new correctional facilities.
TOTAL 16 766) 13 365) 11 190)
OFFICE OF THE GOVERNOR Building Services Maintenance ongoing) 8) 8) 8) Ongoing funding is provided to meet maintenance requirements including occupational health and safety issues and heritage requirements.
TOTAL 8) 8) 8)
DEPARTMENT OF POLICE AND PUBLIC SAFETY Breathalyser Replacement Program 750) 150) 150) ....) Completion Date: June 2005 This funding provides for the replacement of breathalyser units.
Building Services Maintenance ongoing) 376) 376) 376) Ongoing funding is provided to meet maintenance requirements including occupational health and safety issues and heritage requirements.
Rokeby Police Academy 4 362) 1 395) ....) ....) Completion Date: December 2003 This funding is to be provided for the refurbishment and upgrade of accommodation and classrooms at the Rokeby Police Academy facility.
Chapter 6: State Capital Program 129 Table 6.5: Capital Investment Program (Departments) – Project Details (continued) Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) DEPARTMENT OF POLICE AND PUBLIC SAFETY (continued) Launceston Police Station 2 200) ....) ....) 1 000) Completion Date: June 2007 Refurbishment of Launceston Police Headquarters.
TOTAL 1 921) 526) 1 376)
DEPARTMENT OF PRIMARY INDUSTRIES, WATER AND ENVIRONMENT Building Services Maintenance ongoing) 154) 154) 154) Ongoing funding is provided to meet maintenance requirements including occupational health and safety issues and heritage requirements.
Theatre Royal Extension 1 600) ....) 800) 800) Completion Date: June 2006 This project provides for Theatre Royal extensions.
TOTAL 154) 954) 954)
DEPARTMENT OF TOURISM, PARKS, HERITAGE AND THE ARTS Building Services Maintenance ongoing) 101) 101) 101) Ongoing funding is provided to meet maintenance requirements including occupational health and safety issues and heritage requirements.
Cradle Mountain Infrastructure 2 100) 500) ....) ....) Completion Date: July 2003 This project provides for the construction of a major new walking track, doubling as a services corridor, from the Cradle Mountain Visitor Centre to Waldheim Junction as part of an overall upgrade of Cradle Mountain Tourism Infrastructure.
130 Chapter 6: State Capital Program Table 6.5: Capital Investment Program (Departments) – Project Details (continued) Estimated) 2003-04) 2004-05) 2005-06) Total Cost) Budget) Budget) Budget) $'000) $'000) $'000) $'000) DEPARTMENT OF TOURISM, PARKS, HERITAGE AND THE ARTS (continued) Port Arthur Historic Site - Conservation Program 10 000) 2 000) 2 000) ....) Completion Date: June 2005 This project provides for essential conservation works at the Port Arthur Historic Site.
Wellington Park Pinnacle Zone Development 373) 30) ....) ....) Completion Date: September 2003 This project provides for the implementation of landscape planning actions as recommended in the Pinnacle Zone Site Development Plan (Wellington Park Management Trust).
TOTAL 2 631) 2 101) 101)
TOTAL CAPITAL INVESTMENT PROGRAM (DEPARTMENTS) 62 206) 49 036) 47 619)
Chapter 6: State Capital Program 131 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 and State Governments. The Roads Program forms part of the CIP.
A summary of allocated funds is shown in Table 6.6, and a detailed allocation is presented in Table 6.7.
Table 6.6: Roads Program – Summary 2002-03 2003-04 Category of Project Budget Budget $'000 $'000 Commonwealth Funds Infrastructure Development 8 675 8 440 Infrastructure Maintenance 5 445 4 890 Road Safety and Traffic Management 1 440 2 436 Environmental Management 30 150 Program Management 1 400 1 430 Asset Management 1 150 850 Strategic Planning and Policy 200 200 State Funds Infrastructure Development 6 725 13 039 Infrastructure Maintenance 22 529 26 539 Road Safety and Traffic Management 2 355 1 724 Environmental Management 800 1 359 Program Management 3 120 3 008 Asset Management 4 800 4 477 Strategic Planning and Policy 2 390 2 643 Sorell Causeway Upgrade 8 651 ….
TOTAL 69 710 71 185
132 Chapter 6: State Capital Program Table 6.7 Roads Program – Project Details Estimated 2003-04 Project Total Cost Budget $'000 $'000 NATIONAL HIGHWAY SYSTEM
INFRASTRUCTURE DEVELOPMENT Road Upgrading Bass Highway-Penguin to Ulverstone 24 000 1 380 Various …. 3 150 Bridge Upgrading Bass Highway- Bridgwater Bridge Replacement 140 000 600 Roads of National Importance Arthur Highway 7 200 1 600 North East Tasmania Access (NETAS) 20 000 1 710
INFRASTRUCTURE MAINTENANCE Road Routine Maintenance 2 475 2 475 Road Specific Maintenance 800 800 Miscellaneous Fees and Charges 135 135 Road Reinstatement 580 580 Bridge Maintenance 900 900
ROAD SAFETY AND TRAFFIC MANAGEMENT Safety Works 500 500 Traffic Management Works 700 700 Minor Improvements 120 120 Blackspot Contribution 1 116 1 116
ENVIRONMENTAL MANAGEMENT Roadside and Quarry Rehabilitation 150 150
PROGRAM MANAGEMENT Corporate Management 1 100 1 100 Management Systems 330 330
ASSET MANAGEMENT 850 850
STRATEGIC POLICY AND PLANNING 200 200
Chapter 6: State Capital Program 133 Table 6.7: Roads Program - Project Details (continued) Estimated 2003-04 Project Total Cost Budget $'000 $'000 STATE FUNDED PROJECTS
INFRASTRUCTURE DEVELOPMENT Road Upgrading West Tamar Highway Cormiston Creek to Legana Park Drive 7 000 1 050 Kingston Interchange 1 800 1 670 Southwood Roads 3 000 3 000 Strahan Township 850 850 Glen Huon Main Road 4 000 2 649 Bridge Upgrading 795 795 Roads of National Importance North East Tasmania Access (NETAS) 20 000 2 400 Arthur Highway 7 200 400 Rail Infrastructure 175 175 Public Transport Facilities 50 50
INFRASTRUCTURE MAINTENANCE Emergency and Flood Repairs 691 691 Road Routine Maintenance 17 226 17 226 Road Specific Maintenance 3 728 3 728 Miscellaneous Fees and Charges 485 485 Road Reinstatement 384 384 Bridge Maintenance 3 295 3295 Bridge Reinstatement 300 300 Assistance to Local Government 300 300 Maintenance of Other Infrastructure 80 80 Vehicle Mass and Dimension Management 50 50
ROAD SAFETY AND TRAFFIC MANAGEMENT Safer Roads 964 964 Traffic Management Works 240 240 Tourism Infrastructure 425 425 State Contribution to Blackspots 25 25 Bicycle and Pedestrian Facilities 70 70
134 Chapter 6: State Capital Program Table 6.7: Roads Program - Project Details (continued) Estimated 2003-04 Project Total Cost Budget $'000 $'000 ENVIRONMENTAL MANAGEMENT Roadside Rehabilitation 60 60 Highland Lakes Road-Burbury Hill to Shannons Lagoon 1 000 979 Quarry Rehabilitation, Environmental Hazard Management 320 320
PROGRAM MANAGEMENT Corporate Management 2 210 2 210 Provision for Third Party Claims 140 140 Management Systems 658 658
ASSET MANAGEMENT 4 477 4 477
STRATEGIC POLICY AND PLANNING 2 643 2 643
TOTAL ROADS PROGRAM 71 185
Chapter 6: State Capital Program 135 HOUSING PROGRAM
The Housing Program aims to ensure that disadvantaged Tasmanians have access to sustainable, affordable, appropriate and secure housing options and to deliver a range of housing options that meet peoples' needs and offer a range of opportunities that contribute to their capacity to participate in society and improve their quality of life. The 2003-04 Housing Program is jointly funded by the Commonwealth and State Governments under the terms of the Commonwealth-State Housing Agreement (CSHA).
Total funding for the Housing Program in 2003-04 is $50.0 million, significantly higher than 2002-03 as a result of the level of sales to occupants in 2002-03 and the carry forward of the proceeds into 2003-04. $30.3 million will be spent on housing capital works in 2003-04, and $19.7 million will be carried forward into 2004-05. The size of this carry forward is a result of several factors, in particular the physical limits on new construction activity that the building industry can accommodate, given the current level of private construction activity. The carry forward also reflects, to a smaller extent, the normal works in progress at the end of any year. In addition, it is anticipated that capital funding will need to be carried forward to 2004-05 to cover the gap created by the reduction in Commonwealth grants under the Commonwealth-State Housing Agreement, thus maintaining a base level of public housing building activity.
The Program has been developed within the framework of the strategic plans and priorities of the Department of Health and Human Services and Housing Tasmania. It continues to target strategies which support Housing Tasmania's portfolio re-alignment and sustainability through strategic purchases, construction and upgrading projects with a specific focus on the provision of properties for clients with complex and/or special needs. This focus provides greater integration of housing services with other services delivered by the Department and local communities and improves the capacity of individuals and communities, which in turn facilitates better-quality health and well being outcomes.
The major initiatives to be undertaken as part of the 2003-04 Housing Program are focussed on improving both client and portfolio viability outcomes and are also aimed at ensuring that key priorities identified in the development of the Government's Affordable Housing Strategy are able to be implemented. These initiatives include:
• $3.0 million from the Economic and Social Infrastructure Fund will be combined with $5 million from Housing Tasmania's $30 million Capital Investment Program, providing a total of $8 million to be used to buy homes over the next six months for Tasmanians with the most urgent housing needs. Over this period, this funding will deliver homes to around 150 Tasmanians in acute housing need;
• a capital program that supports Housing Tasmania's key priorities and Strategic Asset Management Plan (SAMP) through plans developed at local levels with significant emphasis on building safe, healthy, supportive and resilient communities;
• continuation of a construction and redevelopment program which provides for a range of general purpose, multi-purpose, elderly and disability units in high demand suburbs and accessible to essential services;
• the purchase of up to 70 appropriate dwellings in high demand areas throughout the state;
• the construction of 53 units at the former Windsor Court site in Hobart which will be completed and ready for allocation early in the 2004-05 financial year;
136 Chapter 6: State Capital Program • continuation of the strong commitment to people with disabilities, through acquisition of at least six dwellings specifically for people with severe or profound disabilities;
• the provision of a number of locally developed community housing solutions for clients with a diverse range of needs including those with mental health issues and those requiring supported housing options; and
• the provision of crisis accommodation for a range of client groups including youth, families in crisis and families and individuals escaping domestic violence.
Details of the source and allocation of funds for the Housing Program are shown in Table 6.8.
Table 6.8: Housing Program - Source and Application of Funds 2002-03 2003-04 Budget Budget $'000 $'000 Source of Funds Balance brought forward1 6 529 28 000 Commonwealth-State Housing Agreement Commonwealth Grant2 12 192 2 224 Commonwealth-State Housing Agreement State Matching Grant 1 681 4 172 Sale of Assets and Other Capital Receipts 14 400 14 900 Operating Revenue …. 700 TOTAL SOURCE OF FUNDS 34 802 49 996
Application of Funds Strategic Asset Management General Upgrading 8 111 4 908 Windsor Court Redevelopment 2 500 7 200 Targeted Purchases 6 826 4 953 Construction/Redevelopment 12 510 8 070 Sundry Capital CSHA Loan Repayments 4 855 5 065 Computer Capital Costs …. 100 Total Expenditure 34 802 30 296 Funds to be carried forward3 …. 19 700 TOTAL APPLICATION OF FUNDS 34 802 49 996
Notes: 1. The increase in brought forward funds from $6.5 million to $28 million reflects higher than anticipated proceeds derived from capital sales during 2002-03. Brought forward funds are committed to projects that have commenced, or will commence late in the 2002-03 financial year, and projects due to commence during 2003-04. 2. The decrease in CSHA funding allocated to the Housing Tasmania Capital Program is primarily due to a reclassification of minor capital works expenditure (previously presented as part of the Housing Tasmania Capital Program) to recurrent expenditure and a reduction in Commonwealth GST compensation funding provided under the Housing Agreement. 3. While every endeavour will be made to construct and provide as many new homes as possible, it is anticipated that $19.7 million will be carried forward to 2004-05. The size of this carry forward is a result of several factors. It is largely a function of the physical limits on new construction activity that the building industry can accommodate at the present time, given the current level of private construction activity. The carry forward also reflects, to a smaller extent, the normal works in progress at the end of any year. In addition, it is anticipated that capital funding will
Chapter 6: State Capital Program 137 need to be carried forward to cover the gap created by the reduction in Commonwealth grants under the Commonwealth-State Housing Agreement, in order to maintain a base level of public housing building activity.
ECONOMIC AND SOCIAL INFRASTRUCTURE FUND
One of the Government's key initiatives for 2003-04 is the establishment of a new Economic and Social Infrastructure Fund (ESIF) of $107 million, including $25.4 million transferred from the Major Projects Fund established in 2002-03. Of the total ESIF available, $85.1 million has been allocated to capital expenditure. In 2002-03, up to $25.0 million of additional funding will be expended for purchasing the optic fibre cable that was installed with the natural gas pipeline. The capital projects funded from the ESIF are additional to projects funded from the Capital Investment Program.
The major thrust of the ESIF is projects assisting economic development and social infrastructure. Social infrastructure projects involve education, tourism, parks, heritage, health and housing throughout the State. Economic development projects relate to a range of infrastructure and developments including the distribution of natural gas and the Government's strategic objective of enhancing the availability of broadband services in Tasmania through the collocation of optic fibre cables with the gas pipeline.
A summary of ESIF funding and expenditure for capital projects in 2003-04 is provided in Table 6.9. It should be noted that estimated capital expenditure from the ESIF in 2003-04 is $36.3 million and that $48.8 million of capital funding will be carried forward to 2004-05.
Table 6.9: Economic and Social Infrastructure Fund 2003-04 Budget $'000 Source of funds Balance brought forward 58 284 2003-04 Consolidated Fund Appropriation1 26 855 TOTAL SOURCE OF FUNDS 85 139
Less Estimated Expenditure Economic Development Projects 20 000 Social Infrastructure Projects 16 300 TOTAL ESTIMATED EXPENDITURE 36 300 Balance carried forward 48 839
Note: 1. This appropriation reflects the level of works and services which will be funded with asset sales revenue from the Government's Business Divestment Program.
138 Chapter 6: State Capital Program Economic and Social Infrastructure Fund Projects Social Infrastructure Projects
$16.3 million is allocated for expenditure on Social Infrastructure projects in 2003-04. Social projects include $2.0 million to increase the provision of child care in schools and $500 000 to acquire library books for schools. A further $3.0 million will be provided to increase the availability of low cost housing and $1.8 million will be allocated for health–related capital works, including the provision of a lift for Launceston General Hospital and capital works for the intensive care section the North-West Regional Hospital.
Tourism, parks and heritage projects will be funded with $5.0 million allocated to infrastructure improvement in National Parks to enhance visitor services, $500 000 provided for tourism works and services, and a roof will be constructed over all the outer terraced seating areas at York Park through the provision of $2.5 million. Water infrastructure developments also will be funded with an allocation of $1.0 million. Economic Development Projects
$20.0 million of the ESIF has been allocated towards the distribution of natural gas and the rollout of optic fibre cables throughout the State to stimulate economic development. Of this, $8.0 million has been committed to meet the Government's obligations under the Natural Gas Distribution Project Stage One Development Agreement. This agreement facilitates the construction and operation by Powerco Ltd of a backbone pipeline system to distribute natural gas to some 23 large industrial and commercial customers and provide the capacity to ultimately distribute gas past more than 100 000 smaller industrial and commercial customers and households. The balance of this ESIF component is anticipated to be spent in 2003-04. Allocations to specific projects will be determined during the year. For details on all expenditures from the ESIF, refer to Chapter 4 of Budget Paper No 2 Operations of Government Departments 2003-04.
Chapter 6: State Capital Program 139 SOCIAL INFRASTRUCTURE FUND
The Social Infrastructure Fund (SIF) was established in 2002-03 to improve services to the community and address social infrastructure needs. The portion of the SIF allocated for capital works was announced in the 2002-03 Budget as $14.2 million, but was increased by $2.0 million through an additional allocation. Of the capital works funding, $5.6 million will be carried forward into 2003-04.
The major thrust of the SIF is on technical and further education and community renewal projects. A summary of SIF capital projects in 2003-04 is provided in Table 6.10.
Table 6.10: Social Infrastructure Fund 2003-04 Budget $'000 Source of funds Balance brought forward 5 600 TOTAL SOURCE OF FUNDS 5 600
Less Estimated Expenditure Community Renewal 4 000 TAFE IT Flexible Delivery and Wellington Square Training Facility Development 1 600 TOTAL ESTIMATED EXPENDITURE 5 600
Social Infrastructure Fund Projects Community Renewal
$10.0 million of the Social Infrastructure Fund was allocated for community renewal projects to improve rural infrastructure. The remaining funding of $4 million will be spent in 2003-04. TAFE IT Flexible Delivery and Wellington Square Training Facility Development
$1.7 million of the Social Infrastructure Fund was allocated to TAFE institutions for flexible information technology learning centres and Adult and Community Education facilities. The remaining funding for this project of $1.6 million is anticipated to be spent in 2003-04.
140 Chapter 6: State Capital Program 2001-02 INFRASTRUCTURE FUND
The Infrastructure Fund (IF) was introduced in the 2001-02 Budget as a major Government initiative to provide one-off funding for Tasmanian economic and social infrastructure. Of the funding allocated for economic infrastructure in 2001-02, $7.0 million remains to be carried forward into the 2003-04 Budget.
The community has derived, and will continue to derive, significant benefits from the application of additional funding to infrastructure projects. The projects completed since 2001-02 have:
• provided infrastructure that supports private sector investment in development opportunities;
• addressed the rundown of infrastructure assets that are needed to support future expansion of existing service delivery;
• assisted in managing the backlog of maintenance of public infrastructure assets; and
• stimulated economic activity in the State.
The funding for the project to be completed in 2003-04 is summarised in Table 6.11.
Table 6.11: 2001-02 Infrastructure Fund 2003-04 Budget $'000 Source of funds Balance brought forward 7 000 TOTAL SOURCE OF FUNDS 7 000
Less Estimated Expenditure Meander Dam 7 000 TOTAL ESTIMATED EXPENDITURE 7 000
2001-02 Infrastructure Fund Projects Meander Dam
$7.0 million has been brought forward from the 2001-02 Infrastructure Fund for the Meander Dam project. This project will benefit the Tasmanian community by providing water to stimulate further agricultural development in the Meander Valley region.
The environmental, engineering and economic feasibility studies for the project have been completed and released publicly. Relevant approvals for construction of the dam have been issued by the Assessment Committee for Dam Construction and the Environmental Management and Pollution Control Board. The Parliamentary Standing Committee for Public Works also approved the project. These approvals were overturned by the Resource Management and Planning Appeal Tribunal but, subsequent to this decision, the Meander Dam Approvals Act 2003 was passed by both Houses of Parliament to effectively reinstate the approvals previously given to the project.
Chapter 6: State Capital Program 141 The tender process for financing, design, construction and operation of the dam is currently on hold pending Commonwealth Government approval of the project. If approval is received, tenders for dam construction will be let in late 2003. It is a matter for negotiation between the Government and the successful contractor as to when the funds from the Infrastructure Fund will be expended.
GBES, STATE-OWNED COMPANIES AND STATE AUTHORITIES
Expenditure of Capital Funds
Budgeted total capital expenditure by Government Business Enterprises (GBEs), State-owned Companies (SOCs) and State Authorities in 2002-03 was $247.9 million. The Budget estimates for 2003-04 of $296.3 million, $295.3 million in 2004-05 and $264.1 million in 2005-06 reflect a strong ongoing capital expenditure program for the ensuing years.
Details of the total expenditure of capital funds by GBEs, SOCs and State Authorities are shown in Table 6.12.
142 Chapter 6: State Capital Program Table 6.12: Expenditure of Capital Funds by GBEs, State-owned Companies and State Authorities
2002-03 2003-04 2004-05 2005-06 Budget Budget Budget Budget $'000 $'000 $'000 $'000
Aurora Energy Pty Ltd 56 702 58 789 57 626 60 180 Burnie Port Corporation Pty Ltd 2 090 2 010 1 434 845 Civil Construction Corporation1 700….….…. Forestry Tasmania2 24 570 24 627 19 000 17 000 Hobart Ports Corporation Pty Ltd2 6 436 12 089 8 909 4 501 Hydro Tasmania 77 500 89 400 84 700 82 900 Marine and Safety Tasmania 30 570 163 300 Metro Tasmania Pty Ltd 4 475 5 840 4 280 3 880 Motor Accidents Insurance Board 550 300 250 250 Port Arthur Historic Site Management Authority 617 605 603 650 Port of Devonport Corporation Pty Ltd 5 666 830 5 720 5 719 Port of Launceston Pty Ltd 1 550 1 405 700 500 Printing Authority of Tasmania 150 300 2 150 180 Private Forests Tasmania 30 20 35 30 The Public Trustee 120 50 20 20 Retirement Benefits Fund Board 2 090 2 105 1 780 1 732 Rivers and Water Supply Commission ...... …. 30 Southern Regional Cemetery Trust 381 1 033 519 149 State Fire Commission 5 500 7 400 7 500 7 200 Stanley Cool Stores Board1 …. …. …. …. Tasmanian Grain Elevators Board1 145….….…. Tasmanian International Velodrome Management Authority 492 292 570 721 Tasmanian Public Finance Corporation 149 193 271 165 TOTE Tasmania Pty Ltd 6 988 4 641 8 171 1 191 Transend Networks Pty Ltd 50 000 76 771 88 366 74 994 TT-Line Company Pty Ltd 950 7 000 2 500 1 000
TOTAL 247 881 296 270 295 267 264 137
Notes: 1. Capital expenditure is not included for these entities, as it is expected that each business will be sold during 2003-04. 2. The Government is currently undertaking an investigation into the possible sale of significant non-core assets for these entities. The outcome of this investigation may impact capital expenditure projections reported in this Table.
Chapter 6: State Capital Program 143 Major Capital Projects of GBEs, State-owned Companies and State Authorities - Summary
The information on estimated capital expenditure for GBEs, SOCs and State Authorities has been provided by each entity. Some of the major projects for 2003-04 are detailed below. Aurora Energy Pty Ltd
2003-04 estimated capital expenditure: $58.8 million.
During 2003-04, Aurora's capital expenditure program includes expenditure on:
• development and enhancement of Aurora's electricity distribution network ($32.1 million);
• metering technologies ($8.8 million);
• Sandy Bay Substation upgrade ($3.6 million);
• fleet upgrades and replacement ($3.5 million);
• information technology ($3.4 million);
• operational requirements ($2.7 million);
• National Electricity Market systems ($2.4 million); and
• new customer installations ($2.2 million). Burnie Port Corporation Pty Ltd
2003-04 estimated capital expenditure: $2.0 million.
During 2003-04, the Corporation's capital expenditure program includes expenditure on:
• reclamation – Southern Port ($750 000);
• maintenance – dredging program ($750 000);
• cold store plant upgrade ($115 000);
• demolition and embankment works – ex Old Jones Pier ($190 000); and
• mobile plant replacement ($60 000). Forestry Tasmania
2003-04 estimated capital expenditure: $24.6 million.
During 2003-04, Forestry Tasmania's capital expenditure program includes expenditure on:
• plantation establishment and other forest management activities ($9.8 million);
• road construction ($9.8 million); and
• the acquisition of property, plant and equipment ($5.0 million).
144 Chapter 6: State Capital Program Hobart Ports Corporation Pty Ltd
2003-04 estimated capital expenditure: $12.1 million.
The increase of $5.7 million in budgeted expenditure in 2003-04 from 2002-03 is primarily a result of the proposed redevelopment of Princes Wharf No 2.
During 2003-04, the Corporation's capital expenditure program includes expenditure on:
• redevelopment of Princes Wharf No 2 ($7.5 million);
• façade upgrade of 1 Franklin Wharf ($1.0 million);
• new forklift trucks ($810 000); and
• Macquarie Point beam replacement ($300 000). Hydro Tasmania
2003-04 estimated capital expenditure: $89.4 million.
During 2003-04, Hydro Tasmania's capital expenditure program includes expenditure on:
• refurbishment, replacement and upgrade of generating assets ($34 million);
• switchyards ($5.0 million);
• renewable energy developments:
− Tasmania Mini Hydros ($2.3 million);
− windfarm developments ($2.8 million); and
− integrated renewable energy developments – Bass Strait Islands ($2.5 million);
• information system/technology ($18.7 million);
• corporate and minor assets (includes fleet vehicles) ($7.1 million);
• land and buildings ($6.7 million);
• communication ($4.6 million); and
• wind monitoring towers ($900 000). Metro Tasmania Pty Ltd
2003-04 estimated capital expenditure: $5.8 million.
During 2003-04, Metro Tasmania's capital expenditure program includes expenditure on:
• bus replacement strategy ($4.7 million); and
• communications equipment, auxiliary vehicles, information technology and ticketing system ($900 000). Port of Launceston Pty Ltd
2003-04 estimated capital expenditure: $1.4 million.
During 2003-04, the Port of Launceston's capital expenditure program includes expenditure on:
• No 7 Berth container stacking area ($700 000); and
Chapter 6: State Capital Program 145 • upgrade of Port security ($250 000). Retirement Benefits Fund Board
2003-04 estimated capital expenditure: $2.1 million.
During 2003-04, the Board will continue to develop its infrastructure to electronically provide members and staff with easier and more efficient access to information that will support member education and decision making. The major projects will be :
• the extension of the RBF's interactive web site to provide for the transfer of electronic member and payroll data between agencies and the RBF;
• the updating and enhancement of backup facilities for computer systems; and
• further enhancements to RBF's superannuation administration system to enable compliance with new superannuation legislation. Southern Regional Cemetery Trust
2003-04 estimated capital expenditure: $1.0 million.
During 2003-04, the Southern Regional Cemetery Trust's capital expenditure program will include:
• Cornelian Bay office development ($420 000);
• Wellington Chapel upgrade and expansion ($190 000);
• gardens development for memorialisation ($145 000); and
• Kingston Chapel development ($130 000). State Fire Commission
2003-04 estimated capital expenditure: $7.4 million.
The capital expenditure for the Commission during 2003-04 includes:
• fire appliance program ($3.9 million); and
• redevelopment of training centres in Hobart and Launceston ($1.6 million). TOTE Tasmania Pty Ltd
2003-04 estimated capital expenditure: $4.6 million.
During 2003-04, TOTE Tasmania's capital expenditure program will include:
• relocation of Launceston greyhound racing to Mowbray ($2.0 million);
• computer hardware, computer software and development ($1.1 million);
• civil remedial works to racecourses ($830 000); and
• Mowbray lights ($500 000).
146 Chapter 6: State Capital Program Transend Networks Pty Ltd
2003-04 estimated capital expenditure: $76.8 million.
During 2003-04, Transend's capital expenditure program includes expenditure on:
• substation upgrades and replacements ($16.4 million);
• Norwood, Scottsdale and Derby substation upgrades and replacements ($11.4 million);
• transmission line compliance program ($8.8 million);
• construction of the new Mowbray substation and transmission line ($7.0 million);
• Risdon upgrade, including connection point and switchgear ($6.7 million);
• Smithton substation redevelopment, second circuit transmission line installation, OPGW installation and steel strengthening ($4.7 million);
• new office accommodation ($4.0 million);
• statewide transmission line replacements and refurbishments ($3.2 million);
• Waddamana substation replacement upgrade ($2.2 million); and
• development of information management systems, strategic policies, procedures and standards ($3.7 million). TT-Line Company Pty Ltd
2003-04 estimated capital expenditure: $7.0 million.
The increase of $6.0 million in budgeted expenditure in 2003-04 from 2002-03 is primarily a result of port and terminal improvements and staff accommodation facilities.
During 2003-04, TT-Line's capital expenditure program includes expenditure on:
• port and terminal improvements and building of staff accommodation facilities ($4.5 million); and
• ship improvements ($2.5 million).
Chapter 6: State Capital Program 147
7 ASSETS AND LIABILITIES, 2003-04
Features
• General Government Sector assets and liabilities in this Chapter are presented in accordance with the accrual Uniform Presentation Framework agreed by the Australian Loan Council in March 2000.
• The estimated Net Worth of the General Government Sector as at 30 June 2004 is $7 172 million, comprising $10 600 million in assets and $3 427 million in liabilities.
• General Government Sector Net Debt has decreased in nominal terms from a peak of $1 633 million as at 30 June 1994 to an estimated $461 million as at 30 June 2004.
• General Government Sector Net Financial Liabilities are estimated to decrease by $117 million, or 4.5 per cent, between 30 June 2003 and 30 June 2004, to an estimated balance of $2 495 million.
• The net interest cost ratio for the General Government Sector has improved from a peak of 10.8 per cent in 1993-94 to an estimated 1.7 per cent in 2003-04.
• Total State Government Sector Net Debt will decrease by $170 million, or 9.5 per cent in nominal terms, from $1 789 million to $1 614 million between 30 June 2003 and 30 June 2004.
• The Government will make an estimated contribution of $117.3 million to the Superannuation Provision Account in 2003–04. After payments from the Account through the two years to 2003-04, the net impact is estimated to be an increase in the balance of the Account from $465.2 million as at 30 June 2002 to $571.3 million as at 30 June 2003 and $664.1 million as at 30 June 2004.
Chapter 7: Assets and Liabilities, 2003-04 149 ASSETS AND LIABILITIES
Information on assets and liabilities and net debt is based on accrual Uniform Presentation Framework (UPF) concepts that were agreed by the Australian Loan Council in March 2000. The basis of the information in this Chapter is consistent with that presented in Appendix 1 Uniform Government Reporting. There are some differences between the UPF basis and the Australian Accounting Standard basis of presentation used to present agency budgets.
Public sector entities have been classified according to the General Government, Public Non-Financial Corporations (PNFC) and Public Financial Corporations (PFC) sectors. A detailed dissection of the coverage and classification of Public Sector entities for the UPF is provided in Table A1.14 of Appendix 1 of this Budget Paper.
Estimates of the General Government Sector assets and liabilities as at 30 June 2003 and 30 June 2004 are shown below in Table 7.1.
150 Chapter 7: Assets and Liabilities, 2003-04 Table 7.1: General Government – Balance Sheet as at 30 June 2003 2004 Budget Budget Estimate Estimate Variation $'000 $'000 % Assets Financial assets Cash and deposits 970 482) 331 297) (65.9) Advances paid 137 479) 111 549) (18.9) Investments, loans and placements 20 240) 20 240) ....) Other non-equity assets 328 539) 335 163) 2.0) Equity 3 962 721) 4 065 359) 2.5) Total 5 419 461) 4 863 608) (10.3)
Non-financial assets Land and fixed assets 5 561 802) 5 672 232) 1.9) Other non-financial assets 53 244) 63 783) 19.7) Total 5 615 046) 5 736 015) 2.1) Total assets 11 034 507) 10 599 623) (4.0)
Liabilities Deposits held ....) 9 874) ....) Advances received 314 877) 273 184) (13.3) Borrowings 1 524 885) 641 498) (58.0) Unfunded superannuation liability 1 901 000) 2 033 955) 6.9) Other employee provisions 325 242) 300 583) (7.6) Other non-equity liabilities 151 571) 168 131) 10.9) Total liabilities 4 217 575) 3 427 225) (18.8)
NET WORTH1 6 816 932) 7 172 398) 5.2)
NET FINANCIAL WORTH2 1 201 886) 1 436 383) 19.5)
NET FINANCIAL LIABILITIES3 2 612 561) 2 495 425) (4.5)
NET DEBT4 711 561) 461 470) (35.2)
Notes: 1. Net Worth equals Total Assets less Total Liabilities. 2. Net Financial Worth equals Total Financial Assets minus Total Liabilities. 3. Net Financial Liabilities equals the sum of deposits held, advances received, borrowings and the unfunded superannuation liability less the sum of cash and deposits, advances paid and investments, loans and placements. It can also be expressed as Net Debt plus the unfunded superannuation liability. 4. Net Debt equals the sum of deposits held, advances received and borrowings less the sum of cash and deposits, advances paid and investments, loans and placements.
Chapter 7: Assets and Liabilities, 2003-04 151 NET WORTH
Net Worth is calculated as total assets minus total liabilities. Net Worth incorporates the Government's non-financial assets such as land and other infrastructure assets, which may be sold and used to repay debt. It also incorporates certain financial assets and liabilities not captured by the Net Debt measure, most notably accrued employee superannuation liabilities, ownership of equities, debtors and creditors.
General Government Sector Net Worth is expected to increase by $355 million, or 5.2 per cent in nominal terms, from $6 817 million to $7 172 million between 30 June 2003 and 30 June 2004. The major factors influencing the improvement in estimated Net Worth are increases of $102.6 million in equity assets and $121.0 million in non-financial assets (including land and fixed assets), offset by an increase in the estimated unfunded superannuation liability of $132.9 million. Also contributing to the improvement in Net Worth is the estimated fall in Net Debt of $250.1 million between June 2003 and June 2004.
Each of the items contributing to the movements in Balance Sheet estimates is explained in more detail later in this Chapter.
NET FINANCIAL WORTH
Net Financial Worth is estimated to increase by $234.5 million or 19.5 per cent in nominal terms, from $1 201.9 million to $1 436.4 million between 30 June 2003 and 30 June 2004.
Net Financial Worth measures net holdings of financial assets and is calculated as financial assets minus total liabilities. Net Financial Worth is a broader measure than Net Debt, in that it incorporates unfunded superannuation and other employee entitlement provisions as well as ownership of equity. Net Financial Worth includes all classes of financial assets and liabilities. However, the measure is dominated by the inclusion of the equity investment in the PNFC and PFC Sectors. For this reason, Net Financial Liabilities is considered to be a more useful measure than Net Financial Worth.
The increase in Net Financial Worth represents the strengthening position of the State's finances as the level of borrowings is reduced by the generation of cash surpluses, and an increase in the General Government Sector's holding of equity in the PNFC and PFC Sectors. This is offset by an increase in the unfunded superannuation liability.
NET FINANCIAL LIABILITIES
The Net Financial Liabilities measure is defined as Net Debt plus gross unfunded superannuation liability. Net Debt information does not include the unfunded superannuation liability, which is a significant liability for most jurisdictions. In order to provide a broader picture of the State's liabilities, the Net Financial Liabilities measure is used. This measure is not included in the UPF. However, it is commonly used by international credit rating agencies as it targets the significant financial assets and liabilities held by most governments.
General Government Sector Net Financial Liabilities are estimated to decrease by $117.2 million, or 4.5 per cent in nominal terms, from $2 612.6 million to $2 495.4 million between 30 June 2003 and 30 June 2004. The decrease in Net Financial Liabilities is comprised of a reduction in Net Debt of
152 Chapter 7: Assets and Liabilities, 2003-04 $250.1 million, as outlined above, offset by an increase of $132.9 million in the unfunded superannuation liability. Further details of superannuation liabilities are provided later in this Chapter.
The Fiscal Strategy introduced with the 2002-03 Budget includes a target for the elimination of Net Financial Liabilities by June 2017. The achievement of this target will mean that the Government will be in a position to fully fund all gross debt and superannuation liabilities within 14 years.
Chart 7.3 shows projected General Government Sector Net Financial Liabilities to 2017-18.
Chart 7.1: General Government Sector Net Financial Liabilities
3 000
2 000
1 000
0
$ million$ - 1 000
- 2 000
- 3 000 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Net Debt Gross Unfunded Superannuation Liability Net Financial Liabilities
Sources: Australian Bureau of Government Financial Statistics, Australia 2000-01; Department of Treasury and Finance.
NET DEBT
Net Debt is the same under cash and accrual-based financial reporting. Net Debt comprises the stock of specified gross financial liabilities less selected financial assets.
Targets for the reduction of General Government Net Debt have been a part of the Government's Fiscal Strategy since 1998-99. A credible medium-term Fiscal Strategy is an essential component of prudent contemporary public sector financial management practice. Financial strategies pursued by successive Governments from 1990-91 to 1997-98 had the effect of stabilising the emerging debt problem. Fiscal Strategies pursued from 1998-99 have had a dramatic effect on reducing the level of State debt.
The Government introduced the current Fiscal Strategy with the 2002-03 Budget, having achieved the targets established in the previous Fiscal Strategy some two years ahead of schedule. Broadly, the Government's first Fiscal Strategy was concerned with reducing Net Debt and debt servicing cost levels. Its primary objective was to ensure responsible financial management while supporting industry development and job creation. The current Fiscal Strategy will build on the significant achievements of the previous Fiscal Strategy and focuses on continuing the Government's record of strong financial management and achieving specific debt targets.
Chapter 7: Assets and Liabilities, 2003-04 153 Tables 7.2 and 7.3 show the components of the General Government Sector Net Debt in nominal and real terms, respectively.
Table 7.2: General Government Sector Net Debt (Nominal Terms) as at 30 June Year General Government $m
1995 1 631 1996 1 650 1997 1 659 1998 1 610 1999 1 527 2000 1 162 2001 962 2002 751 2003 (est)1 573 2004 (est) 461
Sources: Australian Bureau of Statistics; Department of Treasury and Finance. Note: 1. The 30 June 2003 amount is the Revised Estimate for Net Debt
Table 7.3: General Government Sector Net Debt (Real Terms) as at 30 June 2004 Year General Government $m
1995 2 008 1996 1 956 1997 1 938 1998 1 882 1999 1 768 2000 1 320 2001 1 033 2002 791 2003 (est)1 586 2004 (est) 461
Sources: Australian Bureau of Statistics; Department of Treasury and Finance; Consumer Price Index, Australia, ABS Cat. No. 6401.0. Note: 1. The 30 June 2003 amount is the Revised Estimate for Net Debt
154 Chapter 7: Assets and Liabilities, 2003-04 General Government Sector Net Debt is estimated to decrease by $250.1 million, or 35.2 per cent in nominal terms, from the Budget estimate of $711.6 million to $461.5 million between 30 June 2003 and 30 June 2004.
The decrease in estimated Net Debt is a result of both an estimated improvement between the original 2002-03 Budget estimate and the 2002-03 revised estimate, and a further improvement in 2003-04. The 2002-03 revised estimate for Net Debt is $573 million, an improvement of $138.4 million from the Budget estimate. Net Debt is expected to fall by a further $111.5 million in 2003-04, to $461.5 million in nominal terms. The decrease in Net Debt reflects the repayment of gross debt with surplus cash. The Cash Flow Statement shown in Chapter 3 of this Budget Paper provides details of the Cash Surplus available to reduce Net Debt in 2003-04.
In real terms, General Government Sector Net Debt, on a revised estimate basis, will decrease by 19.5 per cent between 30 June 2003 and 30 June 2004.
As can be seen from Chart 7.1, Net Debt as a percentage of Gross State Product (GSP) has fallen from 4.5 per cent as at 30 June 2003 to 3.5 per cent as at 30 June 2004, and is on track to better the Fiscal Strategy interim target of Net Debt of $450 million by 30 June 2005, and achieve the target of elimination of Net Debt by 30 June 2008.
Chart 7.2: Net Debt to Gross State Product (GSP)
20 18 16 14 12 10
Per cent 8 6 4 2 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 (est) 2003 (est) 2004 (est) 2005 (est) 2006 (est) 2007 (est) 2008 Net Debt as percentage of GSP
Sources: Australian Bureau of Statistics; Department of Treasury and Finance; Australian National Accounts: State Accounts, 2000-01, ABS Cat. No. 5220.0.
Interstate Comparison
Chart 7.2 shows interstate comparisons for General Government Sector Net Debt as a proportion of GSP to 2000-01 for the latest year for which comparable data is available.
Tasmania's General Government Sector Net Debt as a proportion of GSP had, until 2000-01, been comparable with South Australia and the Northern Territory, but significantly higher than New South Wales, Victoria, Queensland, Western Australia and the Australian Capital Territory (ACT). The Chart
Chapter 7: Assets and Liabilities, 2003-04 155 reflects a significant decrease in Net Debt as a proportion of GSP for South Australia in 2000-01 as a result of the long-term lease of its electricity assets. There has also been a decrease in Net Debt levels as a proportion of GSP over the five years to 2000–01 for the majority of other states and territories, with the exception of Queensland, which shows a decrease in its Net Asset position. The ACT shows an increase in its Net Asset position.
Chart 7.3: General Government Sector Net Debt as a percentage of GSP
20
15
10
5
Per cent 0
-5
-10
-15 NSW Vic Qld SA WA Tas NT ACT 1996-97 1998-99 2000-01
Sources: Government Financial Statistics, Australia 2000-01, ABS Cat No 5512.0; Australian National Accounts: State Accounts, 2000-01, ABS Cat No 5220.0, Northern Territory Treasury.
INTEREST COSTS OF THE GOVERNMENT
Net Interest Cost is an important measure included in the current Fiscal Strategy. Reduced interest costs are a significant benefit of debt reduction, providing expenditure savings which can be applied to reductions in taxation or used to fund other spending priorities. 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 net interest cost ratio (NICR). Net Interest Cost is one of the indicators that has been adopted to measure performance against the Fiscal Strategy targets, and has been updated to reflect the move from cash to accrual estimates. The NICR is a measure that represents the proportion of the revenue base that is required to meet the Government's net interest cost burden. The ratio provides an indication of the Government's flexibility and ability to react to unexpected events.
156 Chapter 7: Assets and Liabilities, 2003-04 Table 7.4: Net Interest Cost Ratio 2002-03 2003-04 1998-99 1999-00 2000-01 2001-02 Revised Budget Actual Actual Actual Actual Budget Estimate $m $m $m $m $m $m
Interest expense 189 157 122 89 80 69 less interest income 36 38 30 23 15 18
Net Interest Cost 153 119 92 66 65 51
Total revenue less interest income 2 386 2 566 2 656 2 844 2 959 2 972
Net Interest Cost Ratio 6.4 4.6 3.5 2.3 2.2 1.7
Sources: Australian Bureau of Statistics; Department of Treasury and Finance.
Net interest costs as a proportion of General Government revenue have reduced significantly since 1998, reflecting the Fiscal Strategies to reduce the level of debt and reduce the share of revenue required to service that debt. Chart 7.4 shows Net Interest Cost from 1998-99 to 2007-08. Chart 7.4: Net Interest Cost
180 160 140 120 100 80 $ million$ 60 40 20 0 1998-99 1999-00 2000-01 2001-02 2002-03 (est) 2002-03 (est) 2003-04 (est) 2004-05 (est) 2005-06 (est) 2006-07 (est) 2007-08 Net Interest Cost
Sources: Australian Bureau of Statistics; Department of Treasury and Finance
Chapter 7: Assets and Liabilities, 2003-04 157 ASSETS
It is estimated that total assets will amount to $10 599.6 million at 30 June 2004. Total assets by category are shown in Chart 7.5.
Chart 7.5: Assets by Category at 30 June 2004
Cash and deposits Advances paid $331m (3%) Investments, loans $112m (1%) and placements $20m (1%)
Equity $4 065m (38%)
Land and fixed assets Other non-equity $5 672m (53%) Other non- assets financial assets $335m (3%) $64m (1%)
Source: Department of Treasury and Finance Cash Assets
Cash assets include Cash and Deposits, Advances Paid and Investments, Loans and Placements. Advances Paid consist of loans advanced to the private sector and government businesses, such as industry assistance, and Home Ownership Assistance Program loans.
It is estimated that the General Government Sector will hold $331.3 million in cash and deposits as at 30 June 2004. This represents a decrease of $639.2 million from the estimate at 30 June 2003 of $970.5 million, reflecting the application of surplus cash to the reduction of gross debt.
Surplus cash held in the Public Account is used to repay maturing debt within a financial year, thus delaying borrowing until the last possible point (30 June) and reducing borrowing costs. For this reason, during the year, both cash balances and actual gross debt are maintained as low as possible. In past years, at the end of the financial year, a temporary overnight borrowing was undertaken which had the effect of grossing up the value of both cash and gross debt as at 30 June.
With the move to an accrual budget, the practice of the end of year borrowing will be discontinued. To achieve this, a new account entitled the 'Temporary Debt Repayment Account' has been created in the Special Deposits and Trust Fund. This account will record transactions associated with the temporary repayment of State Debt from surplus funds in the Special Deposits and Trust Fund. This will result in the account being overdrawn. However, should it ever be necessary, additional borrowing would be undertaken to ensure that the overdraft balance does not exceed the maximum limit. All monies deposited within the Special Deposits and Trust Fund remain available for their designated use at all times. The
158 Chapter 7: Assets and Liabilities, 2003-04 creation of the 'Temporary Debt Repayment Account' is in accordance with section 13 of the Public Account Act 1986. Other Non-Equity Assets
Estimated Other Non-Equity Assets at June 2004 of $335.2 million include accounts receivable of $127.6 million, income tax equivalents and dividends receivable of $192.9 million, prepayments of $3.8 million, accrued revenue of $3.7 million, GST receivable of $5.9 million, and other receivables of $1.3 million. Table 7.5 provides a breakdown of Other Non-Equity Assets.
Chapter 7: Assets and Liabilities, 2003-04 159 Table 7.5 Other Non-Equity Assets as at 30 June
2003 2004 Budget Budget $'000 $'000
Accounts Receivable Department of Economic Development 518 513 Department of Education 4 782 3 136 Department of Health and Human Services 8 714 10 316 Department of Infrastructure, Energy and Resources 637 584 Department of Justice and Industrial Relations 9 318 9 618 Department of Police and Public Safety 381 381 Department of Premier and Cabinet 3 426 2 918 Department of Primary Industries, Water and Environment 4 036 17 646 Department of Tourism, Parks, Heritage and the Arts 805 805 Department of Treasury and Finance 70 70 Finance-General 46 267 46 267 House of Assembly 14 14 Inland Fisheries Service 100 102 Legislative Council 8 8 Legislature-General 28 28 Marine and Safety Tasmania 50 53 Royal Tasmanian Botanical Gardens 5 5 State Fire Commission 1 272 1 302 TAFE Tasmania 1 615 1 615 Tasmanian Audit Office 260 260 The Nominal Insurer 37 000 32 000 Total accounts receivable 119 306 127 641
Income tax equivalents and dividends receivable 192 959 192 959 Prepayments 5 341 3 796 Accrued revenue 3 428 3 651 GST receivable 6 693 5 882 Other receivables 812 1 234
TOTAL OTHER NON-EQUITY ASSETS 328 539 335 163
Accounts receivable for Finance-General consists mainly of taxation receivables. The increase of $13.7 million in estimated receivables of the Department of Primary Industries, Water and Environment relates primarily to the inclusion of an amount owing from Australian Bulk Minerals for the remediation of the Savage River Mine site. The estimated receivable of The Nominal Insurer represents the amount outstanding in relation to the levy imposed on insurance companies and self-insuring employers to fund the
160 Chapter 7: Assets and Liabilities, 2003-04 liabilities associated with the collapse of HIH. This receivable will reduce as the levy is collected from contributing insurers over future years. Monies collected from the levy will be used to fund principal and interest payments on the borrowings undertaken by the Nominal Insurer. Equity
This item consists of holdings in equity investments in private sector businesses, and the Government's investment in the net assets of the Public Non-Financial Corporations (PNFC) Sector and Public Financial Corporations (PFC) Sector. Equity assets are estimated to be $4 065.4 million at June 2004, including the equity investment in the PNFC and PFC Sectors ($4 054 million), and equity investments in the private sector held by the Department of Economic Development ($10.5 million). Details of PNFC Sector estimates can be found in Appendix 1 of this Budget Paper. Land and Fixed Assets
It is estimated that the General Government Sector will hold $5 672.2 million in land and fixed assets as at 30 June 2004. This category encompasses the value of schools, hospitals, and other buildings held by the Government and the value of Crown land, including National Parks and Conservation areas, together with plant and equipment held by the Government for the production of goods and services, and infrastructure assets, such as roads and bridges.
The estimated balance of land and fixed assets has increased by $110.4 million from the 2002-03 Budget estimate of $5 561.8 million. The increase reflects an improvement in the 2002-03 revised estimate balance of $5 640.8 million and asset purchases during 2002-03 and 2003-04, partially offset by asset sales and depreciation. Other Non-Financial Assets
This category includes other assets used for the production of goods and services. Other Non-Financial Assets are estimated to be $63.8 million at 30 June 2004, an increase of $10.5 million from the 2002-03 Budget estimate of $53.2 million at 30 June 2003.
The significant items included in this category are assets of the Tasmanian Fire Service (estimated to be $24.7 million at 30 June 2004), and Traffic Signal Installation infrastructure held by the Department of Infrastructure, Energy and Resources (estimated to be $10.7 million at 30 June 2004).
LIABILITIES
Liabilities of the General Government Sector as at 30 June 2004 are estimated to be $3 427.2 million, a decrease of $790.4 million from the estimated 30 June 2003 balance of $4 217.6 million.
The components of these liabilities are detailed below in Chart 7.6.
Chapter 7: Assets and Liabilities, 2003-04 161 Chart 7.6: Liabilities by Category as at 30 June 2004
Other non-equity Deposits held liabilities $10m (1%) Advances received $168m (5%) $273m (8%)
Borrowings $641m (19%)
Other employee provisions $301m (9%) Unfunded superannuation liability $2 034m (58%)
Source: Department of Treasury and Finance Gross Debt
Gross Debt consists of Deposits Held, Advances Received, and Borrowings. Deposits Held represent cash held on behalf of clients, including monies held in trust. Advances Received consist of borrowings from the Commonwealth Government. Borrowings include debt owing to Tascorp.
