Balance Sheet

The chapter provides an overview of the Balance Sheet for the 2022‑23 Budget and Forward Estimates including the 2021‑22 Estimated Outcome. Table 7.1 details the estimated General Government Sector assets and liabilities held between 30 June 2022 and 30 June 2026.

Table 7.1:         General Government Balance Sheet as at 30 June

	2022	2022	2023	2024	2025	2026
		Estimated		Forward	Forward	Forward
	Budget	Outcome	Budget	Estimate	Estimate	Estimate
	$m	$m	$m	$m	$m	$m
Assets
Financial assets
Cash and deposits1	1 144.0	624.2	624.6	630.2	541.6	591.6
Investments1	311.0	872.2	867.2	903.2	881.5	856.3
Equity investment in PNFC and PFC sectors2	4 928.6	5 210.0	5 445.2	5 560.1	5 632.5	5 606.6
Other equity investments3	140.9	140.9	201.4	256.9	262.4	267.9
Receivables	345.4	409.8	407.3	405.4	403.5	402.1
Other financial assets	442.6	578.5	596.5	612.0	633.9	640.1
	7 312.6	7 835.5	8 142.2	8 367.8	8 355.5	8 364.5
Non-financial assets
Land and buildings4	7 771.9	7 953.5	8 205.7	8 576.9	8 881.3	9 096.8
Infrastructure5	6 454.9	6 254.7	6 938.9	7 643.4	8 295.6	8 730.0
Plant and equipment	313.8	316.8	342.9	371.0	381.9	388.0
Heritage and cultural assets	452.2	466.4	478.7	491.0	503.3	515.6
Investment property	3.3	3.1	3.2	3.3	3.3	3.3
Intangibles	72.6	83.8	136.9	188.4	232.3	277.5
Assets held for sale	1.1	2.2	2.8	4.1	5.5	3.9
Lease ‑ right‑of‑use assets6	275.2	375.4	335.7	314.6	278.9	219.5
Other non-financial assets7	99.8	912.3	910.8	908.9	910.9	908.9
	15 444.7	16 368.2	17 355.6	18 501.5	19 493.0	20 143.4
Total Assets	22 757.3	24 203.7	25 497.8	26 869.3	27 848.5	28 508.0
Liabilities
Borrowings8	2 874.1	2 623.3	4 125.6	5 150.9	5 911.5	6 359.4
Lease liabilities6	285.4	395.1	360.2	341.4	302.8	267.5
Superannuation9	9 895.0	8 412.9	8 397.6	8 370.1	8 314.3	8 238.1
Employee entitlements	831.8	853.9	871.4	891.3	912.4	930.6
Payables	199.9	181.7	182.5	186.5	189.7	190.5
Other liabilities	743.5	777.1	790.7	816.3	739.6	773.5
Total Liabilities	14 829.7	13 244.1	14 728.0	15 756.5	16 370.3	16 759.6
Net Assets	7 927.6	10 959.6	10 769.8	11 112.8	11 478.3	11 748.4

Table 7.1:         General Government Balance Sheet as at 30 June (continued)

	2022	2022	2023	2024	2025	2026
		Estimated		Forward	Forward	Forward
	Budget	Outcome	Budget	Estimate	Estimate	Estimate
	$m	$m	$m	$m	$m	$m
Equity
Accumulated funds	3 326.2	5 766.4	5 345.7	5 435.2	5 528.3	5 579.1
Asset revaluation reserve	5 581.9	5 831.2	6 113.2	6 430.5	6 747.9	7 065.3
Other revaluation reserves	(980.4)	(638.0)	(689.1)	(753.0)	(797.9)	(896.0)
Total Equity	7 927.6	10 959.6	10 769.8	11 112.8	11 478.3	11 748.4
KEY FISCAL AGGREGATES
NET WORTH10	7 927.6	10 959.6	10 769.8	11 112.8	11 478.3	11 748.4
NET FINANCIAL WORTH11	(7 517.1)	(5 408.6)	(6 585.8)	(7 388.7)	(8 014.8)	(8 395.0)
NET FINANCIAL LIABILITIES12	12 445.7	10 618.6	12 031.0	12 948.8	13 647.2	14 001.6
NET DEBT13	1 704.4	1 522.1	2 994.0	3 958.9	4 791.1	5 179.0
GFS NET DEBT14	1 419.0	1 126.9	2 633.8	3 617.5	4 488.3	4 911.5

Notes:

1.    The change in Cash and deposits and Investments in the 2022 Estimated Outcome and over the Forward Estimates primarily reflects the reclassification of $600 million from Cash to Investments for funds invested with the Tasmanian Public Finance Corporation. The change in Investments is also impacted by the timing of loan advances by the Department of State Growth together with the drawdown of funds invested with the Tasmanian Public Finance Corporation for the TT‑Line Vessel Replacement Fund.

