Download 2017-18 Budget Paper 1 - Chapter 3 - Fiscal

3
THE FISCAL STRATEGY
Key Issues

The 2017-18 Budget and Forward Estimates reflect the ongoing successful implementation of the
Government's Fiscal Strategy. Net Operating Balance surpluses are estimated over the 2017-18 Budget
and Forward Estimates, and importantly there is a return to Fiscal Balance Surplus estimated for both
2019-20 and 2020-21.

The Fiscal Strategy reflects the Government's commitment to: delivering improved services to the
Tasmanian community; maintaining the Government's infrastructure investment; improving public sector
efficiency; constraining government expenditure to within long-term average growth in revenue and
maintaining tax competitiveness.

Successful implementation of the Government’s Fiscal Strategy is a key factor in providing the Budget
flexibility to achieve the Government’s policy priorities of jobs and economic growth; health and
education and supporting Tasmanians most in need.

It is essential that action continues to be taken to ensure the achievement of the Fiscal Strategy over
the medium to long-term. This particularly requires an ongoing commitment to the management of
expenditure within available revenue levels and ensuring that recurrent expenditure is not committed
against one-off uncertain revenues.
The Fiscal Strategy
35
FISCAL PRINCIPLES
The Government's Fiscal Strategy provides a strong and effective framework for the ongoing management of
the State's budget position. It is focused on the achievement of long-term fiscal principles that reflect
responsible financial management and aim to deliver long-term budget sustainability. These long-term fiscal
principles are enduring in nature and apply across financial and economic cycles. The use of a principles
based approach recognises that a government can, in the short-term, legitimately depart from fiscal objectives
in response to changing circumstances, as long as that departure is necessary, transparent and justifiable.
While the Fiscal Strategy has a core focus on the long-term, shorter-term objectives and relevant financial
measures and economic statistics are also important in enabling the measurement of the Government's
progress against the principles.
The following long-term principles are embedded in the Charter of Budget Responsibility Act 2007:
1.
manage the State's finances responsibly for the wellbeing of all Tasmanians;
2.
provide for the future for the next generation of Tasmanians;
3.
prepare for unexpected events by building a robust financial position;
4.
improve services to Tasmanians by building a strong economy and efficiently allocating resources to gain
the maximum community benefit;
5.
formulate spending and taxation policies that ensure a reasonable degree of equity, stability and
predictability; and
6.
ensure transparency and accountability in developing, implementing and reporting on fiscal objectives.
STRATEGIC ACTIONS
The Government's Fiscal Strategy includes a number of important strategic actions that are aimed at achieving
the long-term fiscal principles. Those strategic actions being implemented by the Government to support the
fiscal principles are detailed below.
1. Annual growth in General Government operating expenses will be lower than the long-term average growth
in revenue.
2. General Government debt and defined benefit superannuation liabilities will be managed to ensure the
combined annual servicing cost is less than six per cent of General Government cash receipts.
3. A competitive tax environment will be maintained with an objective for state taxes to be efficient, fair,
simple, stable and sustainable.
4. Government businesses will be required to deliver services to Tasmanians at the lowest sustainable cost,
while also providing an appropriate financial return to the Government.
5. Tasmanian Government infrastructure investment will maintain existing assets, respond to economic and
population growth and reflect the changing needs of the community.
6. Public sector efficiency, productivity and financial transparency will be improved.
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The Fiscal Strategy
FISCAL STRATEGY PROGRESS
Table 3.1 summarises the current progress that has been made by the Government in implementing the
strategic actions.
Table 3.1:
2017-18 Budget - Fiscal Strategy Progress
Strategic Action
1. Annual growth in General
2017-18 Budget Progress

The 2017-18 Budget and Forward Estimates are consistent with
this strategic action. The compound annual growth in expenditure
Government operating
over the Budget and Forward Estimates period is 1.4 per cent, well
expenses will be lower than
below the long-run revenue growth rate of 4.7 per cent (calculated
the long-term average growth
from 1999-00 to 2015-16 actual). Net Operating Balance surpluses
in revenue.
are also expected over the Budget and Forward Estimates period.

Chart 3.1 highlights General Government revenue and expenditure
growth over the period from 1999-00 to 2020-21.

Chart 3.2 compares the compound annual growth rates of revenue
and expenditure in the periods 1999-00 to 2003-04; 2003-04 to
2008-09; 2008-09 to 2013-14; and 2014-15 to 2020-21. The Chart
shows that, over the current period from 2014-15 to 2020-21,
estimated revenue growth is 2.7 per cent compared to estimated
expenditure growth of 2.4 per cent.
2. General Government debt and

Table
3.2
shows
that,
the
and
Budget
defined
and
Forward Estimates
superannuation liabilities will
superannuation costs as a percentage of General Government
be managed to ensure the
cash receipts remain below the established maximum of
combined annual servicing
six per cent.

borrowing
2017-18
defined benefit
cost is less than six per cent
period,
over
benefit
The Government recognises that superannuation is a significant
of General Government cash
liability and will continue to ensure that it manages this critical
receipts.
ongoing funding task in the most prudent way and in accordance
with the recommendations of the State Actuary.