It is estimated that the Gross Debt for the General Government Sector as at 30 June 2004 will be $924.6 million, consisting of State Debt which is managed by Tascorp ($484.8 million), Commonwealth debt ($273.2 million), deposits held ($9.9 million), and other borrowings by General Government entities ($156.7 million).
The fall of $915.2 million in Gross Debt, from an estimated $1 839.8 million at June 2003, to $924.6 million at June 2004, reflects the repayment of State Debt ($873.8 million) and Commonwealth borrowings ($41.7 million). The large repayment of State Debt is as a result of the discontinuation of the end-of-year borrowing transaction, as discussed earlier in the Cash Assets section.
Table 7.6 provides a breakdown of General Government Sector Gross Debt by year of maturity.
162 Chapter 7: Assets and Liabilities, 2003-04 Table 7.6: General Government Sector Gross Debt as at 30 June 2004 by Maturity Tascorp Commonwealth Other Gross Total Gross Debt Debt Debt Debt $m $m $m $m
2004-05 145 12 121 278 2005-06 261 12 4 276 2006-07 .... 5 4 9 2007-08 45 6 4 54 2008-09 .... 6 19 24 2009-10 .... 6 4 10 2010-11 .... 6 4 10 2011-12 5 7 4 15 2012-13 7 7 4 17 2013-14 .... 7 2 9 Beyond 20141 22 201 .... 223
TOTAL GROSS DEBT 485 274 166 924
Note: 1. The Commonwealth debt maturing beyond 2014 relates to Commonwealth-State Housing Loans that will be repaid over the next 40 years.
Unfunded Superannuation Liability
The Tasmanian Government's gross unfunded superannuation liability is an estimate of the 'indebtedness' of the State with respect to past service liabilities arising from the current and former members of unfunded or partially funded Public Sector superannuation schemes.
The General Government gross unfunded superannuation liability as at 30 June 2004 is estimated to be $2 033.9 million, an increase of 4 per cent on the revised estimate as at 30 June 2003. The liability is calculated by deducting the net market value of plan assets, excluding the balance of the Superannuation Provision Account (SPA), from the gross accrued benefit (past service) liability for these Public Sector superannuation schemes. Table 7.7 shows the estimated General Government superannuation liability as at 30 June 2003 and 30 June 2004.
Chapter 7: Assets and Liabilities, 2003-04 163 Table 7.7: Gross Unfunded Superannuation Liability – General Government Sector as at 30 June 2003 2004 2002 Revised Budget Actual Estimate Estimate $'000 $'000 $'000
Retirement Benefits Fund – defined benefit scheme 1 1 764 437 1 920 252 1 997 910 1973 Parliamentary Superannuation scheme 1, 2 12 071 13 001 13 102 1985 Parliamentary Retiring Benefits scheme 1, 2 2 052 1 757 1 670 1968 Judges' scheme 20 741 21 097 21 273
Total 1 799 300 1 956 107 2 033 955
Notes: 1. The 30 June 2002 figures have been revised by the State Actuary since they were originally published in the Treasurer's Financial Statements as at 30 June 2002. 2. With the repeal of the Parliamentary Superannuation Act 1973 and the Parliamentary Retiring Benefits Act 1985, the Parliamentary Superannuation Fund and the Parliamentary Retiring Benefits Fund became sub-funds of the Retirement Benefits Fund with effect from 1 January 2003.
Further detail on Tasmania's superannuation liability is provided later in this Chapter. Other Employee Provisions
Other Employee Provisions are estimated to be $300.6 million at June 2004, a decrease of $24.6 million, or 7.6 per cent, from the estimate at June 2003. Other Employee Provisions include provisions for long service leave, annual leave and sick leave.
The decrease in Other Employee Provisions reflects the strategies the Government has implemented to reduce leave balances in government departments. Other Non-Equity Liabilities
It is estimated that the General Government Sector will hold $168.1 million in Other Non-Equity Liabilities as at 30 June 2004, an increase of $16.5 million, or 10.9 per cent, from the estimated 30 June 2003 balance of $151.6 million. Table 7.8 provides further details of Other Non-Equity Liabilities.
164 Chapter 7: Assets and Liabilities, 2003-04 Table 7.8 Other Non-Equity Liabilities as at 30 June 2003 2004 Budget Budget $'000 $'000
Accounts payable Department of Education 8 679 5 539 Department of Health and Human Services 16 308 19 757 Department of Infrastructure, Energy and Resources 2 091 2 929 Department of Justice and Industrial Relations 1 394 1 694 Department of Police and Public Safety 1 400 1 400 Department of Primary Industries, Water and Environment 1 327 1 408 Department of Tourism, Parks, Heritage and the Arts 1 414 1 414 State Fire Commission 3 152 3 022 TAFE Tasmania 1 808 1 808 Other agencies 3 209 3 410 Total Accounts payable 40 782 42 381
Accrued expenses Department of Health and Human Services 17 951 35 089 Finance-General 21 592 15 188 Other agencies 557 86 Total Accrued expenses 40 100 50 363
Other liabilities Finance-General 53 599 56 341 Other agencies 17 090 19 046 Total Other liabilities 70 689 75 387
TOTAL OTHER NON-EQUITY LIABILITIES 151 571 168 131
Other Non-Equity Liabilities include an estimated $56.3 million at June 2004 relating to liabilities held by the Tasmanian Risk Management Fund.
CONTINGENT AND OTHER LIABILITIES
Borrowings Guaranteed by the Government
Quantifiable 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. Estimates for the level of guarantees given as at 30 June 2003 are not yet available. Details on the actual level of guarantees as at 30 June 2003 will be published in the Treasurer's Financial Statements.
Chapter 7: Assets and Liabilities, 2003-04 165 There has been a significant decline in the value of specific guarantees given by the Government in recent years, as shown by Table 7.9.
Table 7.9: Level of State Guarantees as at 30 June Contingent Year Liability $m
1994 3.64 1995 3.22 1996 2.87 1997 2.33 1998 2.52 1999 2.50 2000 2.33 2001 2.14 20021 1.20
Note: 1. The amount for 2002 includes loans that have been advanced under the State Loans and Guarantees Act 1976 ($58 000), and the Tasmanian Development Act 1983 ($1.14 million).
The Government's contingent liability for guarantees amounted to $1.20 million as at 30 June 2002. 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.
SUPERANNUATION
Introduction
This section deals with the State's unfunded superannuation liabilities in general and the liabilities of the Retirement Benefits Fund (RBF) defined benefit scheme in particular. This section does not provide details of the RBF Tasmanian Accumulation Scheme (TAS), as that scheme is fully funded and there are no liabilities relating to it.
Information contained in previous years' Budget Papers about the nature and design of the relevant Public Sector superannuation arrangements is now available on the Treasury website, at www.treasury.tas.gov.au/superannuation.
While this section concentrates on the RBF scheme as a whole, it is only the General Government Sector liabilities that impact upon the UPF Balance Sheet.
The Superannuation Provision Account (SPA) was established to fund the superannuation liabilities of the General Government Sector. Unless otherwise stated, the relevant tables in this section take account of the balance, or estimated balance, of that account. In order to distinguish the superannuation liability discussed
166 Chapter 7: Assets and Liabilities, 2003-04 in this section from the gross liability shown in the Balance Sheet, the superannuation liability that takes the SPA into account is referred to as the Net Unfunded Superannuation Liability.
Unlike the liabilities reported earlier in this Chapter, this section includes the assets and liabilities relating to the 23 Government Business Enterprises (GBEs), State-owned Companies (SOCs) and statutory authorities that maintain provisions within their accounts for the RBF liabilities of their current and former employees.
Retirement Benefits Fund – Defined Benefit Scheme Liabilities
The State Actuary has undertaken a review of the state and sufficiency of the RBF defined benefit scheme as at 30 June 2002, the results of which are shown in Table 7.10. Table 7.10 also compares the assets and liabilities of the RBF defined benefit scheme as at 30 June 2001. The unfunded past service liability increased in 2001-02 by 1.8 per cent due to factors such as the accrual of an additional year of service by scheme members, salary increases for scheme members, and indexation of pensions and retained benefits being at a rate greater than the economic assumptions used by the State Actuary.
Table 7.10: Unfunded RBF Past Service Liability, including SPA and Provisions - Total Scheme1 as at 30 June 2001 2002 Variation $'000 $'000 % Gross past service liability2 Defined benefit members 1 418 492 1 524 866 7.5 Superannuants 1 362 654 1 377 254 1.1 Compulsory preservation accounts3 165 322 177 844 7.6 Gross past service liability 2 946 468 3 079 965 4.5 less RBF scheme assets4 936 334 931 018 (0.6) Unfunded past service liability 2 010 134 2 148 947 6.9
Provisions Superannuation Provision Account (T780) 355 485 465 191 30.9 Authority provisions 324 823 332 956 2.5 Credit for ANR pensions 46 461 44 080 (5.1) Total provisions 726 769 842 227 15.9
Unfunded past service liability less provisions 1 283 365 1 306 719 1.8
Notes: 1. These figures do not include the assets and liabilities that relate to the two parliamentary superannuation schemes. 2. In undertaking the triennial review of the RBF scheme as at 30 June 2001, the State Actuary varied a number of assumptions which has led to a revision of the 30 June 2001 figures. The report as at 30 June 2002 was prepared on the basis of the revised assumptions. 3. These figures exclude compulsory preservation accounts held by current members of the defined benefit scheme, which are included as part of the liabilities for defined benefit scheme members. 4. The 30 June 2002 figures have been revised by the State Actuary since they were originally published in the Treasurer's Financial Statements as at 30 June 2002.
Chapter 7: Assets and Liabilities, 2003-04 167 The estimated RBF unfunded past service superannuation liability as at 30 June 2002 ($1 307 million) does not correspond to the reported value of $1 799 million shown in the earlier section of this Chapter. Table 7.13 reconciles the estimate of the General Government Sector unfunded superannuation liability as at 30 June 2002, as shown in Table 7.7, with the RBF unfunded superannuation liability shown in Table 7.10.
Notwithstanding the minor increase in the unfunded liability of the RBF scheme as at 30 June 2002, in nominal terms, the most recent advice from the State Actuary confirms that the State's net unfunded liability is expected to be eliminated by the Fiscal Strategy target date of 30 June 2018. That is, at that date, the balance in the SPA is forecast to exceed the RBF unfunded liabilities.
The most recent estimates of the State's future net unfunded liability are shown in Chart 7.7. On the most recent economic, financial and demographic assumptions, and on current and planned funding efforts, the State Actuary has estimated that this net unfunded liability will be eliminated within 15 years. Had the Labor Government not taken the decision to close the unfunded RBF defined benefit scheme in mid-1999 and increase provisions to meet the emerging costs of the RBF defined benefit scheme, the State would be facing a crippling superannuation liability over future decades, which would have put increasing and unsustainable pressure on the General Government Sector Budget.
Chart 7.7: Projected RBF Unfunded Liability (Nominal)
5 500 5 000 4 500 4 000 3 500 3 000 2 500 $ million 2 000 1 500 1 000 500 .... 2002-03 2007-08 2012-13 2017-18 2022-23 2027-28 2032-33 2037-38 2042-43 2047-48 2052-53 2057-58 2062-63
1996-97 JSC projections 2003-04 projections
Source: Department of Treasury and Finance
Actuarial estimates are based on a wide range of economic, financial and demographic assumptions. Over time, actual outcomes in relation to salary growth, investment returns, the number of resignations and retirements, mortality, morbidity, inflation and the preference for lump sum benefits over pensions will vary from those assumed by the State Actuary. To the extent that these variations occur, there will be changes in both the cash flow profile for the Government and the period of time over which the unfunded liability will be eliminated.
For this reason, the State Actuary is requested to annually review both cash flow and unfunded liability estimates. These updates of the overall funding position, together with the revised outlay estimates and the
168 Chapter 7: Assets and Liabilities, 2003-04 Fiscal Strategy target of eliminating the State's net unfunded superannuation liability by 30 June 2018, will form the basis on which the Government determines future inflows into the SPA. Employer Funding
The RBF defined benefit scheme is an unfunded scheme in respect of employer contributions, with benefits being paid on an emerging cost basis. A Superannuation Provision Account (SPA) was established within the Special Deposits and Trust Fund in July 1994 to provide for the superannuation benefits of defined benefit scheme members employed in inner-Budget agencies and by some Statutory Authorities. These agencies and authorities are currently required to pay into the SPA at a rate determined by the Treasurer, on the advice of the State Actuary. For most agencies and authorities, this rate is currently 11 per cent of salary. In addition, inner-Budget agencies are also required to pay into the SPA a 'gap' payment of two per cent of salary in respect of each permanent employee appointed after 15 May 1999, notwithstanding that these employees are not members of the RBF defined benefit scheme.
The employer share of pensions and lump sum benefits payable to retiring RBF defined benefit scheme members in these agencies and authorities are reimbursed to the RBF Board from the SPA. These payments are made notwithstanding that they may relate to periods of employment prior to the establishment of the SPA in 1994.
Table 7.11: Superannuation Provision Account (SPA) as at 30 June 2003 2004 2005 2006 2007 2002 Revised Budget Forward Forward Forward Actual Estimate Estimate Estimate Estimate Estimate $m $m $m $m $m $m
Opening Balance 355.5 465.2 571.3 664.1 758.3 852.1
Receipts Agency contributions 76.3 71.4 68.5 65.8 63.2 60.6 Interest 17.0 24.0 30.9 35.6 40.3 45.0 Finance-General (R069) 121.1 117.3 117.3 124.2 131.3 138.6 Total Receipts 214.4 212.7 216.7 225.6 234.7 244.2
Expenditure Pensions 61.5 63.8 64.9 66.5 68.4 70.3 Lump sums 38.8 36.7 48.3 53.0 57.9 63.9 Compulsory Preservation Account 4.3 6.0 10.7 11.9 14.7 14.4 Total Expenditure 104.7 106.6 123.8 131.3 141.0 148.5
Closing Balance 465.2 571.3 664.1 758.3 852.1 947.8
Given the projected increase in the unfunded past service superannuation liability, the Government has made an increased funding effort in order to prevent the net unfunded past service liability increasing in real terms. This effort is reflected in the level of contributions to the SPA from Finance-General, as shown in Table 7.11. In order to ensure that the Government's strategy of eliminating the net unfunded
Chapter 7: Assets and Liabilities, 2003-04 169 superannuation liability by June 2018 is met, additional contributions were made to the SPA during 2001-02 and 2002-03. Aggregate Unfunded Liability Aggregate unfunded superannuation liability as at 30 June 2002
To determine the aggregate unfunded superannuation liability in the General Government Sector, the State Actuary also reviewed the two parliamentary schemes and the judges' scheme as at 30 June 2002. The results of these reviews, as well as the State Actuary's estimates for the Forward Estimates period, are shown in Table 7.12.
Table 7.12: Estimates of Net Unfunded Superannuation Liability – General Government Sector as at 30 June All schemes - unfunded past service 2002 2003 2004 2005 2006 2007 liabilities (including SPA) Actual Estimate Estimate Estimate Estimate Estimate $'000 $'000 $'000 $'000 $'000 $'000
RBF – defined benefit scheme 1 306 719 1 348 982 1 333 794 1 310 774 1 281 778 1 245 899 1973 Parliamentary Superannuation scheme 12 071 13 001 13 102 13 179 13 211 13 325 1985 Parliamentary Retiring Benefits scheme 2 052 1 757 1 670 1 582 1 375 1 317 1968 Judges' scheme 20 741 21 097 21 273 21 480 21 671 21 536
Total 1 341 583 1 384 838 1 369 839 1 347 015 1 318 035 1 281 987 Estimated percentage change 3.2 (1.1) (1.7) (2.1) (2.7)
Table 7.12 shows that, taking into account the balance of the SPA as at 30 June 2002, the net unfunded superannuation liability of the General Government Sector as at that date was $1.342 billion. The RBF unfunded liability comprised 97.4 per cent of the total unfunded liability.
This Table also shows that the net unfunded past service superannuation liability for the General Government Sector, taking into account the SPA balance, is expected to start declining, in nominal terms, in 2003-04. Reconciliation of unfunded superannuation liability figures
Table 7.13 reconciles the unfunded superannuation liabilities shown in the earlier section of this Chapter.
It shows that the gross past service liability of the RBF scheme as at 30 June 2002 was $3.1 billion. However, this liability is offset by the funds held by the RBF Board in respect of the defined benefit scheme ($931 million). This leaves an unfunded past service liability of $2.149 billion.
This net liability includes the assets and liabilities of those authorities that, under the Uniform Presentation Framework, are not controlled by the Government, and therefore not included in the Total State Government Sector. When these figures are deducted, the RBF unfunded past service liability of the Total State Government Sector is reduced by $62 million, to $2.087 billion.
170 Chapter 7: Assets and Liabilities, 2003-04 The figures for the State Government Sector include the assets and liabilities of those GBEs, SOCs and statutory authorities which are not part of the General Government Sector. When these figures are deducted, the RBF unfunded past service liability of the General Government Sector is reduced to $1.764 billion, as reported in the earlier part of this Chapter.
Once the assets and liabilities of the two parliamentary schemes and the judges' scheme are added to this amount, the total unfunded superannuation liability increases to $1.799 billion, as shown in Table 7.7.
The SPA was established to meet the State's unfunded superannuation liability. It is, therefore, appropriate to deduct the balance of this account to determine the net unfunded superannuation liability estimate. An adjustment is also made to reflect the discrepancies between figures reported by authorities in their financial statements and those reported by the State Actuary. With these adjustments, the total net unfunded superannuation liability of the General Government Sector was $1.342 billion as at 30 June 2002.
Table 7.13: Reconciliation of Net Unfunded Superannuation Liability as at 30 June 2002 – All Schemes Unfunded Accrued Plan Past Service Benefits Assets Liability $'000 $'000 $'000 Retirement Benefits Fund – defined benefit scheme Total RBF scheme 1 3 079 965 931 018 2 148 947 less total non-State Government Sector authorities 2 82 617 20 579 62 038 RBF – State Government Sector 2 997 348 910 439 2 086 909 less GBEs, SOCs, statutory authorities 436 761 114 289 322 472 RBF – General Government Sector 2 560 586 796 150 1 764 437
1973 Parliamentary Superannuation scheme 1 17 883 5 812 12 071 1985 Parliamentary Retiring Benefits scheme 1 8 018 5 967 2 052 1968 Judges' scheme 20 741 .... 20 741 Total - all schemes – General Government Sector 2 607 229 807 929 1 799 300 less Superannuation Provision Account (SPA) 465 191 less authority reporting differences 7 474
Total – all schemes – General Government Sector less SPA 1 341 583
Notes: 1. The 30 June 2002 figures have been revised by the State Actuary since they were originally published in the Treasurer's Financial Statements as at 30 June 2002. 2. The authorities excluded from the State Government Sector in accordance with the classifications under the Uniform Presentation Framework (UPF) are Hobart Water, Esk Water, Cradle Coast Water, the University of Tasmania, Tasrail and the RBF Board.
Chapter 7: Assets and Liabilities, 2003-04 171 Strategy to reduce unfunded superannuation liabilities
The unfunded superannuation liability of the schemes outlined above represents a contingent liability of the State. In 1999, the Government acted to reduce this liability by closing the unfunded defined benefit schemes to new employees, parliamentarians and judges and making a substantial funding effort to the SPA (as shown in Table 7.11). During 2001-02 and 2002-03, additional contributions were made to the SPA to take account of the lower investment returns achieved during this period.
In November 2002, Parliament approved legislation that repealed the Parliamentary Superannuation Act 1973 and the Parliamentary Retiring Benefits Act 1985 with effect from 31 December 2002. The scheme details have been reproduced as regulations made under the Retirement Benefits Act 1993, namely the Retirement Benefits (Parliamentary Superannuation) Regulations 2002. The legislation made the Parliamentary Superannuation Fund (PSF) and the Parliamentary Retiring Benefits Fund (PRBF) sub-funds of the RBF. As a consequence, the RBF Board became the trustee of these funds and the Parliamentary Superannuation and Retiring Benefits Trust (PSRBT) ceased to exist.
This decision, which followed a recommendation from the PSRBT to take such action, has not altered the benefits payable to PSF or PRBF members, but will provide administrative efficiencies and reduce costs that would otherwise be met by Tasmanian taxpayers. As administrative costs are taken into account in preparing estimates of the unfunded liability, this reform will help modestly to reduce the State's net unfunded superannuation liability. Effectiveness of strategy
As noted above, the State Actuary has confirmed that, under the current assumptions and projected funding efforts, the State's unfunded superannuation liability will be eliminated by June 2018.
There is now no difference in the rate of employer superannuation support provided to all categories of new public sector employees, whether permanent or fixed term employees, parliamentarians or judges. That is, employees who commenced on or after 1 July 1999, regardless of their employment status, receive the same level of employer superannuation support (9 per cent of salary). This is the most egalitarian public sector superannuation system of all Australian jurisdictions. The differential level of employer superannuation support inherent in the defined benefit schemes will therefore be progressively eliminated as members of the old scheme retire or resign. Importantly, the employer contribution is transparent, which is not the case in defined benefit schemes.
Another measure of the strategy's effectiveness is the percentage of superannuation arrangements that are fully funded and for which the State is not incurring any additional liabilities. As at 30 June 1998, only 3 per cent of Public Sector superannuation arrangements were fully funded. Following the establishment of the RBF Tasmanian Accumulation Scheme in April 2000, this figure increased to 55 per cent. The percentage of fully funded superannuation arrangements further increased to 63 per cent as at 31 December 2002. As defined benefit scheme members retire or resign, they will be replaced by employees who will become members of the Tasmanian Accumulation Scheme or a complying superannuation scheme of their choice. Not only are these schemes fully funded, but they are also fully portable, unlike the unfunded defined benefit schemes. The percentage of employees in fully funded arrangements will therefore continue to increase over time.
172 Chapter 7: Assets and Liabilities, 2003-04 TASMANIAN RISK MANAGEMENT FUND
Purpose of the Fund
The purpose of the Tasmanian Risk Management Fund is to provide a whole-of-government approach to the treatment of risks to which agencies are exposed, including ensuring that adequate financial provision is made for the cost of risk to which agencies are exposed.
Performance of the Fund
Table 7.14 summarises the total contributions paid by agencies to the Fund since its inception on 1 January 1999.
Table 7.14: Contributions Made by Participating Agencies to the Fund Total Contributions1 $m
1999-00 2.2 2000-01 3.6 2001-022 30.6 2002-03 32.1 2003-04 (est) 32.8
Notes: 1. GST applies to contributions made by agencies after 1 July 2000. However, agencies are able to claim an Input Tax Credit on contributions. 2. The Fund was amalgamated with the Tasmanian State Service Workers' Compensation Scheme from 1 July 2001.
The increase in agency contributions from 1999-00 to 2003-04 reflects the fact that the range of risks for which agencies purchased whole-of-government cover through the Fund has progressively increased. The Fund now provides cover for the following types of risks:
• workers' compensation;
• property (including building and contents cover for agency occupied premises; building cover for Housing Tasmania; and business interruption cover);
• liability (including public, products, professional and medical malpractice cover, as well as all other claims by third parties);
• motor vehicles (including the light vehicle fleet, the Police fleet and the miscellaneous vehicle fleet);
• personal accident and travel cover; and
• marine hull cover.
Chapter 7: Assets and Liabilities, 2003-04 173 In 2003-04:
• General risk management contributions will total $12.4 million and the Fund will provide cover for all general risk to which agencies are exposed. This includes cover for the following risks:
− property, including building and contents cover for agency occupied premises ($3.410 million) and building cover for Housing Tasmania ($485 650);
− liability, including public, products, and professional cover ($2.112 million) and medical malpractice cover ($4.645 million). Initially, the Fund only provided cover for claims in respect of incidents occurring after 1 July 2001. However, the Fund now meets the cost of pre-1 July 2001 claims with a contribution in respect of pre-1 July 2001 claims through Finance-General;
− motor vehicles, including the light vehicle fleet ($556 600), the Police fleet ($160 600) and the miscellaneous vehicle fleet ($153 735); and
• Workers' compensation contributions to the Fund will total $20.4 million. The estimated 2003-04 workers' compensation contributions include a four per cent levy payable by the Fund to the Nominal Insurer in 2003-04 as a result of the collapse of HIH in March 2001. Workers' Compensation
Table 7.15 summarises the total workers' compensation contributions paid to the Fund by agencies since 1999-00.
Table 7.15: Workers' Compensation Contributions Made by Participating Agencies1 Total Total Average Rate Salaries Contributions of Salary $m $m %
2001-02 1 004.2 18.7 1.86 2002-032 1 181.9 19.0 1.61 2003-04 (est) 1 203.1 20.4 1.70
Notes: 1. GST applies to contributions made by agencies after 1 July 2000. However, agencies are able to claim an Input Tax Credit on contributions. 2. Contributions from 2002-03 onwards include a component to cover the four per cent levy payable each year by the Fund to the Nominal Insurer as a result of the collapse of HIH in March 2001.
The increase in the average rate of workers' compensation contributions from 1.61 per cent of salaries in 2002-03 to 1.70 per cent of salaries in 2003-04 reflects increases in the rates of two agencies in particular – the Department of Health and Human Services (1.93 per cent in 2002-03 to 2.08 per cent in 2003-04) and TAFE Tasmania (1.04 per cent in 2002-03 to 1.11 per cent in 2003-04). These increases in contribution rates reflect the fact that payments made by the Fund on behalf of these agencies are showing an upward trend.
Two variables determine the total cost of claims made during a particular year, namely 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 2001-02.
174 Chapter 7: Assets and Liabilities, 2003-04 Table 7.16: Number and Average Cost of Workers' Compensation Claims Total Number of Average Estimated Claims1 Cost2 Cost3 $$'000
2001-02 1 620 12 645 20 486 2002-03 1 457 12 791 18 637 2003-04 (est) 1 600 11 210 17 935
Notes: 1. The number of claims is an actuarial estimate of the number of claims that will occur during each period. This estimate is based on claims information to 31 December 2002. In forming his opinion, the Actuary examined the number of claims made in the years prior to 2001-02 and considered that 1 600 was an appropriate estimate. 2. The average cost is an actuarial estimate of the average cost of all claims that will occur during each period. This estimate is also based on claims information to 31 December 2002. In forming his opinion, the Actuary examined the average cost of claims in the years prior to 2001-02 and considered that $11 210 was an appropriate estimate. 3. Including Goods and Services Tax.
Measures to Reduce the Number and Cost of Claims
The Fund has introduced a number of measures to improve the management of potential risks to which agencies are exposed, including:
• The production of an Annual Report which includes analysis of the Actuary's report on the performance of the Fund and information on the number and type of claims made and the associated costs. The Annual Report provides comprehensive information to agency managers on the performance of the Fund and the trends in specific risk areas over the preceding 12 months. The 2001-02 Annual Report can be accessed at the Treasury website www.treasury.tas.gov.au;
• The production of a quarterly newsletter, riskmatters, from May 2002 to keep those involved in risk management better informed on claim trends (both within the Fund and, more generally, in Tasmania and Australia) and provide detailed information on strategies to minimise the cost of risk;
• The production of a comprehensive Procedures Manual for use by all stakeholders in the claims administration process, including agencies, the Fund Administration Agent (and its sub-contractors) and the Office of the Director of Public Prosecutions. Version 2 of the Procedures Manual was released in July 2002;
• The development of a Fund website in May 2002 to enable all information relevant to the operation of the Fund to be accessed electronically, including Annual Reports, Newsletters and the Procedures Manual; and
• The hosting of regular workshops and seminars for officers of participating agencies to increase the awareness of risk management and share actions/strategies that can be implemented to better manage risk.
Chapter 7: Assets and Liabilities, 2003-04 175 In 2003-04, the Fund will undertake the following work:
• The development of policies related to whole-of-government risk management issues, including:
− a fleet purchase and use policy;
− a policy on inclusion of indemnity/insurance clauses in agency contracts for the purchase of goods and services; and
− a policy on the management of workers' compensation, specifically relating to the payment of weekly benefits and rehabilitation of injured workers; and
• The redevelopment of incident and claim forms. To date, these forms have been oriented to initiating/defending legal actions and have recorded very little information to assist agency managers in preventing claims from occurring or reducing the severity of claims that do occur. In addition, it is proposed to develop electronic versions of these forms to minimise the time and effort required to complete and submit the forms and facilitate greater consistency in the information collected.
TOTAL STATE ASSETS AND LIABILITIES
Net Debt
Total State Net Debt is an important overall measure of the financial position of the State Government.
Tables 7.17 and 7.18 show the Total State Government Sector Net Debt, in nominal and real terms respectively.
Table 7.17: Total State Government Sector Net Debt (Nominal Terms) as at 30 June Public Total Public Total State General Non-Financial Non-Financial Financial Government Year Government Corporations Public Sector Enterprises Sector $m $m $m $m $m
1995 1 631 1 684 3 315 (298) 3 017 1996 1 650 1 625 3 275 (308) 2 967 1997 1 659 1 539 3 198 (350) 2 848 1998 1 610 1 485 3 095 (390) 2 705 1999 1 527 1 493 3 020 (302) 2 719 2000 1 143 1 429 2 572 (373) 2 199 2001 949 1 440 2 389 (512) 1 877 2002 751 1 668 2 419 (328) 2 089 2003 (est) 573 1 544 2 117 (328) 1 789 2004 (est) 461 1 481 1 942 (328) 1 614
Sources: Australian Bureau of Statistics; Department of Treasury and Finance.
176 Chapter 7: Assets and Liabilities, 2003-04 Table 7.18: Total State Government Sector Net Debt (Real Terms) as at 30 June 2003 Public Total Public Total State General Non-Financial Non-Financial Financial Government Year Government Corporations Public Sector Corporations Sector $m $m $m $m $m
1995 2 008 2 073 4 080 (367) 3 714 1996 1 956 1 927 3 883 (365) 3 518 1997 1 937 1 797 3 735 (409) 3 326 1998 1 881 1 735 3 616 (456) 3 161 1999 1 767 1 727 3 494 (349) 3 146 2000 1 299 1 624 2 922 (424) 2 498 2001 1 019 1 547 2 566 (550) 2 016 2002 790 1 755 2 545 (345) 2 198 2003 (est) 586 1 580 2 166 (336) 1 830 2004 (est) 461 1 481 1 942 (328) 1 614
Sources: Australian Bureau of Statistics; Department of Treasury and Finance; Consumer Price Index, Australia, ABS Cat. No. 6401.0.
Total State Government Sector Net Debt decreased by $170 million, or 9.5 per cent in nominal terms, from $1 789 million to $1 619 million between 30 June 2003 and 30 June 2004. In real terms, Total State Government Sector Net Debt decreased by 11.8 per cent from 30 June 2003 to 30 June 2004.
As can be seen in Chart 7.8, Total State Government Sector Net Debt as a percentage of Gross State Product (GSP) has fallen from 13.9 per cent as at 30 June 2003 to 11.8 per cent as at 30 June 2004.
Chapter 7: Assets and Liabilities, 2003-04 177 Chart 7.8: Total State Government Sector Net Debt to Gross State Product (GSP)
40
35
30
25
20
Per cent 15
10
5
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 (est) 2004 (est) General Government Total Non Financial Public Sector Total State Government Sector
Sources: Australian Bureau of Statistics; Department of Treasury and Finance; Australian National Accounts: State Accounts, 2000-01, ABS Cat. No. 5220.0.
Chart 7.9 shows that Tasmania, on a Total State Government Sector basis, has the highest Net Debt burden as a proportion of GSP. This stems largely from the State's past heavy investment in its electricity system, inadequate returns in the past from that system and from other PNFCs, and a series of substantial deficits in the Total State Government Sector in the 1980s and early 1990s. Nevertheless, despite Tasmania recording the highest level of Total State Government Sector Net Debt as a proportion of GSP over the five years to 2000-01, the State's net debt ratio has fallen in recent years and will continue to decrease in accordance with the Government's Fiscal Strategy announced in the 2002-03 Budget. It is estimated that the Total State Government Sector Net Debt for Tasmania will improve to 11.8 per cent by June 2004, and will improve further by June 2008, when the Fiscal Strategy target of Total State Government Net Debt of below $1 000 million is achieved.
178 Chapter 7: Assets and Liabilities, 2003-04 Chart 7.9: Total State Government Sector Net Debt as a percentage of GSP1
35
30
25
20
15
10 Per cent
5
0
-5
-10 NSW Vic Qld SA WA Tas NT ACT 1996-97 1998-99 2000-01 2003-04 (est)
Sources: Government Financial Statistics, Australia 2000-2001, ABS Cat No 5512.0; Australian National Accounts: State Accounts, 2000-01, ABS Cat No 5220.0, Northern Territory Treasury. Note: 1. The 2001-02 Total State Net Debt numbers for other states are not available until the ABS publishes the Government Financial Statistics, Australia 2001-02 publication.
Chapter 7: Assets and Liabilities, 2003-04 179 Asset and Liabilities
A summary of the Total State Government Sector assets and liabilities at 30 June 2002 is shown below in Table 7.19.
Table 7.19: Total State Government Assets and Liabilities as at 30 June 2002 Public Public General Non-Financial Financial Total State Government Corporations Corporations Government Sector Sector Sector Sector1 $m $m $m $m
Financial Assets 5 348 338 5 831 2 970 Non-financial Assets 5 670 6 045 51 11 767 Total Assets 11 018 6 383 5 882 14 737
Liabilities 4 167 2 588 5 810 7 882
Source: Australian Bureau of Statistics Note: 1. The asset and liability amounts for each sector will not sum to the Total State Government Sector as some assets and liabilities held relate to other sectors within government and have been excluded from the total to avoid double counting.
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.
No debt serviced from the Consolidated Fund is subject to exchange rate variations.
Credit Status of the State Public Sector
Since the mid 1980s, 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 1991. Both of the major rating agencies review the credit ratings of all States on an annual basis.
The credit rating influences the interest rate margin Tasmania must pay over Commonwealth debt, or debt of a State with a AAA credit rating. Ratings, therefore, impact on interest paid on State debt and thus on the State Budget.
A very important influence of the credit rating is its impact on the perception of Tasmania by business investors. Comments made by the rating agencies in 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 reduced levels of debt and debt servicing costs.
180 Chapter 7: Assets and Liabilities, 2003-04 The current credit ratings for long term domestic debt of the States and the Territories are detailed in Table 7.20. All States have a prime rating of P-1/A-1+ on their short-term debt.
Table 7.20: Government Ratings Standard & Moody's Poor's
New South Wales Aaa AAA Queensland Aaa AAA Australian Capital Territory Aaa AAA Western Australia Aaa AAA Victoria Aaa 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 and debt servicing costs relative to revenue, budget net position relative to revenue, and the magnitude of other unfunded liabilities (particularly superannuation). A range of qualitative economic and political factors is also considered, particularly the quality of financial management, commitment to debt containment and outlook for the State's economy. The rating agencies have reinforced the need for all State Governments to maintain prudent financial management policies.
On 19 September 2002, S&P confirmed the State's 'AA' long term, local and foreign currency credit ratings. Significantly, the outlook was revised to 'positive' from 'stable', less than one year after the upgrade to 'AA'. The S&P short-term rating remains 'A-1+'. The guaranteed debt issues of Tascorp have also been confirmed as 'AA'.
In arriving at its assessment, S&P noted that Tasmania has made substantial progress in reducing its financial liabilities over the past decade, and the Government has demonstrated its commitment to the continuing improvement of the State's financial position with the introduction of the current Fiscal Strategy. In S&P's own words ' the positive outlook reflects Standard & Poor's opinion that, in two or three years time, based on current fiscal projections, Tasmania's credit quality will be consistent with the higher AA+ rating.'
The favourable change in outlook confirms the Government's commitment to the Fiscal Strategy as the appropriate approach to achieve results. The positive outlook is a strong indication of the State's solid economic and financial position and is providing a confidence boost to business investors in Tasmania.
On 1 November 2002, Moody's confirmed the State's 'Aa2' long term, local and foreign currency credit ratings and Prime 1 (P-1) ratings for commercial paper for Tasmania. Significantly, the rating outlook was revised to 'positive' from 'stable', representing the first change in rating from Moody's since Tasmania was first rated in 1991.
In arriving at its assessment, Moody's noted Tasmania's improved fiscal and debt position, and the State's sound financial operations.
Chapter 7: Assets and Liabilities, 2003-04 181
8 ESTIMATED OUTCOME, 2002-03
Features
• The Fiscal Surplus for 2002-03 is estimated to be $121.0 million, an increase of $95.0 million on the Budget estimate of $26.0 million.
• Total revenue for 2002-03 is estimated to be $2 974.4 million, $122.0 million or 4.3 per cent above the Budget estimate of $2 852.4 million.
• Total expenses for 2002-03 are estimated to be $2 889.3 million, $37.5 million or 1.3 per cent above the Budget estimate of $2 851.8 million.
• The Consolidated Fund Surplus (CFS) for 2002-03 is estimated to be $5.6 million, $2.9 million below the Budget estimate of $8.5 million.
Chapter 8: Estimated Outcome, 2002-03 183 INTRODUCTION
The 2002-03 Budget was presented on a Consolidated Fund basis with the Consolidated Fund Surplus for on-Budget entities as the focus. The 2002-03 Estimated Outcome and the 2002-03 original Budget are now presented in accordance with the Uniform Presentation Framework. The focus of the Estimated Outcome is the Fiscal Surplus. The Fiscal Surplus represents the difference between General Government Sector revenues and expenses, including capital expenditure, but excluding depreciation. The Fiscal Surplus is a useful indicator of the funds available for application to either increase assets or reduce liabilities. A Fiscal Surplus indicates that the Government is saving more than enough to finance all of its spending.
The new presentation now means that the 2002-03 Estimated Outcome:
• is presented on a total source of funds basis, meaning that transactions for both the Consolidated Fund and the Special Deposits and Trust Fund are incorporated;
• is on an accrual basis and will include accrual revenues and expenses; and
• is based on the General Government Sector.
For further information on the new presentation, refer to The Tasmanian Government Financial System and the Budget Guide, 2003-04.
The 2002-03 Estimated Outcome has been determined from agency assessments of their indicative additional funding requirements or potential savings and revised revenue estimates, based on the latest available information prior to the finalisation of the 2003-04 Budget Papers. Estimates are determined using information from a number of sources including the latest advice from the Commonwealth, Government Business Enterprises, State-owned Companies and agencies.
Detailed information on the final Outcome, including the Consolidated Fund Outcome for 2002-03, will be published in:
• the Quarterly Statement of the Consolidated Fund for the June quarter 2003, which will be tabled in Parliament by 31 July 2003;
• the Treasurer's Financial Statements, which will be tabled in Parliament by 30 September 2003;
• the Loan Council Outcomes Report, which will be published by 31 October 2003; and
• Agency Annual Reports, which will be tabled in Parliament by 30 November 2003.
184 Chapter 8: Estimated Outcome, 2002-03 Fiscal Surplus
The budgeted Fiscal Surplus for 2002-03 was $26.0 million. The estimated Fiscal Surplus Outcome for 2002-03 is $121.0 million, $95.0 million above the 2002-03 Budget estimate. The estimated increase in the Fiscal Surplus largely reflects increased Commonwealth and State taxation revenue, and favourable variations in the Net Acquisition of Non-Financial Assets.
The additional revenue has created a significant surplus of funds in 2002-03. The surplus will provide the initial contribution of $78.0 million to the Economic and Social Infrastructure Fund (ESIF), established in the 2003-04 Budget to provide funding for major economic projects and the implementation of social initiatives. An amount of up to $25.0 million will be expended from the ESIF in 2002-03 following the Government's decision to exercise its existing option to take control of the optic fibre cable that has been installed with the Duke Energy natural gas pipeline. The option agreement was entered into by the Government to ensure that this critical piece of telecommunications infrastructure remained available to facilitate a statewide optic fibre network. The remainder of the funds available within the ESIF have been included as expenditure in the 2003-04 Budget and Forward Estimates.
The favourable variation in the Net Acquisition of Non-Financial Assets is primarily due to an anticipated surplus for Housing Tasmania due to higher than estimated proceeds from housing sales and lower than estimated housing construction expenditure. These funds will be carried forward into 2003-04, and are committed to ongoing capital projects from 2002-03 and projects commencing in 2003-04. However, due to the continuing sales of surplus housing stock, it is anticipated that a portion of the funds will be carried forward for projects in 2004-05 as well.
Table 8.1 provides details of the estimated Budget Outcome for 2002-03 and expected variances from 2002-03 Budget estimates.
Chapter 8: Estimated Outcome, 2002-03 185 Table 8.1: Estimated Fiscal Surplus, 2002-03 2002-03) 2002-03) Budget) Estimated) Estimate) Outcome) Variation $'000) $'000) % Revenue Grants and Subsidies General Purpose Payments 1 269 600) 1 287 400) 1.4) Specific Purpose Recurrent Payments 346 768) 354 286) 2.2) Specific Purpose Capital Payments 40 765) 47 195) 15.8) Other Grants and Subsidies 146 481) 145 300) (0.8) Total Grants and Subsidies 1 803 614) 1 834 181) 1.7) Taxation Revenue Taxation 476 207) 534 107) 12.2) GBEs, SOCs and State Authorities - Guarantee Fees 4 721) 6 115) 29.5) Total Taxation Revenue 480 928) 540 222) 12.3) Sales of Goods and Services 275 541) 298 726) 8.4) Interest Income 15 742) 15 103) (4.1) Dividend and Tax Equivalent Income Receipts from Government Business Enterprises, State-owned Companies and State Authorities and Dividends 59 090) 58 196) (1.5) Other Dividends, Special Dividends and Tax Equivalents 88 247) 88 281) ....) Total Dividend Income 147 337) 146 477) (0.6) Other Revenue 129 199) 139 683) 8.1) Total Revenue 2 852 361) 2 974 392) 4.3)
Expenses Depreciation 150 370) 154 213) 2.6) Employee Expenses 1 232 408) 1 233 541) 0.1) Other Operating Expenses 679 679) 715 881) 5.3) Nominal Superannuation Interest Expense 111 498) 111 498) ....) Other Interest Expense 82 926) 80 433) (3.0) Grants and Transfers 594 943) 593 748) (0.2) Total Expenses 2 851 824) 2 889 314) 1.3) NET OPERATING RESULT 537) 85 078) ....)
Less Net Acquisition of Non-Financial Assets Purchase of New Non-Financial Assets 171 209) 180 603) 5.5) less Sale of Non-Financial Assets 46 347) 62 332) 34.5) less Depreciation 150 370) 154 213) 2.6) Total ( 25 508) ( 35 942) 40.9) FISCAL SURPLUS 26 045) 121 020) 364.6)
186 Chapter 8: Estimated Outcome, 2002-03 REVENUE
Total revenue for 2002-03 is estimated to be $2 974.4 million, which is an increase of $122.0 million or 4.3 per cent on the budgeted revenue of $2 852.4 million.
Explanation of Estimated Major Revenue Variations
The major revenue variations summarised in Table 8.1 are explained below. Grants and Subsidies General Purpose Payments General Purpose Payments revenue for 2002-03 is anticipated to be $1 287.4 million, an increase of $17.8 million or 1.4 per cent above the Budget estimate of $1 269.6 million. The additional revenue reflects revisions by the Commonwealth increasing the Guaranteed Minimum Amount (GMA). The increase in GMA is due to:
• a greater level of compensation being received by the State ($5.8 million) and paid to first home owners for the First Home Owners Grant under Grants and Transfers;
• increased compensation for State revenue foregone as a result of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations; and
• adjustments to Budget Balancing Assistance in relation to 2001-02 outcomes. Specific Purpose Recurrent Payments Specific Purpose Recurrent Payments revenue for 2002-03 is anticipated to be $354.3 million, an increase of $7.5 million or 2.2 per cent on the Budget estimate of $346.8 million. The increase is due to additional Commonwealth funding for the following Specific Purpose Payments:
• Primary and Secondary Education and Technical and Further Education ($1.9 million);
• Disability Services, Health Care Grant, High Cost Drugs, Home and Community Care Program and the Supported Accommodation Assistance Program ($4.1 million); and
• the Grant to the State for Local Government ($1.5 million). Specific Purpose Capital Payments Specific Purpose Capital Payments revenue for 2002-03 is anticipated to be $47.2 million, an increase of $6.4 million or 15.8 per cent. The increase largely reflects additional funding of $6.3 million from the Commonwealth Government for the 2002-03 Roads Program. Other Grants and Subsidies Other Grants and Subsidies revenue for 2002-03 is anticipated to be $145.3 million, a decrease of $1.2 million or 0.8 per cent below the Budget estimate of $146.5 million. The decrease reflects a reduction in funds for the Department of Health and Human Services of $2.7 million due to reduced Commonwealth Grants and Subsidies for Nursing Home Clients, partially offset by increases in grants and subsidies for other departments.
Chapter 8: Estimated Outcome, 2002-03 187 Taxation Revenue Taxation Taxation revenue for 2002-03 is anticipated to be $534.1 million, an increase of $57.9 million or 12.2 per cent above the Budget estimate of $476.2 million. The increase is primarily due to additional:
• duties revenue of $44.3 million reflecting the continued high activity in the property market; and
• payroll tax revenue of $9.7 million as a result of higher than anticipated wages paid in the payroll tax paying sector. Government Business Enterprise, State-owned Companies and State Authorities – Guarantee Fees Government Business Enterprise, State-owned Companies and State Authorities Guarantee Fees revenue for 2002-03 is anticipated to be $6.1 million, an increase of $1.4 million or 29.5 per cent above the Budget estimate of $4.7 million. The increase is due to additional returns from TT-Line reflecting the guarantee fees to be paid on the borrowings for the purchase of the two new ships, Spirit of Tasmania I and the Spirit of Tasmania II following the inclusion of TT-Line in the guarantee fees framework for the first time in 2002-03. Sales of Goods and Services
Sales of Goods and Service revenue for 2002-03 is anticipated to be $298.7 million, an increase of $23.2 million or 8.4 per cent above the Budget estimate of $275.5 million. The increase is primarily due to:
• additional Departmental Fees and Recoveries revenue for the Department of Primary Industries, Water and Environment of $4.1 million, mainly reflecting an increase in Abalone Licences revenue of $3.4 million, due to an increase in the average beach price per kilogram of abalone and the introduction of a new fishing zone;
• additional revenue for the Department of Health and Human Services of $2.4 million due to increases in Hospital revenues; and
• better identification and estimation of General Government revenue items following detailed reviews required as part of the implementation of accrual budgeting. Other Revenue
Other Revenue for 2002-03 is anticipated to be $139.7 million, an increase of $10.5 million or 8.1 per cent above the Budget estimate of $129.2 million. The variation is primarily due to:
• the recognition of $21.9 million of revenue by the Department of Education in relation to school revenues as part of the implementation of accrual budgeting. This revenue was not previously reported as a Revenue to the Budget. The additional revenue is offset by an increase expenses under Other Operating Expenses;
• a decrease in Mineral Royalties of $4.0 million as a result of the downturn in base metal prices; and
• a decrease in other revenue for the Department of Health and Human Services of $2.0 million as a result of a detailed review of revenues as part of the implementation of accrual budgeting.
188 Chapter 8: Estimated Outcome, 2002-03 EXPENSES
Total expenses for 2002-03 are estimated to be $2 889.3 million, an increase of $37.5 million or 1.3 per cent above the Budget estimate of $2 851.8 million.
Explanation of Estimated Major Expense Variations
The major expenditure variations summarised in Table 8.1 are explained below. Depreciation
Depreciation for 2002-03 is anticipated to be $154.2 million, an increase of $3.8 million or 2.6 per cent above the Budget estimate of $150.4 million in 2002-03. The additional expense is primarily attributable to an increase in the level of depreciation expense for the Department of Infrastructure, Energy and Resources following a revaluation of its road and bridge infrastructure. Employee Expenses
Employee Expenses for 2002-03 are anticipated to be $1 233.5 million, an increase of $1.1 million or 0.1 per cent above the Budget estimate of $1 232.4 million. The increase in employee expenses is primarily due to:
• $1.5 million increase for the Department of Justice and Industrial Relations for additional corrective services expenses;
• $11.8 million increase for the Department of Health and Human Services for the Nurses' Post Graduate Allowance and the employment of additional nurses; and
• $1.5 million for Ministerial and Parliamentary Support for additional support for opposition parties and the appointment of a new Minister.
The $13.0 million provision for wage increase, which was included in the 2002-03 Budget, was available to offset the first two of these expense items. Other Operating Expenses
Other Operating Expenses for 2002-03 are anticipated to be $715.9 million, an increase of $36.2 million or 5.3 per cent above the Budget estimate of $679.7 million. The increase is primarily due to:
• The expenditure of $22.3 million of school revenues by the Department of Education. This revenue was not previously reported as a Revenue to the Budget; and
• An increase in expenses of $7.0 million for the Department of Health and Human Services reflecting the increase in Commonwealth Specific Purpose Payments, additional costs in relation to breast screening contracts and meningococcal vaccines, and infrastructure improvements funded from minor asset sale proceeds. Other Interest Expense
Other Interest Expenses for 2002-03 are anticipated to be $80.4 million, a decrease of $2.5 million or three per cent below the Budget estimate of $82.9 million. The reduction primarily reflects savings in debt servicing costs due to higher than anticipated cash reserves being available to reduce borrowings.
Chapter 8: Estimated Outcome, 2002-03 189 Grants and Transfers
Grants and Transfers expenses for 2002-03 are anticipated to be $593.7 million, a decrease of $1.2 million or 0.2 per cent below the Budget estimate of $594.9 million. The variation is primarily due to:
• a decrease in transfers of Commonwealth funding under the Regional Forest Agreement of $3.7 million;
• a decrease in grants expenses for the Department of Health and Human Services of $4.9 million reflecting delays in finalising agreements for a number of Specific Purpose Payments in 2002-03. These funds are expected to be expensed in 2003-04; and
• additional expenses of $5.8 million due to an increase in First Home Owners Scheme grants in 2002-03.
