3    The Fiscal Strategy

Strategic Action

2017-18 Budget Progress

1.    Annual growth in General Government operating expenses will be lower than the long-term average growth in revenue.

·       The 2017-18 Budget and Forward Estimates are consistent with this strategic action. The compound annual growth in expenditure over the Budget and Forward Estimates period is 1.4 per cent, well below the long-run revenue growth rate of 4.7 per cent (calculated from 1999-00 to 2015-16 actual). Net Operating Balance surpluses 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 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.

·       Table 3.2 shows that, over the 2017-18 Budget and Forward Estimates period, borrowing and defined benefit superannuation costs as a percentage of General Government cash receipts remain below the established maximum of six per cent.

·       The Government recognises that superannuation is a significant liability and will continue to ensure that it manages this critical 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.

Strategic Action

2017-18 Budget Progress

3.   A competitive tax environment will be maintained with an objective for state taxes to be efficient, fair, simple, stable and sustainable.

·       Tasmania needs a competitive tax environment to support business investment and drive economic growth.

·       Chart 3.3 shows that, according to the most recent Commonwealth Grants Commission data, Tasmania’s ratio of revenue the 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), 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.

Strategic Action

2017-18 Budget Progress

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.

·       The Government has significant capital invested in its portfolio of government businesses. As at 30 June 2016, the Government's estimated total equity invested was $4.4 billion.  

·       During 2016-17, the Government has implemented a number of measures to improve the governance and efficiency of government businesses, including:

-  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.

Strategic Action

2017-18 Budget Progress

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 (continued).

·       Over the coming period, the Government will:

-  review and update various governance documents including:

o    Community Service Obligation guidelines;

o    the ministerial charters for Forestry Tasmania and for Hydro Tasmania; and

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 infrastructure investment will maintain existing assets, respond to economic and population growth and reflect the changing needs of the community.

·       The 2017-18 Budget continues the Government's significant investment in infrastructure. The Government has committed $245.2 million in new infrastructure funding over the Budget and Forward Estimates period with total infrastructure expenditure over this period now totalling over $2 billion. This is a material increase on the over $1.8 billion allocated over last year’s Budget and Forward Estimates period.

·       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).

Strategic Action

2017-18 Budget Progress

5.   Tasmanian Government infrastructure investment will maintain existing assets, respond to economic and population growth and reflect the changing needs of the community (continued).

·       Significant new and existing funding is also being provided by the Government to support other entities to undertake major infrastructure projects including $90.6 million for rail infrastructure, $68 million for irrigation infrastructure, $65 million for the Northern Cities initiative and $6 million for non-government school infrastructure.

·       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, productivity and financial transparency will be improved.

·       The Government has implemented a number of important financial management reforms that will strengthen the State financial 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.