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Uncorrected Proof Issue UNCORRECTED PROOF ISSUE Tuesday 28 June 2011 - Estimates Committee A (Giddings) - Part 1 LEGISLATIVE COUNCIL ESTIMATES COMMITTEE A Tuesday 28 June 2011 MEMBERS Mrs Armitage Ms Forrest Mr Hall (Chair) Mr Harriss Mr Mulder Mr Wilkinson SUBSTITUTE MEMBERS IN ATTENDANCE Hon. Lara Giddings MP, Premier, Treasurer, Minister for the Arts Department of Premier and Cabinet Rhys Edwards , Secretary Rebekah Burton , Deputy Secretary Greg Johannes , Deputy Secretary Philip Foulston , Director, Executive Division Jeff Reeve, Director, Corporate Services Louise Mills , Deputy Director, Corporate Services Sean Green , Manager, Finance Katrina Sage , Manager, Human Services Tim Bullard , Director, Policy John McCormick, Director, Policy Mat Healey , Manager, Office of Security and Emergency Management Mellissa Gray , Director, Social Inclusion Frank Ogle , Director, Public Sector Management Office Phillip Hoysted , Director, Tasmanian Together Progress Board Piero Peroni , General Manager, TMD Michael Mulley, Commercial Manager, TMD Kathy Baker , Director, Service Tasmania Unit Mitchell Knevett , Director, Office of the Government Tuesday 28 June 2011 - Part 1 1 Estimates A - Giddings UNCORRECTED PROOF ISSUE Department of Treasury and Finance Martin Wallace , Secretary Tony Ferrall , Deputy Secretary, Budget and Finance Craig Jeffery , Director, Government Finance and Accounting Wendy Sawford , Deputy Secretary, Economic and Financial Policy Jonathon Root , Director, Revenue, Gaming and Licensing Joy Crane , Acting Director, Corporate Support Tasmanian Audit Office Mike Blake , Auditor-General David Strong , General Manager, Strategy and Governance DEDTA - Arts Katherine Hough , Director, Arts Tasmania Bill Bleathman , Director, Tasmanian Museum and Art Gallery Karena Slaninka , Director, Screen Tasmania Department of Economic Development Mark Kelleher , Secretary, Department of Economic Development Ros Harvey , Deputy Secretary, Strategy and Innovation Craig Watson , Deputy Secretary, Corporate Support Elizabeth Jack , Deputy Secretary, Culture, Recreation and Sport House of Assembly Peter Alcock , Clerk Legislative Council Nigel Pratt , Deputy Clerk Miss Jan Chipman , Finance Officer Legislature-General Jason Hendy , Manager, Finance Government House Anne Parker , Official Secretary Andrea Bull , Budget and Research Officer Ministerial Office Mark Sayer , Head of Office Jessica Radford , Adviser Richard Dowling , Adviser Tuesday 28 June 2011 - Part 1 2 Estimates A - Giddings UNCORRECTED PROOF ISSUE Ross Smith , Adviser Cam Crawford , Adviser Margot Dawson , Adviser The committee met at 9 a.m. CHAIR (Mr Hall) - Good morning, Premier. Welcome to the Estimates hearing. Would you like to give a short overview? Ms GIDDINGS - I am very happy to do that. I would appreciate the opportunity to have a couple of minutes of your time to do a short overview. Obviously this is a very tough budget and has some very difficult decisions within it and I think it is worthwhile taking a couple of steps back to ask why we ended up in this position. I think it is important to go back to when the GFC hit in October 2008. When we came into government we had a $1.6 billion net debt problem. We paid off that net debt by 2004-05 and by 2008 we had put $1 billion aside. Even though we had increased expenditure over that time, our revenue was running higher than our expenditure so we were able to save money. We were also able to invest in services that were critical services to the community - things such as the rehabilitation staff nurses at the LGH, a part of the LGH that has been calling out for extra staffing for many years and we were able to put the additional rehab nurses in. We also had - and you might be able to help me, Ruth - the nursing hours per patient around beds - Ms FORREST - We used to have patient-day models. Ms GIDDINGS - Yes, the model, but we had to look and see if we had sufficient nurses for theatres, the emergency department and the like. Every time we looked at whether or not we had sufficient nurses we were told we didn't, so we had to recruit more theatre nurses, for instance, at the LGH after they had done their review of staffing levels. A lot of our growth over that time was in Health and it was in more doctors, nurses and allied health staff. There was some growth in other areas as well and that was an opportunity for us to invest in some key social justice areas that are key to Labor, such as more funding for education, disability services, housing, child protection - there are a number of areas of government that benefited from the boom times of the 2000s. Then the GFC hit in 2008 and our predictions of having the $1 billion savings suddenly fell away. We had a