NET ACQUISITION OF NON-FINANCIAL ASSETS
Net Acquisition of Non-Financial Assets for 2002-03 reflects an anticipated net favourable impact of $35.9 million, an increase of $10.4 million or 40.9 per cent above the Budget estimate of $25.5 million. The variation primarily reflects an increase in the Purchases of New Non-Financial Assets, which is offset by the increase in the Sale of Non-Financial Assets.
The increase in Purchases of New Non-Financial Assets of $9.4 million is primarily due to expenditure of up to $25.0 million for the Government to exercise its existing option to take control of the optic fibre cable that has been installed with the Duke Energy natural gas pipeline. This purchase is partially offset by a reduction in the level of expenditure of $17.5 million for the Department of Health and Human Services as a result of construction delays for a number of Housing Tasmania projects.
The increase in the Sale of Non-Financial Assets of $16.0 million is primarily due to:
• higher than anticipated asset sales of $11.4 million for the Department of Health and Human Services reflecting additional revenues for proceeds received by Housing Tasmania from the sale of surplus housing; and
• increased revenue of $2.5 million for the Department of Treasury and Finance due to a number of unforeseen sales and increased sale proceeds due to the current level of activity in the property market.
190 Chapter 8: Estimated Outcome, 2002-03 CONSOLIDATED FUND SURPLUS
The Consolidated Fund Surplus (CFS) is the excess of Consolidated Fund receipts over the expenditure of these funds (net of loan repayments). A CFS represents funds that are available for the retirement of debt. Table 8.2 provides details of the estimated CFS Outcome for 2002-03 and expected variances from 2002-03 Budget estimates by major expenditure and receipt categories.
Table 8.2: Estimated Consolidated Fund Surplus, 2002-03 2002-03) 2002-03) Estimated) Budget) Outcome) Variation) $'000) $'000) %) Receipts Commonwealth Sources Recurrent Receipts 1 616 368) 1 641 686) 1.6) Capital Receipts 40 765) 47 195) 15.8) Total Commonwealth Sources 1 657 133) 1 688 881) 1.9)
State Sources Recurrent Receipts 778 916) 836 075) 7.3) Capital Receipts 835) 1 177) 41.0) Total State Sources 779 751) 837 252) 7.4) Total Receipts 2 436 884) 2 526 133) 3.7)
Less Expenditure Recurrent Services Appropriation Act 2 119 455) 2 152 824) 1.6) Reserved By Law 170 796) 160 177) (6.2) Total Recurrent Services 2 290 251) 2 313 001) 1.0)
Works and Services Capital Investment Program 138 557) 146 730) 5.9) Economic and Social Infrastructure Fund ....) 61 256) ....) Total Works and Services 138 557) 207 986) 50.1) Total Expenditure 2 428 808) 2 520 987) 3.8) Gross Consolidated Fund Surplus 8 076) 5 146) (36.3) Add Loan Repayments1 444) 444) ....) Consolidated Fund Surplus2 8 520) 5 590) (34.4)
Notes: 1. For the purpose of calculating the Consolidated Fund Surplus, Reserved by Law expenditure includes the $444 000 contribution payable to the Debt Retirement Reserve Trust Account. This figure is also shown as Loan Repayments. 2. Total estimated Outcome expenditure in 2002-03 includes the initial contribution to the new Economic and Social Infrastructure Fund of $78 million ($16.7 million for recurrent services and $61.3 million for works and services).
Chapter 8: Estimated Outcome, 2002-03 191 The budgeted CFS was $8.5 million. The estimated CFS Outcome for 2002-03 is $5.6 million.
Total Consolidated Fund receipts for 2002-03 are estimated to be $2 526.1 million, which is $89.2 million or 3.7 per cent above the Budget estimate of $2 436.9 million. Total Consolidated Fund expenditure, including Reserved by Law and works and services for 2002-03, is estimated to be $2 521.0 million, an increase of $92.2 million or 3.8 per cent above the Budget estimate of $2 428.8 million. The primary reasons for the variations in receipts are detailed earlier in this chapter, under major revenue variations. The primary reasons for the variations in expenditure, on an agency basis, are detailed below.
Further information relating to variations in Consolidated Fund receipts and expenditure is provided in Appendix 2 of this Budget Paper.
Table 8.3: Total Consolidated Fund Expenditure, 2002-03 2002-03 Estimated Outcome 2002-03) Recurrent) Reserved) Works and) Agency1 Budget) Services) by Law) Services) Total) Variation) $'000) $'000) $'000) $'000) $'000) %)
Economic Development 45 300) 45 300) ....) ....) 45 300) ....) Education 644 779) 621 578) ....) 26 838) 648 416) 0.6) Finance-General2 445 954) 288 727) 143 742) 61 256) 493 725) 10.7) Health and Human Services 725 703) 720 350) ....) 25 664) 746 014) 2.8) House of Assembly 4 631) 1 759) 2 955) ....) 4 714) 1.8) Infrastructure, Energy and Resources 164 775) 95 510) 52) 75 891) 171 453) 4.1) Justice and Industrial Relations 64 218) 51 908) 10 673) 4 309) 66 890) 4.2) Legislative Council 3 394) 1 612) 1 782) ....) 3 394) ....) Legislature-General 3 545) 3 545) ....) ....) 3 545) ....) Ministerial and Parliamentary Support 11 059) 12 937) 517) ....) 13 454) 21.7) Office of the Governor 1 969) 1 761) 200) 8) 1 969) ....) Police and Public Safety 116 278) 115 216) ....) 1 562) 116 778) 0.4) Premier and Cabinet 21 270) 21 799) ....) ....) 21 799) 2.5) Primary Industries, Water and Environment 73 255) 75 796) ....) 154) 75 950) 3.7) Tasmanian Audit Office 298) ....) 256) ....) 256) (14.1) Tourism, Parks, Heritage and the Arts 61 028) 61 640) ....) 4 289) 65 929) 8.0) Treasury and Finance 41 352) 33 386) ....) 8 015) 41 401) 0.1)
TOTAL EXPENDITURE 2 428 808) 2 152 824) 160 177) 207 986) 2 520 987) 3.8)
Notes: 1. The 2002-03 Budget has been adjusted to reflect the creation of the Departments of Economic Development and Tourism, Parks, Heritage and the Arts, and the associated restructure of the Department of Primary Industries, Water and Environment. The 2002-03 Budget also reflects the transfer of the Seniors Bureau from the Department of Health and Human Services to the Department of Premier and Cabinet. 2. Expenditure for the initial contribution to the Economic and Social Infrastructure Fund of $78.0 million ($16.7 million for recurrent services and $61.3 million for works and services) is reflected in Finance-General.
192 Chapter 8: Estimated Outcome, 2002-03 Explanation of Estimated Major Expenditure Variations Expenditure
The primary reasons for the major Consolidated Fund expenditure variations are detailed below on an agency basis. Education Total expenditure for the Department of Education is anticipated to be $3.6 million or 0.6 per cent above Budget. The increase is primarily due to additional Commonwealth funding for Primary and Secondary Education and Technical and Further Education, and higher than anticipated expenditure on works and services. Finance-General Total expenditure for Finance-General is anticipated to be $47.8 million or 10.7 per cent above Budget. The increase in expenditure reflects:
• estimated additional expenditure of $5.8 million due to an increase in the cost of the First Home Owners Scheme in 2002-03; and
• additional expenditure of $78.0 million for the establishment of the Economic and Social Infrastructure Fund (ESIF). Up to $25.0 million of the ESIF Appropriation will be utilised in 2002-03 to exercise the Government's existing option to take control of the optic fibre cable that has been installed with the Duke Energy natural gas pipeline, with the remainder of the ESIF to be utilised in the 2003-04 Budget and Forward Estimates for major economic projects and the implementation of social initiatives.
The increases in expenditure in Finance-General have been partly offset by:
• savings in Debt Servicing Costs due to higher than anticipated cash reserves being available to reduce borrowings;
• savings in the Provision for Wage Increases after providing additional funds to agencies for wage increases; and
• savings from allocating funds from the Treasurer's Reserve which are reflected in agency expenditure. Health and Human Services Total Expenditure for the Department of Health and Human Services is anticipated to be $20.3 million or 2.8 per cent above Budget. The increase in expenditure is primarily due to the following:
• additional expenditure of $11.8 million for the employment of additional nurses and payments associated with the Nurses' Post Graduate Allowance;
• additional expenditure of $3.8 million in relation to a number of services including:
− the Breast Screen contract;
− Air Ambulance contract;
− meningococcal vaccines; and
− Aurora Energy pensioner concessions; and
• additional expenditure of $3.7 million reflecting increased Commonwealth funding for a number of grants including High Cost Drugs, Home and Community Care Program and Disability Services.
Chapter 8: Estimated Outcome, 2002-03 193 Infrastructure, Energy and Resources Total Expenditure for the Department of Infrastructure, Energy and Resources is anticipated to be $6.7 million or 4.1 per cent above Budget. The increased expenditure primarily reflects additional Commonwealth capital funding of $6.3 million for the Roads Program. Justice and Industrial Relations Total expenditure for the Department of Justice and Industrial Relations is anticipated to be $2.7 million or 4.2 per cent above Budget. The increase in expenditure is primarily due to additional recurrent expenditure for corrective services as a result of further increases in prisoner numbers. Ministerial and Parliamentary Support Total expenditure for Ministerial and Parliamentary Support is anticipated to be $2.4 million or 21.7 per cent above Budget. The increase is due to the additional costs of providing support for opposition parties and the appointment of a new Minister to Cabinet. Primary Industries, Water and Environment Total expenditure for the Department of Primary Industries, Water and Environment is anticipated to be $2.7 million or 3.7 per cent above Budget. The increase in expenditure is primarily due to the following:
• Tasmania's contribution to the Fire Ants Eradication Plan;
• purchase of Priority 1 Karst properties;
• additional expenditure on Quarantine Barrier Control;
• environmental assessment costs of the Southwood, Basslink and Hydro Windfarm Projects; and
• provision of the Boat Harbour Sewerage Grant Payment. Tourism, Parks, Heritage and the Arts Total expenditure for the Department of Tourism, Parks, Heritage and the Arts is anticipated to be $4.9 million or eight per cent above Budget. The increase in expenditure is primarily due to the following:
• one-off establishment costs of $2.3 million for the new Department;
• additional expenditure for events of $1.4 million, including AFL games at York Park and the 10 Days on the Island Festival; and
• additional expenditure of $700 000 for the purchase of the of the Archives Building at Rosny.
194 Chapter 8: Estimated Outcome, 2002-03 CONSOLIDATED FUND SURPLUS AND FISCAL SURPLUS RECONCILIATION, 2002-03
Table 8.4 provides a reconciliation of the Consolidated Fund Surplus to the Fiscal Surplus for 2002-03.
Table 8.4: Consolidated Fund Surplus and Fiscal Surplus Reconciliation
2002-03 2002-03 Estimated Budget Outcome $'000 $'000
CONSOLIDATED FUND SURPLUS 8 520 5 590
Add Special Deposits and Trust Fund Movements Transfers from the Consolidated Fund1 115 288 219 268 Statutory Authorities Movements 777 .... Other Agency Movements2 ( 21 402) ( 51 980)
CASH SURPLUS 103 183 172 878
Less Accrual Items Nominal Interest on Superannuation3 111 498 111 498 Superannuation4 ( 20 368) ( 57 090) Other Movements5 ( 13 992) ( 2 550)
NET ACCRUAL ADJUSTMENTS 77 138 51 858
FISCAL SURPLUS 26 045 121 020
Notes: 1. Transfers from the Consolidated Fund primarily relate to the contribution to the Superannuation Provision Account and the creation of the new Economic and Social Infrastructure Fund. 2. Other Agency Movements consist of payments from the 2001-02 Infrastructure Fund, the Social Infrastructure Fund, the Major Projects Fund and the new Economic and Social Infrastructure Fund. 3. Nominal Interest on Superannuation represents the notional interest expense on the State's unfunded superannuation liability. 4. The accrual superannuation adjustment reflects the timing difference between the recognition of the superannuation expense and its actual cash payment. 5. Other Movements primarily reflects changes in the level of creditors and debtors, and movements in accrued revenue and expenses and assets and liabilities.
Chapter 8: Estimated Outcome, 2002-03 195
9 FORWARD ESTIMATES
Features
• The Fiscal Surplus projections for 2004-05 to 2006-07 on a same policy basis are:
− a surplus of $50.6 million in 2004-05;
− a surplus of $49.2 million in 2005-06; and
− a surplus of $60.4 million in 2006-07.
• General Government Sector Net Debt is estimated to reduce from the 2003-04 Budget estimate of $461.5 million to an anticipated $84.9 million by 30 June 2007. This is consistent with the Government's Fiscal Strategy target to eliminate Net Debt by 30 June 2008 by maintaining Fiscal Surpluses.
• The General Government Sector Cash Surplus is estimated to be an average of $125.5 million over the Forward Estimates. The anticipated level of Cash Surpluses are sufficient to reduce Net Debt in line with the elimination of Net Debt by 30 June 2008 target.
• A Consolidated Fund Surplus will be maintained during the Forward Estimate period.
Chapter 9: Forward Estimates 197 FORWARD ESTIMATES 2004-05 TO 2006-07
The Forward Estimates Concept
The Forward Estimates provide a mechanism for projecting the Budget revenue, expenses and financial position 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 represent the outcomes if the same level of services is provided in each of the three years following this Budget, the existing regime of taxes and charges continues but reflects announced changes in tax policy, expectations of the level of Commonwealth transfer payments are realised and assumptions underlying the economic parameters are realised. The existing regime for government charges is also assumed to be unchanged.
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. Further information on forecasts of Tasmanian economic aggregates is detailed in 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 expense measures contained in the current year's Budget and facilitate the monitoring of achievements against existing Government strategies and objectives.
The 'same policy' Forward Estimates are not forecasts of expected outcomes. Rather, the estimates provide an indication of the outcomes which would emerge if existing policy was to remain unchanged and current parameter assumptions were to be realised. Future policy decisions, variations to the assumptions underlying economic parameters and external influences will have an impact on the outcomes. In this sense, the Forward Estimates are projections of outcomes under a particular scenario rather than forecasts.
Impact of Policy Initiatives
The expenditure reported in this Chapter includes the policy initiatives announced by the Government in this Budget and the ongoing funding of previous initiatives and expenditure commitments. As outlined in the Treasurer's 2003-04 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.
Table 9.1 highlights the projected Fiscal Surplus for each of the financial years from 2004-05 to 2006-07. The budgeted outcome in 2003-04 is a surplus of $6.9 million. The Forward Estimates of the Fiscal Surplus are $50.6 million for 2004-05, $49.2 million for 2005-06, and $60.4 million for 2006-07. The Forward Estimates indicate that, on a same policy basis, the Fiscal Surplus projections are consistent with the achievement of the Government's target to maintain the General Government Sector Budget in surplus. The Forward Estimates Consolidated Fund Surpluses, detailed in Appendix 2 of this Budget Paper, are also maintained in surplus, which is consistent with the Government's Fiscal Strategy.
The Fiscal Surplus is a useful indicator of the funds available for application to either increase assets or reduce liabilities. Maintaining a surplus will allow the Government to achieve its primary objectives of no new General Government debt being incurred and eliminating the General Government debt by
198 Chapter 9: Forward Estimates 30 June 2008. Table 9.2 highlights the projected Net Worth, Net Debt and Net Financial Liabilities for the General Government Sector for each of the financial years from 2004-05 to 2006-07.
Chapter 9: Forward Estimates 199 FORWARD ESTIMATES OPERATING STATEMENT
The Forward Estimates of the Fiscal Surplus on a same policy basis are $50.6 million for 2004-05, $49.2 million for 2005-06 and $60.4 million for 2006-07. The increase in the Fiscal Surplus in the Forward Estimates over the 2003-04 Budget Fiscal Surplus reflects the anticipated expenditure of the Economic and Social Infrastructure Fund and the remaining funds within the 2001-02 Infrastructure Fund and the Social Infrastructure Fund. Table 9.1 details the Forward Estimates Fiscal Surpluses for 2004-05 to 2006-07.
Table 9.1: General Government Operating Statement Forward Estimates Summary 2004-05) 2005-06) 2006-07) 2003-04) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate) $'000) $'000) $'000) $'000) Revenue Grants and Subsidies 1 860 697) 1 924 469) 2 030 882) 2 059 649) Taxation Revenue 533 051) 541 551) 539 499) 553 169) Sales of Goods and Services 297 627) 312 246) 313 880) 314 445) Interest Income 17 587) 15 410) 13 085) 12 122) Dividend and Tax Equivalent Income 139 018) 148 071) 149 191) 142 849) Other Revenue 141 987) 140 304) 137 541) 132 076) Total 2 989 967) 3 082 051) 3 184 078) 3 214 310)
Expenses Depreciation 154 205) 152 832) 151 853) 151 202) Employee Expenses 1 293 234) 1 333 488) 1 380 201) 1 423 649) Other Operating Expenses 725 713) 772 398) 825 181) 855 378) Nominal Superannuation Interest Expense 115 935) 120 004) 123 698) 127 099) Other Interest Expense 68 891) 62 429) 46 333) 31 776) Grants and Transfers 647 799) 632 263) 644 059) 613 052) Total 3 005 777) 3 073 414) 3 171 325) 3 202 156)
NET OPERATING RESULT ( 15 810) 8 637) 12 753) 12 154)
Less Net Acquisition of Non-Financial Assets plus Purchase of New Non-Financial Assets 181 020) 150 383) 154 988) 142 559) less Sale of Non-Financial Assets 49 543) 39 548) 39 553) 39 558) less Depreciation 154 205) 152 832) 151 853) 151 202) Total ( 22 728) ( 41 997) ( 36 418) ( 48 201)
FISCAL SURPLUS 6 918) 50 634) 49 171) 60 355)
200 Chapter 9: Forward Estimates Note: 1. Details of Forward Estimate appropriations to agencies from the Consolidated Fund are provided in Appendix 2 to this Budget Paper.
REVENUE
Total Revenue for the Forward Estimates on a same policy basis is estimated to be $3 082.1 million for 2004-05, $3 184.1 million for 2005-06 and $3 214.3 million for 2006-07.
Explanation of Major Revenue Variations
The major revenue variations for 2004-05 to 2006-07 detailed in Table 9.1 are summarised below. Grants and Subsidies
Grants and Subsidies consist primarily of Commonwealth sourced revenue. The Forward Estimates for 2004-05 to 2006-07 continue to reflect the revised funding arrangements under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA). Full details of these arrangements are provided in Chapter 10 of this Budget Paper.
The increase in Grants and Subsidies is due to increases in General Purpose Payments (GPP) and Specific Purpose Payments (recurrent and capital). The increases primarily reflect additional GPPs. In 2004-05 and 2006-07, the increase in GPPs reflects growth in GST revenue, which is expected to exceed the Guaranteed Minimum Amount (GMA). However, in 2005-06, it is anticipated that the level of GPPs will again reflect the GMA. The increase in 2006-07 is partially offset by a reduction in Commonwealth funding for the National Highway system and a reduction in compensation from the Commonwealth for debt costs due to the expiry of the Commonwealth-State agreement in relation to refinancing Commonwealth debt. Taxation Revenue
The decrease in Taxation Revenue in 2005-06 reflects the abolition of Debits Duty consistent with the IGA. This will result in a $19 million decrease in Taxation Revenue. Interest Income
The Forward Estimates for Interest Income are anticipated to decrease due to the repayment of advances from Hydro Tasmania of on-lent Financial Agreement debt and the early redemption of loans under the Public Bodies Assistance Act 1971. Dividend and Tax Equivalent Income
The increase in Dividend and Tax Equivalent Income between the 2003-04 Budget and the Forward Estimates reflects the increased profitability of the three electricity businesses. The reduction in the 2006-07 Forward Estimate reflects the end of the three year phase out of the special dividend from Hydro Tasmania (refer to Chapter 11 of this Budget Paper for further information on the special dividend) and the impact of a more competitive energy industry that will provide benefits to private businesses and consumers in the longer term.
Chapter 9: Forward Estimates 201 EXPENSES
Total expenses for the Forward Estimates on a same policy basis are estimated to be $3 073.4 million for 2004-05, $3 171.3 million for 2005-06 and $3 202.2 million for 2006-07.
Explanation of Major Expense Variations
The major expense variations for 2004-05 to 2006-07 detailed in Table 9.1 are summarised below. Employee Expenses
The increase in Employee Expenses over the Forward Estimates reflects the anticipated increases in wages due to current wage agreements and potential additional costs relating to future wage negotiations. Other Operating Expenses
The increase in Other Operating Expenses over the Forward Estimates reflects the additional funding required to meet the costs of providing services and the impact of new initiatives funded in the 2003-04 Budget. Nominal Superannuation Interest Expense
The increase in Forward Estimates expense for the Nominal Superannuation Interest reflects the increasing unfunded superannuation liability. Further information on the General Government unfunded superannuation liability can be found in Chapter 7 of this Budget Paper. Other Interest Expense
The decrease in Other Interest Expense over the Forward Estimates reflects the reduction in the General Government Sector level of net debt. Grants and Transfers
The variation in Grants and Transfers over the Forward Estimates reflects the anticipated expenditure in relation to the 2001-02 Infrastructure Fund, the Social Infrastructure Fund and the Economic and Social Infrastructure. The 2006-07 Forward Estimate also reflects the final payment of $44 million in relation to the Government's contribution to fund the acquisition of one of the two vessels by TT-Line for the Bass Strait service being made in 2005-06.
NET ACQUISITION OF NON-FINANCIAL ASSETS
The Net Acquisition of Non-Financial Assets for the Forward Estimates on a same policy basis shows an anticipated net favourable impact of $42 million for 2004-05, $36.4 million for 2005-06 and $48.2 for 2006-07.
The increase in the impact of the Net Acquisition of Non-Financial Assets between the 2003-04 Budget and the 2004-05 Forward Estimate is primarily due to:
• the inclusion of funds carried forward from a number of capital projects originally included in the 2002-03 Budget that will now be undertaken in 2003-04;
202 Chapter 9: Forward Estimates • a reduction in the expenditure from the Economic and Social Infrastructure Fund in the Forward Estimates; and
• an estimated reduction in proceeds from asset sales in the Forward Estimates compared to the 2003-04 Budget.
The decrease in the 2006-07 Forward Estimate for the Purchase of New Non-Financial assets primarily reflects a reduction in Commonwealth Funding for the National Highway System due to the expected completion of a number of major projects in 2005-06.
FORWARD ESTIMATES BALANCE SHEET
The Balance Sheet for the Forward Estimates reflects the strengthening position of the State's finances. The reduction in Net Debt and the improvement in all other key measures indicate that the Government is on target to eliminate General Government Sector Net Debt by 30 June 2008. Table 9.2 summarises the anticipated Forward Estimate position for the General Government Sector between 2003-04 and 2006-07.
Chapter 9: Forward Estimates 203 Table 9.2: General Government – Balance Sheet Forward Estimates Summary as at 30 June 2005) 2006) 2007) 2004) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate) $'000) $'000) $'000) $'000) Assets Financial Assets Cash and Deposits 331 297) 280 626) 131 554) 239 288) Advances Paid 111 549) 95 157) 90 320) 86 517) Investments, Loans and Placements 20 240) 15 240) 10 240) 5 240) Other Non-Equity Assets 335 163) 340 222) 340 504) 340 733) Equity 4 065 359) 4 187 375) 4 313 394) 4 443 417) Total 4 863 608) 4 918 620) 4 886 012) 5 115 195)
Non-Financial Assets Land and Fixed Assets 5 672 232) 5 620 524) 5 574 369) 5 516 472) Other Non-Financial Assets 63 783) 65 655) 67 556) 69 471) Total 5 736 015) 5 686 179) 5 641 925) 5 585 943)
Total Assets 10 599 623) 10 604 799) 10 527 937) 10 701 138)
Liabilities Deposits Held 9 874) 9 415) 9 540) 9 575) Advances Received 273 184) 260 540) 247 806) 242 050) Borrowings 641 498) 458 125) 194 422) 164 318) Unfunded Superannuation Liability 2 033 955) 2 105 334) 2 170 150) 2 229 808) Other Employee Provisions 300 583) 307 142) 314 352) 319 479) Other Non-Equity Liabilities 168 131) 156 947) 137 760) 129 117) Total Liabilities 3 427 225) 3 297 503) 3 074 030) 3 094 347)
NET WORTH1 7 172 398) 7 307 296) 7 453 907) 7 606 791)
NET FINANCIAL WORTH2 1 436 383) 1 621 117) 1 811 982) 2 020 848)
NET FINANCIAL LIABILITIES3 2 495 425) 2 442 391) 2 389 804) 2 314 706)
NET DEBT4 461 470) 337 057) 219 654) 84 898)
Notes: 1. Net Worth represents Total Assets less Total Liabilities. 2. Net Financial Worth represents Financial Assets less Total Liabilities. 3. Net Financial Liabilities represents Net Debt plus gross unfunded superannuation liability. 4. Net Debt represents gross debt less selected financial assets.
204 Chapter 9: Forward Estimates For further information on the General Government Sector's Assets and Liabilities, refer to Chapter 7 of this Budget Paper.
Net Worth
The Forward Estimates on a same policy basis show that the Net Worth of the General Government Sector is $7 307.3 million for 2004-05, $7 453.9 million for 2005-06, and $7 606.8 million for 2006-07. Net Worth is calculated as total assets minus total liabilities, and incorporates a number of financial assets and liabilities not captured by the Net Debt measure, most notably accrued employee superannuation liabilities, ownership of equities, debtors and creditors.
Total Assets are anticipated to increase over the Forward Estimates to $10 604.8 million in 2004-05, $10 527.9 million in 2005-06, and $10 701.1 million in 2006-07. The major factor influencing the total value of assets is the increase in equity assets. Equity assets represent the Government's investment in the net assets of Government Business Enterprises, State-owned Companies and Statutory Authorities and holdings in investments in private sector businesses.
Total Liabilities are anticipated to decrease over the Forward Estimates to $3 297.5 million in 2004-05, $3 074.0 million in 2005-06 and $3 094.3 million in 2006-07. The major factors influencing the level of liabilities are the reduction in borrowings consistent with the Government's Fiscal Strategy, partially offset by increases in the unfunded superannuation liability. For information on the Government's strategies to manage the unfunded superannuation liability, refer to Chapter 7 of this Budget Paper.
Net Financial Worth
The Forward Estimates on a same policy basis show that Net Financial Worth is anticipated to be $1 621.1 million in 2004-05, $1 812.0 million in 2005-06 and $2 020.8 million in 2006-07. Net Financial Worth is calculated as financial assets minus liabilities.
The increase in Net Financial Worth represents the strengthening position of the State's finances as the level of borrowings is reduced by the generation of cash surpluses, which are utilised to build cash reserves.
Net Financial Liabilities
The Forward Estimates, on a same policy basis, show that Net Financial Liabilities are anticipated to be $2 442.4 million in 2004-05, $2 389.8 million in 2005-06 and $2 314.7 million in 2006-07. Net Financial Liabilities represents Net Debt plus gross unfunded superannuation liabilities.
The reduction in Net Financial Liabilities is consistent with the Government's Fiscal Strategy Targets to:
• eliminate the State's General Government Sector Net Debt by 30 June 2008;
• eliminate the State's unfunded superannuation liability by 30 June 2018; and
• eliminate Net Financial Liabilities for the General Government Sector by 30 June 2017.
Net Debt
The Forward Estimates on a same policy basis show that Net Debt is anticipated to be $337.1 million in 2004-05, $219.7 million in 2005-06 and $84.9 million in 2006-07. This is consistent with the Government's
Chapter 9: Forward Estimates 205 Fiscal Strategy to reduce Net Debt to below $450 million by 30 June 2005 and eliminate Net Debt by 30 June 2008.
Net Debt is the standard measure to assess the State Government's level of indebtedness. It is used to analyse the overall strength of the Government's fiscal position, and also provides an indicator of the Government's financial management performance over time. Net Debt reduction has been part of the Government's Fiscal Strategy since 1998-99. On a same policy basis, it is anticipated that Government's strategies will reduce Net Debt to an estimated $84.9 million in 2006-07, compared to $1 882 million in real terms at 30 June 1998, prior to the introduction of the Government's first Fiscal Strategy.
206 Chapter 9: Forward Estimates FORWARD ESTIMATES CASH FLOW STATEMENT
The Forward Estimate Cash Surpluses on a same policy basis are $124.4 million for 2004-05, $117.4 million for 2005-06 and $134.8 million for 2006-07. The Cash Surplus represents the Net Cash Flows from Operating Activities in addition to the Net Cash Flows from Investments in Non-Financial Assets.
The maintenance of Cash Surpluses over the Forward Estimates period is consistent with the Government's Fiscal Strategy targets of maintaining Budget surpluses and eliminating Net Debt by 30 June 2008.
The variation in the Cash Surpluses over the Forward Estimates reflects the increased expenditure from the cash reserves accumulated during 2002-03. A substantial component of this relates to the expenditure associated with the Government's new Economic and Social Infrastructure Fund, which will provide funding for major economic projects and the implementation of social initiatives.
The Forward Estimates show the Net Increase/(Decrease) in Cash Held on a same policy basis is a net decrease of $50.7 million for 2004-05 and $149.1 million for 2005-06 and a net increase of $107.7 million for 2006-07. The movement in Cash Held in 2003-04 to 2005-06 reflects the decision by the Government to invest surplus cash in the repayment of gross debt. This has the effect of increasing cash expenditure, creating the Net decreases in Cash Held in 2003-04 to 2005-06. For further information on this policy, refer to Chapter 7 of this Budget Paper. The Net Increase in Cash Held in 2006-07 reflects a reduction in payments made in relation to borrowings in 2006-07 due to the additional payments made in 2005-06 following the maturity of a number of loans in that year.
Table 9.3 details the anticipated cash flows over the Forward Estimate period.
Chapter 9: Forward Estimates 207 Table 9.3: General Government – Cash Flow Statement Forward Estimates Summary ) 2004-05) 2005-06) 2006-07) 2003-04) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate) $'000) $'000) $'000) $'000) Cash Receipts from Operating Activities Taxes Received 533 051) 541 551) 539 499) 553 169) Receipts from Sales of Goods and Service 296 992) 311 918) 313 557) 314 116) Grants and Subsidies Received 1 860 697) 1 924 469) 2 030 282) 2 059 649) Dividend and Income Tax Equivalent Income 139 018) 148 071) 149 191) 142 849) Interest Received 17 545) 15 580) 13 187) 12 152) Other Receipts 258 980) 247 154) 247 436) 241 972) Total 3 106 283) 3 188 743) 3 293 152) 3 323 907)
Cash Payments for Operating Activities Payments for Goods and Services (2 054 493) (2 141 077) (2 243 179) (2 314 680) Grants and Subsidies Paid ( 648 041) ( 631 743) ( 641 214) ( 607 826) Interest Paid ( 76 157) ( 66 851) ( 56 933) ( 42 281) Other Payments ( 112 963) ( 113 824) ( 118 988) ( 121 363) Total (2 891 654) (2 953 495) (3 060 314) (3 086 150)
Net Cash Flows from Operating Activities (A) 214 629) 235 248) 232 838) 237 757)
Net Cash Flows from Investments in Non-Financial Assets Sales of Non-Financial Assets 49 543) 39 548) 39 553) 39 558) Purchases of Non-Financial Assets ( 181 020) ( 150 383) ( 154 988) ( 142 559) Total (B) ( 131 477) ( 110 835) ( 115 435) ( 103 001)
Net Cash Flows from Investments in Financial Assets for Policy Purposes (C) 19 823) 16 342) 4 787) 3 753) Net Cash Flows from Investments in Financial Assets for Liquidity Purposes (D) 5 000) 5 000) 5 000) 5 000)
Net Cash Flows from Financing Activities Advances Received (net) ( 41 758) ( 12 644) ( 12 734) ( 5 756) Borrowing (net) ( 151 862) ( 183 378) ( 263 708) ( 30 109) Deposits Received (net) 978) ( 459) 125) 35) Other Financing (net) 28 555) 55) 55) 55) Total (E) ( 164 087) ( 196 426) ( 276 262) ( 35 775)
Net Increase/(Decrease) in Cash Held1 ( 56 112) ( 50 671) ( 149 072) 107 734)
SURPLUS2 83 152) 124 413) 117 403) 134 756)
208 Chapter 9: Forward Estimates Notes: 1. Net Increase/(Decrease) in Cash Held is equal to A+B+C+D+E. 2. Cash Surplus is equal to A+B
Chapter 9: Forward Estimates 209
10 COMMONWEALTH-STATE FINANCIAL ARRANGEMENTS
Features
• Tasmania's estimated share of Commonwealth sourced revenue in 2003-04 will total $1 860.7 million.
• In 2003-04, Tasmania's share of Goods and Services Tax (GST) revenue is forecast to be $1 299.7 million. This will again be insufficient to meet the Commonwealth's commitment under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA) that Tasmania will be no worse off under these new arrangements than under the previous arrangements.
• Under the terms of the IGA, the Commonwealth will, therefore, again be required to provide Budget Balancing Assistance to Tasmania. In 2003-04, this assistance is estimated to be $9.3 million.
• In 2003-04, Specific Purpose Payments (SPPs), including the Health Care Grant, are expected to total $534.1 million.
• Two major Specific Purpose Revenue agreements, the Commonwealth-State Housing Agreement and Australian Health Care Agreement, are required to be renegotiated with the Commonwealth prior to 1 July 2003. Another major Specific Purpose Payment, the Commonwealth-State/Territory Disability Agreement was due to expire in June 2002 but has been extended and is still under renegotiation. The successful renegotiation of these agreements with the Commonwealth is vital to the sustainable provision of a range of ongoing services to the Tasmanian community.
• The Commonwealth Grants Commission's five-yearly review of the methodology used to determine general purpose revenue sharing relativities is to be completed in early 2004. Fiscal equalisation remains a key foundation of an equitable and efficient system of Commonwealth-State financial relations and Tasmania continues to contribute actively to the review process.
Chapter 10: Commonwealth-State Financial Arrangements 211 INTRODUCTION
Commonwealth sourced revenue is a vital source of revenue for all states and territories (states). This revenue is required to address the imbalance between the revenue raising powers and functional responsibilities of Commonwealth and State governments. In 2000-01, the Commonwealth raised 72 per cent of total General Government revenue but had direct responsibility for approximately 57 per cent of total outlays. While this imbalance existed prior to the implementation of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA), the degree of imbalance has increased further since 1 July 2000, as a result of the reforms implemented under the Agreement. In 2002-03, it is estimated that the Commonwealth will derive 73 per cent of total revenue, but only be directly responsible for 58 per cent of General Government expenditure.
In 2003-04, it is expected that Commonwealth sourced revenue will comprise 62 per cent of the State's total General Government sector revenue.
There are many different factors that influence the quantum of revenue transferred from the Commonwealth to the states. Foremost amongst these factors are the provisions of the IGA, the level of funds Tasmania would have received under the previous arrangements, actions taken by the Commonwealth in relation to the IGA and the determinations of the Commonwealth Grants Commission (CGC).
The purpose of this Chapter is to provide information regarding:
• the importance of Commonwealth sourced revenue to the State Budget;
• the significant issues currently affecting Commonwealth-State financial arrangements; and
• the magnitude and nature of the estimated Commonwealth sourced revenues to be received by the State during 2003-04.
Background information is also provided in the appendices to this Chapter that explains why Commonwealth payments to the states are essential and the role of the CGC.
This Chapter has been prepared using the accrual Uniform Presentation Framework (UPF). Consequently, some of the contents will differ from prior years because previous Budgets presented estimates only of those Commonwealth receipts that were paid into the Consolidated Fund. Under the new accruals presentation, this Chapter now includes Commonwealth receipts that will pass through the Special Deposits and Trust Fund. This will be reflected primarily in the presentation of Specific Purpose Payments (SPPs) estimates.
212 Chapter 10: Commonwealth-State Financial Arrangements SUMMARY OF COMMONWEALTH SOURCED REVENUE
The following table provides a summary of the estimated magnitude and nature of Commonwealth sourced revenue to be received by Tasmania in 2003-04.
Table 10.1: Summary of Commonwealth Sourced Revenue, 2003-04 2002-03 2003-04 Budget Budget $m $m General Purpose Payments GST Revenue 1 199.5 1 299.7 Budget Balancing Assistance 52.7 9.3 Total General Purpose Payments (Equivalent to the Guaranteed Minimum Amount) 1 252.2 1 309.0
Other Commonwealth Sourced Revenue Competition Payments to Tasmania 17.4 17.6 Specific Purpose Payments 380.6 374.4 Health Care Grant 153.4 159.7 Total Other 551.4 551.7
Total Commonwealth Revenue 1 803.6 1 860.7
Source: Commonwealth Statements of Estimated Payments March 2002 and March 2003 Treasurers' Conferences, with adjustment to reflect the impact of increased 2001-02 population estimates on General Purpose Payments in 2003-04.
Tasmania's share of the GST pool of revenue now comprises just over 70 per cent of total receipts from the Commonwealth. The second largest individual source of Commonwealth revenue is the Health Care Grant, which will comprise 8.6 per cent of the total estimated Commonwealth sourced revenue in 2003-04. Total receipts from the Commonwealth in 2003-04 are projected to increase by 3.2 per cent on 2002-03 levels. Reasons for this increase, and further information on the calculation of the various Commonwealth revenue amounts, are provided later in this Chapter.
Chart 10.1 highlights the significance of Commonwealth sourced revenue to the State Budget. In 2003-04, it is estimated that total Commonwealth sourced revenue will comprise over 62 per cent of total revenue. This is approximately 3.5 times the level of funding which the State generates from its own taxation revenue sources.
Chapter 10: Commonwealth-State Financial Arrangements 213 Chart 10.1: Commonwealth Sourced Revenue as a Proportion of Total Revenue, 2003-04
Returns from GBEs, State Taxation SOCs and State $533.1m Authorities $156.6m (17.8%) (5.2%) Sales of Goods and Services $297.6m (10.0%) Commonwealth Specific Purpose Payments $534.1m (17.9%) Other Revenue $142m (4.7%)
Commonwealth General Purpose Payments $1326.6m (44.4%)
Chart 10.2 summarises the major trends that have occurred in Commonwealth sourced revenue over the past decade. Major points to be made in relation to Chart 10.2 are:
• a major change in the composition of Commonwealth transfers of revenue to the states occurred from 2000-01 as a result of the implementation of the IGA. This change resulted in a significant increase in the level of General Purpose Payments (GPPs);
• in aggregate, the transfer of revenue by the Commonwealth to the states has gradually increased over time;
• while GPPs increased as a consequence of the IGA, this increase has been offset by decreases in State taxes that were required under the IGA. In addition, the increase in GPPs also offset significantly increased expenditure required of the State under the national tax reform arrangements; and
• when both Commonwealth sourced revenue and the revenue derived from State taxes are taken into account, in real terms the total revenue to Tasmania from these sources has changed little under the IGA arrangements.
214 Chapter 10: Commonwealth-State Financial Arrangements Chart 10.2: Major Sources of Budget Revenue (Real Terms)
1400
1200
1000
800
600
400
$'Million Dollars) (2002-03 200
0 (est) (est) 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04
Commonwealth SPPs Commonwealth GPPs State Taxes
Sources: Commonwealth Budget Paper Number 3 (various years); Commonwealth Statement of Estimated Payments, March 2003 Treasurers' Conference; Department of Treasury and Finance, Tasmanian Budget Paper No 1 Budget Overview (various years).
Chapter 10: Commonwealth-State Financial Arrangements 215 MAJOR ISSUES IN COMMONWEALTH–STATE FINANCIAL RELATIONS
The following sections highlight a number of major issues that currently exist in the area of Commonwealth-State financial relations.
Commonwealth Grants Commission's 2003 Update Report
As with its 2002 Report, the Commonwealth Grants Commission's (CGC) 2003 Update Report provides information on GST relativities and Financial Assistance Grant (FAG) relativities.
In 2003-04, based on available information, the level of general purpose funding to Tasmania, New South Wales, Victoria, South Australia and Western Australia will be determined by the Guaranteed Minimum Amount (GMA). Queensland, Northern Territory and the Australian Capital Territory are expected to receive their GST relativity based share of the GST pool.
For those states still receiving the GMA, the FAG relativity will again have the greatest impact on overall funding in the calculation of the GMA. The GST relativity will determine the mix of GST revenue and Budget Balancing Assistance (BBA) received to make up the GMA.
In relation to Tasmania's FAG relativity for 2003-04, the CGC has calculated that this has increased from the level calculated for 2002-03. This change in the FAG relativity for Tasmania, together with the change in Tasmania's population share, will result in an increase in Tasmania's share of FAG revenue foregone by $61.5 million in 2003-04.
The main reason for the increase in Tasmania's relativity was the use of more up-to-date data in the Commission's assessment and the decline in the relative importance of some expenditure and revenue categories in which Tasmania is assessed to have a relative advantage. For example, Tasmania's assessed relative advantage in relation to debt charges (interest payments) became less important as the relative importance of interest payments to the State budget has declined. However, Tasmania's assessed relative disadvantage in raising revenue from stamp duty on conveyances has become more significant as the relative importance of this revenue source across all jurisdictions has increased.
Impact of the Intergovernmental Agreement on Commonwealth Sourced Revenue Background
Under the IGA signed by the states and the Commonwealth in June 1999, all parties agreed to a range of important commitments and reforms.
The most significant commitment made by the Commonwealth under the IGA was the guarantee that the budgetary position of each individual state would be no worse off under the new arrangements than it would have been had the reforms not been implemented. This commitment was an acknowledgment of the fact that it would be some years before the receipts generated by the GST would equal or exceed the level of Commonwealth revenue transferred to the states prior to the implementation of the reforms on 1 July 2000, plus the State taxation revenues foregone and increased expenditures incurred under the IGA
216 Chapter 10: Commonwealth-State Financial Arrangements arrangements. In the years until GST revenues are sufficient to cover the states' IGA commitments, each state's Commonwealth revenue is to be determined by the calculation of a GMA and the making of BBA payments to the states to 'top-up' the GST revenue during this period. Impact of IGA Changes on Commonwealth Sourced Revenue
Due to the nature of the commitments included in the IGA and the level of revenue generated by the GST, Tasmania has not yet financially benefited from the revised Commonwealth-State financial arrangements. While the level of GST revenue has increased in each year since its introduction, until such time as that revenue exceeds the total GMA required for each state, any increase in GST revenue will solely benefit the Commonwealth by reducing the top-up payments it needs to make to ensure that the States' budget position is not financially disadvantaged. Tasmania is not currently expected to derive any significant financial benefit from these arrangements until at least 2006-07, some six years after the implementation of the IGA.
Chart 10.3 below shows that while Tasmania may, based on current estimates, benefit marginally from the implementation of the IGA in 2004-05, the State will once again require modest BBA in 2005-06. It is emphasised that these are estimates only and comparatively small changes in a number of factors, including GST relativities, the level of GST revenue and the GMA calculation methodology, could result in the need for BBA payments in either year. In particular, the CGC is currently finalising its major review of the methodology used to assess the relative needs of each state, and the outcomes of this review will impact on the GMA for the five years commencing in 2004-05. The CGC Review is discussed further in this Chapter.
It is only from 2006-07 that Tasmania's share of GST revenue is expected to exceed its GMA by enough to engender some confidence in the forecast that the State will be better off in that year than it would have been prior to the IGA.
Chart 10.3 Estimated Impact of the IGA on Tasmania in the Absence of BBA, 2001-02 to 2007-08
60 40 20 0 -20 -40
$m -60 -80 -100 -120 -140 -160 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Source: Commonwealth Budget 2002-03, Commonwealth Statement of Estimated Payments - March 2003 Treasurers' Conference.
Chapter 10: Commonwealth-State Financial Arrangements 217 Table 10.2 provides an indication of the year in which each state is expected to permanently leave the 'guarantee period' and no longer be in need of BBA payments. Once out of this transitional period, the level of Commonwealth funding to any given state will be determined by its share of GST revenue, rather than its GMA. These estimates were provided by the Commonwealth at the March 2003 Treasurers' Conference.
Table 10.2: Year when States permanently out of the Guarantee Period Year Out of State/Territory Guarantee Period
Queensland 2003-04 Northern Territory 2003-04 Australian Capital Territory 2003-04
Tasmania 2006-07 Western Australia 2006-07
South Australia 2007-08
New South Wales 2008-09 Victoria 2008-09
Source: Heads of Treasuries Report to the Treasurers' Conference, March 2003.
It should be noted that while neither Tasmania nor Western Australia are expected to require BBA in 2004-05, it is anticipated that both jurisdictions will need BBA again in 2005-06, before permanently coming out of the guarantee period in 2006-07. This is predominantly due to the abolition of debits tax in 2005 and the additional own-source revenue foregone by the states as a result.
2003 Treasurers' Conference
The IGA established the Treasurers' Conference comprising the Commonwealth Treasurer and the Treasurers of all states.
The major functions of the Treasurers' Conference are to:
• oversight the operation of the GST;
• oversight and coordinate the implementation of the IGA;
• discuss the CGC recommendations prior to the Commonwealth Treasurer making a determination; and
• make recommendations to the Commonwealth Treasurer on the GMA applying to each state under the transitional arrangements.
The Treasurers' Conference last met on 28 March 2003. At this meeting, the Treasurers:
• discussed the CGC recommendations and made recommendations to the Commonwealth Treasurer in relation to the GMA for each state;
• agreed to amendments to the Australian Taxation Office Performance Agreement to incorporate additional performance indicators and to provide additional GST data to the states; and
218 Chapter 10: Commonwealth-State Financial Arrangements • noted the report of the GST Administration Subcommittee for 2002-03.
State and Territory Share of National Revenues
A paper, prepared by the Northern Territory Treasury, was presented at the March 2003 Treasurers' Conference, clarifying the extent of the benefit to the states of the reforms to Commonwealth-State financial arrangements. The following conclusions can be drawn from the paper:
• the states' share of national tax revenue and expenses is forecast to continue to decline over the forward estimates period. Conversely, the Commonwealth's share of national revenue and expenses is forecast to continue to increase over the same period; and
• SPPs and own-purpose revenue will remain an important source of revenue to the states in the future. Either, or both, revenue sources will need to increase if states are to avoid experiencing a declining share of national tax revenues.
Commonwealth Grants Commission 2004 Major Review
Every five years, the Commonwealth Grants Commission (CGC) undertakes a review of the methodology it uses to assess the relative needs of each state. The most recent major CGC Review was completed in 1999 and the current Review is to be completed by 2004. The methodology determined through the 2004 Review will be used by the CGC for the following five years to determine states' needs and ultimately the level of Commonwealth General Purpose Payments to be received by Tasmania.
Tasmania has made significant contributions to the Review thus far, including:
• the provision of a major submission in April 2002;
• hosting workplace discussions between the CGC (staff and commissioners) and staff in Government service delivery areas around Tasmania eg Burnie Court Rooms and Launceston General Hospital;
• participation at both staff and commissioner level conferences in October 2002 and November 2002;
• the provision of a rejoinder submission in February 2003;
• participation in bi-lateral discussions with the Commission in March 2003; and
• the completion of CGC information and data requests on an on-going basis throughout the Review.
The Review is now reaching its final stages with the CGC due to release preliminary calculations under the new methodology in July 2003. Following the release of these preliminary calculations Tasmania will be heavily involved in further analysis and consultations. The CGC is required to finalise states' relativities under the new methodology by 25 February 2004.
Major Specific Purpose Payment Issues
As indicated earlier in this Chapter, Specific Purpose Payments (SPPs) from the Commonwealth are a significant source of funds for Tasmania. Detailed information on SPPs is provided later in this Chapter. This section highlights some major issues currently existing in relation to SPPs.
Chapter 10: Commonwealth-State Financial Arrangements 219 There are three major SPP agreements currently under renegotiation. These are the Australian Health Care Agreement (AHCA), the Commonwealth-State/Territory Disability Agreement (CSTDA) and the Commonwealth-State Housing Agreement (CSHA). The current status of each is reported below.
In addition to the current renegotiations, the Commonwealth has released a paper, entitled 'Auslink', on national land transport reforms, which has funding implications for the states. The House of Representatives Standing Committee on Economics, Finance and Public Administration Inquiry into Local Government and Cost Shifting also has potential implications for future funding arrangements between the Commonwealth and the states. Australian Health Care Agreement (AHCA)
The AHCA expires on 30 June 2003. The AHCA governs the provision of approximately $160.0 million in Commonwealth payments provided to Tasmania in the form of the Health Care Grant. Funding provided under this agreement primarily facilitates the provision of hospital services.
State Health Ministers met on 29 November 2002. At that meeting, states indicated that they were not prepared to commit to a reform agenda in the absence of any commitment to funding for that agenda. The Commonwealth advised the states to present their case for consideration and that this would be at the Health Ministers' meeting scheduled for 21 February 2003.
In response the states prepared a joint paper outlining their position for consideration at the February meeting. However, the Commonwealth did not attend the meeting and no response has been provided to the states' paper.
The Commonwealth presented its initial offer to the states in late April 2003. Under the offer, the Commonwealth will provide the states with $42.0 billion over five years, which is $1.0 billion less than would be provided under the current agreement. The Commonwealth offer is subject to a number of conditions, including the requirement that states at least match the rate of growth in the Commonwealth's contribution, commit to a specified level of funding over each of the five years of the next agreement and report each year on progress against this commitment.
