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