reduction in State taxation of $100 million per annum average, we had our GST falling and at that time we also had the decision around the Tamar Valley Power Station. We were in drought and there was a strong argument that we needed the Tamar Valley Power Station as a back-up energy source for the State. Once we made that decision, Murphy's law - it starts to rain. When we got to the 2009-10 Budget, State taxation had fallen further by another $50 million and our GST had fallen by a further $225 million. Because we had less of our savings available we had a reduction in interest income of some $80 million. We also had a big hit on the Budget then of equity transfers for water infrastructure of some $64 million over three years, and that was putting the funding behind the concept of the food bowl with irrigation. Then it came to the midyear financial year report in 2009-10 and we saw a bounce-back and things looked healthier six months later than they had previously. We saw State taxation increasing by $45 million, GST increasing by $65 million and at that time we also had Tasrail sold, and we had a decision to make of either seeing Tasrail fall over completely or rescuing Tuesday 28 June 2011 - Part 1 3 Estimates A - Giddings UNCORRECTED PROOF ISSUE Tasrail, and we decided to buy it and rescue it, and that cost some $34 million per annum average. At that time, because the bottom line looked much better and healthier than we had anticipated in the 2009-10 Budget, there was a huge campaign from the community around land tax. I do not know if you recall that there were posters up in windows of offices and all around the place calling on the Government to reduce land tax so, rather than do what the Liberal Party were saying we should do, scrapping land tax completely, we just reduced land tax by $28 million per annum average, and that was with the exemption brought in around holiday homes or shacks, and also a review of the actual land tax calculation numbers. Then post the election the situation seemed to improve further in the 2010-11 Budget with State taxation up some $80 million and increased GST revenue of $115 million per annum average. We felt very comfortable at that point with being able to start funding our election commitments and we did that by some $73 million. But then the bottom fell out when we hit the midyear financial report of this year, and I think there is a number of reasons for that. We have had GST fall at that point by a further $49 million per annum average, and I think this was at the time when the stimulus funding of the Commonwealth and the State was drying up, interest rates were starting to go up as well through the Reserve Bank's policies, and Australians as a whole were no longer spending as they were previously spending, so GST across the nation started to drop off. And of course also with the horizontal fiscal equalisation method that is used around GST our predictions of future GST have been clawed back a bit further than expected because Tasmania benefited out of the economic stimulus money a bit more than other States. In the HFE system that is always balanced out so you maintain equity across all the States. The reality is that when you total up all of the GST and State taxation that we have lost, we have in fact lost $1.7 billion since 2008 when the GFC began and the end of our forward Estimates. So we have a problem that we now need to deal with. We are spending more than we are earning, and we believe that there is now a structural problem in the Budget that there will not be a period of time that in fact we can go back to where we were. There is a deficit there now that needs to be dealt with, and if we do not do anything and we do not deal with it very quickly, we will have $4 billion worth of net debt and having to spend $300 million in interest alone, so there just is not a case for no change at all. We believe that this is a responsible budget. It is a budget that sets a pathway for us. It is a difficult budget, and when we sat with the various departments we obviously tried to look at where we could make cuts that would cause the least pain, but the reality is that, even though not all cuts were achieved over the GFC period with the various agencies, cuts were made and when it came to an agency like Education, for instance, they just do not have anything left in the head offices in order to be able to cut. The magnitude of cuts that we require of Education, of Health, of all the departments are such that there is not a lot of fat left on the bones and we are at a point where we have to make tough decisions about removing certain services and just being open with the Tasmanian people that now is the time that we have to make these decisions.
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