2.    The increase in Equity investments in PNFC and PFC sectors in 2023 and over the Forward Estimates is primarily the result of an increase in net assets for the PNFC Sector. Refer to appendix 1 of this Budget Paper for more information on the PNFC and PFC sectors.

3.    The increase in Other equity investments in 2023 and across the Forward Estimates reflects the Government’s funding support for the accelerated infrastructure program of Tasmanian Water and Sewerage Corporation Pty Ltd.

4.    The increase in Land and buildings reflects the implementation of the Government’s infrastructure program. Further information on infrastructure investment is provided in chapter 6 of this Budget Paper.

5.    The increase in Infrastructure in 2023 and across the Forward Estimates primarily reflects the implementation of the Government’s infrastructure program. Further information on infrastructure investment is provided in chapter 6 of this Budget Paper.

6.    The change in Lease right‑of‑use assets and Lease liabilities in 2023 and over the Forward Estimates primarily reflects revised estimates based on 30 June 2021 actuals together with the recognition of additional leases in 2022.

7.    The increase in Other non‑financial assets in 2022 primarily reflects the recognition of Service Concession assets by the Department of Communities Tasmania in accordance with AASB 1059 Service Concession Assets: Grantors.

8.    The increase in Borrowings as at 30 June 2023 and across the Forward Estimates primarily reflects the increase in borrowings to support the General Government Sector cash deficit.

9.    The decrease in Superannuation reflects the latest actuarial advice provided by the State’s Actuary which includes a change in the discount rate from 1.5 per cent (used in the 2021‑22 Budget) to a rate of 2.5 per cent used in the 2022‑23 Budget.

10.  Net Worth represents Total Assets less Total Liabilities.

11.  Net Financial Worth represents Financial assets less Total Liabilities.

12.  Net Financial Liabilities represents Total Liabilities less Financial assets, excluding Equity investment in PNFC and PFC sectors.

13.  Net Debt represents Borrowings plus Lease liabilities, less the sum of Cash and deposits and Investments.

14.  GFS Net Debt represents Borrowings less the sum of Cash and deposits and Investments. This is equivalent to Net Debt based on the Australian Bureau of Statistics Government Finance Statistics reporting framework, and excludes the impact of Lease liabilities.

Net Debt and GFS Net Debt

Net Debt is one of the key measures on the General Government Balance Sheet. The measure is used to help assess the overall strength of a Government’s fiscal position. The Budget Papers present two Net Debt measures, Net Debt and GFS Net Debt. Net Debt comprises Borrowings plus Lease liabilities, less the sum of Cash and deposits and Investments. This measure has been impacted by the change to the Australian Accounting Standard AASB 16 Leases, which came into effect from 1 July 2019 and recognised applicable leases as liabilities on the Balance Sheet. The impact of the change was to increase the value of General Government Net Debt by $356 million as at 30 June 2020.

The GFS Net Debt measure excludes the impact of the changed treatment for lease liabilities. As a result, it provides a more useful measure for comparing net debt over time. This measure is also aligned to the Australian Bureau of Statistics Government Finance Statistics reporting framework, which has not recognised the 2019 accounting change to leases. Table 7.2 shows the calculation of General Government Net Debt and GFS Net Debt.

Table 7.2:         Composition of Net Debt and GFS Net Debt

	2022	2022	2023	2024	2025	2026
		Estimated		Forward	Forward	Forward
	Budget	Outcome	Budget	Estimate	Estimate	Estimate
	$m	$m	$m	$m	$m	$m
Borrowings	2 874.1	2 623.3	4 125.6	5 150.9	5 911.5	6 359.4
plus Lease liabilities	285.4	395.1	360.2	341.4	302.8	267.5
less Cash and deposits	1 144.0	624.2	624.6	630.2	541.6	591.6
less Investments	311.0	872.2	867.2	903.2	881.5	856.3
NET DEBT	1 704.4	1 522.1	2 994.0	3 958.9	4 791.1	5 179.0
less Lease liabilities	285.4	395.1	360.2	341.4	302.8	267.5
GFS NET DEBT	1 419.0	1 126.9	2 633.8	3 617.5	4 488.3	4 911.5