Net Debt remains in a strong position over the Budget and
Forward Estimates period. Net Debt is estimated to be negative
$451.8 million at 30 June 2018 (negative $475.6 million in the
2016-17 Revised Estimates Report), reducing to negative
$200 million in 2019, then improving to negative $339.6 million by
30 June 2021.
The Fiscal Strategy
37
Table 3.1:
2017-18 Budget - Fiscal Strategy Progress (continued)
Strategic Action
2017-18 Budget Progress
3. A competitive tax environment

investment and drive economic growth.
will be maintained with an
objective for state taxes to be
Tasmania needs a competitive tax environment to support business

Chart 3.3 shows that, according to the most recent Commonwealth
efficient, fair, simple, stable
Grants Commission data, Tasmania’s ratio of revenue the State
and sustainable.
actually raised from its tax sources to the revenue it could have
raised (had it applied the Australian average level of effort to its
available revenue base), is the third lowest of all jurisdictions and is
well below the national average.

During 2016-17, the Government undertook amendments to the
Duties Act 2001 and the Land Tax Act 2000 that have now come
into effect. These amendments include a duty exemption for an
internal reconstruction or consolidation of a corporate group, and
introduction of the simpler and fairer landholder duty model,
bringing Tasmania in line with other jurisdictions. In addition,
amendments to the Duties Act have been made to enable the
introduction of a national electronic conveyancing solution,
reflecting the shift in contemporary business practice. To further
improve the fairness and simplicity of handling deceased estates,
amendments have been made to require less onerous evidence to
access the duty exemption when registering a change of ownership
of a motor vehicle from a deceased estate to the intended
beneficiary under a will; and to enable continuation of a principal
residence land classification for the financial year following death of
a sole owner provided the usage of the property does not change.

In the 2017-18 Budget, the Government has taken further action to
improve the tax environment for businesses that pay payroll tax by
providing payroll tax rebates for new apprentices, trainees and
youth employees aged 15 to 24 recruited from 1 July 2017 to
30 June 2019.
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The Fiscal Strategy
Table 3.1:
2017-18 Budget - Fiscal Strategy Progress (continued)
Strategic Action
2017-18 Budget Progress
4. Government businesses will

The Government has significant capital invested in its portfolio of
be required to deliver services
government businesses. As at 30 June 2016, the Government's
to Tasmanians at the lowest
estimated total equity invested was $4.4 billion.
sustainable cost, while also

During 2016-17, the Government has implemented a number of
providing an appropriate
measures to improve the governance and efficiency of government
financial return to the
businesses, including:
Government.

ensuring that funds are set aside for the future replacement of the
Spirit of Tasmania vessels, with the TT-Line Vessel Replacement
Fund Act 2017 being passed by the Parliament;

facilitating the replacement of Metro Tasmania’s bus fleet, with the
first of four equity injections of $4.5 million being paid to the
Company in February 2017;

continuing to progress the transition of Forestry Tasmania by:
o
securing commercially sustainable access to residue
markets in the south of the State;
o
seeking expressions of interest for the sale of approximately
29 000 ha of largely unpruned and unthinned hardwood
plantations; and
o
the separation of Forestry Tasmania into a commercial wood
production division and a non-commercial division, to be
effective from 1 July 2017; and

completing the RBF reforms, including the successor fund
transfer of RBF’s accumulation scheme accounts to Tasplan and
the transition of the administration of the defined benefits
schemes into Treasury.

Consistent with the Government’s energy strategy vision of
delivering affordable energy at competitive and predictable prices
that are amongst the lowest in Australia, the Government has
progressed legislative changes to enable the setting of a lower
wholesale electricity price for regulated electricity tariffs paid by
residential and small business customers for 2017-18. In addition,
Hydro Tasmania has reduced wholesale prices for unregulated
customers in 2017-18 and the 2017-18 Budget also allocates
funding to support those customers that entered into contracts
earlier in 2017 who were impacted by volatility in the national
electricity market.
The Fiscal Strategy
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Table 3.1:
2017-18 Budget - Fiscal Strategy Progress (continued)
Strategic Action
4. Government businesses will
2017-18 Budget Progress

be required to deliver services
Over the coming period, the Government will:

to Tasmanians at the lowest
sustainable cost, while also
providing an appropriate
review and update various governance documents including:
o
Community Service Obligation guidelines;
o
the ministerial charters for Forestry Tasmania and for Hydro
financial return to the
Tasmania; and
Government (continued).
o
Government business board governance with the aim of
ensuring; the composition of boards is appropriate to provide
sound leadership for the respective businesses; that board
membership meets the Government's commitment to a
target of 50 per cent representation of women by July 2020;
and that boards are more accountable to the Shareholding
Ministers;

review the wholesale electricity market arrangements; and

establish TasWater as a Government Business Enterprise to
accelerate infrastructure projects, improve services and restrain
price rises.
5. Tasmanian Government

The 2017-18 Budget continues the Government's significant
investment in infrastructure. The Government has committed
infrastructure investment will
$245.2 million in new infrastructure funding over the Budget and
maintain existing assets,
Forward Estimates period with total infrastructure expenditure over
respond to economic and
this period now totalling over $2 billion. This is a material increase
population growth and reflect
on the over $1.8 billion allocated over last year’s Budget and
the changing needs of the
Forward Estimates period.
community.