At the May 2003 Health Ministers' meeting, all states rejected the Commonwealth's offer. The states are concerned that the offer falls short of the current arrangements, let alone the level of Commonwealth funding which the states have estimated is needed to fund hospitals on a sustainable basis. They are also concerned about the requirement to match the growth in Commonwealth funding, particularly given hospital funding represents a much smaller proportion of the Commonwealth budget then it does of the state budgets and Commonwealth revenue is growing much faster than state revenues. Commonwealth-State/Territory Disability Agreement (CSTDA)
The second CSTDA was due to expire on 30 June 2002. Rollover arrangements identical to the Agreement were initially extended to the end of October 2002 to allow negotiations for a new Agreement to be finalised. The Commonwealth Minister for Family and Community Services has since agreed to further extensions while the new agreement is negotiated.
The main issue being debated is the form of states' commitment to disability services. In order to be satisfied that the states will not reduce their effort in this area as a result of additional Commonwealth funding being provided, the Commonwealth is insisting that the states match the rate of growth in its contribution. However, states consider that their track record in providing growth funds in disability services should be
220 Chapter 10: Commonwealth-State Financial Arrangements sufficient to overcome the Commonwealth's concerns. The need to retain budgetary flexibility is also a key consideration for the states. The issue is currently unresolved. Commonwealth-State Housing Agreement (CSHA)
The CSHA expires on 30 June 2003. Commonwealth funding provided under the CSHA to Tasmania totals approximately $22.0 million per annum and is provided to assist with meeting the cost of the provision of low cost housing to the community.
The current agreement commenced on 1 July 1999 and comprises an overarching multilateral agreement between the Commonwealth and all states, which sets the parameters for separate (although largely consistent) bilateral agreements between each jurisdiction and the Commonwealth.
In November 2002, the Commonwealth Minister wrote to the states presenting the Commonwealth offer for the new CSHA. This offer proposed:
• the new CSHA to operate for five years from 2003-04 to 2007-08;
• an efficiency dividend of one per cent to continue to apply each year;
• notwithstanding the efficiency dividend, indexation to be introduced from 2004-05;
• GST compensation payments to cease;
• the option of withholding five per cent of CSHA funds from states not cooperating with the Commonwealth's welfare reforms, nor encouraging private sector involvement; and
• the present matching arrangements to continue.
The states remain concerned at the low level of funding offered by the Commonwealth, particularly if GST compensation payments are discontinued. There is also concern regarding the proposed five per cent penalty (a new condition) and the continuation of matching conditions that hamper states' flexibility in allocating funds across programs. Negotiations with the Commonwealth are continuing in order to resolve these issues.
Commonwealth Approach to SPPs
There are a number of common themes emerging from current SPP negotiations and other developments in relation to SPPs at a national level.
In July 2002, Commonwealth Treasury wrote to all state Treasuries outlining the Commonwealth's approach to SPPs. Key features of the Commonwealth's new approach to SPPs are:
• a focus on pursuing Commonwealth policy objectives (as opposed to providing funding for the states). This can be expected to result in more conditions being imposed on SPPs to meet Commonwealth objectives;
• a greater focus on accountability requirements, including:
− the introduction of outcomes/outputs accountability measures; and
− potentially greater reporting requirements;
• a proportion of funding being contingent on states' 'timely reporting of agreed financial and performance information to the satisfaction of the responsible Commonwealth Minister'; and
Chapter 10: Commonwealth-State Financial Arrangements 221 • SPPs should be indexed on the basis of broad, economy wide cost indices.
States are concerned about the intrusion by the Commonwealth into areas of state responsibility. Further, many of the conditions which the Commonwealth seek to impose impact adversely on state budget flexibility, as well as the efficiency and effectiveness of the provision of government services.
In addition to negotiations on individual SPPs, state Treasuries are continuing to engage the Commonwealth Treasury and the Department of Finance and Administration on SPP arrangements more generally with a view to achieving more favourable SPP outcomes for the states. Monitoring of Commonwealth SPP Commitments
The terms of the IGA include a commitment that 'The Commonwealth will continue to provide SPPs to the States and Territories and has no intention of cutting aggregate SPPs as part of the reform process set out in this Agreement, consistent with the objective of the State and Territory Governments being financially better off under the new arrangements.'
This commitment, provided by the Commonwealth in relation to the maintenance of the level of aggregate SPPs to the states, was a crucial factor in reaching agreement on the IGA. It was included in the IGA to address the concern held by the states that, when the states ultimately started to benefit from the increase in GST revenue, the Commonwealth would use this situation as an opportunity to reduce its funding contribution to State services which are the subject of SPP agreements.
In the light of the importance of this issue to the states, the states have established a monitoring process to assess whether the Commonwealth is meeting its commitment in relation to the level of SPPs. While the Commonwealth has refused to endorse these monitoring arrangements, the monitoring has shown that the Commonwealth has met its commitments in relation to 2001-02 and, based on its 2002-03 Mid-Year Economic and Fiscal Outlook, is expected to meet its commitments in relation to 2002-03 and 2003-04.
The Commonwealth commitment in relation to SPPs has been assessed by comparing the level of SPPs made in 2001-02, and those estimated to be made in 2002-03 and 2003-04, with the level that would have been necessary to maintain the level of SPPs in 1999-00 in real per capita terms. While this comparison shows that Commonwealth funding of SPPs has been maintained in real per capita terms compared with 1999-00, there is estimated to be a reduction, in real per capita terms, in the level of payments in 2002-03 compared with 2001-02.
Notwithstanding the results of the SPP monitoring undertaken to date, the ongoing importance of this monitoring is emphasised by continued suggestions from Commonwealth agencies and Ministers that consideration is being given to reducing funding provided under SPP agreements on the basis that states have access to additional revenue through the GST. This notion is totally contrary to the spirit and letter of the IGA commitment in relation to SPPs. The IGA, unlike other agreements, is enshrined in Commonwealth legislation and Tasmania will be constantly vigilant in keeping the Commonwealth to its commitment in the IGA not to cut the aggregate level of SPPs as part of the reform process.
222 Chapter 10: Commonwealth-State Financial Arrangements COMMONWEALTH SOURCED REVENUE - DETAILED INFORMATION
The following sections provide detailed information on Commonwealth sourced revenue and the estimated level of receipts from the Commonwealth in 2003-04. The different types of Commonwealth sourced revenue identified are:
• General Purpose Payments;
• Competition Payments made to Tasmania;
• the Health Care Grant (HCG); and
• Specific Purpose Payments.
General Purpose Payments Description
General Purpose Payments (GPPs) from the Commonwealth can be applied at the state's discretion, whereas Specific Purpose Payments must be spent in accordance with purposes agreed to between the Commonwealth and the states (or as prescribed by the Commonwealth). Prior to implementation of the IGA in July 2000, the largest component of Commonwealth sourced revenue and GPPs was the FAG. However, as a result of the IGA, FAGs and a number of other revenue items have been replaced by the distribution of GST revenue to the states and the provision of BBA, both of which are also classified as General Purpose Payments.
Under the terms of the IGA, the Commonwealth distributes all the revenue it receives from the GST to the states. As with all jurisdictions, Tasmania's allocation of GST revenue is based on the State's population share, adjusted by a relativity factor that embodies the State's per capita financial needs, based on recommendations by the CGC. The relativity factors are calculated by the CGC, with input from each jurisdiction, in accordance with the principle of Horizontal Fiscal Equalisation (HFE). The principle of HFE, the CGC, and its most recent recommendations are discussed in the appendixes to this Chapter.
The level of GPPs received by the State in any financial year is the greater of the GMA or GST revenue share. The GMA is the sum of:
• Commonwealth revenues foregone by the State as a result of reforms agreed to under the IGA;
• additional expenditure incurred by the State as a result of IGA commitments; and
• expenditure savings and increased receipts resulting from national tax changes.
Where, in any given year during the transitional period, Tasmania's GMA exceeds the State's share of GST revenue, the difference between the GMA and the State's GST revenue represents the amount of BBA to be paid to the State by the Commonwealth in relation to that year.
The additional financial assistance provided by the Commonwealth in relation to National Competition Policy outcomes is also classified as a General Purpose Payment in this document. It also should be noted that the HCG, by convention, is identified as a Specific Purpose Payment item in Commonwealth and State
Chapter 10: Commonwealth-State Financial Arrangements 223 Budget Papers, but is applied as if it were general purpose funding because of its link with the GST revenue distribution. There are no general purpose capital grant programs currently in place. Calculation of the Guaranteed Minimum Amount (GMA)
Table 10.3 provides details of the amounts used to calculate the GMA for Tasmania in 2002-03 and 2003-04.
224 Chapter 10: Commonwealth-State Financial Arrangements Table 10.3: Guaranteed Minimum Amount - Tasmania, 2002-03 and 2003-04 2002-03 2003-04 Budget Budget $m $m State Revenues Foregone Financial Assistance Grants1 963.9 1 025.4 Revenue Replacement Payments 210.7 220.5 Financial Institutions Duty 23.6 24.2 Marketable Securities Duty 0.7 0.8 Marketable Securities Duty Needs2 2.4 2.6 1 201.3 1 273.5 Plus Reduced Revenues Gambling Taxes 22.0 25.4 22.0 25.4 Plus Interest Costs Interest Costs 0.6 …. 0.6 …. Plus Additional Expenditures First Home Owners Scheme 21.2 19.4 GST Administration Costs 13.4 13.5 34.6 32.9 Plus Other Items Wholesale Sales Tax Equivalent Payments Foregone 13.0 …. 13.0 …. Minus Reduced Expenditures Off-road Diesel Subsidies 2.2 2.2 Savings from Tax Reform 13.9 14.9 Low Alcohol Beer Subsidies …. 1.7 16.1 18.8 Minus Growth Dividend Remaining State Taxes 3.2 4.1 3.2 4.1
Guaranteed Minimum Amount 1 252.2 1 309.0
Sources: Budget Paper No 1 Budget Overview 2002-03, Commonwealth Statement of Estimated Payments, March 2003 Treasurers' Conference. Notes: 1. Adjusted subsequent to the Heads of Treasuries estimates advice to the March 2003 Treasurers' Conference, to take into account the revised 2003-04 FAG pool estimates flowing from updated 2001-02 population figures. 2. The Commonwealth agreed to provide states with the additional funds associated with the CGC needs assessment of Stamp Duty on Marketable Securities. As the duty has been abolished, the CGC no longer makes an assessment of each state's capacity to raise taxation revenue through this source.
Chapter 10: Commonwealth-State Financial Arrangements 225 Reconciliation of the Increase in the GMA for Tasmania
Table 10.4 provides a reconciliation of the estimated General Purpose Revenue from the Commonwealth to Tasmania in 2002-03 and 2003-04.
Table 10.4: Reconciliation of the Guaranteed Minimum Amount from 2002-03 to 2003-04 Amount $m $m
GMA 2002-03 – Budget Estimate 1 252.2
Plus changes in FAGs and HCGs Change due to population share decline (8.5) Change due to higher FAG Relativity 24.5 Change due to indexation and population adjustment of FAG pool 45.5 61.5 Plus changes in State Revenues Foregone Revenue Replacement Payments 9.8 Financial Institutions Duty 0.6 Marketable Securities Duty 0.1 Marketable Securities Duty Needs 0.2 10.7 Plus changes in Reduced Revenues Gambling Taxes 3.4 3.4 Plus changes in Interest Costs Interest Costs (0.6) (0.6) Plus changes in Additional Expense First Home Owners Scheme (1.8) GST Administration 0.1 (1.7) Plus changes in Other Items Wholesale Sales Tax Equivalent Payments Foregone (13.0) (13.0) Minus changes in Reduced Expenditures that are clawed back by the Commonwealth Savings from Tax Reform 1.0 Low Alcohol Beer Subsidies 1.7 2.7 Minus Growth Divided Remaining State Taxes 0.9 0.9 GMA 2003-04 – Budget Estimate 1 309.0
226 Chapter 10: Commonwealth-State Financial Arrangements Sources: Budget Paper No 1 Budget Overview 2002-03; Commonwealth Statement of Estimated Payments, March 2003 Treasurers' Conference, with adjustment to reflect the impact of increased 2001-02 population estimates; Report on State Revenue Sharing Relativities 2003 Update, Commonwealth Grants Commission; Department of Treasury and Finance.
It is estimated that the GMA for Tasmania for 2003-04 will be $1 309.0 million. The major factor in the GMA is the level of FAG revenue foregone by the State. The level of FAGs is determined by the size of the national pool (which is indexed in real per capita terms), Tasmania's population share and the State's FAG relativity. Despite the ongoing increase in Tasmania's population, Tasmania's estimated population share of the national total is predicted to decline in 2003-04. The State's FAG relativity, however, has increased from 1.75186 in 2002-03 to 1.79057 for 2003-04, which is sufficient to ensure that Tasmania's share of the national weighted population and, therefore, the FAG/HCG pool, has increased from an estimated 4.19 per cent to almost 4.26 per cent. When applied to the increased pool of FAG/HCGs, this increased share increases Tasmania's level of FAG foregone by $61.5 million in 2003-04. However, a decline in a number of GMA components, including the forecast of First Home Owners Scheme expenditure and, more particularly, the scheduled discontinuation of compensation through the GMA for Wholesale Sales Tax (WST) tax equivalent payments, which ceased following the introduction of the GST, means that Tasmania's total GMA in 2003-04 will grow by less than the rise in FAG foregone. Total General Purpose Payments (Excluding Competition Payments made to Tasmania)
For 2003-04, it is estimated that Tasmania's share of the GST revenue pool will be less than its GMA. As a result, the State's GMA will determine the level of Commonwealth funding to Tasmania in 2003-04, rather than the level of GST revenue.
Table 10.5 provides an estimate of the amount to be received by Tasmania in 2003-04, in respect of GST revenue and the BBA payment.
Table 10.5: Total Estimated General Purpose Revenue (Excluding Competition Payments to Tasmania), 2002-03 and 2003-04 2002-03 2003-04 Budget Budget $m $m
GST Revenue 1 199.5 1 299.7 Budget Balancing Assistance 52.7 9.3 Total General Purpose Revenue (excluding Competition Payments) 1 252.2 1 309.0
Sources: Budget Paper No 1 Budget Overview 2002-03; Commonwealth Statement of Estimated Payments, March 2003 Treasurers' Conference.
Competition Payments made to Tasmania
The Agreement to Implement the National Competition Policy and Related Reforms signed by the Commonwealth and all states in 1995 provides for the states to receive general revenue grants from the Commonwealth which reflect a share of the expected revenue gains to the Commonwealth arising from states' implementation of the National Competition Policy reform agenda. The Commonwealth agreed to index FAGs in real per capita terms and make separate Competition Payments. The Commonwealth
Chapter 10: Commonwealth-State Financial Arrangements 227 acknowledged that the benefits to the states from the expanded economic activity arising from economic reform would, as a result of the states' limited own-source revenue measures, not otherwise be fully available to them. It is these circumstances that gave rise to Competition Payments, rather than any notion of providing compensation for complying with the process requirements of the NCP. These Competition Payments are being made in three tranches according to a schedule agreed between the Commonwealth and the states at the 1995 Premiers' Conference.
The National Competition Council (NCC) has been charged with the task of assessing the compliance by each state with the conditions governing the making of Competition Payments. Tasmania has received all of its Competition Payments to date, with payments to the State from the third tranche of National Competition Policy Payment funds estimated to reach $17.4 million in 2002-03, subject to NCC assessment of Tasmania's progress toward NCP reform.
Table 10.6: Estimated Competition Payments to Tasmania National Tasmanian Year Total Share1 $m $m
2002-03 estimate 739.8 17.4 2003-04 758.2 17.6 2004-05 777.1 18.2 2005-06 796.5 18.5 2006-07 and future years 796.5 18.5
Source: Department of Treasury and Finance Note: 1. Based on the following assumptions: a continuation of current State population shares and the achievement of NCP targets.
Health Care Grant (HCG)
The AHCAs provide for HCGs to be paid to states for the five years ending 2002-03. The HCG is the single largest source of Commonwealth revenue to the states after GST revenue.
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;
• Payments to assist with implementing the National Mental Health Strategy; and
• A grant from the National Health Development Fund (NHDF) to help finance significant health system restructuring (as agreed between each state and the Commonwealth) as one means of improving the performance of the system. The amount of the grant for 2003-04 is not known at this stage as it is dependant upon the approval of specific projects.
It is important to note that, apart from the mental health and NHDF 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.
228 Chapter 10: Commonwealth-State Financial Arrangements Table 10.7 provides details of the estimated HCG payments for 2002-03 and 2003-04.
Table 10.7: Health Care Grant – Tasmania, 2002-03 and 2003-04 2002-03 2003-04 Components Budget Budget $m $m
Base Grant 152.1 158.1 Other Payments 1.3 1.6 TOTAL 153.4 159.7
Real terms percentage change (2003-04 over 2002-03) 1.8%
Source: Commonwealth Statement of Estimated Payments, March 2003 Treasurers' Conference.
Specific Purpose Payments Description
SPPs are grants provided for specific purposes, either agreed between each state and the Commonwealth, or as prescribed by the Commonwealth.
SPPs are usually determined through the Commonwealth Budget. Recurrent SPPs normally result from specific fixed term funding agreements, usually of three or five years duration. Often the states have to commit to matching these grants dollar for dollar in order to receive the funds being made available. Conditions such as this reduce a state's control over its own Budget priorities by limiting discretion as to how its financial resources can be applied. Consequently, all states are continually looking to remove such conditions from new or renegotiated inter-government agreements.
The largest SPPs are for public hospitals (the HCG which was discussed separately earlier in this section), roads, housing and education. Other significant SPPs include the Home and Community Care (HACC), Supported Accommodation Assistance (SAAP) and Disability Services programs. Together these SPPs, with the exception of the AHCA, which, as indicated above, is not earmarked, represent considerable tied funding.
As discussed earlier in this Chapter, the Commonwealth has guaranteed that funding for SPPs will not be reduced as a result of the reform of Commonwealth-State financial arrangements. This guarantee is being monitored by the Treasurers' Conference. Total Specific Purpose Payments
Total SPPs to Tasmania, including the HCG, are estimated to be $534.1 million in 2003-04, representing a real terms decrease of 2.2 per cent over the 2002-03 estimate of $534.0 million. This can be largely attributed to a decline in capital SPPs driven by a decrease in Commonwealth road programs in 2003-04. Capital receipts by their nature are subject to year-to-year fluctuations.
Table 10.8 compares estimates for the major types of SPPs for 2003-04 with estimates for 2002-03.
Chapter 10: Commonwealth-State Financial Arrangements 229 Table 10.8: Specific Purpose Payments – Tasmania, 2002-03 and 2003-04 Real Terms 2002-03 2003-04 Change Over Program Budget Budget 2002-03 $m $m %
Health Care Grants1 153.4 159.7 1.8 CSHA Block Assistance2 17.7 22.3 23.1 Government Schools 44.2 45.6 0.8 Roads 24.6 20.6 (18.2) HACC and SAAP 22.7 24.3 4.8 Disability Services 17.6 19.1 6.1 Local Government General Purpose Payments 47.0 49.0 1.9 Other3 206.8 193.5 (8.6)
TOTAL 534.0 534.1 (2.2)
Source: Department of Treasury and Finance. Notes: 1. Comprised of grants under the AHCA. 2. Excludes special housing programs. 3. Comprises all remaining SPPs from the Commonwealth to Tasmania, excluding payments direct to Local Government.
Specific Purpose Payments 'To' the State and 'Through' the State
It is important to note that the amounts in Table 10.8 represent the total capital and recurrent SPPs to be made to Tasmania. There are two categories of SPPs:
• those involving payments directly to a state government that assist in meeting its expenditure responsibilities. These are referred to as SPPs 'to' the state; and
• those involving payments to a State Government for on-passing to other bodies such as Local Government and non-government organisations. These are referred to as SPPs 'through' the state.
It is also important to note that in previous years this table only presented estimates of SPPs to be paid into the Consolidated Fund. However, under the new accruals presentation, this Table now also includes SPPs which pass through the Special Deposits and Trust Fund.
Table 10.9 illustrates the destination of Tasmania's SPPs in 2002-03 and 2003-04.
230 Chapter 10: Commonwealth-State Financial Arrangements
Table 10.9: Classification of Specific Purpose Payments by Destination, 2002-03 and 2003-04 Real Terms 2002-03 2003-04 Change Over Destination Budget Budget 2002-03 $m $m %
'Through' the State (to Local Government) 47.0 49.0 1.9 'Through' the State (to other organisations) 146.5 144.2 (3.8) Total 'Through' the State 193.5 193.2 (2.4)
'To' the State 340.5 340.8 (2.2)
TOTAL SPECIFIC PURPOSE PAYMENTS 534.0 534.1 (2.2)
Source: Department of Treasury and Finance.
Total Commonwealth Sourced Revenue
The reforms to Commonwealth-State financial relations significantly increased the level of Commonwealth sourced revenue received by the states from 2000-01. However, as has been emphasised previously, this increase only compensates the states for the revenue foregone and the additional expenditure incurred by all states as a result of the implementation of the IGA. There is no revenue benefit to the states under the revised arrangements until such time as a state has moved out of the guarantee period.
Table 10.10 shows the (nominal) amounts and shares that Tasmania has received in GPPs, SPPs and total Commonwealth sourced revenue over the period 1976-77 to 2003-04. The last column of the table shows the decline in Tasmania's population as a proportion of Australia's population.
Table 10.10 also shows that there has been no increase in Tasmania's share of Commonwealth revenue as a consequence of the reform of Commonwealth-State financial relations under the IGA. For GPPs, levels of funding for 2000-01 and subsequent years cannot be directly compared with earlier years because of the change in funding arrangements under the IGA.
Chapter 10: Commonwealth-State Financial Arrangements 231 Table 10.10: Commonwealth Sourced Revenue - Tasmania General Tasmania's Specific Tasmania's Total Tasmania's Tasmania's Purpose Grant Purpose Grant Grants Grant Population Year Grants Share Grants Share Share Share $m $m $m
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 1996-971 662.8 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 1998-99 726.1 4.3 498.0 3.2 1 224.1 3.6 2.5 1999-00 796.6 4.5 539.6 3.0 1 336.2 3.8 2.5 2000-01 1 098.4 4.0 522.7 2.7 1 621.1 3.5 2.4 2001-02 1 218.9 3.9 535.4 2.6 1 754.3 3.4 2.4 2002-03 (estimate)2,3 1 271.3 4.0 534.0 2.5 1 803.6 3.4 2.4 2003-04 (estimate)2,3 1 326.6 4.0 534.1 2.4 1 860.7 3.4 2.4
Sources: Commonwealth Budget Paper Number 3 (numerous years); Commonwealth Statement of Estimated Payments, March 2003 Treasurers' Conference; Department of Treasury and Finance; and program specific information. Notes: 1. General Purpose Payments for 1996-97 to 1998-99 are net of State Fiscal Contributions and include Competition Revenue from 1997-98 onwards. 2. General Purpose Payments include GST revenue, BBA and Competition Payments made to Tasmania. 3. As a result of the changes to Commonwealth-State financial arrangements, Commonwealth General Purpose Payments to the states from 2000-01 onwards are not directly comparable with previous years. The amount to be received is the same as that which would have been received under the previous Commonwealth-State financial arrangements, after adjustment for the revenue to be foregone and the additional expenditure to be incurred by the states. See discussion under the section 'General Purpose Payments' above.
232 Chapter 10: Commonwealth-State Financial Arrangements APPENDIX 1
Why Commonwealth Revenue is Essential
The transfer of revenue by the Commonwealth to the states is an essential part of the financial relations that exist between the different levels of government in Australia. These transfers are fundamentally linked to the nature of the Australian Federation and the way in which that Federation has developed over the past 100 years. In particular, they reflect the differing powers and responsibilities provided to the different levels of government and the fundamental desire to achieve a level of equity across the different states. The reasons for the revenue transfers to the states are outlined in further detail in the following sections on Vertical Fiscal Imbalance (VFI) and Horizontal Fiscal Equalisation (HFE). Vertical Fiscal Imbalance
Since Federation, a financial relationship between the Commonwealth and State Governments 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 vertical fiscal 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 term VFI refers to the difference between own source revenue and own purpose expenditure commitments for a level of government. This is illustrated in Chart 10.4, which compares the percentage shares of revenue and expenditure on a consolidated basis for the Commonwealth, State and Local Governments. It shows that, in 2002-03, it is estimated that the Commonwealth raised 73 per cent of total (General Government) revenue, whereas its own purpose (General Government) spending was only 58 per cent of total General Government outlays. In contrast, the states' share of this revenue was only 21 per cent, while combined state General Government outlays represented 37 per cent of the national total. Revenues and expenditures for local government are estimated to be broadly in balance.
Chapter 10: Commonwealth-State Financial Arrangements 233 Chart 10.4: Vertical Fiscal Imbalance as at 2002-03
80
70
60
50
Revenue or Own Purpose 40
30 Expenditure
20
10
0 Commonwealth State Local Percentage of Own Source Percentage
Own Purpose Outlays Own Source Revenue
Source: Government Financial Estimates, Australia, 2002-03, Cat. No 5501.0 Australian Bureau of Statistics.
As a result of VFI, there is a requirement for significant Commonwealth financial transfers to the states on an ongoing basis. As detailed in this Chapter, Commonwealth financial assistance to the states is provided in a variety of ways. It comprises General Purpose Payments or recurrent untied grants, and tied grants, known as Specific Purpose Payments, for both recurrent and capital purposes.
The reforms to Commonwealth-State financial relations, which commenced under the IGA on 1 July 2000, resulted in a substantial increase in VFI. The states have foregone FAGs, revenue replacement payments and financial institutions duty, and will cease to collect debits tax and a range of stamp duties in return for receiving all the revenues collected under GST, which is a Commonwealth tax. While VFI will be increased, the intention is that these arrangements will actually provide the states with a greater level of certainty in relation to Commonwealth revenue. This is because they will, in principle, sever the link between Commonwealth general revenue grants to the states and the fiscal policy decisions of the Commonwealth. Horizontal Fiscal Equalisation
In addition to the differences that exist between the powers and responsibilities of the Commonwealth and State Governments, another fundamental 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 General Purpose Payments). The causes of such horizontal fiscal imbalance are complex and varied (demographic, geographic and economic to name a few). Those causes over which a state has no control are the explicit focus of the HFE process.
In the absence of an arrangement whereby Commonwealth General Purpose Payments and HCGs are distributed in accordance with HFE, those states which face unduly high costs and/or a lesser ability to raise revenues, through no fault of their own, would be required to deprive their communities of the
234 Chapter 10: Commonwealth-State Financial Arrangements opportunity to access similar levels and standards of service than those offered elsewhere in Australia. The principle of HFE is therefore an integral element of Commonwealth-State financial transfers.
The HFE framework that 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 states' control (disabilities) as well as differences in policy, practice and operating efficiency. The Commonwealth Grants 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 standard functions without necessarily having to impose above average revenue raising measures on their communities.
The IGA requires the GST revenue to be distributed to the states using the principle of HFE. As the IGA is attached to Commonwealth legislation and to legislation in each of the states, HFE is now effectively given the force of the law. This is a significant benefit to Tasmania, given the importance of the distribution of revenues on an HFE basis for the State.
Chapter 10: Commonwealth-State Financial Arrangements 235 APPENDIX 2
The Commonwealth Grants Commission
Established in 1933, the CGC is an independent Commonwealth Government statutory body charged with the task of making recommendations to the Commonwealth Treasurer, in the form of per capita relativity factors, on how GST revenue and the HCGs should be distributed between the states each year.
Since 1981, the basis for its recommendations has been an assessment of the relative fiscal capacities of the states. These assessments are carried out in accordance with the principle of HFE, which is discussed in the previous section. As a result of this assessment, it is estimated that Tasmania will receive approximately $525.0 million more in 2003-04 than it would have received if Commonwealth General Purpose Revenue and the HCGs were distributed between the states on a per capita basis.
The CGC's assessments provide the states with an important source of comparable data on which to assess their relative performance in the areas of expenditure efficiency and revenue raising effort.
The revenue raising effort of each state can be measured by comparing the own-source revenue actually raised with its revenue raising capacity, as assessed by the CGC, based on 'standardised' revenue. Standardised revenue reflects the amount of revenue that could be raised by a state if national average tax rates were applied to each jurisdiction's revenue base. This 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 is shown for the five years to 2001-02 in Table 10.11. Chart 10.5 shows the revenue raising effort ratio of each state for the 2001-02 financial year, the most recent year for which Commission data are available. In both Table 10.11 and Chart 10.5, the average revenue raising effort of all states is represented by 100.
While the CGC's assessment of Tasmania's revenue raising efforts, in terms of total own-source revenue, has risen from an index of 94.21 at the time of the 2002-03 Budget to 102.39, the gain is primarily the result of an increase in the contributions to state revenue from public trading enterprises. In terms of total taxation, however, the State's revenue raising effort has actually declined since the CGC's 2002 determinations.
Table 10.11: Trends in State Revenue Raising Effort Ratios State/Territory 1997-98 1998-99 1999-00 2000-01 2001-02
New South Wales 102.91 98.14 100.92 100.60 101.87 Victoria 105.40 107.63 95.61 100.12 102.93 Queensland 87.01 97.59 105.85 94.21 84.97 Western Australia 89.84 91.44 93.22 103.80 106.00 South Australia 115.40 107.91 107.90 103.84 108.76 Tasmania 102.26 93.28 89.75 96.86 102.39 Australian Capital Territory 95.07 92.87 107.32 113.60 108.24 Northern Territory 103.06 91.08 97.66 97.23 97.83
236 Chapter 10: Commonwealth-State Financial Arrangements Source: Report on State Revenue Sharing Relativities 2003 Update – Supporting Information, Commonwealth Grants Commission.
Chart 10.5: State Revenue Raising Effort Ratios, 2001-02
110.00
100.00 Ratio
90.00
80.00 NSW Vic Qld WA SA Tas ACT NT
Source: Report on State Revenue Sharing Relativities 2003 Update, Commonwealth Grants Commission.
It should be noted that because the CGC updates the data used to assess revenue raising effort each year, the indices for 1997-98 to 2000-01 in Table 10.11 are not directly comparable with those published last year in Budget Paper No 1 Budget Overview 2002-03.
An index has also been calculated that shows the relative level of service provision for each state. This index for the five years to 2001-02 is presented in Table 10.12. The ratio indicates a state's actual outlays as a proportion of the CGC's assessment of standardised expenditure. Standardised expenditure is simply the average expenditure by all states adjusted for each state to reflect its assessed disabilities.
The index incorporates an adjustment to exclude outlays for depreciation and debt servicing payments. This has been necessary because of the differences in approaches across jurisdictions, which makes a meaningful comparison of these outlays, using this information, very difficult. The figures are shown graphically in Chart 10.6 for 2001-02, which is the most recent year for which Commission data are available.
Chapter 10: Commonwealth-State Financial Arrangements 237 Table 10.12: Trends in State Level of Service Provision Ratios State/Territory 1997-98 1998-99 1999-00 2000-99 2001-02
New South Wales 102.7 100.2 100.4 98.8 98.8 Victoria 97.4 97.5 101.7 100.0 101.0 Queensland 93.4 98.3 89.2 93.9 93.3 Western Australia 102.9 102.0 103.8 101.4 99.2 South Australia 109.9 104.1 111.6 114.5 115.8 Tasmania 91.2 91.9 96.6 99.2 102.4 Australian Capital Territory 103.5 123.1 116.9 123.4 118.4 Northern Territory 99.4 105.0 99.4 95.1 95.5
Source: Report on General Revenue Grant Relativities 2003 Update, Commonwealth Grants Commission.
Chart 10.6: State Level of Service Provision Ratios, 2001-02
120.00
110.00 Ratio
100.00
90.00 NSW Vic Qld WA SA Tas ACT NT
The ratio indicates that Tasmania's aggregate level of service provision is currently above the national average. This means that the Tasmanian Government spent more in 2001-02 on the provision of government services than it would have done had it applied the CGC's standardised level of per capita expenditure. Table 10.12 show that Tasmania's level of service provision has increased consistently over the four years to 2001-02.
238 Chapter 10: Commonwealth-State Financial Arrangements 11 GOVERNMENT BUSINESSES
Features
• The government business sector is an important element of the State's economy. It delivers critical economic infrastructure for the State and provides substantial recurrent revenue to the Budget for redistribution back to the community. The strategic decisions taken, and investments made, by government businesses play a fundamental role in Tasmania's economic development.
• In 2003-04, financial returns to the State from government businesses are expected to total $144.4 million. Dividends are forecast to decrease from $99.1 million in 2002-03 to $78.8 million in 2003-04. Income Tax Equivalents are forecast to increase from $48.2 million in 2002-03 to $60.2 million in 2003-04.
• Financial returns from the State's three electricity businesses (Hydro Tasmania, Aurora Energy Pty Ltd and Transend Networks Pty Ltd) are estimated to amount to $120.3 million in 2003-04, or 83 per cent of total returns.
• The Government has examined the government business portfolio to determine if the equity investments in each business remain in the public interest or whether these funds could be put to better strategic use. The Government has decided that there is a robust case for the sale of three businesses. In addition, the Government has decided to investigate the feasibility of selling non-core assets of Hobart Port Corporation and Forestry Tasmania.
Chapter 11: Government Businesses 239 INTRODUCTION
This chapter provides summary information on the State's government business portfolio, which comprises 14 Government Business Enterprises (GBEs) and nine State-owned Companies (SOCs). Information is provided in relation to:
• the policy rationale for the Government maintaining a business portfolio;
• the level of financial returns paid to the State by government businesses (Table 11.1);
• the contribution that government businesses are making to the economic development of Tasmania;
• corporate governance developments in the government business sector; and
• profiles of GBEs and SOCs.
The government business portfolio currently extends across many commercial markets including primary industries, port operations, transport, financial services, construction, forestry and energy industries.
GBEs undertake commercial trading activities and are subject to the provisions of the Government Business Enterprises Act 1995 (GBE Act), and to provisions contained in their enabling legislation.
SOCs operate on a fully commercial basis and, while established by enabling legislation, are mainly governed by the requirements of the Commonwealth's Corporations Act 2001.
Summary information for each GBE and SOC is provided in Table 11.2. Full details on the operations and performance of each GBE, SOC and statutory authority for 2002-03 will be available in their respective annual reports, which are required to be tabled in Parliament by 30 November 2003.
RATIONALE FOR GOVERNMENT BUSINESS OWNERSHIP
Government businesses provide a source of revenue to the Budget, through dividends and other financial returns, to support the delivery of Government programs. Total returns from the Government business sector account for a small proportion of total Budget revenue. However, these returns are important at the margin, given the largely fixed nature of Government expenditure commitments. Therefore, from a Budget perspective, there is a need for a consistent and appropriate level of returns from each business.
Government businesses also provide a vehicle for the Government to pursue industry development or infrastructure objectives. The developments in the energy sector over the past few years and the Government's decision to pursue, through TT-Line, the acquisition of Spirit of Tasmania I and Spirit of Tasmania II are key examples of the importance of Government ownership in driving development opportunities that have a whole-of-State perspective and contribute to Tasmania's economic development.
240 Chapter 11: Government Businesses FINANCIAL RETURNS FROM GOVERNMENT BUSINESSES
In 2003-04, financial returns to the State from government businesses are expected to total $144.4 million, around five per cent lower than the budgeted returns of $152.1 million in 2002-03. Table 11.1 and Chart 11.1 show the actual financial returns from government businesses, in relation to guarantee fees, tax equivalents and dividends, for 2000-01 and 2001-02 and estimated financial returns for 2002-03 and 2003-04.
The financial returns to the State are affected in the short-term by the phasing out of the $40 million per annum special dividend payment made by Hydro Tasmania. The Government has agreed that the special dividend will be phased out over a three-year period, commencing in 2003-04. In each of 2003-04, 2004-05 and 2005-06, the special dividend from Hydro Tasmania will be determined such that the total dividend paid by Hydro Tasmania (ordinary dividend plus special dividend) will be at least $40.0 million. By 2006-07, no special dividend will be paid and dividends will be based purely on Hydro Tasmania's current performance. The Government has taken this decision to put its relationship with Hydro Tasmania as shareholder on a basis more appropriate to the circumstances which will apply after Tasmania's entry to the National Energy Market (NEM). NEM entry will significantly change Hydro Tasmania's business environment. In this more competitive environment, returns to the shareholder must reflect Hydro Tasmania's current profitability and not be dominated by a fixed return, unrelated to current performance.
The projected increase in income tax equivalent receipts in 2003-04 is largely a result of changes in Hydro Tasmania's tax position. Hydro Tasmania's tax equivalent payments in 2002-03 were significantly reduced, owing to a prepayment of tax in the two previous years, totalling $11.6 million. As that prepayment has been absorbed, Hydro Tasmania's tax position will return to a normal level in 2003-04.
Chapter 11: Government Businesses 241 Table 11.1: Financial Returns from Government Businesses 2000-01 2001-02 2002-03 2003-04 Actual Actual Budget Budget $'000 $'000 $'000 $'000
Guarantee Fees1 4 281 4 846 4 721 5 425 Dividends2 83 762 83 854 99 090 78 790 Wholesale Sales Tax Equivalents3 1 289 …. …. …. Income Tax Equivalents4 45 653 71 043 48 242 60 223
TOTAL 134 985 159 743 152 053 144 438
Notes: 1. The projected increase in guarantee fees in 2003-04 is largely a result of higher debt carried by TT-Line associated with the purchase of the two new vessels, Spirit of Tasmania I and Spirit of Tasmania II. 2. The projected decline in dividends from 2002-03 to 2003-04 is primarily as a result of the beginning of a phasing out of the special dividend payment by Hydro Tasmania. 3. On 1 July 2000, the Commonwealth Government abolished wholesale sales tax as part of its National Tax Reforms. Accordingly, wholesale sales tax equivalents collected in 2000-01 related to transactions that occurred prior to 1 July 2000. 4. The projected increase in income tax equivalent receipts in 2003-04 is largely a result of Hydro Tasmania's tax payable position returning to a normal level, consistent with that which existed prior to the pre-payment of income tax equivalents in 2001-02. The increase in income tax equivalent receipts in 2001-02 reflected an increase in profitability for Hydro Tasmania and Aurora, as well as a one off tax payment by Aurora as part of the Pay As You Go (PAYG) reforms.
Chart 11.1: Financial Returns from Government Businesses
180
160
140
120
100
80 $ million $ 60
40
20
0 Guarantee Fees Dividends Wholesale Sales Income Tax Total Tax Equivalents Equivalents
2000-01 2001-02 2002-03 (est) 2003-04 (est)
242 Chapter 11: Government Businesses CONTRIBUTION TO ECONOMIC DEVELOPMENT IN TASMANIA
Government businesses are not only significant in terms of their combined size (see Table 11.2) but are major contributors to the economic development of Tasmania. In addition to providing significant financial returns to the State and over three and a half thousand jobs (FTE basis), government businesses deliver some of the State's most important economic infrastructure and, through their strategic directions and investments, play a fundamental role in the economic development of the State.
Tasmania's energy sector has entered a new expansion era, unprecedented since the initial development of the State's hydro system. Tasmania is implementing two nationally significant energy infrastructure projects - Basslink and the Tasmania Natural Gas Project (TNGP). These projects, with a combined investment of over $1.25 billion, will diversify the State's energy sector, introduce competition and create an environment for sustainable economic development. Basslink will enable large-scale development of the State's world-class wind resource, with flow-on developments in the local assembly and manufacturing of wind generation equipment.
While the Government has actively facilitated these infrastructure developments and provided the broad regulatory framework within which they will progress, the State's electricity entities are playing pivotal commercial roles in bringing these projects to fruition.
The introduction of the two new vessels, Spirit of Tasmania I and Spirit of Tasmania II, has been a highly successful initiative on the part of the Government and TT-Line. The State's tourism sector has seen significant increases in interstate visitors since September 2002, which is having a flow-on impact on additional investment in the industry.
Forestry Tasmania, as custodian and manager of over 40 per cent of the State's forests, plays a central role in an industry that contributes about $1.0 billion each year to the Tasmanian economy. Forestry Tasmania is also facilitating the development of world-class value adding activities within the State, including the Southwood project, as well as the continued promotion of forestry associated tourism infrastructure with the Tahune Airwalk and the Dismal Swamp Maze and Visitor Centre. Basslink
Basslink is a 480 MW undersea cable that will interconnect Tasmania with the national electricity grid, via Victoria, which is being progressed by the project owner Basslink Pty Ltd. The link will enable Tasmania to join the NEM and offers significant strategic benefits to Tasmania, Victoria and Australia as a whole. Moreover, Basslink offers an important commercial opportunity for Hydro Tasmania to realise the full value of its hydro system, delivering renewable and peaking power.
This coalition of interest has been pivotal in securing Basslink. Hydro Tasmania has taken a leading role in underpinning the commerciality of this project, while the Government is securing the State's entry into the NEM and is implementing the associated energy reform framework (eg key legislation was passed by Parliament in April 2003).
Chapter 11: Government Businesses 243 Basslink will provide Tasmania with a reliable and flexible electricity supply response to meet its changing electricity needs at a competitive cost. The combination of Basslink and NEM participation will:
• introduce competition and customer choice in electricity generation by providing access to the Tasmanian market for interstate generators and encouraging new market entrants in retailing;
• provide a robust framework for new investment in the Tasmanian electricity supply industry;
• capture the synergies available from interconnecting the State's hydro system with the predominantly thermal mainland system, both in terms of improving security of supply and in electricity prices;
• enable the development of Tasmania's world-class wind resource and thereby assist Australia in meeting its international greenhouse gas commitments; and
• provide significant economic benefits to the Tasmanian and Victorian economies, particularly in the construction phase.
Significant efforts by the Basslink Development Board, Hydro Tasmania, the other State-owned electricity businesses, Basslink Pty Ltd and other commercial partners culminated in all necessary approvals being granted on 13 September 2002 and financial close occurring on 29 November 2002. Construction in Tasmania began in early 2003. The completion of Basslink, currently anticipated to occur in November 2005, will enable electricity to be traded with other states for the first time. Wind
Analysis of wind farm development opportunities in Tasmania indicates that the State has some of the highest potential wind sites in Australia. As a result, Tasmania has been the subject of much interest from a number of potential private operators of wind generation.
Tasmania has large areas of land where wind power development is compatible with current land use. The feasibility of negotiating agreements for land access for the purposes of investigation and ultimately development of wind generation has been clearly established. By providing access to the NEM, the completion of Basslink will enable Tasmania to develop its renewable wind resources – creating employment and growth opportunities. Without Basslink, exploitation of Tasmania's wind resource would be limited to the natural growth in Tasmania's own electricity needs.
Building on its experience on the Bass Strait Islands, Hydro Tasmania is leading the way in the development of wind generation in Tasmania. It has commenced the development of a wind farm on the Woolnorth property in the North-West of Tasmania. The initial stage of the development has been completed, with 10.5 MW of capacity installed and on-line in August 2002. Construction is underway on the Bluff Point stage and is expected to be completed by late 2003. When fully developed, the Woolnorth wind farm will have 130 MW of capacity.
In addition to Woolnorth, Hydro Tasmania is progressing the development of several other wind projects, with planned staged developments for the Heemskirk Wind Farm (West Coast) and Little Musselroe Bay (North-East Coast) with a potential combined capacity of 290 MW. These projects have the potential to inject significant funds into the local economy.
The Government considers the development of Tasmania's renewable energy base as one of the key strategic opportunities and public benefits of Basslink and NEM participation. It is, therefore, keen to promote the development of the State's wind resources by both Hydro Tasmania and other developers.
244 Chapter 11: Government Businesses Wind-based manufacturing
In February 2002, Hydro Tasmania announced a major partnership with the world's leading wind turbine manufacturer, Vestas. The partnership was formalised with Hydro Tasmania giving a Notice to Proceed to the Danish manufacturer for supply of wind turbines for Hydro Tasmania's first wind farm development at Woolnorth. In order to meet the growth expected in the Australian market, Vestas has committed to the assembly of the turbine nacelles and the manufacture of fibreglass components for the turbines in northern Tasmania. The nacelle assembly factory is now under construction at Wynyard and should be producing nacelles by July 2003.
Hydro Tasmania's order with Vestas is the largest placed in Australia and demonstrates that Tasmania has achieved 'first-mover' advantage leading to the establishment of wind component manufacturing in Australia. With the approval for the Basslink development, Vestas is now considering an investment in a blade factory. The project value, including operations and maintenance support and civil works, is likely to amount to some $200.0 million over the life of the agreement. Natural Gas
The Tasmania Natural Gas Project is progressing well. Duke Energy International has completed the construction and testing of its transmission pipeline of 305 km from Victoria to Tasmania as well as a further 430 km of pipeline in the southern lateral to Bridgewater and the northern lateral to Port Latta in the State's North-West. Gas is now flowing to key customers in the Bell Bay industrial area and to Australian Bulk Minerals at Port Latta.
Hydro Tasmania has anchored the Government's initiative to bring natural gas to Tasmania as a foundation customer through the conversion of the Bell Bay Power Station from oil to gas fired operation. With the conversion completed and commissioned, Bell Bay Power Station is generating gas-fired electricity into the Tasmanian grid to support the hydro system, particularly at times of low water storage.
The Government has also reached agreement with New Zealand company Powerco Limited for the construction of a gas distribution backbone network. Subject to Powerco securing contracts with specified customers, the backbone network will connect up to 23 commercial and industrial customers in five to ten areas around the State. Construction is expected to commence in August 2003 and take approximately 18 months to complete. The backbone network will have sufficient capacity to service a potential wider rollout. Negotiations with Powerco are now underway in relation to the extension of the network to smaller commercial and domestic customers.The main benefit that natural gas brings to Tasmania's large industry is a more cost effective and environmentally cleaner heat and steam-raising alternative compared with that of oil and coal. Gas will also provide greater surety of energy supply to underpin economic expansion. Other economic contributions from the electricity entities
Tasmania's State-owned electricity transmission company, Transend Networks Pty Ltd (Transend), is essential to the local economy. As the link between power stations and the local distribution system, Transend moves power around the State. In future, Transend will make additional network capability available to enable power flows to and from the mainland via Basslink, which will connect to Transend's George Town Substation.
Transend's goal is to further improve performance to meet the increasing demand for reliable electricity and is investing heavily to upgrade and modernise Tasmania's electricity transmission system. In the four years since 1 July 1998, Transend invested $151.0 million to upgrade the system; by the end of 2002-03 the
Chapter 11: Government Businesses 245 company estimates it will have invested a further $44.0 million. This is one of the largest investments in the Tasmanian economy by any business in recent years.
Aurora Energy Pty Ltd is the State's distributor and retailer of electricity, providing the essential infrastructure for the distribution of basic energy needs to 208 380 households and 40 148 commercial and government installations. Aurora's line crews patrol and maintain 15 710 kilometres of high voltage lines and 8 215 kilometres of low voltage lines. Aurora directly employs 811 people, with a further 72 on traineeships through Tas Group Training (as at March 2003), and returned $45.4 million to the community through its gross payroll in 2002-03. TT-Line Company Pty Ltd
The impact of the introduction of Spirit of Tasmania I and Spirit of Tasmania II has surpassed expectations. It was expected that in-bound tourism would be boosted by around 36 000 visitors per annum in the early stages of the business planning horizon, but this has been easily surpassed, with passenger numbers for the 2002-03 financial year expected to reach the 500 000 mark (up from 348 435 in 2001-02). Since the introduction of the vessels on 1 September 2002, passenger bookings are higher by 46 per cent and vehicle bookings are up by 55 per cent on the corresponding period in the previous year.
The provision of a daily service across Bass Strait, along with additional crossings in peak times, has greatly enhanced a key aspect of the State's transport infrastructure. The vessels are already having a major impact on tourist operators, tourism developments, employment and the Tasmanian economy in general.
The Government's equity support for this project from the Budget is commensurate with the strategic importance of the two-vessel strategy for Tasmania and the economic benefits that will flow from this improvement in service on the Bass Strait 'highway'. Forestry Tasmania
In November 1998, the State Government launched the Forestry Growth Plan (FGP). The FGP is a blueprint to grow Tasmania's wood resources to world-scale and to develop new world-competitive forest-based industry for the 21st century. Its objectives include integrating the management and processing of forest resources and investigating opportunities for industry development.
This involves expanding the softwood and hardwood forest resources to an international scale, using intensive forest management. Annual targets have been set for the establishment and thinning of eucalypt plantations, the expansion of radiata pine plantations and the thinning of native forests. Forestry Tasmania is a major contributor to the FGP through its capital expansion program.
As part of the Forest Growth Plan, two integrated timber processing centres (Southwood Huon and Southwood Smithton) have received planning approval to commence development on the site. Each site will have a central timber merchandising yard that will be operated by Forestry Tasmania.
The Southwood Huon site will contain the first modern rotary peeled veneer manufacturing facility in the State. Other developments on the Southwood Huon site will be a regrowth sawmill, a wood fibre mill and a wood fired power plant.
Forestry Tasmania is also contributing to the growth of tourism in the State, supported by the highly successful Tahune Airwalk development in the south and the Forest EcoCentre at Scottsdale. The construction of the Dismal Swamp Maze in the North West has commenced and is expected to be completed by November 2003.
246 Chapter 11: Government Businesses DIVESTMENT STRATEGY
During 2002-03, the Government assessed its ongoing ownership of each business in its portfolio against a public interest test to determine whether the equity invested in the businesses was the best strategic use for the community.