 

As shown in Table 7.2 GFS Net Debt is estimated to be $2 633.8 million as at 30 June 2023, increasing to $4 911.5 million as at 30 June 2026. The increase is primarily due to:

·       an increase in Borrowings of $2 233.8 million between 30 June 2023 and 30 June 2026. This reflects new borrowings to support the General Government Sector cash deficit, which has been adversely impacted by the Government’s response and recovery measures to support the community and the economy from the impacts of the COVID-19 pandemic. The response includes significant expenditure measures, revenue forgone through Government decisions on taxation and the Government’s commitment to a strong pipeline of infrastructure investment to drive economic growth;

·       a decrease in Cash and deposits of $33 million. The Cash balance primarily represents the balance of Specific Purpose Accounts held in the Public Account; and

·       a decrease in Investments of $10.9 million between 30 June 2023 and 30 June 2026. The decrease is primarily due to the repayment of advances made by the Department of State Growth.

GFS Net Debt as a percentage of GSP/Revenue

GFS Net Debt as a percentage of GSP and GFS Net Debt as a percentage of Revenue provide an indicator of the State’s ability to make future payments on its debt. Table 7.3 shows the 2022‑23 Budget and Forward Estimates for GFS Net Debt as a percentage of estimated Revenue and estimated GSP for the period 30 June 2022 to 30 June 2026. 

Table 7.3:         GFS Net Debt as a percentage of GSP/Revenue

	2022	2022	2023	2024	2025	2026
		Estimated		Forward	Forward	Forward
	Budget	Outcome	Budget	Estimate	Estimate	Estimate
GFS Net Debt ($m)	1 419.0	1 126.9	2 633.8	3 617.5	4 488.3	4 911.5
GFS Net Debt as % of Revenue	19.6	14.3	33.6	44.0	53.4	57.9
GFS Net Debt as % of GSP	3.9	3.0	6.4	8.3	9.8	10.2

 

Chart 7.1 shows General Government GFS Net Debt as a percentage of GSP since 1990, together with Estimated Outcome for 2022 and projections for the 2022‑23 Budget and Forward Estimates.

Chart 7.1:         General Government GFS Net Debt as a percentage of GSP1

Note:

1.    The figures between 2022 and 2026 represent the 2021‑22 Estimated Outcome and 2022‑23 Budget and Forward Estimates.

 

Interstate Comparison

The Net Debt burden in Tasmania is low compared to other jurisdictions. Chart 7.2 compares Tasmania’s General Government Net Debt and Net Debt as a percentage of GSP forecast as at 30 June 2023 (based on the latest Budget estimate for all other jurisdictions). The chart shows that Tasmania has the lowest nominal level of Net Debt of $2 994 million as at 30 June 2023. This is significantly lower than the highest nominal level of Net Debt held by Victoria at $118 507 million.

At 7.3 per cent, Tasmania has the third lowest estimated GGS Net Debt as a percentage of GSP as at 30 June 2023 of all jurisdictions.

Chart 7.2:         General Government Net Debt and Net Debt as a percentage of GSP as at 30 June 2023, by Jurisdiction1

Note:

1.    Net Debt estimates are based on the latest estimates released by jurisdictions. For Victoria, Northern Territory and Western Australia this is sourced from 2022-23 Budget Papers. For the remaining jurisdictions this is sourced from revised 2021-22 Budget Estimate publications.

 

Chart 7.3 compares Tasmania’s General Government Sector Net Debt plus Superannuation liability, in nominal terms and as a percentage of GSP forecast as at 30 June 2023, with the latest estimates for all other jurisdictions.

The 2022-23 Budget estimate for Tasmania’s Net Debt plus Superannuation liability is $11 391.6 million as at 30 June 2023. This is the second lowest nominal value across all jurisdictions. As a percentage of GSP, Net Debt plus Superannuation liability is 27.8 per cent as at 30 June 2023, which is ranked fifth across all jurisdictions.

Chart 7.3:         General Government Net Debt plus Superannuation Liability as at 30 June 2023 in nominal terms and as a percentage of GSP, by Jurisdiction1

Note:

1.    Net Debt estimates are based on the latest estimates released by jurisdictions. For Victoria, Northern Territory and Western Australia this is sourced from 2022-23 Budget Papers. For the remaining jurisdictions this is sourced from revised 2021-22 Budget Estimate publications.