The Government’s investment in infrastructure is strongly focused
on its high priority policy areas of improving health and education
services; jobs and economic growth and supporting Tasmanians in
need. Over the Budget and Forward Estimates period $117 million
is provided to improve school and education infrastructure, total
funding for hospitals, health and ICT-related infrastructure exceeds
$500 million (including $389 million for the Royal Hobart Hospital
Redevelopment and $35 million for Mersey Community Hospital
Redevelopment), $35 million is provided under the Government’s
Affordable Housing Strategy and $827 million has been provided
for roads and rail infrastructure (including a provision of $120 million
for future Australian Government Roads Funding).
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The Fiscal Strategy
Table 3.1:
2017-18 Budget - Fiscal Strategy Progress (continued)
Strategic Action
2017-18 Budget Progress
5. Tasmanian Government

Significant new and existing funding is also being provided by the
infrastructure investment will
Government to support other entities to undertake major
maintain existing assets,
infrastructure projects including $90.6 million for rail infrastructure,
respond to economic and
$68 million for irrigation infrastructure, $65 million for the Northern
population growth and reflect
Cities
the changing needs of the
infrastructure.
community (continued).

initiative
and
$6 million
for
non-government
school
Chart 3.4 shows that, over the 2017-18 Budget and Forward
Estimates period, investment by the Government in Non-Financial
Assets continues to exceed the value of depreciation. Table 3.3
summarises 2017-18 Budget and Forward Estimates Depreciation
and Purchases of Non-Financial Assets estimates.
6. Public sector efficiency,
 The Government has implemented a number of important financial
productivity and financial
management reforms that will strengthen the State financial
transparency will be improved.
framework and help improve transparency. These include:

amendments to the Charter of Budget Responsibility Act;

the new Financial Management Act 2016 (due to be implemented
on 1 July 2018); and

the publication of the First Tasmanian Government Fiscal
Sustainability Report in April 2016.

Funding of $50 million has been allocated over the 2017-18 Budget
and Forward Estimates period to undertake a number of significant
digital transformation projects. Not only will these projects improve
the provision of services to the community but they are also
expected to deliver public sector efficiency and productivity
benefits.

The Government is committed to ensuring negotiated wage
outcomes are sustainable and affordable. The wages policy limits
wage outcomes to two per cent per annum.

Integration and automation of the employee system Empower is
progressing through the business planning stages to the
development of a reporting framework within the Department of
Justice. When completed it will provide substantial efficiency gains
across government through reduced manual payment processes
and overheads. Importantly the system will significantly increase
access to meaningful workforce data and reporting, to inform
workforce management and planning.
The Fiscal Strategy
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Fiscal Strategy Data
Chart 3.1:
General Government Revenues and Expenses, 1999-00
to 2020-211
Note:
1. This Chart is based on actual data for the period 1999-00 to 2015-16, the Estimated Outcome for 2016-17 (excluding
the impact of the significant one-off payment for the Mersey Hospital of $730.4 million) and the Budget and Forward
Estimates for 2017-18 to 2020-21.
Chart 3.2:
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Comparative Compound Annual Growth Rates of
General Government Revenue and Expenditure,
1999-00 to 2020-21
The Fiscal Strategy
Table 3.2:
General Government Borrowing and Defined Benefit
Superannuation Costs, 2017-18 to 2020-21
2017-18
Superannuation - defined benefit schemes
Borrowing costs
Total borrowing and defined benefit scheme costs
2018-19
2019-20
2020-21
Forward
Forward
Forward
Budget
Estimate
Estimate
Estimate
$m
$m
$m
$m
285.8
296.6
307.9
319.9
9.8
9.5
9.1
8.3
295.7
306.2
317.0
328.1
4.9%
5.1%
5.2%
5.3%
Borrowing and defined benefit costs as a percentage of
General Government cash receipts
Chart 3.3:
Ratio of Actual to Assessed Revenue, 2015-161
Source: Commonwealth Grants Commission 2017 Update Report on GST Revenue Sharing Relativities
Note:
1. The ratio of actual to assessed revenue compares the revenue a state actually raised from its tax sources to the
revenue it could have raised had it applied the Australian average level of effort to its available revenue base.
The Fiscal Strategy
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Table 3.3:
Purchases of Non-Financial Assets in Excess of
Depreciation, 2017-18 to 2020-21
2017-18
2018-19
2019-20
2020-21
Forward
Forward
Forward
Budget
Estimate
Estimate
Estimate
$m
$m
$m
$m
Purchases of Non-Financial Assets
609.9
574.0
402.1
342.7
Depreciation
268.6
263.7
322.8
337.6
Surplus
341.3
310.3
79.3
5.1
Chart 3.4:
44
Purchases of Non-Financial Assets and Depreciation,
2006-07 to 2020-21
The Fiscal Strategy