In examining the rationale for ongoing government ownership of each business, a range of factors was considered, including:
• Financial Issues:
− business value, net assets, outstanding debt levels;
− shareholder value added;
− business risk (associated with continued ownership); and
− complexity and transaction costs of sale;
• Industry Issues:
− industry dynamics and implications for the business (eg capitalisation);
− competition in the market the business operates in; and
− prospective buyers;
• Community Issues:
− contribution to Tasmania's economic development; and
− the degree to which the business provides core government/community services.
The underlying rationale for divestment of government businesses includes:
• the freeing up of capital for other applications;
• removal of constraints on the business associated with government ownership;
• reducing risk to government as owner;
• debt reduction;
• reducing administration costs to government; and
• changes in business environment.
Whilst there are a number of reasons for divestment, the key rationale is to enable the Government to free-up equity in non-core investments and reapply those funds for the benefit of the Tasmanian community. The net proceeds from the divestment strategy will be channelled into the Economic and Social Infrastructure Fund (see Chapter 4 of Budget Paper No 2 Operations of Government Departments 2003-04).
It has also been acknowledged that the Government's wider Fiscal objectives (eg debt reduction) can impose constraints on the smaller Government businesses. Moving some businesses outside the State sector will enable decisions to be made by commercial boards in the best interest of the business, without reference to the constraints arising from Government ownership. Removal of these constraints to build a stronger
Chapter 11: Government Businesses 247 business will be of benefit to the employees and other stakeholders (eg customers and suppliers) of the businesses to be divested.
The application of the public interest test across the current government business portfolio highlighted three business for which there was no compelling argument for ongoing Government ownership and in which there appears strong interest from the private sector. The businesses to be sold are:
• Civil Construction Corporation;
• Tasmanian Grain Elevators Board; and
• the Stanley Cool Stores Board.
The Government also decided that while there remains a good case for ongoing Government ownership of Forestry Tasmania and the Hobart Ports Corporation Pty Ltd, it would undertake detailed investigations into possible non-core asset sales from those businesses as an important element of the divestment strategy. The Government is also considering the future ownership arrangements of the Launceston Silverdome.
MAJOR DEVELOPMENTS IN THE GOVERNANCE FRAMEWORK
During 2002-03, the program of reform to improve the financial performance and commercial focus of government businesses continued.
This section discusses the major developments, relating to government businesses in Tasmania, which were initiated or completed during 2002-03 and those proposed for 2003-04. Review of the Government Business Enterprises Act
The Government Business Enterprises Act 1995 (GBE Act) was introduced in 1995 to place the State's major government businesses on a more commercial footing. As umbrella legislation, overarching the Portfolio Act establishing each GBE, it has provided the framework for continued improvement in the efficiency, effectiveness and accountability of the State's GBEs.
The GBE Act is wholly consistent with the five generally accepted principles underpinning governance of corporations, namely:
• the setting of clear and non-conflicting objectives;
• providing for managerial responsibility, authority and autonomy;
• the existence of effective performance monitoring by the owner government;
• effective rewards and sanctions related to performance; and
• competitive neutrality relative to the private sector.
Following the completion of a comprehensive review of the GBE Act in 2002, which resulted in a number of legislative and non-legislative recommendations, the Government Business Enterprises Amendment Act 2002 introduced a number of significant improvements to the existing legislation, including:
• provisions which strengthen the ability of the Board of a GBE to achieve wealth creation and improve the performance of the business;
248 Chapter 11: Government Businesses • changes to reflect recent developments in the Commonwealth's Corporations Act 2001, the governance arrangements of private sector companies and the legislation of other jurisdictions;
• improved corporate governance at the Board/Director level, including provisions for more stringent accountability by individual directors and the Board;
• enhancements to the selection process for Board and chief executive officer appointments;
• the introduction of a two Minister model which mirrors the two Minister model that exists for the SOCs; and
• streamlining of the legislation to remove ambiguity and improve the processes associated with the administration of the GBE Act.
Over the coming year, the non-legislative recommendations of the GBE Act review will be implemented, further adding to the efficiency and effectiveness of GBEs. Performance Monitoring and Reporting
All government businesses are required to submit three-year corporate plans to the Government on an annual basis. These plans identify the objectives, business strategies and performance goals of each business and forecast the business and operating environment and benchmarks/targets against which actual performance can be compared
The Government has introduced a range of initiatives to assist Tasmanian businesses to compete for the provision of goods and services to government. GBEs and SOCs are required to provide a quarterly report to the Government on any tender and contract undertaken of a value in excess of $50 000. The intention of procurement reporting is to monitor the level of involvement with Tasmanian business by the government business sector. Community Service Obligations
The Department of Treasury and Finance is responsible for the policy framework for the identification and transparent funding of non-commercial activities undertaken by government businesses. The implementation of the CSO policy is integral to the enhanced performance and accountability of GBEs under the GBE Act and SOCs operating under the Corporations Act 2001. The framework provides GBEs and SOCs with a process that enables non-commercial activities to be clearly identified, justified and separately accounted for. Funding through a transparent process then ensures the performance of the Government businesses is not compromised as a result of delivering these non-commercial services.
CSO arrangements are formalised via contracts between Government (represented by a purchasing Minister) and the government business. In the case of GBEs, these contracts are referred to as CSO contracts, and for SOCs, they are referred to as Community Service Agreements (CSA).
The Government currently funds five CSOs. Total direct funding amounted to approximately $36 million in 2002-03. The CSOs are:
• Bass Strait Islands CSO provided to Hydro Tasmania for the delivery of electricity to Bass Strait Islands customers and the provision of concessions to pensioner customers on the Bass Strait Islands ($6.17 million);
• Metro Tasmania CSA for the provision of subsidised fares to pensioners, students and the unemployed ($19.5 million);
Chapter 11: Government Businesses 249 • The Public Trustee CSO for the administration of absolute estates, continuing trust and life tenancy estates, represented persons and the administration and management of minor trusts ($666 000);
• Civil Construction Services Corporation CSO for the continuing employment and an increased level of service in accordance with the North-West maintenance contract ($54 000); and
• Aurora CSA for an electricity concession to pensioners on mainland Tasmania, and to Health Care Card holders during the two winter quarters ($9.57 million). The concession to Health Care Card holders is a new initiative and is to commence from 1 July 2003.
PROFILES OF MAJOR GOVERNMENT BUSINESSES
The Government owns a diverse portfolio of businesses. These businesses represent a substantial proportion of the State Government Sector and many undertake a major role in the Tasmanian economy.
Combined, GBEs and SOCs employed 3 665 full time employees (FTEs), had net assets of $3.9 billion and annual operating revenues in 2001-02 of approximately $2.0 billion at 30 June 2002. Table 11.2 lists the State's GBEs and SOCs and provides summary financial information as at 30 June 2002 and actual financial returns to the Government for 2001-02.
The following section profiles the State's major government businesses in terms of financial performance and direction. For other government businesses and certain non-commercial statutory authorities, background information describing the function and future direction of the entity is provided.
250 Chapter 11: Government Businesses Table 11:2: Summary Profile of Government Businesses Number ofOperating Profit Returns to Employees Revenue after Tax the State 30 June 2002 2001-02 2001-021 2001-022 FTEs $'000 $'000 $'000 Government Business Enterprises Civil Construction Corporation 130 27 108 (753) 7 Forestry Tasmania 532 159 183 6 702 5 820 Hydro Tasmania 722 370 527 85 509 88 048 Motor Accidents Insurance Board 36 92 760 4 195 1 809 Port Arthur Historic Site Management Authority 80 6 386 (895) 0 Printing Authority of Tasmania 68 8 436 237 113 Rivers and Water Supply Commission 67 1 345 (1 257) 62 Southern Regional Cemetery Trust 14 1 621 215 5 Stanley Cool Stores Board 2 602 135 193 Tasmanian Grain Elevators Board 8 7 432 606 182 Tasmanian International Velodrome Management Authority 7 276 18 0 Tasmanian Public Finance Corporation 14 394 361 5 971 12 090 The Public Trustee 49 4 245 1 472 122
State-owned Companies Aurora Energy Pty Ltd 820 586 973 31 057 28 192 Burnie Port Corporation Pty Ltd 44 10 949 897 42 Hobart Ports Corporation Pty Ltd 106 31 711 3 694 761 Metro Tasmania Pty Ltd 367 29 535 413 13 Port of Devonport Corporation Pty Ltd 41 10 359 156 956 Port of Launceston Pty Ltd 38 9 122 644 386 TOTE Tasmania Pty Ltd 102 36 595 804 505 Transend Networks Pty Ltd 113 81 027 19 674 20 437 TT-Line Company Pty Ltd 366 86 129 (21 283) 0
TOTAL 3 665 1 956 682 138 211 159 743
Sources: Auditor–General's Report No 2 Government Departments and Public Bodies, November 2002 and 2001-02 annual reports of government businesses; and Department of Treasury and Finance. Notes: 1. Profit after tax is shown after abnormal items. 2. Consists of guarantee fee, dividend and income tax equivalent payments. Expected Returns to the State in respect of 2002-03 and 2003-04 are shown in Table 4.6 in Chapter 4 of Budget Paper No 2 Operations of Government Departments 2003-04 and Table 11.1 in this chapter.
Chapter 11: Government Businesses 251 Table 11.2: Summary Profile of Government Businesses (continued) Total Total Net Return on Assets Liabilities Assets Equity 30 June 2002 30 June 2002 30 June 2002 2001-021 $'000 $'000 $'000 % Government Business Enterprises Civil Construction Corporation 14 472 8 357 6 115 (11.6) Forestry Tasmania 836 555 116 335 720 220 0.9 Hydro Tasmania 3 515 018 1 527 104 1 987 914 4.4 Motor Accidents Insurance Board 598 557 536 887 61 670 7.0 Port Arthur Historic Site Management Authority2 11 628 3 879 7 749 (20.7) Printing Authority of Tasmania 3996 2 077 1 919 12.7 Rivers and Water Supply Commission 38 176 14 406 23 770 (7.8) Southern Regional Cemetery Trust 8 572 1 481 7 091 (3.1) Stanley Cool Stores Board 1 842 74 1 768 8.7 Tasmanian Grain Elevators Board 5 777 2 091 3 686 17.8 Tasmanian International Velodrome Management Authority 315 128 187 10.1 Tasmanian Public Finance Corporation 3 5 494 470 5 484 470 10 000 59.7 The Public Trustee 8 126 5 590 2 536 81.8
State-owned Companies Aurora Energy Pty Ltd 836 121 538 402 297 719 11.1 Burnie Port Corporation Pty Ltd 41 337 24 128 17 209 5.4 Hobart Ports Corporation Pty Ltd 72 649 22 160 50 489 7.5 Metro Tasmania Pty Ltd 37 474 20 286 17 188 2.4 Port of Devonport Corporation Pty Ltd 44 831 10 457 34 374 0.5 Port of Launceston Pty Ltd 44 128 17 817 26 311 2.5 TOTE Tasmania Pty Ltd 26 262 11 194 15 068 5.2 Transend Networks Pty Ltd 593 221 69 960 523 261 4.3 TT-Line Company Pty Ltd 379 142 338 142 41 000 (41.2)
TOTAL 12 612 669 8 755 425 3 857 244 ....
Notes: 1. Return on Equity is calculated as operating profit after income tax expense (excluding abnormal items) as a percentage of average net assets. 2. This government business is in receipt of substantial grant funding and is not subject to a tax regime. 3. The assets of the Tasmanian Public Finance Corporation consist of advances made to public sector entities, including GBEs and SOCs, which are classified as liabilities for each individual entity.
252 Chapter 11: Government Businesses GOVERNMENT BUSINESS ENTERPRISES
Civil Construction 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 and bridge maintenance and construction. It has expanded its core business to include civil asset management services, associated business process management, training services and plant hire. CCC promotes a total asset management philosophy.
The corporate goal of CCC is to be a customer-focused civil construction enterprise committed to achieving quality business outcomes through continuous improvement in all aspects of the civil contracting business.
The key factors affecting the operating environment of CCC are the economic environment and the highly competitive civil construction industry.
As noted above, the Government has announced its intention to sell CCC as a part of the Divestment Strategy. It is anticipated that the sale could be completed during 2002-03.
Further information about CCC is available through the Internet at www.civilconstructioncorp.com.au.
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 commercial returns and 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 forest management standards.
Forestry Tasmania is continuing to work towards achieving the objectives of the Forestry Growth Plan, which is a twenty year plan to take Tasmanian forestry and forest based industries to a world competitive level in resources, harvesting, processing and technology.
As part of the Forestry Growth Plan, two integrated timber processing site development projects, known as Southwood Resources, are proposed within the State. One site will be based in the Huon and the other site at Circular Head. It is intended that each site will have a central merchandising yard from which a range of products will be distributed to customers and increased value will be added to forest products.
The key business directions for Forestry Tasmania are to:
• expand hardwood resources through the Intensive Forest Management Program;
• diversify sales of wood fibre and solid wood products to national and new international markets;
• develop improved forest harvesting, transport and processing systems;
• promote investment in downstream processing;
Chapter 11: Government Businesses 253 • continuously improve forest management based on ecologically sustainable forest management principles set out in the Regional Forest Agreement; and
• market recreational and tourism potential within State forests.
Further information about Forestry Tasmania is available through the Internet at www.forestrytas.com.au.
Hydro Tasmania
The Hydro-Electric Corporation, trading as Hydro Tasmania, is a GBE operating in commercial markets. Its principal purpose is to undertake the following activities:
• management of major dams, infrastructure and equipment for the generation and trading of electricity and related products;
• development and operation of renewable energy generation assets; and
• provision of consulting and other services in renewable energy, environment and water management and associated sciences and technologies.
Hydro Tasmania's vision is to be Tasmania's world renowned renewable energy business.
Through its operations in the energy, asset and water management sectors, Hydro Tasmania will continue to strengthen areas of the business that will enhance its market position. Growing the business, responding to electricity supply industry reform and preparing for participation in the NEM are the key challenges facing Hydro Tasmania. At the same time, Hydro Tasmania will continue to focus on improving plant efficiency and effective risk management of its assets and business practices.
The major strategic direction for Hydro Tasmania over the next three years is to prepare the business for the increasing levels of competition in the local and national energy markets and to do so in conjunction with a renewable energy development program throughout Australasia. The development of Basslink will complement Hydro Tasmania's strategic objective of optimising Tasmania's hydro capability and maximising the hydro-wind energy synergy.
Further information about Hydro Tasmania is available through the Internet at www.hydro.com.au.
Motor Accidents Insurance Board
The Motor Accidents Insurance Board (MAIB), established under the Motor Accidents (Liabilities and Compensation) Act 1973, provides a combined no fault and common law insurance coverage to persons injured in motor vehicle 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 by way of contributions to road safety programs and in rehabilitation and future care. The funding of these activities results in beneficial outcomes to all road users and people injured in road accidents and serves to reduce the cost of claims and maintain premiums at reasonable levels.
The key factors affecting the operating environment of the MAIB include:
• maximum premium capture through increases in motor vehicle registrations;
• the volatility of investment markets;
254 Chapter 11: Government Businesses • the effectiveness of road safety programs;
• future care costs;
• the level of court awards; and
• the availability and costs of re-insurance.
The key business directions for the MAIB for 2003-04 are to:
• have in place 'best practice' solutions to meet the challenges created in providing no fault insurance services;
• ensure that an appropriate balance exists between premium income, the cost of claims and the MAIB's prudential requirements so as to achieve a sustainable return to the Government;
• reduce serious casualty claims through contributions to road safety programs;
• continually improve the service to claimants;
• effectively manage and fund the Injury Prevention and Management Foundation;
• advance the rehabilitation process with the aim of achieving acceptable outcomes for persons suffering injuries in motor vehicle accidents; and
• recognise the contribution made by the Board's staff and continue training and professional development on an ongoing basis.
Further information about the MAIB is available through the Internet at www.maib.tas.gov.au.
Port Arthur Historic Site Management Authority
The Port Arthur Historic Site Management Authority (PAHSMA) is responsible for the conservation of the Port Arthur Historic Site and its interpretation and presentation to visitors. This means PAHSMA largely operates within the tourism industry with the principal customers being visitors to the State.
In the 2000-01 State Budget, the Government announced a five year funding allocation to conserve the cultural heritage at the Port Arthur Historic Site (PAHS). The conservation management of the PAHS is primarily determined by the PAHS Conservation Plan 2000, adopted by the Board in April of that year. The Plan establishes the cultural significance of the Site, and sets out the broad strategic policies required to conserve that significance. The PAHSMA Corporate Plan is prepared in accordance with the principles and policies of the Conservation Plan, and sets out the strategy and programs for implementation of these policies.
The key business directions for PAHSMA for 2003-04 are to:
• continue to implement the PAHS Conservation Plan;
• increase visitor numbers to the Site;
• continually improve the commercial/tourism business at PAHSMA;
• develop cooperative strategies in consultation with State, Local Government and key stakeholders to protect the cultural landscape of the Tasman Peninsula adjacent to Port Arthur;
• develop and promote PAHSMA as a centre of excellence in conservation methodology;
Chapter 11: Government Businesses 255 • take on management responsibility for the Coal Mines Historic Site;
• work towards securing National Register Listing; and
• work towards securing world heritage status.
Further information about PAHSMA is available through the Internet at www.portarthur.org.au.
Printing Authority of Tasmania
The core business and main undertaking of the Printing Authority of Tasmania (PAT) is to provide a production facility for the Tasmanian Government and associated authorities and departments for commercially viable, quality, printed and electronically generated communications. Under its legislation, the PAT is restricted from competing in the Tasmanian open market for private work except in specific circumstances.
The PAT aims to provide the 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 2003-04 is to continually improve the performance of the PAT in a secure, sustainable and socially responsible manner by supplying goods and services that meet customer requirements.
Quality Assurance Accreditation to ISO International standards will be maintained to assist the business to remain focused on delivering reliable quality products and services to its customers.
Further information about the PAT is available through the Internet at www.pat.tas.gov.au.
Rivers and Water Supply Commission
The Rivers and Water Supply Commission is responsible for the management of numerous irrigation and water supply schemes including the South East Irrigation Scheme, the Winnaleah Irrigation Scheme and the Prosser River Water Supply Scheme.
The Commission is also responsible for ensuring that the management of its commercial operations 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 2003-04 financial year include:
• continuing the implementation within Tasmania of the water reforms agreed by the Council of Australian Governments (COAG) as part of National Competition Policy.
• maintaining good liaison with customers and being responsive to their needs;
• meeting all statutory requirements and implementing environmental best practices; and
• achieving the maximum economic life from assets at the required level of service.
Further information about the Rivers and Water Supply Commission is available through the Internet at www.dpiwe.tas.gov.au.
256 Chapter 11: Government Businesses Southern Regional Cemetery Trust
The vision for the Southern Regional Cemetery Trust is to be recognised as the leader in Southern Tasmania for funeral, burial, memorialisation and cremation services.
Its objectives are to ensure the viability of the business and to maximise shareholder value.
Current strategic activity includes the development of the Wellington Chapel at Cornelian Bay and improving its ambience, undertaking the construction of a further 72 crypts at Cornelian Bay, developing a new concept of bushland burials at Kingston, seeking planning approval for a new Kingston Chapel, planning a new office development at Cornelian Bay and the expansion of garden areas at Cornelian Bay.
Further information about the Southern Regional Cemetery Trust is available through the Internet at www.srct.com.au.
Stanley Cool Stores Board
The core business of the Stanley Cool Stores Board (SCSB) is the operation of a cool storage facility located at the port of Stanley.
The Board's principal strategic directions include:
• ensuring that the facility is used to its fullest extent;
• operating the cool stores in a profitable manner; and
• considering future options for the cool store facility.
As noted above, the Government has announced its intention to sell SCSB as a part of the Divestment Strategy. It is anticipated that the sale will be completed in 2003-04.
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 a number of traders including AWB Ltd, 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, stockfeed milling and intensive animal industries and is the key supplier of stock feed during adverse climatic conditions.
The Government has announced its intention to sell TGEB as a part of the Divestment Strategy. It is anticipated that the sale will be completed in 2003-04.
Further information about the TGEB is available through the Internet at www.tasgrain.com.au.
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.
Chapter 11: Government Businesses 257 The Silverdome provides high quality entertainment, sport, exhibition and meeting facilities for the people of Tasmania.
The Government is reviewing future ownership arrangements for the Silverdome. It is anticipated a decision in this regard will be made during 2003-04.
Further information about the Silverdome is available through the Internet at www.silverdome.com.au.
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 government businesses.
The key factors affecting the operating environment of Tascorp are:
• a trend decline in Tascorp's core lending to the State public sector arising from the Government's debt reduction strategy;
• the expansion of asset management products and services to clients; and
• continuous improvement in the efficiency of core business operations.
The key business directions for Tascorp for 2003-04 are:
• to meet the identified funding needs of clients, at the Tascorp yield curve;
• to provide a rate of return in excess of a relevant market benchmark on client investments;
• to provide high quality financial advice to the Tasmanian public sector; and
• to achieve a reasonable return on net assets, while operating within appropriate levels of financial risk.
Further information about Tascorp is available through the Internet at www.tascorp.com.au.
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 as financial administrator by the Guardianship and Administration Board to act on behalf of, and protect the financial interests of, individuals with a disability.
The strategic direction of The Public Trustee for the 2003-04 year will focus on continuing to develop The Public Trustee as a specialist provider of trust and financial administration services.
The Board of The Public Trustee has identified growth in commercial business as a high strategic priority for the organisation over the next three years and The Public Trustee will be developing a marketing strategy that clearly identifies the opportunities for growing the business and the initiatives that should be put in place to take advantage of those opportunities.
Further information about The Public Trustee is available through the Internet at www.publictrustee.tas.gov.au.
258 Chapter 11: Government Businesses STATE-OWNED COMPANIES
Aurora Energy Pty Ltd
Aurora is responsible for the distribution and retailing of electricity throughout Tasmania. Aurora's goal is to be a world class services company, building new business from Aurora's strong Tasmanian distribution and retail base.
In delivering this vision, Aurora recognises the need to develop strategies that focus on:
• improving and leveraging core business;
• positioning for entry to the NEM ;
• growth through new business opportunities; and
• the competitive impacts from the introduction of natural gas.
Aurora's mission and objectives are represented in a balanced scorecard system that drives its development and implementation of corporate strategies. Underpinning these objectives, however, is the key driver, which for Aurora is to increase total business value, involving each of the following:
• improving the operational efficiency and effectiveness of the delivery of current services;
• expanding the assets under management;
• improving customer relations and service offerings;
• leveraging off Aurora's existing competencies and services to deliver to new business opportunities;
• broadening the potential customer base, and increasing operational scale to defray costs;
• being an active and welcome part of the community; and
• being an employer of choice.
Aurora also provides pensioner concessions for electricity under a CSA with the Minister for Health and Human Services. The amount of funding provided is approximately $10 million per annum.
Further information about Aurora is available through the Internet at www.auroraenergy.com.au.
Burnie Port Corporation Pty Ltd
The Burnie Port Corporation Pty Ltd (BPC) is responsible for the planning, development and operation of the seaport at Burnie on the North-West coast of Tasmania.
The mission of the BPC is to facilitate the safe and efficient movement of cargo and passengers into and out of Tasmania.
The vision of the BPC is to be a commercially sound port, providing high quality services and facilities to its customers and to be capable of responding in a timely manner to the future sea transport needs of industry in the region and the State. The key factors affecting the operating environment of the BPC are State, national and international economic conditions.
Chapter 11: Government Businesses 259 Further information about the BPC is available through the Internet at www.burnieport.com.au.
Hobart Ports Corporation Pty Ltd
The vision of the Hobart Ports Corporation (HPC) is to be a globally competitive provider of integrated trade and transport services for Tasmania.
The primary function of the HPC is to manage overall port operations covering the movement of vessels and the provision of cargo-handling facilities and services, in the ports under its control.
Diversification into port-related property has occurred in more recent years to obtain improved returns from assets not fully utilised for primary shipping activities. The HPC also holds a majority shareholding in Hobart International Airport Pty Ltd. The King Island Ports Corporation Pty Ltd is a wholly owned subsidiary of the HPC. Diversification enables HPC to compete effectively and efficiently in a competitive environment for the benefit of Tasmania.
The key factors affecting the operating environment of the HPC include: export production in southern Tasmania; ship visitations and the level of activity in the Hobart property market.
The key business directions for the HPC for 2003-04 are to consolidate core activities, develop cargo and stevedoring services, building strategic alliances with principle customers and develop greater business opportunities for Antarctic operations.
As noted above, the Government is undertaking a detailed investigation into the feasibility of selling non-port assets currently owned by HPC, while retaining the Company as a viable port business. It is anticipated that it will be possible to divest a number of property and other investments, and that such sales would be finalised in 2003-04 and 2004-05.
Further information about the HPC is available through the Internet at www.hpc.com.au.
Metro Tasmania Pty Ltd
Metro Tasmania Pty Ltd (Metro) was established under the Metro Tasmania Act 1997 as a SOC, which provides a public urban road transport service in the metropolitan areas of Hobart, Launceston and Burnie.
In May 1999, Metro formed a subsidiary company, Hobart Coaches (Tas) Pty Ltd, to operate bus passenger services purchased by Metro from Hobart to Kingston/Blackmans Bay, the Channel, Richmond and New Norfolk.
The current Agreement for the provision of public urban transport services commenced on 1 July 2001. Funding of $21.2 million has been allocated to the Department of Infrastructure, Energy and Resources for 2003-04 and the CSA is subject to quarterly indexation by means of the 'Metro Index' as defined and calculated under the Government Prices Oversight (Metro Bus Fares) Order 2000.
The key factor affecting the operating environment of Metro is the level of economic activity, which impacts on Metro's patronage and fares revenue.
Metro's strategic directions for the next three years are to focus on meeting its commercial obligations to the Government and its customers by:
• structuring Metro's financial, operational and customer activities so as to successfully meet future passenger transport service demands; and
260 Chapter 11: Government Businesses • minimising the total cost of delivering the agreed level and quality of services.
Metro is also required to have regard to the Government's obligations under the Council of Australian Governments' agreement on future policies, procedures and practices concerning the transport industry.
The key business directions for Metro for 2003-04 are to:
• continue the implementation of its bus replacement program to maintain a modern fleet and meet its undertakings under its Disability Action Plan;
• to replace the existing ticketing system, which is nearing obsolescence, with a new ticketing system, which will utilise the latest smart card technology;
• implement measures to consolidate the halt in the decline of patronage achieved in the last two years by providing services more tailored to the public's needs; and
• reduce operating costs by introducing changes to work practices and through enterprise bargaining agreements that improve efficiency and productivity.
Further information about Metro is available through the Internet at www.metrotas.com.au.
Port of Devonport Corporation Pty Ltd
The Port of Devonport Corporation Pty Ltd (PDC) owns and operates the sea and airports 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 principal objectives of the PDC are to facilitate trade for the benefit of Tasmania and to operate its activities in accordance with sound commercial practice.
The key factors affecting the operating environment of the PDC include: regional, national and international economic conditions and trade opportunities; the competitive nature of the Tasmanian ports system; and the number of Bass Strait general cargo shipping operators.
The key business directions for the PDC for 2003-04 are to:
• build on the existing cargo mix and to diversify these cargoes; and
• provide improved facilities and services.
Further information about the PDC is available through the Internet at www.portdev.com.au.
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 principal objectives of the POL are to facilitate trade for the benefit of Tasmania and to operate its activity in accordance with sound commercial practice.
Chapter 11: Government Businesses 261 The key factors affecting the operating environment of the POL include: commodity prices; the Tasmanian economy; exchange rates; competitors' policies; and productivity of neighbouring industries.
The policy objectives of the POL include: responsiveness to customer requirements; the provision of appropriate facilities and essential operational services from its own resources, or by other businesses; and the long-term commercial strength of the Corporation, given its move towards full private enterprise operating principles.
The key business directions for POL for 2003-04 are to continue to expand its trade base and to enhance existing facilities.
Further information about the POL is available through the Internet at www.portlaun.com.au.
TOTE Tasmania Pty Ltd
TOTE Tasmania Pty Ltd (the TOTE) conducts totalizator betting in Tasmania in accordance with the Racing and Gaming Act 1952 and has responsibility for planning, administering and marketing the Tasmanian racing industry. The TOTE sells wagering products to consumers with the majority of these products being pool based such that the return to the TOTE is known and fixed for each event. The exceptions to this are the fixed odds bets – Triwin and Sportsbet. A fully owned subsidiary, Tasradio Pty Ltd, provides a radio service for the racing industry.
The TOTE makes a significant financial contribution to the Tasmanian racing industry through the annual payment of a Product Fee, and Incentive Payment.
Key issues for the TOTE during 2003-04 include:
• retention of share of wagering market in light of increased competition from interstate TABs and corporate bookmakers;
• optimising technological solutions to preserve market share and provide better customer service;
• increasing the share of wagering on Tasmanian product (currently 92 per cent of TOTE turnover is generated from imported product);
• maximising utilisation of assets so as to gain economies of scale and higher levels of cost effectiveness; and
• increasing the number of racing and breeding animals and associated personnel.
The following strategic objectives have been developed to address the key issues faced by the TOTE: Immediate • improve customer service in retail operations and telephone betting;
• improve the entertainment offer via new products;
• work with the local racing industry and interstate TABs to compete against corporate bookmakers; and
• improve the contribution to industry funding. Medium – Long-Term • diversify the product offer to non pari mutuel products;
• further develop the TOTE's Internet site;
262 Chapter 11: Government Businesses • seek to enter into a strategic alliance with a large national company in the leisure and entertainment industry; and
• commence work to improve the output of the breeding industry.
Further information about the TOTE is available through the Internet at www.totetas.com.au.
Transend Networks Pty Ltd
Transend Networks Pty Ltd (Transend) owns and operates the electricity transmission system in Tasmania and controls the Tasmanian power system. Transend is responsible for maintaining power system security and assisting with power system planning.
Key issues for Transend during 2003-04 include:
• continuing its capital investment program against a background of change;
• preparing for Basslink and Tasmania's entry to the NEM; and
• managing the outcome of Transend's revenue application.
Transend's ongoing capital program aims to improve the reliability of Tasmania's transmission system and to meet the growing demand for electricity. At the same time, investment in the transmission system has the added benefits of improving operational efficiency and reducing environmental and safety risks.
The Tasmanian energy sector is facing its most significant period of change for several decades, with the arrival of natural gas, development of wind farms, construction of Basslink and entry to the NEM. These developments offer new choices and opportunities for users of the transmission network. However, in such a changing environment, predicting load growth and planning necessary network upgrades and developments have become especially problematic. Nevertheless, continued progress with Transend's capital program is vital to ensure that Tasmania will be ready to enter the NEM as planned in 2005.
Transend is currently responsible for power system control in Tasmania. This function will transfer to the National Electricity Market Management Company (NEMMCO) because of the decision to join the NEM. Transend has developed a transition program to hand over this responsibility in the lead-up to NEM entry, to ensure system security during this critical period. After NEM entry, Transend will maintain its capability to maintain power system security in Tasmania. This will ensure that Transend can assist NEMMCO in dealing with any problems that arise in Tasmania during extreme or unforeseen events.
Currently, transmission revenue in Tasmania is regulated under a pricing determination made by the Tasmanian Energy Regulator, which expires on 31 December 2003. Another consequence of NEM entry is that economic regulation of Transend's transmission business will transfer to the Australian Competition and Consumer Commission (ACCC). In March 2003, Transend submitted to the ACCC its revenue cap application for the forthcoming regulatory period (1 January 2004 to 30 June 2009). The ACCC's determination, which will determine Transend's regulated revenue stream for that 5.5-year period, is expected in November 2003.
Transend is committed to meeting the Government's timetable for NEM entry and Basslink, and has allocated the necessary resources to ensure the successful implementation of these important developments.
Further information about Transend is available through the Internet at www.transend.com.au.
Chapter 11: Government Businesses 263 TT-Line Company Pty Ltd
The TT-Line Company Pty Ltd will operate its vessels, Spirit of Tasmania I and Spirit of Tasmania II, on a daily basis during 2003-04 with additional daylight sailings being added when demand requires.
Both vessels are roll on/roll off with 2 470 lane metres to accommodate vehicles and freight and have 750 berths and 126 cruise seats and can carry up to 1 400 passengers. The ships can travel at speeds in excess of 27 knots, which has significantly reduced the crossing time to nine hours.
The TT-Line has estimated that it will approach the 500 000 passenger mark for the 2002-03 year, a significant increase on the 345 000 passengers it was expecting to carry for this period. The increased benefits to the State have been significant, with increased tourism spending and a more frequent and accessible service linking Tasmania to the mainland states.
During 2003-04, the capacity of the vessels will be increased by the addition of further seating areas and extensions to the vehicle storage area on Deck 6.
Further information about TT-Line is available through the Internet at www.tt-line.com.au.
264 Chapter 11: Government Businesses 12 CONCESSIONS, SUBSIDIES AND COMMUNITY SERVICE OBLIGATIONS
Features
• Concessions provided in this Budget on a range of State Government goods and services are significant in helping assist low-income families and individuals in hardship and reducing inequalities in our community.
• In 2003-04, it is estimated that government departments will provide concessions, subsidies, Community Service Obligations (CSOs) and Community Service Activities (CSAs) of $199.3 million, an increase of $7.2 million or 3.7 per cent on 2002-03 concessions of $192.1 million.
• The most significant increases relate to:
− the Student Assistance Scheme concession provided through the Department of Education. It is estimated that $5.3 million will be provided in 2003-04, an increase of $1.0 million or 23.1 per cent on the 2002-03 Budget estimate of $4.3 million;
− the CSA payment to Aurora Energy Pty Ltd for electricity concessions provided through the Department of Health and Human Services. It is estimated that $13.5 million will be provided in 2003-04, an increase of $4.0 million or 41.3 per cent on the 2002-03 Budget estimate of $9.6 million; and
− the CSO payment to Metro Tasmania provided through the Department of Infrastructure, Energy and Resources. It is estimated that $20.9 million will be provided in 2003-04, an increase of $1.4 million or 6.9 per cent on the 2002-03 Budget estimate of $19.5 million.
Chapter 12: Concessions, Subsidies and Community Service Obligations 265 INTRODUCTION
The Government has identified poverty as a priority issue to be addressed through Tasmania Together and a number of benchmarks provide a focus for efforts to develop solutions to both the immediate and long-term impacts of poverty in the State.
Concessions are important in combating poverty, providing services and reducing inequalities in our community.
Concessions and benefits assist families and individuals at critical points in their lives and this Budget builds on previous Budgets that have increased the value of concessions provided to applicants, as well as extending concessions to new categories of beneficiaries.
The Government, through various agencies, provides eligible users of its goods or services with a variety of concessions, subsidies, Community Service Obligations (CSOs) and Community Service Activities (CSAs).
It is estimated that in 2003-04, agencies will provide a total of $199.3 million of concessions, subsidies, CSOs and CSAs. This is an increase of $7.2 million or 3.7 per cent on the 2002-03 Budget estimate of $192.1 million.
State Government concessions are defined as a reduction, discount, subsidy, rebate or waiver/exemption provided by State Government agencies on the value of goods or services to an individual, family or household based on one or more of the following eligibility criteria:
• low income;
• in recognition of age or service to the country or community; and
• special needs or disadvantages.
Eligibility is usually, but not always, linked to the production by the recipient of a specified concession card to indicate their inclusion in one of the above groups.
CSOs are defined as commercial activities undertaken by a Government Business Enterprise (GBE) that would not ordinarily be undertaken if the GBE were operating in the private sector. In accordance with the Government Business Enterprise Act 1995, a CSO can only be declared where the activity is the result of a Government directive, the activity being undertaken results in a net cost to the GBE, and the activity would not be performed by the GBE if it were free to act commercially.
CSAs are defined as non-commercial activities undertaken by State-owned Companies under contract with the Government. To qualify as a CSA, the activity must meet similar identification criteria and net cost conditions as CSOs.
During the preparation of the 2003-04 Budget, a comprehensive review was undertaken into the level of concessions, subsidies, CSOs and CSAs provided by the State Government. The review indicated that the 2002-03 Budget estimate in Budget Paper No 2 Operations of Government 2002-03 for concessions, subsidies, CSOs and CSAs had been understated by $59.1 million.
The 2002-03 Budget estimate has been revised to more accurately reflect the true level of concessions provided by the State Government.
Table 12.1 lists, by agency, the value of State Government concessions to be provided in 2003-04. Details of specific agency concessions are also provided in this Chapter.
266 Chapter 12: Concessions, Subsidies and Community Service Obligations Table 12.1: State Government Concessions, 2003-04 2002-03 2003-04 Agency Budget Budget $'000 $'000
Education 6 337 7 337 Finance-General 80 348 81 172 Health and Human Services 49 551 50 873 Infrastructure, Energy and Resources 48 765 52 750 Primary Industries, Water and Environment 256 278 Tourism, Parks, Heritage and the Arts 33 33 Treasury and Finance 6 836 6 836
TOTAL CONCESSIONS 192 126 199 279
AGENCY CONCESSIONS
Department of Education
The level of concessions provided by the Department of Education in 2003-04 is expected to be $7.3 million, which is $1.0 million or 15.8 per cent above the level of concessions provided in 2002-03. The increase reflects a greater level of assistance to students under the Student Assistance Scheme.
Table 12.2 summarises the concessions to be provided by the Department in 2003-04. A description of each concession follows the Table.
Table 12.2: Concessions provided by the Department of Education 2002-03 2003-04 Budget Budget $'000 $'000
Accommodation Allowance for Tertiary Students 1 445 1 445 Special Bursaries Scheme 22 22 Spectacles Assistance Scheme 100 100 Student Accommodation Allowance for Senior Secondary Students 446 446 Student Assistance Scheme 4 324 5 324
TOTAL CONCESSIONS 6 337 7 337
Chapter 12: Concessions, Subsidies and Community Service Obligations 267 Accommodation Allowance for Tertiary Students
An allowance is payable to approved tertiary students who are permanent residents of Tasmania to assist with accommodation expenses where the students are required to live away from their usual home within the State to enable them to attend a tertiary institution to undertake their chosen course of study. The accommodation allowance is also available to Tasmanian tertiary students who are studying at interstate institutions if their chosen course of study is not available in Tasmania. Special Bursaries Scheme
Special bursaries are provided by the Department as emergency assistance towards the purchase of school uniforms, primarily for students in secondary schools and in special schools. Spectacles Assistance Scheme
The Spectacles Assistance Scheme assists with the cost of the purchase of spectacles for school students of low-income families. Students may be attending a government or registered non-government school, or may be in a registered home education situation. Student Accommodation Allowance for Senior Secondary Students
An allowance is paid to approved Year 11 and 12 students who are residents of Tasmania to assist with accommodation expenses where the students are required to live away from their primary place of residence to enable them to undertake senior secondary studies. Student Assistance Scheme
The Student Assistance Scheme covers the cost of eligible students' participation in their chosen educational program and is available to students enrolled full-time in kindergarten through to Year 12 attending a state or registered non-government school or college. Eligibility for assistance is determined by an income test. As part of the 2002-03 Budget, the Department received additional funding of $1.0 million in 2002-03, increasing to $2.0 million in outyears, for the Student Assistance Scheme.
Finance-General
The level of concessions provided by Finance-General in 2003-04 is expected to be $81.2 million, which is $824 000 above the level of concessions provided in 2002-03.
Table 12.3 summarises the concessions to be provided by Finance-General in 2003-04. A description of each concession follows the Table.
268 Chapter 12: Concessions, Subsidies and Community Service Obligations Table 12.3: Concessions provided by Finance-General 2002-03 2003-04 Budget Budget $'000 $'000
Debits Duty 1 368 1 405 Duty Loan1 3 500 3 000 Exemption of Duty on the Registration or Transfer of Registration of a Motor Vehicle 430 441 Exemption of Duty on the Conveyance of Real Property used for Primary Production To a Relative 390 400 Land Tax Residential Concession2 17 564 18 049 Land Tax Primary Production Concession2 30 968 31 823 Land Tax Pensioner and Charitable Bodies Concession3 6 620 7 008 Payroll Tax Assistance3 4 730 4 985 Pensioner Rates Remission4 14 778 14 061
TOTAL CONCESSIONS 80 348 81 172
Notes: 1. Duty loans for 2003-04 have declined in line with an expected reduction in applications for the First Home Owner Grant. 2. In previous years these concessions have been calculated on the difference between a zero rate of land tax and the previous concessional rate that applied up until 1996. The level of concession for 2003-04 reflects the total concession calculated on the difference between a zero rate of land tax and the general rate. 3. This concession had not previously been included within the concessions table. 4. The estimate for pensioner rate remissions for 2003-04 has been reduced to reflect the actual expenditure during 2002-03.
Debits Duty
An exemption from debits duty applies to a bank account held by an eligible recipient of a pension, benefit or an allowance, into which Centrelink or Department of Veterans' Affairs payments are directly credited. The exemption is specific to a particular account. An eligible recipient is the holder of a Commonwealth Pensioner Concession Card, a Health Care Card, or its equivalent.
Eligible recipients apply directly to the financial institution for the exemption. However, if the claim needs to be backdated, application is made direct to the Revenue, Gaming and Licensing Division of the Department of Treasury and Finance. Duty Loan
Duty loans are available to first home buyers where the value of the property does not exceed $120 000 and the property being purchased will be the principal place of residence. Where the property is purchased in joint names, it must be the first home for both applicants. The loan is interest free and is repayable over two years, by eight quarterly instalments. If default in the repayment occurs, interest can be applied. Applications are lodged with, and processed by, the Revenue, Gaming and Licensing Division of the Department of Treasury and Finance.
Chapter 12: Concessions, Subsidies and Community Service Obligations 269 Exemption of Duty on the Registration or Transfer of Registration of a Motor Vehicle
Exemption from duty on an application to register, or transfer registration of, a motor vehicle, is granted to a person who owns a vehicle, which is exempted from Motor Tax under the Vehicle and Traffic Act 1999 or the Transport Act 1981. Eligibility is the same for both exemptions and includes a range of specific criteria applying to both vehicle type and ownership.
The exemption is determined by the Registrar of Motor Vehicles and is only referred to the Revenue, Gaming and Licensing Division of the Department of Treasury and Finance if a claim is retrospective. Some further exemptions are available under the Duties Act 2001. Exemption of Duty on the Conveyance of Real Property used for Primary Production to a Relative
This exemption applies to the conveyance of real property, used solely or principally in connection with the business of primary production, from a natural person to a relative of that person. A conveyance can also be to a trustee of a trust of which all the beneficiaries are relatives of the person.
The exemption also applies in certain other circumstances involving the conveyance of real property from a company to a trustee of a trust or a natural person, providing certain conditions are met. These are outlined in Schedule 3 of the Duties Act 2001. Land Tax Residential Concession
An exemption from payment of land tax applies to all owners of land (as at 1 July each year) on which a dwelling, flat or structure used for domestic purposes exists and which is occupied by the owner as the principal place of residence. Land Tax Primary Production Concession
Land that is used as primary production land in a business-like manner with a reasonable expectation of profit does not attract land tax. Examples of primary production include agriculture, aquaculture, fishing, horse breeding, forestry plantations or dairy farming. Land tax concessions are assessed on the basis of applications forwarded by individual landowners. Land Tax Pensioner and Charitable Bodies Concession
Land that is owned by the holder of a Commonwealth Pensioner Concession Card, a Health Care Card or its equivalent and a number of charitable, religious and educational organisations does not attract land tax. Payroll Tax Assistance Specific industry assistance A payroll tax rebate is provided to all childcare centre employers and for employers who are involved in the Information Technology industry. To receive the information technology rebate the employers must have a significant participation in the Information Technology industry, either in Tasmania or elsewhere and be involved with the development of software or hardware.
270 Chapter 12: Concessions, Subsidies and Community Service Obligations Training Payroll tax relief is provided to employers in relation to wages paid to apprentices under the Tasmanian Trainee Apprentice Incentive Scheme (TTAIS). The scheme provides employers of trainees with a rebate equal to the payroll tax paid in respect of those employees. Similar relief is provided to specialised group training schemes in such industries as building and hospitality. Pensioner Rates Remission
Local councils receive reimbursement of the amount of the concession (rates remission) granted on local government rates paid by pensioners. The remission allowable to pensioners is 30 per cent of their local government rates up to a maximum of $307 per annum. As part of the initiatives announced in the 2002-03 Budget, indexation will now be applied to the annual maximum limit to ensure rate relief for pensioners will increase fully in line with movements in the Consumer Price Index. The maximum amount of the concession payable in 2003-04 will increase to $318.
Department of Health and Human Services
The level of concessions provided by the Department of Health and Human Services in 2003-04 is expected to be $50.9 million, $1.3 million or 2.7 per cent above the levels of concessions provided in 2002-03.
The increase is mainly attributable to an increase of $4.0 million in the Community Service Activity (CSA) payment to Aurora Energy Pty Ltd. This increase is primarily the result of a Government initiative to introduce electricity concessions to Health Care Card Holders during the two winter quarters of each year. This concession will commence from 1 July 2003. Partly offsetting this increase is a reduction in the cost of concessions provided under the Public Rental Subsidy, primarily due to an increase in the number of Housing Tasmania clients purchasing surplus public housing under the 'Streets Ahead Program'.
Table 12.4 summarises the concessions to be provided by the Department in 2003-04. A description of each concession follows the Table.
Chapter 12: Concessions, Subsidies and Community Service Obligations 271 Table 12.4: Concessions provided by the Department of Health and Human Services 2002-03 2003-04 Budget Budget $'000 $'000
Adult Dental Services 450 580 Breast Screening Services – Travel Subsidy1 20 85 Community Service Activity – Aurora Energy Pty Ltd2 9 570 13 526 Equipment Lending Scheme 349 407 Funeral Allowance 18 18 Home Oxygen Therapy 501 512 Medical Aids and Appliances 490 521 Nocturnal Ventilatory Support Therapy 164 212 Patient Travel Assistance Program 2 100 1 932 Pharmaceutical Benefits (Outpatients) 2 841 2 950 Private Rental Assistance 2 103 2 130 Public Rental Subsidy3 30 395 27 174 Spectacle Assistance Scheme 550 524 Lymphoedema Garment Scheme4 …. 80 Enteral Feeds and Supplement4 .… 222
TOTAL CONCESSIONS 49 551 50 873
Notes: 1. The increase in the travel subsidy for Breast Screening Services is the result of the transfer of all assessment clinics to Hobart resulting in increased applications for the subsidy. 2. The increase in the Aurora Energy Pty Ltd Community Service Activity is largely attributed to the extension of electricity concessions, previously only available to pensioners, to Health Care Card Holders during the two winter quarters of each year commencing 1 July 2003. 3. Public Rental Subsidy is the difference between the market rent of a property and the amount actually paid by the tenant as an income-based tenant contribution. The reduced cost of the subsidy in 2003-04 is due to the total reduction in rental stock and therefore total market rents. This reduction is primarily due to an increase in the number of Housing Tasmania clients purchasing surplus public housing under the 'Streets Ahead Program'. 4. These are new concessions provided in 2003-04, therefore no comparative data is available.
Adult Dental Services
This concession covers the provision of subsidised dental services to Pensioner Concession Card Holders and Health Care Card Holders. The main services subsidised are the Denture Scheme and the Southern Emergency Pilot Scheme. The Southern Emergency Pilot Scheme involves public sector clients who require emergency care by private sector dentists. Breast Screening Services – Travel Subsidy
The Breast Screening Services travel subsidy is provided to women attending breast screening assessment clinics. The subsidy is available to women requiring assessment of a detected abnormality. Previously, assessment clinics were held in both Launceston and Hobart. The unavailability of radiologists and
272 Chapter 12: Concessions, Subsidies and Community Service Obligations concerns over the ability to provide high quality clinical services now requires all assessment clinics to be held in Hobart, resulting in increased applications for the subsidy. Community Service Activity - Aurora Energy Pty Ltd
Under arrangements for the electricity supply industry in Tasmania, an agreement for the provision of pensioner concessions has been established between the Government and Aurora Energy Pty Ltd as a CSA. In addition, the Government is funding an initiative to extend the electricity concessions, previously only available to pensioners, to Health Care Card Holders during the two winter quarters of each year commencing 1 July 2003. An amount of $13.5 million will be paid to Aurora Energy Pty Ltd to fund the CSA in 2003-04. Equipment Lending Scheme
The Equipment Lending Scheme provides specific equipment to assist people to live independently and safely in their own home. The main client groups are the frail, aged and people with disabilities. The maintenance of all equipment is facilitated through the Department. Funeral Allowance
Financial assistance may be provided towards the costs of an 'essential care funeral' where the deceased person is without funds in their estate and where relatives of the deceased do not claim the deceased and/or are unable to assist due to extenuating financial circumstances. Home Oxygen Therapy
This concession covers the provision of long-term and short-term oxygen therapy for acute care and chronic home care of lung disease patients who require continuous oxygen therapy. The concession covers oxygen cylinders and concentrators (which are on loan) and disposable accessories and consumables. Medical Aids and Appliances
Under this program, aids such as enteral feeding sets and pumps, specialised garments for burn victims, wigs and other specialised aids are provided to patients to assist with independent living. These devices are often required continuously to avoid institutionalised care and complications, for instance, feeding sets for cerebral palsy patients. Nocturnal Ventilatory Support Therapy
This concession covers the provision of continuous positive airway pressure mask accessories and consumables to medical cardholders and disadvantaged patients with sleep apnoea syndrome. These patients are unable to maintain adequate oxygenation during sleep and require assistance to avoid severe complications. Patient Travel Assistance Program
Travel expense assistance is provided to Tasmanian patients required to travel outside their region for medical treatment that is not available in the patient's home region. The assistance encompasses expenses relating to patient travel, medical support and close family member travel. Patient treatment may require intrastate and interstate travel.