Borrowings

The growth in Net Debt is primarily driven by the increase in General Government Sector Borrowings. As at 30 June 2023, Borrowings is estimated to be $4 125.6 million which comprises:

·       Tasmanian Public Finance Corporation borrowings of $3 882.2 million, which is the debt administered by Finance‑General to support the General Government Sector cash deficit;

·       Australian Government borrowings of $22.3 million, which primarily relates to Farm Finance and a number of loan schemes held by the Department of State Growth; and

·       Other borrowings of $221.1 million, which represents other debt held by the Department of State Growth of $219.1 million and the State Fire Commission of $1.9 million.

The maturity profile is an important factor which impacts the interest rate risk of the debt portfolio. When debt matures it is either repaid or refinanced at prevailing market interest rates. By structuring the maturity profile of the debt portfolio over a number of years, the risk to the portfolio of interest rate movements in the short to medium‑term is mitigated.

 

Table 7.4 provides a breakdown of Finance‑General borrowings from the Tasmanian Public Finance Corporation as at 31 March 2022 by year of maturity. The Table shows the Tasmanian Public Finance Corporation debt portfolio is comprised of 30 fixed rate loans with maturities out to 2041-42. The weighted average interest rate of the Tasmanian Public Finance Corporation debt portfolio is 1.78 per cent and the weighted average term to maturity is 8.62 years.

Table 7.4:         Tasmanian Public Finance Corporation Borrowings as at 31 March 2022, by Year of Maturity

Maturity	Face Value	Number of Loans	Weighted Average  Interest Rate by Maturity
	$m		%
2023-24	191	5	0.98
2025-26	345	8	0.87
2027-28	200	4	1.32
2029-30	279	9	1.59
2031-32	400	1	2.29
2032-33	400	1	2.53
2035-36	125	1	1.88
2041-42	150	1	2.41
Total	2 090	30	1.781

Note:

1.    The total represents the weighted average interest rate of the loan portfolio.

 

Debt Servicing Costs

Borrowing Costs are influenced by prevailing interest rates and the level of borrowings. A standard measure of the debt servicing burden is the Net Interest Cost Ratio which calculates the percentage of revenue which is allocated to service debt. Table 7.5 shows the General Government Net Interest Cost Ratio for the 2021‑22 Budget and Estimated Outcome and over the 2022‑23 Budget and Forward Estimates.

Table 7.5:         General Government Net Interest Cost Ratio

	2021-22	2021-22	2022-23	2023-24	2024-25	2025-26
	Budget	Estimated Outcome	Budget	Forward Estimate	Forward Estimate	Forward Estimate
	$m	$m	$m	$m	$m	$m
Borrowing costs	48.2	47.1	90.0	138.8	175.1	206.0
Interest Income	7.9	8.1	29.2	36.3	35.5	36.9
Net Interest	40.3	39.0	60.8	102.5	139.6	169.1
Revenue from Transactions less Interest income	7 249.6	7 867.1	7 819.0	8 189.2	8 363.4	8 444.8
Net Interest Cost Ratio	0.6%	0.5%	0.8%	1.3%	1.7%	2.0%

Table 7.5 shows the ratio increasing from an estimated 0.5 per cent in 2021‑22, to an estimated 2.0 per cent for 2025-26. The increase in the ratio reflects the increase in Net Debt and forecast increases in interest rates over the period. However, a ratio of 2.0 per cent is considered low and indicates that estimated debt levels over the Forward Estimates are manageable.

Borrowing cost estimates for the 2022‑23 Budget and Forward Estimates are based on forecast rates for 10 year bonds provided by the Tasmanian Public Finance Corporation. The applicable rates used for new borrowings across the Budget and Forward Estimates are:

·       3.40 per cent for 2021-22;

·       3.72 per cent for 2022-23;

·       3.85 per cent for 2023-24;

·       3.94 per cent for 2024-25; and

·       4.03 per cent for 2025-26.

Chart 7.4 presents a sensitivity analysis of the impact of an increase in interest rates above the current assumptions used in the Budget and Forward Estimates.

 

The impact of higher interest rates is mitigated because:

·       the current debt portfolio is comprised of a number of fixed interest rate loans and the impact of an increase in interest rates is not realised until the existing debt matures and is refinanced, or additional borrowings are undertaken; and

·       additional Interest income will be earned as interest rates increase, which will partly offset the impact of the additional Borrowing costs. The interest income estimates are based on the average forecast earnings on Cash held with Westpac and Investments held with the Tasmanian Public Finance Corporation. The average rate of earnings across the Budget and Forward Estimates are:

-      0.41 per cent in 2021-22;

-      1.85 per cent in 2022-23;

-      2.37 per cent in 2023-24;

-      2.47 per cent in 2024-25; and

-      2.45 per cent in 2025-26.

