Ship of state taking in water

Will Hodgman’s economic legacy is forcing the Gutwein Government to squeeze GBEs for every last drop of revenue as the state’s cash reserves dwindle, explains John Lawrence

THE first task of the Hodgman government when it won the 2014 election was to request Treasury to report on state finances.

The subsequent report in April 2014, was essentially an update of the Revised Estimates Report for the 2013/14 year prepared in February 2014.

Budget reports always cover a four-year period, the budget year plus three years of forward estimates. At the end of the forward estimates the state was facing net debt of $400 million. The deterioration in net debt over the four-year period was $600 million. Net debt increases when spending is greater than receipts. Cash deficits totalling $600 million were projected over four years.

After whipping up outrage at the incompetence of the previous government, then Treasurer Peter Gutwein reassuringly told Parliament on May 8, 2014: “We are committed to fixing the Budget”. Have they? The release this week of the Revised Estimates Report for 2019/20 makes this a convenient time to check.

Over the next four years, including 2019/20, the Gutwein Government will spend $1.8 billion more than it will receive. This year for every $100 received we will spend $108. Next year the figure will be $110 — that’s three times more than the projected level of overspend inherited in 2014. That’s the Hodgman legacy.

The budget has not been fixed. Problems have been papered over and the can kicked down the road for six wasted years. In its first four years the Hodgman government managed to improve its cash position by $650 million by underfunding health and deferring infrastructure spending. At some stage however chickens come home to roost.

Will Hodgman’s resignation speech of January 14 made the claim that “… we have delivered our plan … to manage our Budget, taking it from deficits to surpluses.”

Unfortunately, the

Government’s own figures don’t support that claim.

The mischievously titled surpluses conveniently ignore a lot of capital spending, including large equity contributions into government businesses, many sourced from capital grants from the Feds which are included as income when received.

A pretend surplus doesn’t provide a buffer. Only a cash surplus does. In any event the alleged surplus is tiny. The latest estimate is $10 million for 2019/20. It’s a figure that’s easily massaged.

Take TT-Line for instance. It has been accumulating funds to pay a deposit on the new ferries, but as part of a shameless accounting fiddle it paid a $40 million dividend this year to boost the surplus, even though the Government will hold the money on deposit and return it when the deposit needs to be paid, at no cost to the surplus because the surplus calculation excludes equity contributions into government businesses.

All governments face problems. That’s the nature of the job. The problems inherited by the Hodgman government in 2014 were largely caused by GST receipts taking a hit, like has happened this year as noted in the latest Revised Estimates report, and by the loss of three years of income from Hydro Tasmania totalling almost $200 million following PM Abbott’s repeal of the carbon tax.

Many problems that befall governments are not problems of their making. In Trumpianstyle however, the Hodgman government claims to have righted the ship of state. It may have been present, but to claim responsibility for the state’s improved performance is stretching things. Cause and coincidence are separate. Which austerity measure or infrastructure deferral helped right the ship?

There were, however, a couple of bright spots in the latest Revised Estimates Report. Conveyancing duties are projected to rise by 20 per cent although two years ago similar increases were pencilled in before drastic revisions six months later.

Payroll tax is projected to show increases of about 5 per cent. Governments need to capture some of reward from increased activity if it wishes to contribute to that increased activity.

In 2019/20 the Tasmanian Health Service, which runs public hospitals with about 80 per cent of the health budget, received a budget allocation of $1612 million, $62 million less than that spent the previous year. The extra spending of $118 million promised in the Revised Estimates Report takes its budget this year to $1730 million, an increase of 3 per cent above the previous year’s actual. With health demand rising at a faster rate, with backlogs and unmet demand and with Royal Hobart Hospital K Block yet to be staffed, playing catch-up is a forlorn exercise. It won’t work.

The 2019/20 budget tabled in May, 2019, was predicated on finding $450 million of cost savings over four years.

The Revised Estimates Report indicates $300 million of savings were found.

The Government could not find the remaining $150 million. Health was let off the hook for $90 million and the remaining $60 million will be taken from government businesses over four years.

Hydro drew the short straw this year and will have to pay $15 million in addition to its usual dividend and a special dividend of $70 million. This cost savings exercise highlights the state’s dilemma. Even if a similar level of savings is found for each ensuing four year period, which is doubtful, the state will still be spending far more than it is receiving.

The Government’s cash reserves are fast diminishing. Soon it won’t be able to fund operations by internal borrowings. The Government is postponing the inevitable external borrowing until 2020/21, in part by continuing to squeeze government businesses by forcing them to pay special dividends whenever it can.

The Government is requiring Hydro to pay special dividends of $85 million this year. Hydro would be better off if it reduced its own debt. But a dividend to the government boosts the sacred surplus whereas if the funds are received as loan monies it would have no effect.

The slavish worship of a false idol is Will Hodgman’s legacy. The state’s problems have been misrepresented.

Understanding our position is a prerequisite to finding a way forward.

OVER THE NEXT FOUR YEARS ... THE GUTWEIN GOVERNMENT WILL SPEND $1.8 BILLION MORE THAN IT WILL RECEIVE.