Chapter 12: Concessions, Subsidies and Community Service Obligations 273 Pharmaceutical Benefits (Outpatients)
This concession covers the provision of pharmaceuticals, excluding highly specialised drugs, to outpatients of Tasmanian hospitals at concessional rates. Private Rental Assistance – includes Private Rental Support and Rent Subsidy
The objective of this program is to maintain, support and provide assistance for people on low incomes to live in the private sector rental market. Assistance in the form of bond, cost of removals and rent in advance or arrears is delivered through non-government community organisations in Hobart, Launceston, Devonport and Burnie. Public Rental Assistance
Rental property services are provided statewide, with the objective to provide adequate, affordable, appropriate and secure rental housing to people on low incomes, particularly those who have difficulty accessing appropriate housing in the private market. The assistance consists of the provision of direct customer services and the effective management of stock to meet client needs. Spectacles Assistance Scheme
The Spectacles Assistance Scheme operates through an agreement between the State Government and participating Tasmanian optometrists. The State Government funds the scheme, which currently provides a 75 per cent subsidy for basic frames and lenses and may provide assistance with the purchase of intra-ocular lenses, contact lenses and artificial eyes to eligible permanent residents of Tasmania, who are in receipt of a Commonwealth benefit or pension. Low-income earners not receiving a Commonwealth benefit may also receive assistance, depending on individual circumstance and availability of funding. All eligible clients are permitted one pair of reading and one pair of distance glasses, or one pair of multi-focal glasses every two years. The scheme is demand driven and therefore annual costs can fluctuate. Lymphoedema Garment Scheme
The Lymphoedema Garment Scheme aims to ensure equitable access to compression garments for all Tasmanians with lymphoedema who have been assessed by qualified therapists as in need of compression garments in the treatment of their condition. This is achieved through the provision of financial assistance to those with a demonstrated need for assistance. Enteral Feeds and Supplements
This subsidy is provided under the Statewide Home Nutrition Policy for clients accessing enteral feeds and supplements.
Patients are eligible for assistance under this scheme if they have been assessed as requiring enteral feeds or food supplement products and are not eligible for financial assistance from any other government funded program such as Department of Veterans' Affairs and Nursing Home Subsidy payments, and have not received compensation payments that include provision for future home nutrition.
274 Chapter 12: Concessions, Subsidies and Community Service Obligations Department of Infrastructure, Energy and Resources
The level of concessions provided by the Department of Infrastructure, Energy and Resources in 2003-04 is expected to be $52.8 million, which is $4.0 million or 8.2 per cent above the level of concessions provided in 2002-03. The increase is largely attributed to an increase in the Community Service Obligation (CSO) payment to Metro Tasmania of $1.4 million and a $1.2 million increase in the Payment to School Bus Operators for Contract Services, both the result of indexation increases.
Table 12.5 summarises the concessions to be provided by the Department in 2003-04. A description of each concession follows the Table.
Table 12.5: Concessions provided by the Department of Infrastructure, Energy and Resources 2002-03 2003-04 Budget Budget $'000 $'000
Conveyance Allowance 667 733 Community Service Obligation - Payment to Metro Tasmania Pty Ltd1 19 527 20 877 Community Service Obligation to the Civil Construction Corporation for the retention of the Fingerpost Depot Waratah 54 .... Driver Licences 752 772 Motor Tax 753 895 Payment to School Bus Operators - Contract Services1 17 634 18 832 Payment to School Bus Operators - Route Services 6 610 6 940 Pensioner Aged and Unemployed Concessions (Private Operators) 860 903 Pensioner Air Travel Subsidy 8 8 Registration Fee 1 110 1 280 Transport Access Scheme2 790 1 510
TOTAL CONCESSIONS 48 765 52 750
Notes: 1. The variation in these concessions from 2002-03 is the result of increases in indexation. 2. As from 1 July 2002, the standard taxi concession rate for non-wheelchair members of the Transport Access Scheme rose from 35 per cent to 50 per cent and the single trip concession limit was lifted. Subsequently, increased demand in 2002-03 has resulted in a significant increase in expenditure for this concession. In addition, funding in 2003-04 has been provided for the introduction of wheelchair accessible taxis.
Conveyance Allowance
The Department administers allowances to parents and guardians for the cost of transporting full time students by private car to the nearest appropriate bus stop, or school, if the student lives five kilometres or more from their nearest bus stop or school. Allowances are also paid to some Bass Strait Islands residents to send students to further their education on mainland Tasmania or in other states.
Chapter 12: Concessions, Subsidies and Community Service Obligations 275 Community Service Obligation to the Civil Construction Services Corporation for the retention of the Fingerpost Road Depot Waratah
This CSO funding represents the State Government's contribution towards the costs of maintaining the operations of the Fingerpost Road depot to ensure both continuing employment and an increased level of service in accordance with the North-West Road Maintenance Contract awarded to the Civil Construction Services Corporation. Funding of the CSO is tied to the duration of the existing North-West Road Maintenance Contract, and is to end on 30 June 2003. The service arrangements relating to the current CSO will be incorporated into the new road maintenance contract, rather than through a new CSO. Community Service Obligation - Payment to Metro Tasmania Pty Ltd
Funding is provided for the subsidisation of the commercial fares necessary to support the full range of Metro Tasmania Pty Ltd services to pensioners, students and the unemployed. Driver Licence Concessions
Driver Licence concessions are available to pensioners and drivers over the age of 65. The concession varies depending on the period for which the licence is issued and currently ranges from $7.55 for a one year licence to $36.75 for a five year licence. Drivers aged over 65 are exempt from the total cost of the licence fee, paying only $5.40 to cover the cost of producing the photo licence. Motor Tax Concessions
A 100 per cent rebate is available to persons in receipt of a totally and permanently incapacitated (TPI) pension or persons or their guardians who are members of the Transport Access Scheme. Certain charitable organisations or benevolent societies may also be eligible for the rebate. A 40 per cent motor tax rebate is available to farmers who own a commercial vehicle that is used solely for agricultural or horticultural use. The 40 per cent rebate is also available to holders of pensioner concession cards who own a commercial vehicle for private use. Payments to School Bus Operators - Contract Services
The Department administers contract payments to school bus operators. Contracts are issued for the conveyance of students to and from school. Contracts are usually issued where there are no other public transport services available and are maintained subject to compliance with criteria such as minimum applicable distances from the closest school and minimum passenger numbers requiring regular transport. Payments to School Bus Operator - Route Services
In accordance with Government policy, provision is made for payments to operators of private route service buses to supplement the fare revenue from students, which is set at levels significantly below the commercial adult fare. Students who hold approved concession passes travel free and this item provides for payment of the student fare plus government contribution to operators in such instances. Pensioner, Aged and Unemployed Concessions (Private Operators)
Subsidy schemes are in place to enable pensioners, the aged and unemployed persons to obtain concession fares for travel on privately owned buses and the Mersey River Ferry.
276 Chapter 12: Concessions, Subsidies and Community Service Obligations Pensioner Air Travel Subsidy
Aged pensioner residents of the Bass Strait Islands are entitled to the equivalent of 50 per cent of the return airfare for one visit per annum to Northern Tasmania. Aged pensioners travelling between the Bass Strait Islands and Hobart are entitled to a subsidy equivalent to that applying between the Islands and Northern Tasmania. Registration Fee Concession
The concession is currently 55 per cent of the vehicle registration fee component. It is available to holders of pensioner concession cards and Transport Access Scheme members. Transport Access Scheme
A range of concessions and benefits are available under the Transport Access Scheme to provide assistance to people who have permanent physical or intellectual disabilities, to enable them to use the range of transport facilities available to the general community.
Department of Primary Industries, Water and Environment
The level of concessions provided by the Department of Primary Industries, Water and Environment in 2003-04 is expected to be $278 000, which is $22 000 or 8.6 per cent above the levels of concessions provided in 2002-03.
Table 12.6 summarises the concessions to be provided the Department in 2003-04.
Table 12.6: Concessions provided by the Department of Primary Industries, Water and Environment 2002-03 2003-04 Budget Budget $'000 $'000
Game Licence Fee 89 Recreational Fishing Licence Fee1 4053 Shack Site Pensioner Rebate2 11 10 Recreational Angling Licence Fee3 197 206
TOTAL CONCESSIONS 256 278
Notes: 1. The increase in 2003-04 is a result of an increase in fees under the Fees Unit Act 1997 and an increased number of concessional licences granted. 2. The decline in the forecast cost of concessions is due to the sale of several shacks on Crown land. 3. This concession had not previously been included within the concessions table.
The concessions provided by the Department apply to the holders of Pensioner Concession, Health Care and Seniors Cards. The Department's concessions are determined on the basis of a 20 per cent discount on the normal full adult rate for game licence fees. For recreational fishing licenses, the discount is $15 off the recreational licence fee. This concession also applies to persons under the age of 16.
Chapter 12: Concessions, Subsidies and Community Service Obligations 277 The Recreational Angling Licence concession provides a range of concessions for eligible pensioners, Senior Cardholders and children between the ages of 14 and 17.
Department of Tourism, Parks, Heritage and the Arts
The level of concessions provided by the Department of Tourism, Parks, Heritage and the Arts in 2003-04 is expected to remain unchanged from the 2002-03 estimate of $33 000.
Table 12.7 summarises the concessions to be provided by the Department in 2003-04.
Table 12.7: Concessions provided by the Department of Tourism, Parks, Heritage and the Arts 2002-03 2003-04 Budget Budget $'000 $'000
Hastings Caves/Pool Entry Fee 8 8 Mole Creek Caves Entry Fee 8 8 National Park Entry Fee 17 17
TOTAL CONCESSIONS 33 33
The concessions provided by the Department apply to the holders of Pensioner Concession, Health Care and Seniors Cards. The Department's concessions are determined on the basis of a 20 per cent discount from the normal full adult rate for Hastings Reserve entry fees, Mole Creek Caves entry fees and general National Park entry fees.
Department of Treasury and Finance
The level of concessions provided by the Department of Treasury and Finance in 2003-04 is expected to remain unchanged from the 2002-03 estimate of $6.8 million.
Table 12.8 summarises the concessions to be provided by the Department in 2003-04. A description of the concessions follows the Table.
278 Chapter 12: Concessions, Subsidies and Community Service Obligations Table 12.8: Concessions provided by the Department of Treasury and Finance 2002-03 2003-04 Budget Budget $'000 $'000
Community Service Obligation - Bass Strait Islands 6 170 6 170 Community Service Obligation - The Public Trustee 666 666
TOTAL CONCESSIONS 6 836 6 836
Community Service Obligation - Bass Strait Islands
This payment is provided to Hydro Tasmania for the delivery of the Bass Strait Islands Community Service Obligation (CSO). The Bass Strait Islands CSO provides for the subsidised supply by Hydro Tasmania of electricity to Bass Strait Islands customers and the provision of concessions to pensioner customers on the Bass Strait Islands.
This CSO has been funded since 1998-99. A contract with Hydro Tasmania was renegotiated and finalised during 2002-03 for a period of three years, expiring 30 June 2005. Community Service Obligation - The Public Trustee
The Public Trustee provides four categories of CSO to the community, on behalf of the Government:
• administration of Absolute Estates with a gross asset value of less than $60 000;
• administration of Continuing Trust and Life Tenancy Estates with a gross asset value of less than $100 000;
• administration and management of Minor Trusts with a gross asset value of less than $20 000; and
• administration of assets for Represented Persons with a gross asset value of less than $100 000.
The current CSO contract is due to expire on 30 June 2003. A further three year CSO contract is currently being re-negotiated with The Public Trustee and will commence on 1 July 2003.
Chapter 12: Concessions, Subsidies and Community Service Obligations 279
13 LOCAL GOVERNMENT
Features
• Bilateral Partnership Agreements are currently being developed with Meander Valley, Latrobe, Dorset, Devonport City, Northern Midlands and West Tamar Councils.
• Bilateral Partnership Agreements have been signed with Circular Head, Launceston City, Hobart City, Glenorchy City, Kingborough, Break O'Day, Burnie City, Derwent Valley, George Town, Glamorgan-Spring Bay, King Island, Central Highlands, West Coast and Flinders Councils.
• Two regional Partnership Agreements have been signed and a third is currently in negotiation. Together, the three Agreements will involve every council in the State.
• Three statewide Partnership Agreements on waste management, simplifying planning schemes and communications and consultation between the two spheres of government have been developed under the Premier's Local Government Council. Work on these Partnership Agreements has now entered the implementation phase.
• Sales of goods and services, including water, sewerage and garbage components of rates, were the major Local Government revenue sources during 2000-01, accounting for 41.1 per cent of total revenue. Taxes (the general rate component) was 35.3 per cent of total revenue, with current grants and subsidies making up 14.6 per cent.
• In 2000-01, the largest expense area was housing and community amenities at 35.5 per cent of total expenses.
• The Local Government sector returned a surplus of $8.0 million in 2000-01, the fourth successive surplus since 1996–97.
• Key Performance Indicators are presented for all Tasmanian councils with a range of indicators to measure their organisational performance, enabling councils to benchmark their operations and monitor their performance over time.
Chapter 13: Local Government 281 INTRODUCTION
This chapter provides information on:
• the development and role of the Local Government sector in the Tasmanian economy;
• the financial relationship Local Government has with both the State Government and the Commonwealth Government;
• the implications of current economic reform initiatives for Local Government;
• the financial position of Local Government in general; and
• key performance indicators of the Local Government sector.
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 (1962 Act) 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 then State Government and Local Government agreed to a reform and modernisation program which has since seen the number of LGAs in Tasmania reduced from 46 to 29 and the Local Government Act updated.
More recently, the Government has decided to undertake a review of the Local Government Act 1993.
Since the Act's introduction, Local Government has changed considerably. The Government's policy in relation to Local Government is also very different, with its Partnership Agreements program having led to the development of a much closer working relationship between the two spheres of Government.
Following requests from the Local Government Association of Tasmania (LGAT) and the Local Government Managers Association (LGMA), the Government decided to undertake a review of the Act and expressed the preference that this review be completed by the end of 2003.
The Review will cover all matters in the Local Government Act 1993. The Local Government Division has now compiled all proposed amendments it has received to date from the public, Local Government and State Government agencies. These proposals have been placed in the following five broad subject areas:
• governance of Councils;
• accountability issues;
282 Chapter 13: Local Government • inter-governmental relations (State–Local Government);
• revenue and financial management; and
• council administration and operations.
Further details of recent developments in Local Government are provided later in this chapter.
Role in the Economy
Local Government provides 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 aim 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 community recreational amenities. Expenditure is funded from:
• rates, fees, fines and charges;
• Commonwealth Government and State Government grants; and
• borrowing.
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.
In 2000-01, the most recent year for which information is available, sales of goods and services, including water, sewerage and garbage components of rates, were the major Local Government revenue sources, accounting for 41.1 per cent of total revenue on a Government Finance Statistics (GFS) basis. Tax revenues (the general rate component) constituted 35.3 per cent of total revenue on the same GFS basis. Current grants and subsidies made up 14.6 per cent of total revenue. By comparison, the majority of State Government revenue stems from Commonwealth transfers.
Chart 13.1 shows the sources of revenue of the State and local levels of government in Tasmania during 2000-01.
Chapter 13: Local Government 283 Chart 13.1: State and Local Government Revenue Sources, 2000-01
70
60
50
40
30
20 Per cent of total revenue
10
0 Taxation Sale of goods Current grants Interest income Other revenue revenue and services and subsidies State Local
Source: Government Finance Statistics, Australia 2000-01, 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 reducing 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.
Local Government financial management is also important with regard to external monitoring of the State Government's financial position. Rating agencies and the Australian Loan Council include Local 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 the Australian 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 that will not significantly impact on the availability of capital to the private sector. The constraints also ensure that the various jurisdictions within the public sector are adopting appropriate long-term fiscal strategies.
RELATIONSHIP WITH OTHER LEVELS OF GOVERNMENT
There is a relatively complex financial relationship between Local Government, the State Government and the Commonwealth Government. The complexity in this relationship arises both from the nature of the institutional arrangements in Australia referred to in Chapter 10 of this Budget Paper, and because 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
284 Chapter 13: Local Government situation between the Commonwealth and State, this leads to some duplication and overlap and an 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 of Local Government costs;
• Local Government exemptions from State taxes and charges and State exemptions from council general rates;
• levies and charges paid by councils to the State Government; and
• charges paid by councils for the use of State Government services.
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 and identified local road funds (ILRFs), both of which are distributed in accordance with the Commonwealth's Local Government (Financial Assistance) Act 1995. Although local road funds are still identified as a separate component, the ILRFs are untied and may be applied at the discretion of councils.
Prior to 2000-01, escalation of the national pool of Local Government financial assistance was determined by underlying movements in Financial Assistance Grants (FAGs) from the Commonwealth to the states and territories. With the reform of Commonwealth-State financial arrangements stemming from the introduction of the Commonwealth's A New Tax System, FAGs were abolished from 1 July 2000, and replaced by revenues collected from the Goods and Services Tax. This brought to an end the nexus between State and Local Government grants and, accordingly, it became necessary for the Commonwealth to amend the Local Government (Financial Assistance) Act to recognise this fact.
Since 2000-01, the national quantum of Local Government general purpose financial assistance has been linked to annual changes in both the Australian population and the consumer price index, so that the pool is maintained in 'real per capita' terms. The final year for which the previous arrangements existed, which was 1999-00, is the base for determining the size of the Local Government grant pool in each subsequent year. These arrangements will, in effect, leave Local Government no worse off financially in terms of general purpose Commonwealth funding than had the previous arrangements continued. In fact, real per capita maintenance of Commonwealth general purpose grants to Local Government is now guaranteed under legislation, whereas this was not previously the case.
The Commonwealth's Local Government (Financial Assistance) Act specifies that the distribution of the base grant (ie not including road funds) between states and territories is to be on a per capita basis. ILRFs are not distributed between states and territories on a per capita basis, but rather on the basis of historical shares between states and territories as defined in the Commonwealth's Australian Land Transport Development Act 1988. In total, Tasmania receives 3.3 per cent of the total general purpose payments made available nationally to Local Government by the Commonwealth. Total Commonwealth general purpose
Chapter 13: Local Government 285 payments to Tasmania's LGAs are estimated to be $47.8 million for 2002-03, a real term increase of 2.0 per cent over the total payments for 2001-02 of $45.9 million.
Estimated total Commonwealth general purpose payments in 2002-03 to Local Government in each state and territory for base grants and ILRFs are shown in the following table.
Table 13.1: Commonwealth General Purpose Grants to Local Government, 2002-03 Identified Local Road Total State/Territory Base Grants Funds Grants % of Total $m $m $m %
New South Wales 340.2 129.2 469.4 32.4 Victoria 248.6 91.8 340.4 23.5 Queensland 188.0 83.4 271.4 18.7 Western Australia 98.3 68.1 166.4 11.5 South Australia 77.8 24.5 102.3 7.1 Tasmania 24.2 23.6 47.8 3.3 Northern Territory 10.2 10.4 20.7 1.4 Australian Capital Territory 16.5 14.3 30.8 2.1
TOTAL1 1 003.7 445.4 1 449.1 100.0
Source: Statement of Estimated Payments, Commonwealth Treasury, March 2003. Note: 1. These figures represent estimates of the cash payments to be made in 2002-03 which consist of the estimated entitlement for 2002-03 adjusted for underpayments made in 2001-02, which are added to the quarterly instalments paid by the Commonwealth over the 2002-03 financial year.
The Commonwealth has determined that there will be a positive adjustment to payments in respect of 2001-02 as the estimated inflation figure of 3.53 per cent used to determine last year's pool was lower than the actual level of inflation of five per cent. The adjustment is being added to the 2002-03 quarterly payments, based on the distribution of the 2001-02 grants. This means that the cash actually paid to Tasmanian councils in 2002-03 will be the estimated 2002-03 entitlement of $47.8 million plus a positive adjustment to the 2001-02 grants of $652 541, which is a total of $48.5 million.
Each LGA's share of funds is determined on the recommendation of the Tasmanian State Grants Commission. The base grant distribution is determined according to the fiscal equalisation principle. This principle aims to provide each LGA with the capacity 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 13.2 details the Commonwealth general purpose grants made to individual Tasmanian councils in 2001-02 and the recommended grants for 2002-03 that have been approved by the Commonwealth. The totals in Table 13.1 for 2002-03 may vary from the Tasmanian figures presented in Table 13.2 because those in Table 13.1 represent the cash payments to be made in 2002-03.
286 Chapter 13: Local Government Table 13.2: Commonwealth General Purpose Grants to LGAs, 2001-02 and 2002-03 (Recommended Entitlement) 2001-02 2002-03 Total Grant Total Grant Base Grant ILRF per capita Base Grant ILRF per capita $'000 $'000 $ $'000 $'000 $
Break O'Day 716.0 961.6 291.6 747.7 1 018.2 303.4 Brighton 725.2 318.4 80.0 797.7 332.6 86.8 Burnie 915.2 689.3 83.3 890.0 721.0 85.5 Central Coast 1 338.1 1 074.8 115.1 1 471.9 1 120.9 123.9 Central Highlands 565.2 834.8 562.7 552.1 873.2 617.8
Circular Head 840.8 965.9 213.1 852.5 965.9 235.0 Clarence 1 214.8 796.6 41.1 1 309.3 796.6 43.2 Derwent Valley 610.7 489.6 112.9 657.0 489.6 125.3 Devonport 757.5 616.6 56.5 757.2 616.6 57.9 Dorset 822.0 1 155.1 266.9 846.6 1 155.1 280.6
Flinders 414.3 384.3 849.6 446.8 402.7 978.6 George Town 577.5 407.6 146.4 619.1 426.6 161.3 Glamorgan/Spring Bay 433.8 470.8 212.9 477.2 503.3 245.9 Glenorchy 650.1 787.3 32.9 676.3 824.0 34.1 Hobart 680.4 1 023.9 37.1 710.4 1 189.4 40.0
Huon Valley 947.1 1 048.2 145.9 980.4 1 093.9 148.4 Kentish 690.3 718.3 255.9 727.2 749.8 268.5 King Island 368.4 422.6 450.7 394.1 443.1 495.7 Kingborough 968.8 766.7 60.7 1 013.5 782.0 60.0 Latrobe 481.5 362.7 103.4 520.0 398.0 110.0
Launceston 1 658.1 1 618.0 52.3 1 575.5 1 693.7 52.4 Meander Valley 1 221.2 1 245.3 139.2 1 250.3 1 299.5 140.0 Northern Midlands 1 201.9 1 376.8 217.8 1 240.1 1 446.4 224.1 Sorell 654.4 537.8 109.0 681.0 571.0 113.0 Southern Midlands 767.6 1 258.8 359.3 781.3 1 312.6 365.0
Tasman 275.3 229.8 227.3 277.7 244.0 231.9 Waratah/Wynyard 964.8 832.7 130.1 1 035.4 871.3 140.5 West Coast 694.3 395.5 193.9 763.8 419.9 221.1 West Tamar 1 074.4 603.9 83.7 1 181.9 637.2 88.8
TOTAL1 23 229.6 22 393.3 97.0 24 233.8 23 601.6 101.2
Chapter 13: Local Government 287 Sources: Tasmanian State Grants Commission Annual Report For 2002-03; Commonwealth approved State Grants Commission recommendations for 2002-03. Note: 1. To obtain the total grants per capita, the 2001-02 population estimate was used, as this is the most recent available.
The Tasmanian State Grants Commission is currently considering a distribution of grants to Local Government for 2003-04.
In addition to general purpose grants, the Commonwealth provides some specific purpose grants to Local Government. These grants are largely provided for aged and disabled persons' homes, children's services and aboriginal advancement. Commonwealth Grants Commission Review of Local Government Financial Assistance
The Local Government (Financial Assistance) Act 1995 (Cth) sets out the principles, goals and purposes that govern the State Grants Commission's (SGC) recommendations concerning the distribution of the Commonwealth's Financial Assistance Grants to Tasmanian councils. The Act has been the subject of a Review conducted by the Commonwealth Grants Commission (CGC). The CGC effectively confined its proposals for reform to the principles governing the distribution of the base grant.
The Final Report arising from the Review was released on 4 July 2001. Commonwealth Government Response
The Commonwealth announced in May 2002 that it has deferred its response to the CGC Review. Specifically, the Commonwealth will not finalise its response until it has considered the Final Report from the House of Representatives Standing Committee on Economics, Finance and Public Administration arising from the Committee's Inquiry into Local Government and Cost Shifting, which is expected to be released in the latter part of 2003. In-Principle Decisions
Since November 2001, the SGC has undertaken a process of research and consultation to determine its response to the recommendations of the CGC Review. Following the conclusion of the extensive process of consultation with Local Government, the SGC has recently made a number of in-principle decisions in response to the findings of the Review. Those decisions are that:
• the SGC's assessment of councils' expenditure needs should be expanded to include depreciation expenses, through the method proposed in its discussion paper that was released in November 2001;
• the SGC's assessment of councils' revenue capacity should be expanded to include non-rate revenue, through the method proposed in its discussion paper that was released in November 2001;
• the SGC should continue to apply its current approach to the Other Grant Support Principle, whereby only those recurrent grants that relate to functions within the ordinary scope of local government activity and are received by a majority of councils are treated by inclusion;
• the SGC should modify the method through which it calculates Disability Factors so that they will centre upon 1.00, as opposed to commencing at 1.00;
• the term 'Disability Factors' should be renamed 'Cost Adjustors';
• a Budget Result Term should be included in the SGC's standard equalisation budget;
288 Chapter 13: Local Government • the SGC should continue to use the proportional method of factoring back and not pursue any further work on the equalisation ratio method at this time; and
• the SGC should not adopt the CGC's proposal to split the base grant pool into separate Relative Needs and Per Capita pools in the absence of a legislative imperative to do so, and should therefore continue to apply the Minimum Grant Principle as the final step in the process of base grant calculation. Deferred Implementation of State Grants Commission Response to the Review
The SGC has recently resolved to defer the implementation of its response to the CGC Review until the 2004-05 grant year. The decision to defer the introduction of a new equalisation method means that the SGC's recommendations concerning the allocation of grants for 2003-04 will be made on the basis of the existing equalisation method. Factors influencing the deferred implementation include:
• the SGC has yet to conclude its consideration of several key aspects of its equalisation method. These matters have the potential to exert a significant influence upon the pattern of base grant distribution. The SGC considered that the adoption of a new equalisation method, prior to the finalisation of these outstanding matters, would be inconsistent with the SGC's commitment to the simultaneous introduction of all reforms arising from the CGC Review;
• there is significant uncertainty surrounding the Commonwealth Government's position in relation to the future of the Local Government (Financial Assistance) Act. The findings of the CGC Review have been referred to the House of Representatives Standing Committee on Economics, Finance and Administration's Inquiry into Local Government and Cost Shifting. The Committee is not scheduled to table its Final Report until the latter part of 2003. It is possible that the Inquiry may recommend significant amendments to local government funding arrangements; and
• the possible implementation of State Local Financial Reform (SLFR) has the potential to cause significant shifts in the revenue capacities of Tasmanian councils and, consequently, to the pattern of base grant distribution. To proceed with the SGC's response to the CGC Review prior to the resolution of this matter could unnecessarily exacerbate any period of financial disruption arising from one or both of these processes for longer than need be the case.
Partnership Agreements
The State Government is committed to the development of Partnership Agreements as a key mechanism for strengthening working relations with Local Government. The State Government recognises that committed progressive local communities and sound local economies are fundamental to the social and economic development of the State. Hence the process for developing Partnership Agreements takes into account consultative mechanisms at the local level, encourages local input to community and economic development decisions and promotes shared responsibilities for improved targeting of service delivery.
A Partnership Agreement is a document that outlines the ways in which the State Government and a council or group of councils can find innovative ways of working together to improve the social, economic and environmental situation within a community by reaching mutually agreed goals. A Partnership Agreement can be formed around a particular issue, or may cover a range of different issues.
Partnership Agreements provide an opportunity to examine government service delivery arrangements and for the State and Local Government to jointly identify measures to improve their design and/or delivery. A key aspect is to ensure that there are effective service delivery arrangements to meet the reasonable needs of
Chapter 13: Local Government 289 all residents including, where appropriate, options to improve coordination of joint State-Local service delivery arrangements or to address gaps and overlaps in service delivery. Where State Government services can be more effectively and efficiently delivered at the Local Government level, agreement will be reached on appropriate funding arrangements and any amendment of existing service delivery arrangements will be the subject of contractual arrangements between the parties to ensure appropriate accountability and transparency of implementation.
Results from the Partnership Agreements are measurable through agreed timeframes and outcomes. Each Partnership Agreement concluded with Local Government is accompanied by an action plan identifying council and State Government agency responsibilities. An inter-agency coordination group has been established to monitor progress in implementing Partnership Agreement commitments of the State Government. The program is administered through the Local Government Division in the Department of Premier and Cabinet. Objectives
The aim is that Partnership Agreements be developed in a cooperative manner based on the identification of shared objectives and ways in which both levels of government can work towards effectively meeting these objectives. The Government's objectives for the Partnership Agreements were outlined in its Framework for Developing State-Local Government Partnership Agreements, revised in October 2001. The Framework is updated periodically to reflect the dynamic nature of the Partnerships Program.
In summary these objectives are to:
• identify opportunities to work in partnership with Local Government to progress agreed social, economic and environmental outcomes for Local Government areas; and
• ensure effective service delivery arrangements to meet the reasonable needs of all residents including, where appropriate, options to improve coordination and joint service delivery arrangements or address gaps and overlaps in service delivery.
More broadly, the State Government recognises that Partnership Agreements have a key role to play in facilitating the achievement of agreed social, economic and community development goals. In particular, they provide a vehicle to achieve the following whole-of-government strategic policy objectives:
• economic growth;
• social development; and
• environmental sustainability.
The Partnership Agreements will also have a role in facilitating the achievement of agreed social, environmental, economic and community development benchmarks identified in Tasmania Together, the 20 year plan to drive the strategic direction of the State. As far as possible, all schedules in Partnership Agreements are now linked to a specific Tasmania Together benchmark. Background
The pilot phase of the program was launched in December 1998, commencing with the negotiation of a bilateral Partnership Agreement with the Circular Head Council, which was signed on 1 June 1999. The pilot phase concluded with the signing of a bilateral Partnership Agreement with the Launceston City Council on 10 December 1999. Partnership Agreements have since been commenced with councils in every region of the State.
290 Chapter 13: Local Government Bilateral Partnership Agreements have been signed with Circular Head, Launceston City, Glenorchy City, Flinders, Hobart City, Burnie City, Kingborough, King Island, George Town, Glamorgan-Spring Bay, West Coast, Central Highlands, Derwent Valley and Break O'Day Councils. Negotiations have either commenced or are well advanced with Meander Valley, Latrobe, Dorset, Devonport City, Northern Midlands and West Tamar Councils.
Regional Partnership Agreements give the parties the opportunity to look broadly at issues that extend beyond the boundaries of a single council.
Every council in the State is currently involved in one of three regional Partnership Agreements. Eight northern councils are engaged in the Northern Tasmanian Regional Development Board Agreement (NTRDBA), which was signed in July 2001. Nine north western councils are involved in the Cradle Coast Authority Partnership Agreement (CCAPA), signed in October 2001. The twelve southern councils are involved in the development of the Southern Tasmanian Councils Partnership Agreement, to be completed in the near future.
The three regional Partnership Agreements each have a term of three years, with a review undertaken at the end of the term. The Agreements are also evaluated at the end of the first year. An evaluation has already been undertaken on the NTRDBA while the CCAPA is currently undergoing its evaluation. Premier's Local Government Council
The Premier's Local Government Council (PLGC) was established in 2000 as a forum for high-level discussions with councils on issues of statewide significance. The Council meets three or four times a year.
The Council is chaired by the Premier and comprises the eight elected council representatives who make up the General Management Committee of the Local Government Association of Tasmania (LGAT). An Officials Committee with a membership of State and Local Government officers supports the Council.
Statewide Partnership Agreements are negotiated through the PLGC. These involve all councils and the State Government and are signed by the President of the LGAT on behalf of the councils.
Three statewide Partnership Agreements on waste management, simplifying planning schemes and communications and consultation between the two spheres of government have been developed under the PLGC. Work on these Partnership Agreements has now entered the implementation phase.
In addition to Partnership Agreements, the PLGC maintains discussion on a range of issues that affect all councils and the State Government, including constitutional recognition of Local Government, State and Local Government financial relations, the implementation of Tasmania Together, the limited review of the Local Government Act 1993, public liability costs, forestry issues and other matters of topical interest.
Chapter 13: Local Government 291 FINANCIAL REFORM OF THE LOCAL GOVERNMENT SECTOR
There is currently a complex set of financial arrangements that underpin State and Local Government financial relations. Many of these arrangements could be considered a product of history, rather than the result of deliberate public policy decisions. These include:
• levies and charges on Local Government to fund services provided by the State, in which Local Government has little, if any, input;
• various fees and charging arrangements which are not commercially based and are therefore considered to distort decision making; and
• various taxation exemptions, concessions, specific purpose grants and subsidies which reduce accountability and distort decision making.
A project aimed at reforming State and Local Government financial relations is being undertaken to simplify and make more transparent the financial relations between the two spheres of government. In doing so, policy decision making will be enhanced by making it easier to assess the implications of policies under consideration.
This project is being overseen by the Premier's Local Government Council (PLGC). As State and Local Government financial matters are technical in nature and require significant and detailed input, the PLGC is being assisted by a Working Group. The Working Group is comprised of representatives from the Department of Premier and Cabinet, Treasury, the Local Government Association of Tasmania (LGAT) and four councils.
The PLGC has endorsed three principles to be followed in the formulation and implementation of the reforms from this project. These are: financial transparency; revenue neutrality; and non-discrimination. The general goal of the project is that financial transparency will be maximised, subject to the revenue neutrality and non-discrimination principles, which act as constraints on the extent and nature of reforms that can be formulated. The revenue neutrality principle is of particular importance as it requires that reforms do not place either sphere of government at a significant financial disadvantage.
Considerable progress has been made to date, with the PLGC having endorsed a number of important documents produced by the Working Group. These include:
• a paper describing the financial flows between the two levels of government (based on information from a survey of all State and Local Government entities); and
• an Issues Paper, a Valuation Paper, and a Rating of Crown Land Paper, which have established the scope and range of financial transactions for which reforms should be appropriately pursued between the two levels of government.
The PLGC has endorsed the Working Group recommendation that financial reform will encompass reciprocal taxation (the application of full State Government taxes on Local Government activities and the full application of rates on State Government land through the removal of current exemptions) and the removal of the Library and Local Government Planning levies.
292 Chapter 13: Local Government The PLGC has agreed that the approach to the valuation and rating of Crown land is that only Crown land required for rating purposes is to be valued. Crown land, other than national parks, forest reserves, conservation areas, public parks and recreation areas, and roads, bridges and associated infrastructure (including railway lines), is to be rated. On a reciprocal basis, parks, reserves and conservation areas owned by Local Government would similarly be exempt from State taxes.
The reform project has now reached a critical stage, where revenue neutrality between the two levels of government and among councils is being assessed. A draft Revenue Neutrality Paper has been prepared by the Working Group and was used as the basis of consultation with councils.
This consultation process identified one area that requires further work, being the need to provide greater clarity and consistency in the land tax treatment of various categories of council land. The Working Group has sought further details from councils to gain a consistent estimate of local government land tax liability. The Working Group will then be in a position to provide a final assessment of revenue neutrality between the two levels of government.
The application of general and service rates to electricity generation assets will give rise to a range of technical valuation difficulties and would detract from rather than contribute to the revenue neutrality constraint. This has therefore been determined to be outside the scope of the reform project.
The Working Group will provide the PLGC with final recommendations in time for any legislative changes to be introduced during the Spring Session 2003 of Parliament. This will allow sufficient time for the reforms to commence from 1 July 2004.
The following is a brief description of the nature of the existing State-local financial arrangements.
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 up to a maximum of $318 in 2003-04 on individual property rates. In 2001-02, State water subsidies amounted to $20 037, sewerage subsidies amounted to $300 517 and the cost of pensioner rates remissions amounted to $12.8 million.
State Taxation Exemptions
Local Government is exempt from the payment of State Government taxes.
Local Government Rates Exemptions
State Government agencies, statutory authorities and a number of Government Business Enterprises (GBEs) are currently exempt from Local Government rates on Crown land, although service rates for water and sewerage are generally paid.
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.
Chapter 13: Local Government 293 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 (collection fee) which is a maximum of 1.5 per cent of the gross assessed contribution. In 2001-02, the library contribution was $6.2 million, which represented about 36 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.
The State is responsible for the provision of fire services through the Tasmanian State Fire Commission and in accordance with the Fire Service Act 1979. However, before 1979, the responsibility for fire protection was shared between two statutory bodies and 22 individual fire brigade boards. In 2001-02, the State Fire Commission received $18.7 million from a levy imposed on Local Government, which was equivalent to approximately 49 per cent of the Commission's expenditure. This levy is based on the assessed annual value of rateable property. Councils may retain an administration (collection) charge not exceeding four per cent of the gross value of the levy and 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 Division of the Department of Premier and Cabinet and through the Department of Primary Industries, Water and Environment, which both have policy, regulatory and advisory roles. Local Government contributes to the cost of providing these services through a planning and Local Government levy equal to 0.15 cents per dollar of the total adjusted assessed annual value of all rateable (non-exempt) land in their municipality. In 2001-02, the Local Government contribution was $2.7 million.
State Grants
The State Government provides recurrent assistance to Local Government for specific purposes under the following arrangements:
• Direct principal and interest subsidies under the Public Bodies Assistance Act 1971 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;
• In 2001-02, the Department of Infrastructure, Energy and Resources distributed grants to councils totalling $1.5 million sourced from State Government heavy vehicle motor taxes (the 'National Road Transport Commission (NRTC) funds');
• In 2001-02, the Launceston City Council received $936 320 from the then Department of State Development for the Queen Victoria Museum and Art Gallery;
• In 2001-02, the Department of Premier and Cabinet disbursed $111 200 to Local Government bodies under the Premier's Sundry Grants program. A further $404 000 from the Social Infrastructure Fund was disbursed to the Glenorchy City Council towards the Wilkinson's Point Parkland Redevelopment; and
• In 2001-02, the Burnie City Council and the Devonport City Council received $40 000 each for the operation of their respective travel centres. The Launceston City Council, the Meander Valley Council
294 Chapter 13: Local Government and the Glamorgan-Spring Bay Council received $5 000 each from the Tourism Development Grants program while the Circular Head Council received $14 500 for its visitor information centre.
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 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, characteristics;
• 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 are applied to Local Government.
In addition, the Conduct Code Agreement (CCA) required the State Government to introduce legislation to ensure the wider application of the restrictive trade practices provisions of Part IV of the Commonwealth's Trade Practices Act 1974, to encompass all private and public sector business activities, including Local Government business activities. This was effected through the Competition Policy Reform (Tasmania) Act 1996.
In June 1996, as required under the CPA, the then Government submitted to the National Competition Council (NCC) a policy statement entitled Application of National Competition Policy to Local Government (Application Statement). This Statement, prepared in consultation with Local Government, provided a broad policy statement on how it was intended that the five competition principles, where appropriate, would be applied to Local Government. The Government, in conjunction with Local Government, is currently undertaking a review of the Application Statement.
In addition to the reforms required under the CPA, NCP requires jurisdictions to consider reform in the areas of water, electricity, transport and gas. These requirements are detailed in the Agreement to Implement the National Competition Policy and Related Reforms.
Progress to date in relation to the application of competitive neutrality, legislation review, monopoly prices oversight and water reform to Local Government is outlined below.
Competitive Neutrality
In accordance with the Application Statement, all councils have assessed their significant business activities to which full cost attribution (FCA) would apply. This was done during 1996. These lists were reviewed by a peer group (established by the LGAT).
Realising the advantages that competitive neutrality could deliver in increasing the efficiency of council operations, 18 of the 29 councils decided to apply FCA to all of their business activities. The majority of the
Chapter 13: Local Government 295 remaining councils chose to apply FCA to their public trading enterprises (largely water and sewerage services) and road maintenance.
Further discussions, which commenced in mid-1998, led to an updated agreement on the application of NCP to Local Government in Tasmania. The revised Agreement incorporated a new implementation timetable and was approved by the LGAT General Management Committee in July 1998.
In accordance with the Application Statement, councils were required to:
• identify relevant business activities which were considered significant business activities;
• undertake public benefit assessments of the corporatisation of those business activities which are classified as Public Trading Enterprises (PTEs) under the ABS Government Finance Statistics Classification (generally water and sewerage); and
• corporatise those PTEs where a public benefit assessment indicates that the benefits outweigh the costs of doing so or apply full cost attribution to all other significant business activities.
Accordingly, councils undertook public benefit assessments of the corporatisation of their Public Trading Enterprises during 1999.
All councils found that corporatisation of their PTEs would not be in the public benefit, mainly due to the small size of Tasmanian councils and therefore of their business activities. These results were submitted to a peer review group consisting of LGAT and council representatives. The peer review group endorsed the results of the public benefit assessments and provided a recommendation to the Treasurer to this effect in November 1999. The Treasurer endorsed the public benefit assessment and the outcome of the peer review assessment on 3 December 1999.
It should be noted, however, that the joint bulk water authorities, the Hobart Regional Water Authority (HRWA), the Esk Water Authority (EWA) and the North West Water Authority (NWWA), were corporatised under the Local Government Act, independently of this process.
Councils are continuing to apply FCA to their business activities in a form appropriate to their size. Importantly, the Local Government Act was amended in 1999 to require councils to disclose the full cost of operating their significant business activities in their annual reports. In this regard, councils are required to disclose the operating, competitive neutrality and capital costs attributable to their significant business activities.
To comply with the competitive neutrality principles, the Local Government Division of the Department of Premier and Cabinet has developed a Community Service Obligation (CSO) Policy and Guidelines framework for councils. This policy is consistent with the policy applying to the State Government's Government Business Enterprises.
The main objectives of the CSO Policy are:
• to ensure that a council's social and other objectives are achieved without impacting on the commercial performance of its significant business activities;
• to improve the transparency, equity and efficiency of CSO service delivery; and
• to be consistent with NCP requirements.
The Policy was implemented in early 2001, in accordance with Tasmania's NCP obligations.
296 Chapter 13: Local Government Competitive Neutrality Complaints Mechanism
The Application Statement required the establishment of a competitive neutrality complaints mechanism. Accordingly, a competitive neutrality complaints mechanism was established under the Government Prices Oversight Act 1995. Under regulations made under that Act, a person who believes that he or she has been adversely affected by a contravention of the competitive neutrality principles may lodge a complaint with the Government Prices Oversight Commission (GPOC), which has responsibility for investigating all alleged breaches of the competitive neutrality principles in the State.
During 2002, no competitive neutrality investigations were undertaken by GPOC. One complaint was made but the matter was referred to the Department of Treasury and Finance, as the activity was not a significant business activity of the council concerned.
The Government is currently considering how the identification of local government significant business activities can be clarified to ensure that Tasmania continues to meet its competitive neutrality obligations. This issue is being addressed through a review that is currently underway of the former Government's policy statement of June 1996, titled Application of National Competition Policy to Local Government.
Prices Oversight
The Application Statement indicated that Local Government monopoly or near monopoly providers were to be brought under the prices oversight jurisdiction of GPOC. The Government Prices Oversight Amendment Act 1997 extended the coverage of the Government Prices Oversight Act 1995 to include Local Government monopoly or near monopoly services.
In accordance with the Agreement to Implement the National Competition Policy and Related Reforms, Tasmania is required to implement the COAG Strategic Framework for the Efficient and Sustainable Reform of the Australian Water Industry (Strategic Framework). The Strategic Framework requires metropolitan bulk water suppliers to charge on a volumetric basis to recover all costs. Metropolitan bulk water suppliers are to also earn a positive real rate of return on the written-down replacement cost of their assets.
Against this background, GPOC was required to undertake an investigation into the pricing policies associated with the provision of bulk water by the HRWA, the EWA and the NWWA in 1998. As a result, GPOC recommended maximum prices (in the form of maximum revenues and pricing principles) to be charged by each of the State's three bulk water authorities for a three year period commencing from 1 July 1999. The Government endorsed GPOC's pricing principles for bulk water.
On 31 July 2001 GPOC completed its second investigation of the bulk water supply authorities. In September 2001, the Government released a Determination setting the maximum allowable revenues and maximum volumetric prices for the three bulk water authorities for a three year period commencing 29 September 2001 following consideration of GPOC's report.
Legislation Review
The Local Government Division 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 Government's Legislation Review Program (LRP). All by-laws proposed since that date have been required to comply with the new procedures.
Chapter 13: Local Government 297 All by-laws made under the 1962 Act remained in force under the current Local Government Act (to the extent that they were consistent with the new Local Government Act) for a period of five years, and were due to expire on 17 January 1999.
Councils have been progressively reviewing their by-laws, a number of which have been repealed. As a result, there has been a continued decline in the overall number of by-laws. However, a significant number of councils were not prepared for the statutory expiry of all these by-laws on 17 January 1999. In December 1998, the Government therefore introduced the Local Government (Savings and Transitional) Amendment Act 1998 to extend the expiry date to 31 March 1999. Approximately 500 by-laws made under the 1962 Act automatically expired.
All of the 141 new by-laws gazetted under the current Local Government Act have been subjected to the legislation review processes. Councils are now carefully considering the subject matter that they wish to deal with through by-laws, such that new by-laws are generally made to deal solely with matters of broad governance, rather than relating to commercial operations. Tasmanian councils have repealed their obsolete by-laws and replaced them, where appropriate, with by-laws that focus on governance arrangements and comply with NCP principles.
Amendments to the Local Government Act in 1999 resulted in the further application of NCP principles to Local Government by-laws, with the requirement that any new by-laws with a significant impact on the community be subject to a Regulatory Impact Statement. This amendment formalised the procedure already required in the By-Law Making Procedures Manual.
Water Reform
As part of the Tasmanian water reform process, in 1997 the Hobart Regional Water Board was transferred from State Government to Local Government ownership and established under the Local Government Act as a joint authority, the Hobart Regional Water Authority. In addition, the State Government's North Esk Regional and West Tamar Water Supply Schemes were also transferred to Local Government and, together with Launceston City Council's water supply scheme, re-established in 1997 under the Local Government Act as a joint authority entitled the Esk Water Authority.
On 10 August 1999, the NWWA was the last bulk water authority to be transferred to Local Government and now operates as Cradle Coast Water.
These joint authorities were established in accordance with the NCP corporatisation model and are subject to full taxation equivalent, dividend and loan guarantee fee regimes.
Among other things, the Strategic Framework requires the implementation of two-part (volumetric) pricing for urban water schemes where it is shown to be cost effective. In Tasmania, all urban retail water services are provided by Local Government. Accordingly, in 1999 councils undertook a significant amount of work in assessing whether two-part tariffs are cost effective for their urban water supply schemes.
To commence this assessment, in June 1999 GPOC set out a methodology for local councils to assess the cost effectiveness of introducing two-part tariffs for their urban water services in its report entitled The Cost Effectiveness of Local Councils Implementing Two Part Pricing for Urban Water Services.
Local Governments were required to show that they had correctly applied the guidelines to assess whether two-part pricing was cost effective for their urban water service schemes. The submissions provided by
298 Chapter 13: Local Government councils were subsequently reviewed by an independent review panel comprising State and Local Government representatives and a representative of the LGAT.
A report on the assessments was provided to the State Government in December 1999. The report showed that two-part tariffs had already been, or would be, implemented in 24 of the 90 water schemes studied. In these cases, the implementation of two-part pricing for urban water delivers many benefits to councils and the broader community. Correct pricing sends the appropriate price signals to customers to promote water use that is economically efficient and environmentally responsible.
Two-part tariffs have now been implemented by all councils for those schemes for which it has been found to be cost effective.
The Local Government Regulations 2000 were amended in late 2000 to require councils to incorporate in their annual reports a statement of plans for the supply of domestic water and sufficient financial information to demonstrate that the Urban Water Pricing Guidelines for Local Government in Tasmania (Urban Water Pricing Guidelines) are being applied in relation to the supply of domestic water. The previous requirement was for a statement to appear in councils' operating plans for the forthcoming year.
Tasmania has been assessed by the NCC as having met all its NCP water reform commitments to date. The NCC has acknowledged Tasmania's progress in this area and recognised Tasmania's genuine commitment to implementing two-part pricing where cost effective.
In April 2002, GPOC undertook an audit of Tasmanian councils to assess whether they complied with the NCP water reform obligations as they applied to urban water and wastewater services for the previous financial year. GPOC found a generally high level of compliance by Tasmanian councils in both water and wastewater pricing. However, in the case of water pricing, four councils were assessed as recovering insufficient revenue to meet the minimum requirement for full cost recovery, while the revenue of one council was found to exceed the Urban Water Pricing Guidelines for the maximum allowable return. In the case of wastewater pricing, three councils were assessed as recovering insufficient revenue under the Urban Water Pricing Guidelines, and two were found to have exceeded the maximum allowable return.
To ensure that councils apply full cost recovery principles, the Government, in January 2003, issued revised Urban Water Pricing Guidelines (originally issued by GPOC in 1999). The revised Urban Water Pricing Guidelines provide councils with guidance on the valuation of assets, and the appropriate treatment of Community Service Obligations, where applicable.
Strategies have been implemented to ensure that councils transition to an appropriate level of recovery for their water and wastewater businesses.
In February 2003, GPOC commenced an audit to assess council compliance with the NCP water reform obligations for the year ended 30 June 2002. The audit will be completed at the end of April 2003, with the results provided in a report to the Premier, as Minister for Local Government, and the Treasurer, as the Minister responsible for NCP.
For a full discussion of progress with NCP implementation in Tasmania, refer to the paper National Competition Policy Progress Report: May 2003 issued by the Tasmanian Government.
Chapter 13: Local Government 299 FINANCIAL PERFORMANCE
Local Government Sector Financial Aggregates
This section relies heavily upon data compiled by the Australian Bureau of Statistics (ABS). Specifically, information is taken from Government Finance Statistics, Australia, ABS Cat No 5512.0 and Government Finance Statistics, Tasmania ABS Cat No 5501.6 released annually. Both these publications had not been released at the time of writing and, as such, a large portion of data referred to in this section relates to the 2000-01 financial year as reported in last year's Budget Paper No 1 Budget Overview 2002-03.
The Tasmanian Local Government sector returned a net operating balance of $9.0 million in 2000-01. Local Government own-source revenue in 2000-01 totalled $397.0 million (85.4 per cent of total revenue), of which $164.0 million or 41.3 per cent was from taxation revenue (the general rate component), $191.0 million was from the sale of goods and services, which includes the water, sewerage and garbage components of rates, accounting for 48.1 per cent of own-source revenue. Other income of $42.0 million was equivalent to 10.6 per cent of own-source revenue.
Total grants and subsidies made up 15.9 per cent of total GFS revenue comprising current grants of 14.6 per cent and capital grants of 1.3 per cent. The largest expense area was housing and community amenities at 35.5 per cent of total GFS expenses, while interest comprises only 3.3 per cent of the total, reflecting the low debt level of the Local Government sector.
Chart 13.2: Local Government Surplus(+)/Deficit(-) (in 2002-03 dollars) - Tasmania, 1993-94 to 2000-01
20
15
10
5
0 $ million$
- 5
- 10
- 15 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01
Year
Sources: Government Finance Statistics, Australia 2000-01, ABS Cat No 5512.0 and Consumer Price Index, Tasmania, Treasury and Finance Statistics.
300 Chapter 13: Local Government After a surplus of $4.0 million in 1999-00, the Local Government sector returned a surplus of $8.0 million in 2000-01 (in 2002-03 dollars). As shown in Chart 13.2, the Local Government sector surplus for 2000-01 has continued to increase towards levels similar to those experienced in, and prior to, 1994-95 (in 2002-03 dollars). This was before the transfer of the HRWB to the southern councils on 1 January 1997 and before an abnormal increase in capital outlays in 1996-97 due to major construction projects by the Hobart City Council, namely the Hobart Aquatic Centre and the Sandy Bay sewerage treatment project.
Furthermore, Tasmanian Local Government sector net debt was also significantly affected by the transfer of the Hobart Regional Water Board and the increase in capital expenditure between 30 June 1996 and 30 June 1997. More recently, there has been a reduction of $24.0 million in net debt in the period between the financial years of 1999-00 and 2000-01. This is shown in Chart 13.3.
Chart 13.3: Local Government Net Debt (in 2002-03 dollars) - Tasmania, 1994 to 2001
120
100
80
60 $ million 40
20
0 1994 1995 1996 1997 1998 1999 2000 2001
Year ending 30 June
Sources: Government Finance Statistics, Australia 2000-01, ABS Cat No 5512.0 and Consumer Price Index, Tasmania, Treasury and Finance Statistics.
Table 13.3 details the net worth of each Tasmanian council as at 1999-00. The net worth is a measure of the full balance sheet financial position of each council. The Local Government sector balance sheet shows a net worth of $3 716.0 million as at 30 June 2000. Total Local Government net worth was made up of assets totalling $3 935.0 million, of which 89.0 per cent was land and fixed assets, less $219.0 million in liabilities.
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. 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.
Chapter 13: Local Government 301 Table 13.3: Local Government Net Worth by Council, 1999-00 Net Worth per head of est. resident Net Worth population 1999-00 1999-00 $'000 $
Break O'Day 49 734 8 658 Brighton 58 904 4 538 Burnie 229 522 11 845 Central Coast 163 230 7 757 Central Highlands 37 029 14 835 Circular Head 60 622 7 136
Clarence 270 182 5 523 Derwent Valley 23 284 2 373 Devonport 251 731 10 302 Dorset 73 365 9 848 Flinders 41 682 44 155 George Town 36 568 5 427
Glamorgan/Spring Bay 43 163 10 228 Glenorchy 239 563 5 460 Hobart 586 969 12 782 Huon Valley 102 520 7 524 Kentish 24 238 4 383 King Island 23 859 13 441
Kingborough 170 641 6 000 Latrobe 40 924 5 059 Launceston 640 436 10 193 Meander Valley 120 795 6 879 Northern Midlands 107 130 9 069 Sorell 41 970 3 847
Southern Midlands 39 580 7 041 Tasman 16 977 7 596 Waratah/Wynyard 73 686 5 305 West Coast 44 183 7 890 West Tamar 104 263 5 213 TOTAL 3 716 749 7 902
Sources: Government Finance Statistics, Tasmania 1999-00, ABS Cat No 5501.6 and Regional Population Growth, 2000-01, ABS Cat No 3218.0.
302 Chapter 13: Local Government Comparison with Other States and the Northern Territory
Table 13.4 compares various indicators for the Local Government sector in all states and the Northern Territory for 2000-01.
LGAs within Tasmania have different 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 the Tasmanian Local Government sector, 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 considerably between jurisdictions.
Table 13.4: Key Indicators by State and the Northern Territory, 2000-01 Local Grants and Government Expenses Subsidies as a employment as a Revenue Expenses proportion of per thousand proportion State/Territory per capita per capita revenue of population of GSP $$% %
New South Wales 879 791 9.6 7 2.2 Victoria 712 706 17.5 7 2.0 Queensland 1 280 1 110 10.2 10 3.7 Western Australia 628 642 13.7 5 2.2 South Australia 796 756 18.8 7 1.9 Tasmania 986 964 14.6 8 3.9 Northern Territory 814 1 218 25.5 13 2.8
AVERAGE 872 810 12.7 7 2.3
Sources: Government Finance Statistics, Australia 2000-01, ABS Cat No 5512.0; Australian Demographic Statistics, September Quarter 2001, ABS Cat No 3101.0; Wage and Salary Earners, November Quarter 2001, ABS Cat No 6248.0 and Australian National Accounts: State Accounts 1999-00, ABS Cat No 5220.0.
Table 13.5 compares the relative proportion of each expenditure category to the total expenditure within each state and the Northern Territory. Again, care should be taken in comparing the relative importance of categories of expenditure between jurisdictions, as spending priorities will differ between jurisdictions as well as the allocation of funding responsibility between state and Local Governments.
Chapter 13: Local Government 303 Table 13.5: Relative Importance of Categories of Expenditure, 2000-01 (Expenses by Purpose as a Share of Total Expenses (%)) NSW Vic Qld WA SA Tas NT Ave1
General Public Services 16.0 11.1 23.5 15.8 8.6 13.4 28.2 16.3 Public Order and Safety 2.6 1.7 1.1 2.2 3.8 0.4 0.8 2.0 Education 0.1 0.9 ...... 0.3 .... 0.4 0.3 Health 1.0 2.8 1.1 2.2 2.1 2.9 2.9 1.7 Social Security and Welfare 3.9 13.6 0.8 3.6 5.1 2.6 1.7 5.2 Housing and Community Amenities 24.5 18.3 27.7 18.5 15.7 35.4 19.9 23.1 Recreation and Culture 11.4 16.9 8.9 17.2 23.0 11.6 7.1 13.3 Fuel and Energy ...... 0.5 ...... 0.8 0.1 Industry Services 1.3 0.9 1.7 1.8 ...... 1.2 Transport and Communications 33.7 25.0 26.9 25.6 31.7 23.3 14.5 28.8 Other 5.5 8.7 8.3 12.8 9.7 9.9 24.1 8.1
TOTAL2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Government Finance Statistics, Australia 2000-01, ABS Cat No 5512.0. Notes: 1. Weighted average. 2. Figures may not add to 100 due to rounding.
Table 13.6 shows the relative net debt per capita as at 30 June 2001 and debt servicing levels per capita for 2000-01 of Local Government sectors in all states and the Northern Territory.
304 Chapter 13: Local Government Table 13.6: Local Government Debt Statistics Net Debt Net Interest per capita Payments as at 30 June per capita 20011 2000-01 $ $
New South Wales ( 301) ( 17) Victoria ( 63) ( 2) Queensland 449 36 Western Australia 91 8 South Australia ( 203) ( 16) Tasmania 138 23 Northern Territory ( 359) ( 10)
AVERAGE ( 46) ….
Sources: Government Finance Statistics, Australia 2000-01, ABS Cat No 5512.0 and Regional Population Growth, 2000-01, ABS Cat No 3218.0. Note: 1. Equals deposits held, advances received and borrowing less cash and deposits, advances paid and investments, loans and placements.
Table 13.6 shows that in 2000-01 the Tasmanian Local Government sector's debt servicing burden per capita was the second highest among the states and the Northern Territory.
Key Performance Indicators
The Key Performance Indicator (KPI) project aims to provide all Tasmanian councils with a range of indicators to measure their organisational performance. It will enable councils to benchmark their operations and monitor their performance over time. Until now there has not been an industry-wide framework for measuring and comparing council performance.
The KPI project was initially funded by the Commonwealth Government and has been developed jointly by the State Government, the LGAT and Local Government Managers Australia. A committee has been established to manage the implementation of the KPIs. The committee consists of State and Local Government representatives with assistance where required from the Australian Bureau of Statistics. The indicators have now been established and data has been collected and analysed for the 1999-00, 2000-01 and 2001-02 financial years. Although participation in the project has been on a voluntary basis, all 29 councils have been involved and have provided information to the KPI committee. The performance indicators are contained in the report of the KPI Committee, Measuring Council Performance in Tasmania 2001-2002, Department of Premier and Cabinet, Hobart, April 2003.
In the following table, a selection from the 51 council performance indicators contained in the report is shown for the 2001-02 financial year. Local councils are grouped into three categories according to the Australian Local Government Classification (ALGC); that is cities; other urban and large rural (medium councils); and other smaller rural (small councils). The ALGC groupings have been made so that councils can benchmark against other councils of similar size and degree of urbanisation. However, caution should
Chapter 13: Local Government 305 still be exercised when comparing one council with another, even within abridged ALGC classifications, as differences in demography, geography and land use will influence council comparisons.
It should be noted that as the table only contains information about the 2001-02 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 2001-02 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.
The meaning of each of the indicators is described in the section 'Description of Indicators', which follows Table 13.7.
306 Chapter 13: Local Government Table 13.7: Key Performance Indicators, 2001-02 Rates revenue/ Grants/ Total General Debt Capital Unit Total Total Revenue rate service exp./dep. State of cost of revenue revenue per capita per capita Ratio1 Ratio2 Asset3 water %% $ $ %%%$ per Kl Cities Clarence 69 23 904 360 5.8 39 61 0.83 Glenorchy 66 13 1 035 276 8.0 61 54 0.67 Hobart 69 6 1 494 629 3.8 75 69 0.70 Launceston 66 13 1 125 407 4.2 151 46 1.15 GROUP AVERAGE 68 14 1 139 418 5.4 81 58 0.84
Medium Councils Brighton 55 27 790 249 8.7 86 61 0.90 Burnie 63 17 1 385 548 4.2 140 50 0.61 Central Coast 56 20 914 339 5.5 92 71 0.90 Derwent Valley 62 26 908 324 7.3 117 42 1.23 Devonport 68 11 1 178 471 13.1 90 55 1.07 Huon Valley 49 31 1 021 310 7.4 110 43 0.41 Kingborough 67 21 828 301 1.9 121 61 0.75 Meander Valley 55 35 775 289 0.0 188 58 0.53 Northern Midlands 49 40 934 323 0.0 128 78 n.a. Sorell 60 26 892 418 11.5 109 38 0.77 Waratah/Wynyard 64 25 863 343 8.7 139 55 1.19 West Tamar 66 18 685 264 7.0 131 42 1.07 GROUP AVERAGE 60 25 931 348 6.3 121 55 0.86
Small Councils Break O'Day 53 36 1 139 352 6.1 75 59 0.48 Central Highlands 33 39 1 989 490 0.0 58 45 0.22 Circular Head 40 40 1 733 490 4.4 192 62 0.68 Dorset 42 40 1 095 310 1.0 114 40 0.57 Flinders 23 47 2 800 517 0.0 5 54 1.28 George Town 57 22 1 147 468 19.8 124 37 0.36 Glamorgan/Spring Bay 43 37 1 992 475 4.8 152 71 1.52 Kentish 49 44 814 278 3.1 75 56 1.08 King Island 32 42 2 667 601 0.7 114 24 0.82 Latrobe 71 15 862 332 3.5 134 56 0.96 Southern Midlands 37 57 1 160 290 4.4 122 59 1.06 Tasman 24 56 2 106 470 1.9 354 36 n.a. West Coast 61 29 1 323 480 8.2 131 66 0.53 GROUP AVERAGE 43 39 1 602 427 4.5 132 51 0.80
Chapter 13: Local Government 307 Source: KPI Committee, Measuring Council Performance in Tasmania 2001-2002, Department of Premier and Cabinet, Hobart, April 2003 Notes: 1. Interest payments plus loan repayments as a proportion of operating revenue. 2. Total capital expenditure as a proportion of total depreciation expenditure. 3. Written down value of roads and footpaths as a proportion of their replacement value.
Table 13.7 indicates that the reliance on Government grants is least for the city municipalities and greater among the smaller councils with Southern Midlands, Tasman, Flinders and Kentish being the most reliant.
Debt servicing ratios tend to be higher among the cities and medium councils compared to the smaller councils, with the notable exception of George Town. This probably reflects greater capital investment occurring in the larger councils rather than poorer financial management.
Capital expenditure to depreciation expenditure ratios vary widely among councils in all three council classifications. As mentioned earlier, the results presented are for the year 2001-02. Capital expenditure will vary from year to year and will depend on a number of factors such as timing of projects, growth in the area, and stage of life of assets. It will be more useful to monitor this ratio over time to determine whether consistent trends are evident.
Description of Indicators
The indicators in Table 13.7 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. Total Revenue per capita
An absolute measure of a council's total revenue in relation to the population of the municipality. General Rate per capita
A measure of the revenue collected from ratepayers to fund the cost of running a council and excludes user pays charges for services such as water and sewerage. Debt Servicing Ratio
An indicator that measures the proportion of debt servicing charges (interest and loan repayments) as a proportion of total operating revenue. The greater the value of this indicator, the lower the council's budget flexibility and ability to undertake discretionary spending. Capital Expenditure to Depreciation Expenditure Ratio
Measures the percentage of a council's capital expenditure as a proportion of depreciation expenditure. This measure is an indication of the potential rate of improvement or decline in asset conditions and standards.
308 Chapter 13: Local Government State of Asset
This indicator measures the current condition of roads and footpaths by comparing the written down value with the current replacement value. Low levels of maintenance on roads and footpaths will be reflected in lower values for this ratio. Unit cost of Water
This indicator measures the cost of providing this service to the community.
Chapter 13: Local Government 309
APPENDIX 1 UNIFORM GOVERNMENT REPORTING
Features
• To satisfy Loan Council requirements, this Chapter brings together information presented elsewhere in the Budget Papers for the General Government Sector, together with Budget information for the Public Non-Financial Corporations (PNFC) Sector and the Total Non-Financial Public Sector.
• Government Finance Statistics data is presented in accordance with accrual concepts, consistent with the accrual Uniform Presentation Framework agreed by the Australian Loan Council in March 2000.
• The budgeted Fiscal Surplus for 2003-04 is $7 million for the General Government Sector, a surplus of $28 million for the PNFC Sector and a surplus of $50 million for the Total Non-Financial Public Sector.
• Between 30 June 2003 and 30 June 2004, General Government Net Debt is forecast to decrease from $573 million to $461 million, Public Non-Financial Corporations Net Debt to decrease from $1 544 million to $1 481 million, and Total Non-Financial Public Sector Net Debt to decrease from $2 117 million to $1 941 million.
• Tasmania's estimated Loan Council Allocation (LCA) for 2003-04 is a surplus of $145 million.
Appendix 1: Uniform Government Reporting 311 INTRODUCTION
The financial performance information in this Appendix has been prepared in accordance with the Uniform Presentation Framework (UPF) applying to governments preparing 'early' Budgets using the accrual based Government Finance Statistics (GFS) framework.
This Appendix provides 2001-02 outcomes, 2002-03 revised estimates and 2003-04 Budget estimates for the Operating Statement, Balance Sheet and Cash Flow Statement for the Tasmanian General Government, Public Non-Financial Corporations (PNFC) and Total Non-Financial Public Sectors. For the General Government Sector, Forward Estimates are provided for the period 2004-05 to 2006-07. In accordance with the UPF, information on the actual end of year results will be released in the Loan Council Outcomes Report 2002-03. The report will be publicly released by no later than 31 October 2003.
Jurisdictions are not required to report Budget or Forward Estimates for the Public Financial Corporations (PFC) Sector. Consequently, information on the PFC Sector and the Total State Government Sector is not included in this Appendix. Under the terms of the UPF, this information is only reported in the Loan Council Outcomes Report.
GFS data is prepared by all states and territories and the Commonwealth on the basis of common concepts and classifications to facilitate inter-jurisdictional comparisons. Some comparisons with other states and territories are provided later in the Appendix.
The purpose of this Appendix is, therefore, to:
• report on Tasmania's recent financial performance;
• enable a comparison with the recent financial performance of other states and territories;
• present information on Loan Council arrangements and the Loan Council Allocation (LCA), which is primarily based on GFS aggregates; and
• satisfy information requirements under the UPF.
312 Appendix 1: Uniform Government Reporting GOVERNMENT FINANCIAL ESTIMATES
Tables A1.1 to A1.9 provide details of the Operating Statements, Balance Sheets and Cash Flow Statements for the General Government, Public Non-Financial Corporations and Total Non-Financial Public Sectors respectively. The amounts in the tables are rounded to the nearest million dollars. As a consequence, rounded figures may not add to the totals.
Table A1.1: General Government – Operating Statement 2001-02 2002-03 2003-04) 2004-05) 2005-06) 2006-07) Revised Budget Forward Forward Forward Actual Estimate Estimate Estimate Estimate Estimate $m $m $m $m $m $m GFS Revenue Grants and subsidies 1 783 1 834) 1 861) 1 925) 2 031) 2 060) Taxation revenue 529 540) 533) 542) 539) 553) Sales of goods and services 326 299) 298) 312) 314) 314) Interest income 23 15) 18) 15) 13) 12) Dividend and income tax equivalent income 146 146) 139) 148) 149) 143) Other revenue 60 140) 142) 140) 138) 132) Total 2 867 2 974) 2 990) 3 082) 3 184) 3 214)
Less GFS Expenses Depreciation 151 154) 154) 153) 152) 151) Employee expenses 1 203 1 234) 1 293) 1 333) 1 380) 1 4244 Other operating expenses 688 716) 726) 772) 825) 855) Nominal superannuation interest expense 108 111) 116) 120) 124) 127) Other interest expense 89 80) 69) 62) 46) 32) Grants and transfers 473 594) 648) 632) 644) 613) Total 2 712 2 889) 3 006) 3 073) 3 171) 3 202)
Equals NET OPERATING BALANCE 155 85) (16) 9) 13) 12)
Less Net acquisition of non-financial assets Purchase of new non-financial assets 171 181) 181) 150) 155) 143) less Sale of non-financial assets 46 62) 50) 40) 40) 40) less Depreciation 151 154) 154) 153) 152) 151) Total (26) (36) (23) (42) (36) (48)
Equals FISCAL BALANCE 181 121) 7) 51) 49) 60)
Appendix 1: Uniform Government Reporting 313 Table A1.2: General Government – Balance Sheet as at 30 June 2002 2003 2004 2005) 2006) 2007) Revised) Budget) Forward) Forward) Forward) Actual Estimate) Estimate) Estimate) Estimate) Estimate) $m $m) $m) $m) $m) $m) Assets Financial assets Cash and deposits 982 387) 331) 281) 132) 239) Advances paid 160 131) 112) 95) 90) 87) Investments, loans and placements 2 25) 20) 15) 10) 5) Other non-equity assets 327 340) 335) 340) 341) 341) Equity 3 877 3 975) 4 065) 4 187) 4 313) 4 443) Total 5 348 4 859) 4 864) 4 919) 4 886) 5 115)
Non-financial assets Land and fixed assets 5 670 5 666) 5 672) 5 621) 5 574) 5 516) Other non-financial assets ....) 62) 64) 66) 68) 69) Total 5 670 5 728) 5 736) 5 686) 5 642) 5 586)
Total assets 11 018 10 587) 10 600) 10 605) 10 528) 10 701)
Liabilities Deposits held 12 9) 10) 9) 10) 10) Advances received 323 315) 273) 261) 248) 242) Borrowings 1 561 793) 641) 458) 194) 164) Unfunded superannuation liability 1 806 1 956) 2 034) 2 105) 2 170) 2 230) Other employee provisions 343 312) 301) 307) 314) 319) Other non-equity liabilities 122 173) 168) 157) 138) 129) Total liabilities 4 167 3 559) 3 427) 3 298) 3 074) 3 094)
NET WORTH1 6 851 7 028) 7 172) 7 307) 7 454) 7 607)
NET FINANCIAL WORTH2 1 181 1 300) 1 436) 1 621) 1 812) 2 021)
NET FINANCIAL LIABILITIES3 2 557 2 529) 2 495) 2 442) 2 390) 2 315)
NET DEBT4 751 573) 461) 337) 220) 85)
Notes: 1. Net Worth equals Total Assets less Total Liabilities. 2. Net Financial Worth equals Total Financial Assets minus Total Liabilities. 3. Net Financial Liabilities equals Net Debt plus Gross unfunded superannuation liabilities. 4. Net Debt equals the sum of Deposits held, Advances received and Borrowings less the sum of Cash and deposits, Advances paid and Investments, loans and placements.
314 Appendix 1: Uniform Government Reporting Table A1.3: General Government – Cash Flow Statement 2001-02 2002-03 2003-04) 2004-05) 2005-06) 2006-07) Revised Budget Forward Forward Forward Actual Estimate Estimate Estimate Estimate Estimate $m $m $m $m $m $m Cash receipts from operating activities Taxes received 511 540) 533) 542) 539) 553) Receipts from sales of goods and services 381 299) 297) 312) 314) 314) Grants and subsidies received 1 785 1 842) 1 861) 1 924) 2 030) 2 060) Dividend and income tax equivalent income 146 146) 139) 148) 149) 143) Interest received 19 15) 18) 16) 13) 12) Other receipts 69 247) 259) 247) 247) 242) Total 2 912 3 089) 3 106) 3 189) 3 293) 3 324)
Cash payments for operating activities Payments for goods and services (2 013) (2 011) (2 054) (2 141) (2 243) (2 315) Grants and subsidies paid (465) (601) (648) (632) (641) (608) Interest paid (95) (84) (76) (67) (57) (42) Other payments (5) (100) (113) (114) (119) (121) Total (2 579) (2 798) (2 892) (2 953) (3 060) (3 086)
Net cash flows from operating activities 333 291) 215) 235) 233) 238)
Net cash flows from investments in non-financial assets Sale of non-financial assets 47 62) 50) 40) 40) 40) Purchases of non-financial assets (169) (181) (181) (150) (155) (143) Total (121) (118) (131) (111) (115) (103)
Net cash flows from investments in financial assets for policy purposes (16) (7) 20) 16) 5) 4) Net cash flows from investments in financial assets for liquidity purposes ....) 5) 5) 5) 5) 5)
Net cash flows from financing activities Advances received (net) (36) (9) (42) (13) (13) (6) Borrowing (net) 27 (767) (152) (183) (264) (30) Deposits received (net) (1) (1) 1) ....) ....) ....) Other financing (net) ....) ....) 29) ....) ....) ....) Total (10) (777) (164) (196) (276) (36)
Net Increase/(Decrease) in Cash Held 186 (606) (56) (51) (149) 108)
SURPLUS/(DEFICIT)1 211 173) 83) 124) 117) 135)
Appendix 1: Uniform Government Reporting 315 Note: 1. Cash Surplus/(Deficit) is equal to Net cash flows from operating activities plus Net cash flows from investments in non-financial assets.
Table A1.4: Public Non-Financial Corporations Sector – Operating Statement 2001-02 2002-03 2003-04 Revised Budget Actual Estimate Estimate $m $m $m GFS Revenue Grants and subsidies 47 88 89 Sales of goods and services 1 008 996 1 076 Interest income 5 4 4 Other .... 4 9 Total 1 061 1 092 1 178 less GFS Expenses Depreciation 177 184 192 Employee expenses 216 225 247 Other operating expenses 372 363 359 Other interest expense 107 123 125 Dividend and Income Tax Equivalent expenses 153 131 172 Grants and transfers .... 11 11 Total 1 026 1 037 1 107 equals NET OPERATING BALANCE 35 56 72 less Net acquisition of non-financial assets Purchases of non-financial assets 471 171 263 less Sale of non-financial assets 17 74 26 less Depreciation 177 190 192 plus Change in inventories (3) ...... plus Other transactions in non-financial assets ...... Total 273 (93) 45 equals FISCAL BALANCE (239) 149 28
316 Appendix 1: Uniform Government Reporting Table A1.5: Public Non-Financial Corporations Sector – Balance Sheet as at 30 June 2002 2003 2004 Revised Budget Actual Estimate Estimate $m $m $m Assets Financial assets Cash and deposits 152 213 226 Investments, loans and placements 9 7 7 Other non-equity assets 165 155 166 Equity 11 11 12 Total 338 386 411
Non-financial assets Land and fixed assets 6 040 6 063 6 061 Other non-financial assets 6 54 46 Total 6 045 6 117 6 107
Total assets 6 383 6 503 6 518
Liabilities Advances received 31 37 18 Borrowings 1 799 1 727 1 695 Unfunded superannuation liability 306 299 311 Other employee entitlements 53 58 64 Other provisions 47 311 253 Other non-equity liabilities 353 178 193 Total liabilities 2 588 2 610 2 535
Shares and other contributed capital 3 795 3 893 3 983
NET WORTH1 ......
NET FINANCIAL WORTH2 (6 045) (6 117) (6 106)
NET DEBT3 1 668 1 544 1 481
Notes: 1. Net Worth equals Total Assets less Total Liabilities (including Shares and other contributed capital). 2. Net Financial Worth equals Total Financial Assets minus Total Liabilities and Shares and other contributed capital. 3. Net Debt equals the sum of Deposits held, Advances received and Borrowings less the sum of Cash and deposits, Advances paid and Investments, loans and placements.
Appendix 1: Uniform Government Reporting 317 Table A1.6: Public Non-Financial Corporations Sector – Cash Flow Statement 2001-02 2002-03 2003-04 Revised Budget Actual Estimate Estimate $m $m $m Cash receipts from operating activities Taxes received Receipts from sales of goods and services 1 047 1 044 1 070 Grants and subsidies received 45 88 90 Interest received 4 4 3 Other receipts 4 8 6 Total 1 101 1 144 1 168
Cash payments for operating activities Payments for goods and services (620) (613) (557) Grants and subsidies paid .... (11) (11) Interest paid (104) (126) (125) Other payments (14) (31) (18) Total (739) (781) (711)
Net cash flows from operating activities 362 363 457
Net cash flows from investments in non-financial assets Sales of non-financial assets 17 74 26 Purchases of non-financial assets (471) (171) (263) Total (453) (97) (237)
Net cash flows from investments in financial assets for policy purposes ...... Net cash flows from investments in financial assets for liquidity purposes (9) ......
Net cash flows from financing activities Advances received (9) .... (19) Distributions paid (141) (140) (157) Borrowing (net) 294 (112) (17) Deposits received (net) .... (1) .... Other financing (net) 13 49 (14) Total 157 (204) (207) Net Increase/(Decrease) in Cash Held 57 61 13
CASH SURPLUS /(DEFICIT)1 (232) 126 64
Note: 1. Cash Surplus/(Deficit) is equal to Net cash flows from operating activities plus Net cash flows from investments in non-financial assets plus Distributions paid (Income Tax Equivalents and Dividends).
318 Appendix 1: Uniform Government Reporting Table A1.7: Total Non-Financial Public Sector – Operating Statement 2001-02 2002-03 2003-04 Revised Budget Actual Estimate Estimate $m $m $m GFS Revenue Taxation revenue 514 529 522 Grants and subsidies 1 784 1 835 1 866 Sales of goods and services 1 291 1 295 1 374 Interest income 24 16 21 Other 52 148 148 Total 3 665 3 823 3 930 less GFS Expenses Depreciation 328 338 346 Employee expenses 1 419 1 459 1 540 Other operating expenses 1 002 1 079 1 085 Nominal superannuation interest expenses 108 111 116 Other interest expenses 192 197 190 Grants and transfers 427 507 564 Total 3 477 3 691 3 842 equals NET OPERATING BALANCE 188 133 88
less Net acquisition of non-financial assets Purchases of non-financial assets 643 352 444 less Sale of non-financial assets 65 136 59 less Depreciation 328 344 346 plus Change in inventories (3) ...... plus Other transactions in non-financial assets ...... Total 247 (128) 39 equals FISCAL BALANCE (59) 261 50
Appendix 1: Uniform Government Reporting 319 Table A1.8: Total Non-Financial Public Sector – Balance Sheet at at 30 June 2002 2003 2004 Revised Budget Actual Estimate Estimate $m $m $m Assets Financial assets Cash and deposits 1 134 600 557 Advances paid 128 94 94 Investments, loans and placements 10 32 27 Other non-equity assets 336 275 281 Equity 94 93 94 Total 1 702 1 095 1 054
Non-financial assets Land and fixed assets 11 710 11 729 11 708 Other non-financial assets 6 116 110 Total 11 716 11 845 11 818
Total assets 13 418 12 940 12 872
Liabilities Deposits held 11 9 10 Advances received 321 315 273 Borrowings 3 359 2 520 2 336 Unfunded superannuation liability 2 200 2 255 2 345 Other employee entitlements 308 370 365 Other provisions 47 58 .... Other non-equity liabilities 318 351 361 Total liabilities 6 564 5 879 5 691
Shares and other contributed capital ......
NET WORTH1 6 854 7 061 7 180
NET FINANCIAL WORTH2 (4 862) (4 784) (4 638)
NET DEBT3 2 418 2 117 1 941
Notes: 1. Net Worth equals Total Assets less Total Liabilities. 2. Net Financial Worth equals Total Financial Assets minus Total Liabilities. 3. Net Debt equals the sum of Deposits held, Advances received and Borrowings less the sum of Cash and deposits, Advances paid and Investments, loans and placements.
320 Appendix 1: Uniform Government Reporting Table A1.9: Total Non-Financial Public Sector – Cash Flow Statement 2001-02 2002-03 2003-04 Revised Budget Actual Estimate Estimate $m $m $m Cash receipts from operating activities Taxes received 498 529 522 Receipts from sales of goods and services 1 385 1 343 1 367 Grants and subsidies received 1 785 1 843 1 867 Interest received 23 16 20 Other receipts 73 115 122 Total 3 765 3 845 3 896
Cash payments for operating activities Payments for goods and services (2 589) (2 624) (2 611) Grants and subsidies paid (420) (514) (564) Interest paid (195) (207) (200) Other payments (5) (131) (128) Total (3 210) (3 478) (3 504)
Net cash flows from operating activities 555 368 393
Net cash flows from investments in non-financial assets Sales of non-financial assets 65 136 59 Purchases of non-financial assets (640) (352) (444) Total (574) (215) (384)
Net cash flows from investments in financial assets for policy purposes (24) (7) 20 Net cash flows from investments in financial assets for liquidity purposes (9) 5 5
Net cash flows from financing activities Advances received (36) (9) (61) Borrowing (net) 321 (879) (169) Deposits received (net) (1) (2) 1 Other financing (net) 13 49 15 Total 297 (841) (214)
Net Increase/(Decrease) in Cash Held 245 (691) (182)
SURPLUS /(DEFICIT)1 (19) 152 8
Note: 1. Cash Surplus/(Deficit) is equal to Net cash flows from operating activities plus Net cash flows from investments in non-financial assets.
Appendix 1: Uniform Government Reporting 321 Table A1.10: General Government Expenses by Purpose 2001-02 2002-03 2003-04 Revised Budget Actual Estimate Estimate $m $m $m
General public services 157 147 177 Public order and safety 229 254 270 Education 724 761 795 Health 571 599 615 Social security and welfare 164 175 181 Housing and community amenities 148 156 164 Recreation and culture 110 92 85 Fuel and energy 9 1 1 Agriculture, forestry, fishing and hunting 51 63 61 Mining and mineral resources other than fuels, manufacturing and construction 7 7 6 Transport and communications 168 241 243 Other economic affairs 137 183 169 Nominal interest on superannuation 108 111 116 Public debt transactions 89 80 69 Other purposes 41 19 54
TOTAL EXPENSES 2 712 2 889 3 006
322 Appendix 1: Uniform Government Reporting Table A1.11: General Government Taxes 2001-02 2002-03 2003-04 Revised Budget Actual Estimate Estimate $m $m $m
Employers' Payroll Taxes 149 156 162
Taxes on property Land tax 26 25 26 Property owners contributions to fire brigade 20 20 20 Taxes on financial and capital transactions 116 127 101 Total taxes on property 162 172 147
Taxes on the provision of goods and services Levies on statutory corporations 2 ...... Taxes on gambling Taxes on private lotteries 21 22 22 Casino taxes 46 49 51 Total taxes on gambling 69 71 73 Taxes on insurance Insurance companies' contributions to fire brigades 10 10 12 Third party insurance taxes .... 3 3 Taxes on insurance nec 41 28 34 Total taxes on insurance 51 41 49 Total taxes on the provision of goods and services 120 112 122
Taxes on use of goods and performance of activities Motor vehicle taxes Vehicle registration fees and taxes 65 70 73 Stamp duties on vehicle registration 33 31 29 Total motor vehicle taxes 98 101 102 Total taxes on use of goods and performance 98 101 102
TOTAL TAXES 529 540 533
Appendix 1: Uniform Government Reporting 323 LOAN COUNCIL
Loan Council Arrangements
Loan Council arrangements provide for each state and territory to nominate a Loan Council Allocation (LCA) based on the estimated combined underlying General Government and Public Non-Financial Corporations (PNFC) deficit/(surplus), 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 state or territory's fiscal position is of concern.
The 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 Government Financial Estimates (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 arrangements are designed to reduce the complexity and duplication involved in Loan Council reporting by facilitating a framework that will integrate the Loan Council reporting arrangements into the Uniform Presentation Agreement first reached at the May 1991 Premiers' Conference.
Loan Council Allocations
The LCAs nominated for 2003-04 are listed in Table A1.12. At its meeting of 28 March 2003, the Loan Council considered that the aggregate of 2003-04 LCA nominations was consistent with current macro economic policy objectives and endorsed each jurisdiction's nomination without change. The 2003-04 nomination is the first time that all jurisdiction's nominations have been prepared on an accrual basis.
Table A1.12: Approved LCAs for 2003-04 NSW Vic Qld SA WA Tas NT ACT C/W $m $m $m $m $m $m $m $m $m
Nominated LCA 809 890 190 (337) 403 (128) 44 (32) (5 715)
Note: 1. The LCA is a deficit concept. A negative LCA represents a surplus.
The Tasmanian nomination was compiled from forward estimates of the General Government Sector deficit/(surplus), information provided by the PNFC Sector and an assessment of the magnitude of the borrowing programs of local government councils and the University of Tasmania.
After combining the underlying surplus and net advances paid for the PNFC Sector with the memorandum items for Local Government and University borrowing, the result was a surplus LCA nomination for
324 Appendix 1: Uniform Government Reporting Tasmania of $128 million for 2003-04. This compares with the surplus LCA nomination in 2002-03 of $45 million.
A tolerance band calculated as two per cent of Total Non-Financial Public Sector revenue applies between the budgeted LCA and the LCA outcome. The tolerance limit applicable to Tasmania's nominated LCA for 2003-04 is $76 million.
Table A1.13 compares the LCA approved by the Loan Council in March 2003 with the budgeted LCA for 2003-04. The tolerance limit also applies between the LCA approved by the Loan Council and the budgeted LCA.
Table A1.13 shows that Tasmania's budgeted LCA for 2003-04 of $145 million is inside the tolerance limit.
Table A1.13: Comparison of Budgeted Loan Council Allocation and the LCA Approved Nomination for 2003-04 2003-04 2003-04 Loan Council Budget Allocation Estimate $m $m
General Government underlying Deficit/(Surplus) (101) (83) Public Non-Financial Corporations (PNFC) underlying Deficit/(Surplus) (49) (64) Non-Financial Public Sector underlying Deficit/(Surplus) (150) (147) Non-Financial Public Sector Net Advances Paid .... (20)
Memo Items University 8 8 Local Government 14 14 Other ......
TOTAL LCA (128) (145)
Consolidation of Transactions
GFS presents a consolidated view of the financial transactions of the General Government and PNFC Sectors. The Total Non-Financial Public Sector is the consolidated total of the General Government and PNFC Sectors. This enables the overall impact of State Government non-financial activity and its two component sectors of the Tasmanian economy to be illustrated.
To compile statistics about the financial activities of the whole State Government sector, or its components, the receipts and payments for certain types of transactions 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 Primary Industries, Water and Environment are netted out as both agencies are classified as General Government. Transactions between the Department of Treasury and Finance and Hydro Tasmania are not netted out in the General Government and PNFC tables as the former agency is classified as General
Appendix 1: Uniform Government Reporting 325 Government while the latter is a PNFC. However, such transactions are netted out for the purposes of the Total Non-Financial Public Sector table. The following table outlines the entities classified according to the GFS concept.
Table A1.14: Classification of Public Sector Entities Administrative Institutional Name Sector Sector
Economic Development Budget General Government Education Budget General Government Health and Human Services including Housing Division Budget General Government House of Assembly Budget General Government Infrastructure, Energy and Resources Budget General Government Justice and Industrial Relations Budget General Government Legislative Council Budget General Government Legislature-General Budget General Government Office of the Governor Budget General Government Police and Public Safety Budget General Government Premier and Cabinet Budget General Government Primary Industries, Water and Environment Budget General Government Tasmanian Audit Office Budget General Government Treasury and Finance Budget General Government Inland Fisheries Service Budget General Government Marine and Safety Tasmania Budget General Government Royal Tasmanian Botanical Gardens Budget General Government State Fire Service Budget General Government Tourism, Parks, Heritage and the Arts Budget General Government The Nominal Insurer Budget General Government Tasmanian Public Finance Corporation Non-Budget PFC Motor Accidents Insurance Board Non-Budget PFC Burnie Port Corporation Pty Ltd Non-Budget PNFC Civil Construction Services Corporation1 Non-Budget PNFC Egg Marketing Board Non-Budget PNFC Hydro Tasmania Non-Budget PNFC Aurora Energy Pty Ltd Non-Budget PNFC Transend Networks Pty Ltd Non-Budget PNFC Forestry Tasmania Non-Budget PNFC Hobart Ports Corporation Pty Ltd Non-Budget PNFC King Island Ports Corporation Non-Budget PNFC Metro Tasmania Pty Ltd Non-Budget PNFC Port Arthur Historic Site Management Authority Non-Budget PNFC Port of Devonport Corporation Pty Ltd Non-Budget PNFC Port of Launceston Pty Ltd Non-Budget PNFC Printing Authority of Tasmania Non-Budget PNFC
326 Appendix 1: Uniform Government Reporting Table A1.14: Classification of Public Sector Entities (continued) Administrative Institutional Name Sector Sector
Private Forests Tasmania Non-Budget PNFC Rivers and Water Supply Commission Non-Budget PNFC Southern Regional Cemetery Trust Non-Budget PNFC Stanley Cool Stores Board1 Non-Budget PNFC Tasmanian Grain Elevators Board1 Non-Budget PNFC Tasmanian International Velodrome Management Authority Non-Budget PNFC The Public Trustee Non-Budget PNFC TOTE Tasmania Pty Ltd Non-Budget PNFC TT-Line Company Pty Ltd Non-Budget PNFC
Note: 1. These entities are included in the 2002-03 revised estimates, but have been excluded from the 2003-04 Budget estimates, in line with the Government's divestment strategy.
Appendix 1: Uniform Government Reporting 327
APPENDIX 2 CONSOLIDATED FUND ESTIMATES
Features
• Information in this Appendix is provided on a cash basis, representing cash receipts and cash payments into, and from, the Consolidated Fund.
• In 2002-03, it is estimated that the Consolidated Fund Surplus (CFS) will be $5.6 million. This compares to the budgeted CFS of $8.5 million for 2002-03.
• Total receipts are estimated to be $2 526.1 million in 2002-03, an increase of $89.2 million or 3.7 per cent on 2002-03 budgeted receipts of $2 436.9 million.
• Expenditure in 2002-03 is estimated to be $2 521.0 million, an increase of $92.2 million or 3.8 per cent on 2002-03 budgeted expenditure of $2 428.8 million.
• In 2003-04, it is estimated that the CFS will be $4.7 million.
• Total Consolidated Fund receipts are estimated to be $2 580.5 million in 2003-04, an increase of $143.6 million or 5.9 per cent on 2002-03 budgeted receipts of $2 436.9 million.
• Consolidated Fund expenditure in 2003-04 is estimated to be $2 576.3 million, an increase of $147.5 million or 6.1 per cent over the 2002-03 budgeted expenditure of $2 428.8 million.
• Consolidated Fund Surplus projections for 2004-05 to 2006-07 on a same policy basis are:
− 2004-05: $5.2 million surplus;
− 2005-06: $5.9 million surplus; and
− 2006-07: $8.1 million surplus.
Appendix 2: Consolidated Fund Estimates 329 INTRODUCTION
This Appendix provides information on the 2002-03 Consolidated Fund Estimated Outcome, the 2003-04 Consolidated Fund Budget Estimates and the Consolidated Fund Forward Estimates for the years 2004-05 to 2006-07. The information in this Appendix has been prepared on a cash basis, representing cash receipts and cash payments into, and from, the Consolidated Fund.
The 2002-03 Consolidated Fund Estimated Outcome has been determined from agency assessments of their indicative additional funding requirements or potential savings, based on the latest available information prior to the finalisation of the 2003-04 Budget Papers. Estimates are determined using information from a number of sources including the latest advice from the Commonwealth, Government Business Enterprises, State-owned Companies and agencies.
Detailed information on the final Consolidated Fund Outcome for 2002-03 will be published in:
• the Quarterly Statement of the Consolidated Fund for the June quarter 2003, which will be tabled in Parliament by 31 July 2003;
• the Treasurer's Financial Statements, which will be tabled in Parliament by 30 September 2003; and
• Agency Annual Reports, which will be tabled in Parliament by 30 November 2003.
330 Appendix 2: Consolidated Fund Estimates ESTIMATED OUTCOME, 2002-03
Estimated Consolidated Fund Surplus
The Consolidated Fund Surplus (CFS) is the excess of Consolidated Fund receipts over the expenditure of these funds (net of loan repayments). A CFS represents funds that are available for the retirement of debt.
Table A2.1 provides details of the estimated CFS outcome for 2002-03 and expected variances from the 2002-03 Budget estimates by major receipt and expenditure categories.
Table A2.1: Estimated Consolidated Fund Surplus, 2002-03 2002-03) 2002-03) Estimated) Budget) Outcome) Variation) $'000) $'000) %) Receipts Commonwealth Sources 1 657 133) 1 688 881) 1.9) State Sources 779 751) 837 252) 7.4) Total Receipts 2 436 884) 2 526 133) 3.7) Less Expenditure Recurrent Expenditure1 2 290 251) 2 313 001) 1.0) Capital Expenditure 138 557) 207 986) 50.1) Total Expenditure2 2 428 808) 2 520 987) 3.8) Gross Consolidated Fund Surplus 8 076) 5 146) (36.3) Add Loan Repayments 444) 444) ....) Consolidated Fund Surplus 8 520) 5 590) (34.4)
Notes: 1. Recurrent Expenditure in the 2002-03 Budget and the 2002-03 Estimated Outcome includes a contribution of $444 000 payable to the Debt Retirement Reserve Trust Account. This figure is also shown as Loan Repayments. 2. Estimated Outcome total expenditure in 2002-03 includes an initial contribution to the new Economic and Social Infrastructure Fund of $78.0 million, of which $16.7 million has been allocated to recurrent services expenditure and $61.3 million to works and services expenditure.
The budgeted CFS was $8.5 million. The estimated CFS outcome for 2002-03 is $5.6 million.
Appendix 2: Consolidated Fund Estimates 331 Estimated Receipts, 2002-03
Total Consolidated Fund receipts for 2002-03 are estimated to be $2 526.1 million, which is $89.2 million or 3.7 per cent above the Budget estimate of $2 436.9 million. Table A2.2 provides information on estimated variances from the Budget estimate by major receipt category.
Table A2.2: Consolidated Fund - Estimated Receipts, 2002-03 2002-03) 2002-03) Estimated) Budget) Outcome) Variation) $'000) $'000) %) Recurrent Receipts Commonwealth Sources General Purpose Payments1 1 269 600) 1 287 400) 1.4) Specific Purpose Payments2 346 768) 354 286) 2.2) Total Commonwealth Sources 1 616 368) 1 641 686) 1.6) State Sources Taxation3 494 492) 552 392) 11.7) Receipts from Government Business Enterprises, State-owned Companies and State Authorities 152 053) 152 592) 0.4) Departmental Fees and Recoveries4 81 112) 85 315) 5.2) Recoveries of State Debt Charges 6 224) 4 998) (19.7) Sale and Rent of Government Property 11 603) 11 973) 3.2) Resource Rents and Royalties5 12 908) 8 907) (31.0) Other Recurrent Receipts 20 524) 19 898) (3.1) Total State Sources 778 916) 836 075) 7.3) Total Recurrent Receipts 2 395 284) 2 477 761) 3.4)
Capital Receipts Commonwealth Sources6 40 765) 47 195) 15.8) State Sources 835) 1 177) 41.0) Total Capital Receipts 41 600) 48 372) 16.3)
TOTAL RECEIPTS 2 436 884) 2 526 133) 3.7)
Notes: 1. An increase in General Purpose Payments of $17.8 million reflects revisions by the Commonwealth of the Guaranteed Minimum Amount and increased compensation for the First Home Owners Scheme. 2. An increase in Specific Purpose Payments of $7.5 million is primarily due to additional receipts for the Home and Community Care Program, the Primary and Secondary Education Grant, and the Grant to the State for Local Government. 3. The increase in Taxation receipts primarily reflects additional Duties receipts of $44.3 million and Payroll Tax receipts of $9.7 million. 4. The increase in Departmental Fees and Recoveries is primarily due to additional abalone licence receipts of $3.4 million. 5. The decrease in Resource Rents and Royalties reflects a reduction in Mineral Royalties receipts of $4.0 million. 6. The increase in Capital Receipts from Commonwealth sources is primarily due to additional funding of $6.3 million from the Commonwealth Government for the 2002-03 Roads Program.
332 Appendix 2: Consolidated Fund Estimates Estimated Expenditure, 2002-03
Total Consolidated Fund expenditure in 2002-03 is estimated to be $2 521.0 million, which is $92.2 million, or 3.8 per cent above the Budget estimate of $2 428.8 million.
Table A2.3 provides information on expected variances from original Budget estimates on a major category basis.
Table A2.3: Consolidated Fund - Estimated Total Expenditure, 2002-03 2002-03) 2002-03) Estimated) Budget) Outcome) Variation) $'000) $'000) %) Recurrent Services Appropriation Act1 2 109 455) 2 152 824) 2.1) Reserved by Law2 160 796) 160 177) (0.4) Treasurer's Reserve3 20 000) ....) (100.0) 2 290 251) 2 313 001) 1.0) Works and Services Capital Investment Program4 138 557) 146 730) 5.9) Economic and Social Infrastructure Fund5 ....) 61 256) ....) 138 557) 207 986) 50.1)
TOTAL 2 428 808) 2 520 987) 3.8)
Notes: 1. The Treasurer's Reserve is reported separately from Budget expenditure, but is included as an expenditure saving in the estimated outcome. 2. Reserved by Law expenditure in the 2002-03 Budget and the 2002-03 Estimated Outcome includes a contribution of $444 000 payable to the Debt Retirement Reserve Trust Account. 3. Expenditure authorised from the Treasurer's Reserve is included in agency expenditure under the Appropriation Act. Net additional revenues and expenditure savings may be used to supplement the amount provided in the Budget for the Treasurer's Reserve. 4. The increase in Capital Investment Program expenditure primarily reflects additional funding of $6.3 million from the Commonwealth Government for the 2002-03 Roads Program. 5. The estimated additional expenditure of $61.3 million represents the works and services component of the initial $78.0 million contribution to the new Economic and Social Infrastructure Fund (ESIF). The remaining $16.7 million of the contribution to the ESIF is included in recurrent services.
Table A2.4 provides information on expected Consolidated Fund variances for 2002-03 on an agency basis.
Appendix 2: Consolidated Fund Estimates 333 Table A2.4: Consolidated Fund - Estimated Total Expenditure by Agency, 2002-03 2002-03 Estimated Outcome 2002-03) Recurrent) Reserved) Works and) Agency1 Budget) Services) by Law) Services) Total) Variation) $'000) $'000) $'000) $'000) $'000) %)
Economic Development 45 300) 45 300) ....) ....) 45 300) ....) Education2 644 779) 621 578) ....) 26 838) 648 416) 0.6) Finance-General3 445 954) 288 727) 143 742) 61 256) 493 725) 10.7) Health and Human Services4 725 703) 720 350) ....) 25 664) 746 014) 2.8) House of Assembly 4 631) 1 759) 2 955) ....) 4 714) 1.8) Infrastructure, Energy and Resources5 164 775) 95 510) 52) 75 891) 171 453) 4.1) Justice and Industrial Relations6 64 218) 51 908) 10 673) 4 309) 66 890) 4.2) Legislative Council 3 394) 1 612) 1 782) ....) 3 394) ....) Legislature-General 3 545) 3 545) ....) ....) 3 545) ....) Ministerial and Parliamentary Support7 11 059) 12 937) 517) ....) 13 454) 21.7) Office of the Governor 1 969) 1 761) 200) 8) 1 969) ....) Police and Public Safety 116 278) 115 216) ....) 1 562) 116 778) 0.4) Premier and Cabinet 21 270) 21 799) ....) ....) 21 799) 2.5) Primary Industries, Water and Environment8 73 255) 75 796) ....) 154) 75 950) 3.7) Tasmanian Audit Office 298) ....) 256) ....) 256) (14.1) Tourism, Parks, Heritage and the Arts9 61 028) 61 640) ....) 4 289) 65 929) 8.0) Treasury and Finance 41 352) 33 386) ....) 8 015) 41 401) 0.1)
TOTAL EXPENDITURE 2 428 808) 2 152 824) 160 177) 207 986) 2 520 987) 3.8)
Notes: 1. The 2002-03 Budget has been adjusted to reflect the creation of the Departments of Economic Development and Tourism, Parks, Heritage and the Arts, and the associated restructure of the Department of Primary Industries, Water and Environment. The 2002-03 Budget also reflects the transfer of the Seniors Bureau from the Department of Health and Human Services to the Department of Premier and Cabinet. 2. Expenditure for the Department of Education is anticipated to be $3.6 million above Budget primarily due to increased activities funded by Specific Purpose Payments from the Commonwealth for Primary and Secondary Eduction and Technical and Further Education and above Budget expenditure on works and services funded from Commonwealth receipts. 3. Expenditure for Finance-General is anticipated to be $47.8 million above Budget primarily due to a $78.0 million contribution to the new Economic and Social Infrastructure Fund (ESIF) ($16.7 million recurrent services and $61.3 million works and services), which is partially offset by savings in Debt Servicing Costs, the Provision for Wage Increases and savings from allocating funds from the Treasurer's Reserve, which is reflected in agency expenditure. The estimated expenditure in 2002-03 from the ESIF includes a provision of up to $25.0 million for the Government to exercise its option to take control of the optic fibre cable that has been installed with the Duke Energy natural gas pipeline. 4. Expenditure for the Department of Health and Human Services is anticipated to be $20.3 million above Budget primarily due to additional expenditure relating to the Nurses' Graduate Allowance and increases in nursing staffing levels and additional expenditure to address issues such as the Breast Screening contract, the Air Ambulance contract, meningococcal vaccines and Aurora Energy pensioner concessions.
334 Appendix 2: Consolidated Fund Estimates 5. Expenditure for the Department of Infrastructure, Energy and Resources is anticipated to be $6.7 million above Budget primarily due to the provision of additional Commonwealth funding of $6.3 million for the Roads Program. 6. Expenditure for the Department of Justice and Industrial Relations is anticipated to be $2.7 million above Budget due to additional recurrent expenditure on corrective services as a result of increased prisoner numbers. 7. Expenditure for Ministerial and Parliamentary Support is anticipated to be $2.4 million above Budget primarily due to the additional costs of providing support for opposition parties and the appointment of a new Minister to Cabinet. 8. Expenditure for the Department of Primary Industries, Water and Environment is anticipated to be $2.7 million above Budget due to increased costs for a number of projects including the Eradication of Red Fire Ants, Priority 1 Karst Properties and Quarantine Barrier Control. 9. Expenditure for the Department of Tourism, Parks, Heritage and the Arts is anticipated to be $4.9 million above Budget primarily due to the one-off establishment costs of the new Department, additional expenditure for events including AFL games at York Park and the 10 Days on the Island Festival, and the purchase of the Archives Building at Rosny.
Appendix 2: Consolidated Fund Estimates 335 BUDGET ESTIMATES, 2003-04
Consolidated Fund Surplus, 2003-04
In 2003-04, it is estimated that the Consolidated Fund Surplus will be $4.7 million.
Table A2.5: Consolidated Fund Surplus, 2003-04 2002-03) 2003-04) Budget) Budget) $'000) $'000) Receipts Commonwealth Sources Recurrent Receipts 1 616 368) 1 689 839) Capital Receipts 40 765) 26 615) Total Commonwealth Sources 1 657 133) 1 716 454)
State Sources Recurrent Receipts 778 916) 835 153) Capital Receipts 835) 28 920) Total State Sources 779 751) 864 073) Total Receipts 2 436 884) 2 580 527)
Less Expenditure Recurrent Services Expenditure on Outputs Appropriation Act 2 119 455) 2 253 541) Reserved by Law 170 796) 172 190) Total Recurrent Services 2 290 251) 2 425 731)
Works and Services Capital Investment Program 138 557) 123 707) Economic and Social Infrastructure Fund ....) 26 855) Total Works and Services 138 557) 150 562) Total Expenditure 2 428 808) 2 576 293) Gross Consolidated Fund Surplus 8 076) 4 234) Add Loan Repayments1 444) 436) Consolidated Fund Surplus 8 520) 4 670)
Note: 1. For the purpose of calculating the Consolidated Fund Surplus, 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.
336 Appendix 2: Consolidated Fund Estimates Consolidated Fund Receipts, 2003-04
Consolidated Fund receipts are estimated to be $2 580.5 million in 2003-04, an increase of $143.6 million or 5.9 per cent on the 2002-03 Budget estimate of $2 436.9 million.
Table A2.6 outlines the variations between the 2003-04 and the 2002-03 Budget estimates by major category.
Table A2.6: Consolidated Fund - Total Receipts, 2003-04 2002-03) 2003-04) ) Budget) Budget) Variation) $'000) $'000) %) Recurrent Receipts Commonwealth Sources 1 616 368) 1 689 839) 4.5) State Sources 778 916) 835 153) 7.2) 2 395 284) 2 524 992) 5.4)
Capital Receipts Commonwealth Sources 40 765) 26 615) (34.7) State Sources 835) 28 920) …. 41 600) 55 535) 33.5) Total Receipts 2 436 884) 2 580 527) 5.9)
A detailed list of receipts to the Consolidated Fund is provided in Table A2.7.
Appendix 2: Consolidated Fund Estimates 337 Table A2.7: Consolidated Fund Receipts, 2002-03 and 2003-04 2002-03) 2003-04) Budget) Budget) $'000) $'000) COMMONWEALTH SOURCES
Recurrent Receipts General Purpose Payments GST Revenue1 1 199 500) 1 299 700) Budget Balancing Assistance2 52 700) 9 300) Competition Payments 17 400) 17 600) Total General Purpose Payments 1 269 600) 1 326 600)
Specific Purpose Payments Health and Human Services Blood Transfusion Service3 1 855) ....) Commonwealth-State Housing Agreement4 17 741) 22 259) Disability Services Grant 17 600) 19 084) Health Care Grant 153 400) 159 700) High Cost Drugs 4 850) 5 950) Home and Community Care Program 15 860) 17 303) Public Health Outcomes Funding Agreement 3 931) 3 931) Supported Accommodation Assistance Program 6 798) 7 016) Education Primary and Secondary Education 44 243) 45 593) Technical and Further Education 22 235) 22 790) National Child Care Strategy 217) 217) Primary Industries, Water and Environment World Heritage Area 5 300) 4 300)
Notes: 1. The increase in GST Revenue in 2003-04 is primarily due to an increase in the size of the pool of funds, an increase in Tasmania's relative need for Commonwealth financial assistance as assessed by the Commonwealth Grants Commission and an estimated increase in the rate of growth of Tasmania's population. 2. Under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA), the Commonwealth has guaranteed that the states will be no worse off as a result of the introduction of national tax changes. To meet this guarantee, the Commonwealth has agreed to make Budget Balancing Assistance payments to each state and territory as necessary. 3. Commencing 1 July 2003, the Commonwealth Government will directly fund the costs associated with the supply of blood and blood products through the national funding pool. As such, states will no longer receive a Specific Purpose Payment for the provision of this service. 4. The increase in revenue for the Commonwealth-State Housing Agreement primarily reflects a transfer of $7.5 million from capital revenue to recurrent revenue. The transfer between revenue categories is the result of a change in Housing Tasmania's treatment of minor works expenditure, which now brings it into line with the accounting policy of the Department of Health and Human Services. The transfer also includes an increase in recurrent maintenance expenditure. However, this increase is partially offset by a decrease in the estimated level of funding to be provided by the Commonwealth under the Commonwealth-State Housing Agreement.
338 Appendix 2: Consolidated Fund Estimates Table A2.7: Consolidated Fund Receipts, 2002-03 and 2003-04 (continued) 2002-03) 2003-04) Budget) Budget) $'000) $'000) Police and Public Safety Natural Disasters Organisations 207) 212) Finance-General Assistance for Concessions 5 531) 5 853) Grant to the State for Local Government 47 000) 49 031) Total Specific Purpose Payments 346 768) 363 239)
Capital Receipts Specific Purpose Payments Health and Human Services Housing1 9 982) 2 224) Education Primary and Secondary Education 6 368) 6 411) Technical and Further Education 6 075) 3 284) Infrastructure, Energy and Resources National Highway System2 18 340) 14 696) Total Specific Purpose Payments 40 765) 26 615) Total Specific Purpose Payments 387 533) 389 854) Total Commonwealth 1 657 133) 1 716 454)
STATE SOURCES
Taxation Land Tax 24 990) 25 547) Motor Taxation 43 466) 45 910) Payroll Tax3 220 290) 235 953) Financial Transaction Taxes Debits Duties 21 512) 22 769) Duties4 116 245) 138 409)
Notes: 1. The decrease in revenue for Housing primarily reflects a transfer of $7.5 million from capital revenue to recurrent revenue. The transfer between revenue categories is the result of a change in Housing Tasmania's treatment of minor works expenditure to bring it in line with the accounting policy of the Department of Health and Human Services, and an increase in recurrent maintenance expenditure. 2. The decrease in receipts for the National Highway System reflects the completion of a number of roads projects in the 2002-03 Roads Program. Commonwealth funding for the Roads Program is anticipated to increase in 2004-05 as a number of road projects have been approved, but construction will not commence until 2004-05. 3. The estimated increase in Payroll Tax for 2003-04 is the result of anticipated growth in employment in the payroll tax paying sector and estimated wage rises. 4. The estimated increase in Duties for 2003-04 reflects the anticipated continuation of the high level of activity in the property market, which has resulted in increased property sales and prices.
Appendix 2: Consolidated Fund Estimates 339 Table A2.7: Consolidated Fund Receipts, 2002-03 and 2003-04 (continued) 2002-03) 2003-04) Budget) Budget) $'000) $'000) Gambling Taxes Casino Tax and Licence Fees1 47 031) 50 853) Lottery Tax 20 490) 22 344) Racing and Gaming Taxes 438) 279) Other Sundry Licences 30) 30) Total Taxation 494 492) 542 094)
Receipts from Government Business Enterprises, State-owned Companies and State Authorities Dividends Aurora Energy Pty Ltd 12 100) 11 549) Burnie Port Corporation Pty Ltd ....) 375) Civil Construction Services Corporation 203) 80) Forestry Tasmania2 4 907) 8 322) Hobart Ports Corporation Pty Ltd 577) 785) Hydro Tasmania3 21 034) 13 500) Motor Accidents Insurance Board3 1 101) ....) Port of Devonport Corporation Pty Ltd ....) 355) Port of Launceston Pty Ltd 630) 665) Printing Authority of Tasmania 115) 115) Southern Regional Cemetery Trust ....) 54) Stanley Cool Stores Board 41) 49) TOTE Tasmania Pty Ltd 606) 734) Tasmanian Grain Elevators Board 49) 140) Tasmanian Public Finance Corporation4 5 837) 6 507) The Public Trustee 100) 60) Transend Networks Pty Ltd3 11 790) 9 000) Sub-total 59 090) 52 290)
Notes: 1. The expected increase in Casino Tax receipts is primarily due to increased receipts from licence fees and video gaming machines as a result of the new tax rates applying under the new Deed of Agreement between the State and Federal Hotels. 2. The increase in estimated dividends from Forestry Tasmania is a result of increased profit in 2002-03 compared to the previous year. 3. The reduction in estimated dividends from Hydro Tasmania, MAIB and Transend is a result of reduced profits in 2002-03 compared to the previous year. 4. The increase in estimated dividends from Tascorp is a direct result of an estimated reduction in tax payments which will result in greater profits available for distribution as a dividend.
340 Appendix 2: Consolidated Fund Estimates Table A2.7: Consolidated Fund Receipts, 2002-03 and 2003-04 (continued) 2002-03) 2003-04) Budget) Budget) $'000) $'000) Special Dividends Hydro Tasmania1 40 000) 26 500) Sub-total 40 000) 26 500)
Tax Equivalents Aurora Energy Pty Ltd 16 874) 17 467) Civil Construction Services Corporation 174) 60) Hobart Ports Corporation Pty Ltd 1 244) 1 376) Hydro Tasmania2 19 067) 30 000) Port of Devonport Corporation Pty Ltd 301) 308) Stanley Cool Stores Board 24) 63) TOTE Tasmania Pty Ltd 339) 354) Tasmanian Grain Elevators Board 42) 25) Tasmanian Public Finance Corporation3 4 057) 2 510) The Public Trustee ....) 60) Transend Networks Pty Ltd 6 120) 8 000) Sub-total 48 242) 60 223)
Notes: 1. The reduction in the special dividend from Hydro Tasmania reflects the phasing out of this return. 2. The increase in the estimated tax equivalent payment from Hydro Tasmania is a result of an abnormally low estimate of tax in respect of 2002-03 as a result of the pre-payment of tax by Hydro Tasmania during 2001-02. 3. The decrease in the estimated tax equivalent payment from the Tasmanian Public Finance Corporation is a result of the adoption of a new taxation equivalent regime whereby taxation equivalent payments are calculated by applying the corporate tax rate to accounting profit before tax. Higher dividend payments will fully offset the reduction in taxation equivalent payments.
Appendix 2: Consolidated Fund Estimates 341 Table A2.7: Consolidated Fund Receipts, 2002-03 and 2003-04 (continued) 2002-03) 2003-04) Budget) Budget) $'000) $'000) Guarantee Fees Aurora Energy Pty Ltd 1 247) 1 247) Burnie Port Corporation Pty Ltd 40) 10) Civil Construction Services Corporation 16) 22) Forestry Tasmania 92) 129) Hobart Ports Corporation Pty Ltd 39) 39) Hydro Tasmania 3 000) 3 000) Metro Tasmania Pty Ltd 13) 13) Port of Devonport Corporation Pty Ltd 43) 38) Port of Launceston Pty Ltd 55) 48) Rivers and Water Supply Commission 65) 49) TOTE Tasmania Pty Ltd 11) 13) TT-Line Company Pty Ltd1 ....) 797) Transend Networks Pty Ltd 100) 20) Sub-total 4 721) 5 425) Total Recoveries from GBEs, SOCs and State Authorities 152 053) 144 438)
Departmental Fees and Recoveries Economic Development2 3 496) 1 100) Education 8 356) 8 556) Health and Human Services 16) 16) Infrastructure, Energy and Resources 32 766) 32 544) Justice and Industrial Relations 7 915) 8 105) Police and Public Safety3 643) 294) Premier and Cabinet 2) 2) Primary Industries, Water and Environment 27 204) 27 916) Tourism, Parks, Heritage and the Arts 385) 385) Treasury and Finance 329) 339) Total Departmental Fees and Recoveries 81 112) 79 257)
Notes: 1. The increase in the guarantee fee payable by TT-Line relates to the increased debt associated with the purchase of the two new ships, Spirit of Tasmania I and the Spirit of Tasmania II and the inclusion of TT-Line in the Guarantee Fee framework. 2. The reduction in Fees and Recoveries from the Department of Economic Development is a result of the continued reduction in the size of the Tasmania Development and Resources Loan Portfolio. 3. The reduction in Fees and Recoveries from the Department of Police and Public Safety in 2003-04 is due to the timing of receipts from the renewal of Firearms Licences. Following the five-year anniversary of gun and licensing control, it was necessary to renew all licenses. The revenue from these licences was spread over 2001-02 and 2002-03.
342 Appendix 2: Consolidated Fund Estimates Table A2.7: Consolidated Fund Receipts, 2002-03 and 2003-04 (continued) 2002-03) 2003-04) Budget) Budget) $'000) $'000) Recoveries of State Debt Charges Interest1 5 964) 2 866) Sinking Fund Recoveries 260) 116) Total Recoveries of State Debt Charges 6 224) 2 982)
Sale and Rent of Government Property Crown Lands Administration Fund 11 603) 11 603) Total Sale and Rent of Government Property 11 603) 11 603)
Resource Rents and Royalties Mineral Royalties2 10 000) 8 000) Rent and Fees from Mineral Lands 770) 770) Storage of Explosives and Inflammable Liquids 226) 226) Water Royalties 1 912) 1 911) Total Resource Rents and Royalties 12 908) 10 907)
Other Recurrent Receipts Fines - Infringement Notices 5 500) 5 500) Fines and Fees 3 000) 3 000) Funding for the 27th Pay3 ....) 22 400) Interest on Investments - Rivers and Water Supply Commission 19) 25) Interest on Investments – Finance-General4 7 932) 8 800) Miscellaneous 813) 637) Recoveries from Departmental Business Units 260) 260) Stamp Duties - Instalment Payments 3 000) 3 250) Total Other Recurrent Receipts 20 524) 43 872)
Notes: 1. The reduction in Interest receipts is primarily due to the repayment of advances from Hydro Tasmania of on-lent Financial Agreement debt and the early redemption of loans under the Public Bodies Assistance Act 1971. 2. The estimated decline in Mineral Royalties is a result of the downturn in base metal prices. 3. In 2003-04, all government departments, with the exception of the Department of Health and Human Services (DHHS), are liable to meet the cost of 27 pay periods. This receipt into the Consolidated Fund is funded from an account held within the Special Deposits and Trust Fund within which funds have been accumulated to meet the costs associated with the 27th pay. DHHS will be liable to meet the cost of 27 pay periods in the 2009-10 financial year. 4. The increase in Interest on Investments – Finance-General is mainly due to the increased level of surplus cash available in the Public Account for investment purposes.
Appendix 2: Consolidated Fund Estimates 343 Table A2.7: Consolidated Fund Receipts, 2002-03 and 2003-04 (continued) 2002-03) 2003-04) Budget) Budget) $'000) $'000) Capital Receipts Midway Point Improvement Act 1975 35) 35) Public Bodies Assistance Act 1971 630) 255) State Loans and Loan Guarantees Act 1976 60) 26) Tourism and Recreational Development Act 1977 10) 4) Private Forests Loans 100) 100) Proceeds from Sale of Government Assets1 ....) 28 500) Total Capital Receipts 835) 28 920)
Total State 779 751) 864 073)
Total Receipts 2 436 884) 2 580 527)
Note: 1. This item represents the estimated proceeds to be realised in 2003-04 from the sale of Civil Construction Corporation, the Tasmanian Grain Elevators Board, the Stanley Cool Stores Board and assets of the Hobart Ports Corporation Pty Ltd. An amount equivalent to the proceeds from the sale of these assets will be appropriated to the new Economic and Social Infrastructure Fund.
344 Appendix 2: Consolidated Fund Estimates CONSOLIDATED FUND EXPENDITURE, 2003-04
Expenditure in 2003-04 is expected to be $2 576.3 million, an increase of $147.5 million or 6.1 per cent over 2002-03 budgeted expenditure of $2 428.9 million.
Table A2.8: Consolidated Fund - Summary of Estimated Expenditure, 2003-04 2002-03) 2003-04) ) Budget) Budget) Variation) $'000) $'000) %) Recurrent Services Appropriation Act 2 119 455) 2 253 541) 6.3) Reserved by Law 170 796) 172 190) 0.8) 2 290 251) 2 425 731) 5.9)
Works and Services Appropriation Act 138 557) 150 562) 8.7) Total Appropriations 2 428 808) 2 576 293) 6.1)
Further information on expenditure is provided in Table A2.9. A listing of all Reserved by Law items is provided in Table A2.10. Descriptions of the activities of departments funded through the Consolidated Fund are provided in Budget Paper No 2 Operations of Government Departments 2003-04.
Recurrent Services
Total Recurrent Services is estimated at $2 425.7 million in 2003-04. This is $135.5 million or 5.9 per cent higher than the 2002-03 budgeted amount of $2 290.3 million. The increase in recurrent expenditure mainly relates to the provision of additional funding for 2003-04 Budget initiatives, election commitments and wage indexation in accordance with current wage agreements.
Works and Services
The estimated expenditure on Works and Services for 2003-04 is $150.6 million. This represents an increase of $12.0 million, or 8.7 per cent, on the 2002-03 budgeted amount of $138.6 million.
The increase in Works and Services expenditure is mainly due to the establishment of the Economic and Social Infrastructure Fund (ESIF) with an initial allocation of $78.0 million, of which $61.3 million has been allocated to Works and Services expenditure. In 2002-03, it is estimated that expenditure of up to $25 million will be incurred from the ESIF in relation to the Government's option to take control of the optic fibre cable that has been installed with the Duke Energy natural gas pipeline. In 2003-04, it is estimated that a further $28.5 million will be appropriated to the ESIF from proceeds from the sale of Government assets, of which $26.9 million will be appropriated for Works and Services expenditure. More detailed information in relation to the Capital Investment Program is provided in Chapter 6 of this Budget Paper.
Appendix 2: Consolidated Fund Estimates 345 Table A2.9: Total Consolidated Fund Expenditure, 2003-04 2003-04 Budget 2002-03) Recurrent) Reserved) Works and) Agency1 Budget) Services) by Law) Services) Total) Variation) $'000) $'000) $'000) $'000) $'000) %)
Economic Development 45 300) 43 302) ....) ....) 43 302) (4.4) Education 644 779) 654 810) ....) 14 470) 669 280) 3.8) Finance-General 455 526) 305 678) 157 255) 35 464) 498 397) 9.4) Health and Human Services 725 703) 757 090) ....) 14 303) 771 393) 6.3) House of Assembly 4 631) 1 826) 3 045) ....) 4 871) 5.2) Infrastructure, Energy and Resources 164 775) 101 166) 52) 67 145) 168 363) 2.2) Justice and Industrial Relations 64 218) 53 153) 8 986) 14 966) 77 105) 20.1) Legislative Council 3 394) 1 943) 1 831) ....) 3 774) 11.2) Legislature-General 3 545) 3 762) ....) ....) 3 762) 6.1) Ministerial and Parliamentary Support 11 059) 13 269) 550) ....) 13 819) 25.0) Office of the Governor 1 969) 1 835) 217) 8) 2 060) 4.6) Police and Public Safety 116 278) 125 202) ....) 1 921) 127 123) 9.3) Premier and Cabinet 21 270) 23 416) ....) ....) 23 416) 10.1) Primary Industries, Water and Environment 73 255) 76 120) ....) 154) 76 274) 4.1) Tasmanian Audit Office 298) ....) 254) ....) 254) (14.8) Tourism, Parks, Heritage and the Arts 61 028) 58 858) ....) 2 131) 60 989) (0.1) Treasury and Finance 31 780) 32 111) ....) ....) 32 111) 1.0)
TOTAL EXPENDITURE 2 428 808) 2 253 541) 172 190) 150 562) 2 576 293) 6.1)
Note: 1. The 2002-03 Budget has been adjusted to reflect the creation of the Departments of Economic Development and Tourism, Parks, Heritage and the Arts and the associated restructure of the Department of Primary Industries, Water and Environment. The 2002-03 Budget also reflects the transfer of the Seniors Bureau from the Department of Health and Human Services to the Department of Premier and Cabinet and transfers of whole-of-government activities from Treasury and Finance to Finance-General.
For an explanation of the estimated major Consolidated Fund expenditure variations, refer to Chapter 4 of this Budget Paper.
346 Appendix 2: Consolidated Fund Estimates Reserved by Law items are 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 A2.10: Estimated Expenditure on Reserved by Law Items
2002-03) 2003-04) Budget) Budget) $'000) $'000) Finance-General Superannuation Benefits Payable under the Solicitor-General Act 1983 1 002) 103) Payment to the Parliamentary Superannuation Fund and Parliamentary Retirement Benefits Fund (Parliamentary Superannuation Act 1973 and Parliamentary Retiring Benefits Act 1985) 2 348) 1 624) Superannuation Benefits Payable under the Judges' Contributory Pensions Act 1968 3 975) 2 476) Interest Payable in Australia on Commonwealth Stock and Bonds raised on behalf of Tasmania (Financial Agreement Act 1927) 5 210) 3 650) 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) 15) 3) Contribution payable to the Debt Retirement Reserve Trust Account (Financial Agreement Act 1994) 444) 436) Payments to Municipalities under the Local Government (Rates and Charges Remissions) Act 1991 14 146) 14 061) Appropriation to the Treasurer's Reserve (Public Account Act 1986, Section 11 (2)) 10 000) 10 000) Payments under the Stamp Duties Act 1931 (Section 18c) 3 500) 3 000) Payments under the Beauty Point Landslip Act 1970 20) 20) Financial Assistance under the Rosetta Landslip Act 1991 50) 50) Contribution to the Superannuation Provision Account (Retirements Benefits Act 1993, Section 13) 109 288) 117 258) Payments to the Tasmanian Community Fund 4 437) 4 536) Superannuation Benefits payable under the Governor of Tasmania Act 1982 35) 38) Total 154 470) 157 255)
House of Assembly Parliamentary Salaries and Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 2 732) 2 905) Travelling Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 109) 109) Members' Committee Fees and Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 31) 31) Total 2 872) 3 045)
Appendix 2: Consolidated Fund Estimates 347 Table A2.10: Estimated Expenditure on Reserved by Law Items (continued)
2002-03) 2003-04) Budget) Budget) $'000) $'000) Infrastructure, Energy and Resources Contribution towards Construction of Streets in Towns by Municipal Councils (Local Government Act 1993) 52) 52)
Justice and Industrial Relations Salary, Solicitor-General (Solicitor-General Act 1983) 251) 258) Salary, Director of Public Prosecutions (Director of Public Prosecutions Act 1993) 269) 276) Salaries of Magistrates (Magistrates Court Act 1987) 2 281) 2 477) Salaries of Judges (Supreme Court Act 1987) 1 622) 1 666) Salary and Travelling Allowance, Master of the Supreme Court (Supreme Court Act 1959) 226) 232) Expenses of Parliamentary Elections and Referendums (Electoral Act 1985 and Referendum Procedures Act 1994) 2 356) 535) Criminal Injuries Compensation Act 1976 Section 11(4): Payments 3 512) 3 512) Expenses under the Legislative Council Electoral Boundaries Act 1995 10) 10) Expenses of Aboriginal Land Council of Tasmania Elections 10) 20) Total 10 537) 8 986)
Legislative Council Parliamentary Salaries and Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 1 631) 1 680) Travelling Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 111) 111) Members' Committee Fees and Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 40) 40) Total 1 782) 1 831)
Ministerial and Parliamentary Support Allowances of Ministers (Parliamentary Salaries and Allowances Act 1973) 462) 550)
Office of the Governor Salary, His Excellency the Governor (Governor of Tasmania Act 1982) 193) 210) Salary, The Administrator (Governor of Tasmania Act 1982, Section 5(1)) 7) 7) Total 200) 217)
348 Appendix 2: Consolidated Fund Estimates Table A2.10: Estimated Expenditure on Reserved by Law Items (continued)
2002-03) 2003-04) Budget) Budget) $'000) $'000) Primary Industries, Water and Environment Contribution to Cressy-Longford Reserve Fund (Cressy-Longford Irrigation Act 1969 Section 3) 123) ....)
Tasmanian Audit Office Salary and Travelling Allowance, Auditor General (Financial Management and Audit Act 1990) 298) 254)
TOTAL ESTIMATED RESERVED BY LAW ITEMS 170 796) 172 190)
Appendix 2: Consolidated Fund Estimates 349 FORWARD ESTIMATES
The Consolidated Fund Surplus (CFS) is estimated to be $4.7 million in 2003-04, $5.2 million in 2004-05, $5.9 million in 2005-06 and $8.1 million in 2006-07.
Table A2.11 highlights the projected CFS for each of the financial years 2003-04 to 2006-07.
Table A2.11: Consolidated Fund Forward Estimates Summary 2003-04) Budget) 2004-05) 2005-06) 2006-07) $'000) $'000) $'000) $'000) Receipts Recurrent Commonwealth Sources 1 689 839) 1 740 161) 1 824 838) 1 893 360) State Sources 835 153) 832 244) 823 438) 826 996) 2 524 992) 2 572 405) 2 648 276) 2 720 356) Capital Commonwealth Sources 26 615) 40 261) 43 520) 26 080) State Sources 28 920) 434) 448) 463) 55 535) 40 695) 43 968) 26 543) Total Receipts 2 580 527) 2 613 100) 2 692 244) 2 746 899)
Expenditure Recurrent Services 2 425 295) 2 470 709) 2 540 268) 2 606 440) Works and Services 150 562) 137 161) 146 126) 132 359) Total Expenditure 2 575 857) 2 607 870) 2 686 394) 2 738 799)
Consolidated Fund Surplus1 4 670) 5 230) 5 850) 8 100)
Note: 1. For the purposes of calculating the CFS, recurrent expenditure has been reduced by the contribution payable to the Debt Retirement Reserve Trust Account of $436 000 in 2003-04, $124 000 in 2004-05 and $61 000 in 2005-06, with no contribution payable thereafter.
350 Appendix 2: Consolidated Fund Estimates Table A2.12: Consolidated Fund Forward Estimates – Receipts Summary 2003-04) Budget) 2004-05) 2005-06) 2006-07) $'000) $'000) $'000) $'000) COMMONWEALTH SOURCES
Recurrent Receipts General Purpose Payments1 1 326 600) 1 366 844) 1 440 905) 1 503 273) Specific Purpose Payments2 363 239) 373 317) 383 933) 390 087)
Capital Receipts Specific Purpose Payments3 26 615) 40 261) 43 520) 26 080)
Total Commonwealth 1 716 454) 1 780 422) 1 868 358) 1 919 440)
STATE SOURCES
Recurrent Receipts Taxation4 542 094) 549 456) 546 311) 558 905) Receipts from Government Business Enterprises, State-owned Companies and State Authorities 144 438) 153 329) 154 278) 147 835) Departmental Fees and Recoveries 79 257) 79 987) 80 489) 81 577) Recoveries of State Debt Charges 2 982) 2 340) 843) 560) Sale and Rent of Government Property 11 603) 11 603) 11 603) 11 603) Resource Rents and Royalties 10 907) 11 907) 11 907) 8 911) Other Recurrent Receipts5 43 872) 23 622) 18 007) 17 605)
Capital Receipts Capital Receipts6 28 920) 434) 448) 463)
Total State 864 073) 832 678) 823 886) 827 459)
Total Receipts 2 580 527) 2 613 100) 2 692 244) 2 746 899)
Notes: 1. The increase in the General Purpose Payments is primarily due to additional Commonwealth GST Revenue receipts over the Forward Estimates period. 2. The increase in recurrent Specific Purpose Payments is primarily due to additional Commonwealth Health Care Grant receipts. 3. The variations in capital Specific Purpose Payments reflect the Commonwealth funding for the National Highway System and the anticipated commencement and completion of major projects over the Forward Estimates period. 4. The decrease in Taxation receipts in 2005-06 reflects the abolition of Debits Duty consistent with the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations.
Appendix 2: Consolidated Fund Estimates 351 5. In 2003-04, all government departments, with the exception of the Department of Health and Human Services (DHHS), are liable to meet the cost of 27 pay periods. This receipt into the Consolidated Fund is funded from an account held within the Special Deposits and Trust Fund within which funds are accumulated to meet the costs associated with the 27th pay. DHHS will be liable to meet the cost of 27 pay periods in the 2004-05 financial year. 6. In 2003-04, Capital Receipts includes the anticipated proceeds of $28.5 million from the sale of the Civil Construction Corporation, the Tasmanian Grain Elevators Board, the Stanley Cool Stores Board and assets of the Hobart Ports Corporation.
For a further explanation of the major receipts variations, refer to Chapter 9 of this Budget Paper.
352 Appendix 2: Consolidated Fund Estimates Table A2.13: Consolidated Fund Forward Estimates – Expenditure Summary 2003-04) Budget1) 2004-05) 2005-06) 2006-07) $'000) $'000) $'000) $'000)
Economic Development 43 302) 41 171) 41 532) 41 904) Education2 654 810) 660 435) 683 255) 704 669) Finance-General Debt Management3 102 875) 100 155) 96 809) 98 866) Employee Related Costs 17 070) 22 070) 22 070) 22 070) Superannuation 121 499) 127 997) 136 030) 143 420) Payments to Government Business Enterprises4 48 586) 48 602) 48 614) 4 625) Other 60 266) 54 564) 54 763) 89 949) Administered Payments 112 637) 117 839) 122 617) 124 750) Health and Human Services5 757 090) 789 336) 816 151) 843 631) House of Assembly 4 871) 4 967) 5 105) 5 245) Infrastructure, Energy and Resources 101 218) 101 968) 104 403) 106 798) Justice and Industrial Relations6 62 139) 62 881) 64 718) 68 017) Legislative Council 3 774) 3 850) 3 963) 4 080) Legislature-General 3 762) 3 737) 3 805) 3 876) Ministerial and Parliamentary Support 13 819) 13 892) 14 195) 14 510) Office of the Governor 2 052) 2 058) 2 105) 2 153) Police and Public Safety 125 202) 126 843) 129 413) 133 970) Premier and Cabinet 23 416) 23 053) 23 436) 24 083) Primary Industries, Water and Environment 76 120) 73 557) 74 786) 75 998) Tasmanian Audit Office 254) 255) 264) 273) Tourism, Parks, Heritage and the Arts 58 858) 59 812) 59 955) 60 656) Treasury and Finance 32 111) 31 791) 32 340) 32 897) 2 425 731) 2 470 833) 2 540 329) 2 606 440)
Capital Investment Program (Departments) 50 166) 49 036) 53 630) 54 829) Roads Program7 67 145) 81 613) 85 863) 70 775) Housing Program 6 396) 6 512) 6 633) 6 755) Economic and Social Infrastructure Fund8 26 855) ....) ....) ....) 150 562) 137 161) 146 126) 132 359)
TOTAL 2 576 293) 2 607 994) 2 686 455) 2 738 799)
Notes: 1. In 2003-04, all government departments, with the exception of the Department of Health and Human Services (DHHS), are liable to meet the cost of 27 pay periods. This receipt into the Consolidated Fund is funded from an account held within the Special Deposits and Trust Fund within which funds are accumulated to meet the costs associated with the 27th pay. DHHS will be liable to meet the cost of 27 pay periods in the 2004-05 financial year. 2. The increase in expenditure for the Department of Education Forward Estimates reflects the additional funding to meet the costs associated with the Teachers Nexus Agreement.
Appendix 2: Consolidated Fund Estimates 353 3. The variation in the Forward Estimates for Debt Management is due to a decrease in debt servicing costs as a result of the reducing level of General Government Net Debt, partially offset by an increase in interest payable on certain accounts within the Special Deposits and Trust Fund, in particular, the Superannuation Provision Account. 4. The decrease in Payments to Government Business Enterprises in 2006-07 reflects the final payment of $44.0 million in relation to the Government's contribution to fund the acquisition of one of the two vessels by TT-Line for the Bass Strait service being made in 2005-06. 5. The increase in expenditure for the Department of Health and Human Services reflects indexation provided to meet increased costs and demand for services, phased in additional funding for carers of children in out of home care, and indexation for non-government organisation service providers, and recurrent funding for the Secure Mental Health Unit in 2004-05. 6. The increase in expenditure for the Department of Justice and Industrial Relations reflects additional funding for the Civil Cases Disbursement Fund, increasing recurrent costs for the Monetary Penalties Enforcement Project and increased Reserved by Law funding for elections in 2006-07. 7. The variation in the Forward Estimates for the Roads Program reflects the variation in Commonwealth funding for the National Highway System. The Capital Investment Program Forward Estimates reflect the Government's Fiscal Strategy commitment to maintain the State-funded component of the CIP in real terms. 8. In 2003-04, $28.5 million will be appropriated to the ESIF from proceeds from the sale of Government businesses and assets, of which $26.9 million will be allocated for Works and Services expenditure.
354 Appendix 2: Consolidated Fund Estimates CONVENTIONS AND 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. Advances
Repayable, interest-bearing loans often provided on concessional terms. Appropriation
An amount which may be expended 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. 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 Balancing Assistance
Under the transitional arrangements of the Intergovernment Agreement, the shortfall between the revenue from the Goods and Services Tax (GST) distributed to a state or territory and that state or territory's Guaranteed Minimum Amount is referred to as Budget Balancing Assistance, with the amount being provided by the Commonwealth in the form of a grant. Budget Committee
A Cabinet Sub-Committee that is responsible for considering all Budget related matters and making appropriate recommendations to Cabinet.
Conventions and Glossary of Terms 355 Capital Investment Program
The Capital Investment Program (CIP) comprises major capital investment projects for all on-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 2003-04. Cash Accounting
Cash accounting recognises revenue and expenditure only at the time cash is received or paid. Chain Volume Measures
Whereas constant price estimates measure real changes in various economic statistics by removing the effect of rising prices through an index composed in terms of a constant base year, chain volume measures provide estimates of real change by factoring in changing price relativities from year to year. Chain volume measures have recently replaced constant price estimates as the adjustment mechanism preferred by the Australian Bureau of Statistics for the calculation of real prices. 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 Activities (CSAs)
CSAs are non-commercial activities undertaken by State-owned Companies under contract with the Government. To qualify as a CSA, the activity must meet similar identification criteria and net cost conditions as CSOs. 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 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. Competitive Neutrality
A policy under the Competition Principles Agreement (see National Competition Policy) to prevent any resource allocation distortions arising out of the public ownership of entities engaged in significant business activities. Competitive neutrality aims to ensure that Government businesses do not enjoy any net competitive advantage simply as a result of their public sector ownership. Concessions
See State Government Concessions.
356 Conventions and Glossary of Terms 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 generally in force from 1 July in one calendar year until 30 June in the subsequent year. Consolidated Fund Surplus (CFS)
The CFS is the excess of Consolidated Fund receipts over the expenditure of these funds (net of loan repayments). A CFS represents funds which are available for the retirement of debt. A negative CFS is the same as the Net Financing Requirement (NFR). Constant Price Terms
Constant price estimates provide a convenient way of measuring real changes in economic time series. Specifically, such estimates measure the change in a series after adjusting values to remove the effects of price movements over time using an index compiled in terms of a constant base year. In Australian Bureau of Statistics series, most measures of real changes are now estimated using chain volume measures.
See also: Chain Volume Measures; 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 and retain certain revenue that is not identified for return to the Consolidated Fund. Department Operating Accounts enable the consideration of the total resourcing of Government Outputs. Economic and Social Infrastructure Fund
The Economic and Social Infrastructure Fund has been established in the 2003-04 Budget to provide funding for major economic projects and the implementation of social initiatives. Further information on the Economic and Social Infrastructure Fund is provided in Chapter 4 of Budget Paper No 2 Operations of Government Departments 2003-04. Equalisation Grants
See Fiscal Equalisation.
Conventions and Glossary of Terms 357 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 Assistance Grant (FAG)
Prior to 2000-01, the FAG represented the main form of general revenue assistance provided to the states and territories by the Commonwealth. The size of the FAG for each jurisdiction was determined by the Premiers' Conference each year, taking into account the pool of FAGs available for distribution between all jurisdictions in that year, which were indexed in line with national CPI and population growth, 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. The FAG was abolished with effect from 2000-01 under the Commonwealth's National Tax Reform package. Information on the FAG is presented in Chapter 7 of Budget Paper No 1 Budget Overview 2002-03. Financial Year
The financial year runs from 1 July in one calendar 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. First Home Owners Scheme
Under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA), the states and territories were required to establish, administer and fund a First Home Owners Scheme. The scheme provides first home owners with a grant of $7 000 to offset the impact of the GST on house prices. 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 and the raising of revenues. Fiscal Equalisation
Also described as horizontal fiscal equalisation, it refers to the principle 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 on average provided it makes the average revenue raising effort.
358 Conventions and Glossary of Terms Fiscal Surplus
The Fiscal Surplus measures a government's investment-saving balance. A Fiscal Surplus indicates that a government is saving more than enough to finance all of its operations and capital spending. The Fiscal Surplus (which is recorded in the operating statement) differs from the net operating balance in relation to the treatment of capital expenditure. The Fiscal Surplus includes net capital expenditure, but not depreciation. 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 Statistics (GFS - see below), public sector entities have been classified according to the General Government, Public Non-Financial Corporation (PNFC) or Public Financial Corporation (PFC) Sectors. General Government agencies are departments, bodies, or offices that provide services free of charge or at prices substantially below their cost of production. 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. Prior to 2000-01, the main form of general revenue assistance provided to the states and territories was the Financial Assistance Grant (FAG - see above). Other forms of general revenue assistance provided were National Competition Policy related payments and Identified Local Road Funds. Under the IGA, general revenue assistance grants will be provided in the form of GST revenue payments and transitional payments. In addition, National Competition Policy related payments will continue under the new arrangements. Goods and Services Tax (GST)
This is a tax imposed by the Commonwealth Government from 1 July 2000 on most goods and services provided in Australia. All of the revenue raised from this tax is distributed to the states and territories using the principle of horizontal fiscal equalisation. 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. Details of GBEs are provided in Chapter 11 of Budget Paper No 1 Budget Overview 2003-04
Conventions and Glossary of Terms 359 Government Financial Statistics (GFS)
The Government Financial Statistics system employed by the Australian Bureau of Statistics is designed to provide statistics relating to all public sector entities such as government departments, statutory authorities, government businesses and local government authorities. The GFS is based on two international standards, the United Nations' System of National Accounts (SNA93) and the International Monetary Fund's A Manual on Government Finance Statistics. 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 and Subsidies expenditure
Grants and Subsidies expenditure is a classification of expenditure that relates to payments or concessions made by the Government to individuals, groups or organisations. These include Community Service Obligations and Community Service Activities (CSOs and CSAs – see below) payments to Government Business Enterprises and State-owned Companies (GBEs and SOCs – see below). 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 Government purchases the administration of these payments from departments. Details of Grants and Subsidies expenditure are included in relevant agency chapters in Budget Paper No 2. 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. GST Administration Costs
Under the IGA, the states and territories are required to meet the costs of administering the GST. These costs are those incurred through the Australian Tax Office and Australian Customs Service in the collection of the GST. GST Law
Has the same meaning as defined in the A New Tax System (Goods and Services Tax) Act 1999 of the Commonwealth. Guarantee Fees
Guarantee fees are applied to GBEs and SOCs to compensate for the lower borrowing rates that GBEs and SOCs often receive 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.
360 Conventions and Glossary of Terms Guaranteed Minimum Amount
Under the Intergovernmental Agreement, the Commonwealth has guaranteed that no state or territory will be worse off financially under the new Commonwealth-State financial arrangements than they would have been had the National Tax Reforms not taken place. The guaranteed minimum amount is the minimum level of funding required by each state or territory to ensure that the guarantee provisions of the IGA are met. Horizontal Fiscal Equalisation
See Fiscal Equalisation. Implicit Price Deflator – GSP
An Implicit Price Deflator (IPD) is another means, in addition to the Consumer Price Index, by which changing prices can be measured. The IPD for Gross State Product (GSP) is a broad measure of price change used in the State accounts. IPD indexes are obtained by dividing a current price value by its corresponding constant price value or chain volume measure. Infrastructure Fund
The Infrastructure Fund (comprising a Social Infrastructure Fund and an Economic Infrastructure Fund) was established in the 2001-02 Budget to provide funding for the development of major government social and economic infrastructure. Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA)
This is the agreement signed by the Commonwealth and all state and territory Governments in June 1999 which provides for major changes to Commonwealth-State financial relations. Under the IGA GST revenue is to be distributed to the states and territories on a horizontal fiscal equalisation basis. In return, the states and territories have agreed to forego revenue and accept additional expenditure responsibilities. 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. 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 (adjusted for financing transactions), 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 Projects Fund
The Major Projects Fund was established in the 2002-03 Budget to provide funding for major projects including gas, wind and telecommunication developments for the benefit of the Tasmanian community.
Conventions and Glossary of Terms 361 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).
NCP is not about competition for competition's sake and, in most areas, requires the use of the public benefit test to ensure that all government and community objectives are considered before specific action is taken to facilitate competition in the economy. For example, considerations include, but are not limited to, economic and regional development (including employment and investment growth) and the interests of consumers generally or a class of consumers, and social welfare and equity considerations (including community service obligations). Net Debt
The State's Net Debt is defined as the difference between selected financial assets (claims the Government has on external organisations and individuals) and selected 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 – see below), liabilities for unfunded employee entitlements and assets and liabilities in the form of long-term trade credit. Net Financing Requirement (NFR)
The difference between Consolidated Fund receipts and the expenditure of these funds (net of loan repayments) is the Net Financing Requirement (NFR). An NFR is required to be funded by new borrowings. Previously, due to a deficit Consolidated Fund budget situation, the NFR has been the primary focus of the Budget outcome. A negative NFR is the same as the Consolidated Fund Surplus (CFS). 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 expenses less interest revenue and interest received from investments) to total revenue of the General Government sector net of total interest recoveries.
362 Conventions and Glossary of Terms Nominal Terms
Values expressed in nominal terms are actual values at a point in time and reflect changing price levels over time. The term is used to contrast with 'real terms' (see below). Outcomes
There are three different levels of outcomes.
• Community Outcomes are the long-term, high level objectives sought by the Government for the benefit of the Tasmanian community. These Outcomes are at such a high level that all of the activities of the State Service, along with contributions from the non-government sector of the Tasmanian community, contribute to their achievement.
• Government Policy Priorities are those policy directions which indicate a change in direction, an area of reform or a change in priority.
• Agency Outcomes are those Outcomes for which an agency can be held accountable, and the achievement of which contributes not only to the Government Policy Priorities but also to the Community Outcomes. 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 Expenditure
Expenditure over which a department has flexibility to reallocate funds to other Outputs within the limits of Budget allocation principles. 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, which prior to the year 2000 was held annually, to deal with Commonwealth-State financial relations issues. Under the IGA, this meeting has been replaced by the Treasurers' Conference (see below). 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.
Conventions and Glossary of Terms 363 Public Non-Financial Corporation Sector
The PNFC comprises those entities that aim to cover the majority of their expenses by revenue from the sale 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 (GBE's) and State Owned Companies (SOC's). Public Financial Sector
The Public Financial 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 won account. This sector covers the Motor Accidents Insurance Board and the Tasmanian Public Financial Corporation. Real Terms
Statistics measured in real terms remove the effects of rising prices or inflation to facilitate a more accurate measure of change over time. Such values are now most commonly referred to in terms of constant price estimates or chain volume measures (where changing price relativities are factored in from year to year). Except where otherwise stated, figures in the Budget documents expressed in real terms are calculated using the Gross State Product Implicit Price Deflator (GSP IPD). 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 Grants and Subsidies expenditure 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, water, fish, 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.
364 Conventions and Glossary of Terms State Capital Program
The State Capital Program comprises the capital programs of State authorities, GBEs and SOCs 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 2003-04. 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 Government Concessions
A State Government Concession is a reduction, discount, subsidy, rebate or waiver/exemption provided by a State Government agency on the value of goods or services (associated fees) to an individual, family or household based on one or more of the following eligibility criteria:
• low income;
• in recognition of age or service to the country or community; and
• special needs or disadvantages.
Eligibility is usually, but not always, linked to the production by the recipient of a specified concession card to indicate their inclusion in one of the above groups. State-owned Company
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 11 of Budget Paper No 1 Budget Overview 2003-04. 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.
Conventions and Glossary of Terms 365 Supply Act
The purpose of a 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. In previous years, where the Budget was introduced into Parliament and finally passed by Parliament well into the Budget year, the Supply Act has played a very important role in the provision of funds to agencies. With the movement to a May Budget in 1999, a Supply Act has not been required. Tascorp
The Tasmanian Public Finance Corporation (Tascorp) acts as the State's central borrowing authority for the Government and raises funds for State authorities, GBEs and SOCs. It also provides an investment facility for these entities. 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 a specific 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 tax. Taxation equivalents are applied to ensure that GBEs and SOCs are not placed at a competitive advantage due to their exemption from this tax. Territorial Revenue
Revenue arising from the sale, rent or other use of Crown land or property rights. Treasurers' Conference
Under the IGA, the Treasurers' Conference for Commonwealth-State Financial Relations is established, comprising the Treasurer of the Commonwealth and the Treasurers of the states and territories. The detailed responsibilities of the Council are provided in the IGA. 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. Uniform Presentation Framework (UPF)
The May 1991 meeting of the Australian Loan Council agreed to the introduction of the Uniform Presentation Framework in 1991. The primary objective of the UPF is to ensure that Commonwealth, state and territory governments provide a common core of financial information in their Budget Papers to provide more meaningful comparisons of each government's financial results and projections.
The format of the UPF was last revised in March 2000 to adopt accrual Government Finance Statistics based reporting.
366 Conventions and Glossary of Terms 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 72 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. Works and Services expenditure is reflected in the Roads, Housing and Department's Capital Investment Programs and the appropriation of funds to the Economic and Social Infrastructure Fund.
Conventions and Glossary of Terms 367