The impact of a 50 basis point increase in base interest rate assumptions would result in Net interest costs increasing by $20.2 million in 2025‑26. Should the base interest rate assumptions increase by 100 basis points, net interest costs are estimated to increase by $3.7 million in 2022‑23, and by $41 million in 2025‑26.

Chart 7.4:         Sensitivity Analysis of the General Government Sector Net Interest Costs

 

 

Net Worth

Net Worth provides a measure of the Government’s overall financial position. It includes the impact of Equity Investments, Non-financial assets such as Land and buildings and Infrastructure, as well as Superannuation and Other liabilities.

Chart 7.5 shows Net Worth for the period 30 June 2017 to 30 June 2026. The chart shows that Net Worth is forecast to rise by $2 070.9 million over the period from $9 677.5 million as at 30 June 2017 to $11 748.4 million as at 30 June 2026. The increase reflects:

·       an increase in financial assets of $627.6 million, which is primarily due to the increase in Equity investments in PNFC and PFC Sectors of $347.4 million reflecting growth in the net assets of Government businesses and Other equity investments of $248.1 million, primarily the result of the $200 million investment in the Tasmanian Water and Sewerage Corporation Pty Ltd;

·       an increase in Non-financial assets of $8 616.4 million, which is primarily due to the increased value of Land and buildings of $3 070.9 million and Infrastructure of $4 043.2 million; and

·       an increase in Liabilities of $7 173.1 million, which is primarily due to: the increase in Borrowings of $5 809.8 million reflecting the additional borrowings to support the General Government Sector cash deficit; an increase in Superannuation of $364.9 million as a result of changes in the discount rates used to value the liability; and an increase in Other liabilities of $378 million, which is primarily due to an increase in the Government grants received in advance liability of $228 million.

Chart 7.5:         Net Worth, 30 June 2017 to 30 June 2026

 

 

 

Equity Investment in PNFC and PFC Sectors

Equity Investments in this section consists of the Government’s investment in the Net Assets of the Public Non‑Financial Corporations and Public Financial Corporations sectors.

The Government’s equity investment is estimated to be $5 445.2 million as at 30 June 2023, an increase of $516.6 million from the 2021-22 Budget of $4 928.6 million as at 30 June 2022. This reflects an increase in the Net Assets of the PNFC Sector of $633.9 million which is primarily due to increases in net assets held by electricity entities, TT‑Line Company Pty Ltd, Macquarie Point Development Corporation and Stadiums Tasmania. The increase is partly offset by a decrease in net assets of the PFC Sector of $117.2 million. This decrease is primarily due to the payment of the Mersey Community Hospital Dividend of $92.8 million by the PFC Sector in 2022-23.

Chart 7.6 illustrates the components of the Government’s equity investment holdings.

Chart 7.6:         Equity Investment in PNFC and PFC Sectors as at 30 June 2023

 

Other Equity Investments

Other equity investments primarily consist of equity invested in the Tasmanian Water and Sewerage Corporation Pty Ltd. Other equity investments is estimated to be $201.4 million as at 30 June 2023, an increase of $60.5 million from the 2021‑22 Budget of $140.9 million. Table 7.6 provides a breakdown of Other equity investments. 

 

Table 7.6:         Other Equity Investments as at 30 June

	2022	2022	2023	2024	2025	2026
		Estimated		Forward	Forward	Forward
	Budget	Outcome	Budget	Estimate	Estimate	Estimate
	$m	$m	$m	$m	$m	$m
Equity investment in TasWater	100.0	100.0	150.0	200.0	200.0	200.0
Other1	40.9	40.9	51.4	56.9	62.4	67.9
	140.9	140.9	201.4	256.9	262.4	267.9

Note:

1.    Other is primarily comprised of the balance of HomeShare investments held by the Department of Communities Tasmania.

Non‑Financial Assets

Non‑financial assets include the value of Crown Land and other land holdings, including national parks and conservation areas, schools, hospitals and other buildings held by the Government. Non‑financial assets also includes Plant and equipment, Intangibles, Assets held for sale, Lease - right‑of‑use assets and Other non‑financial assets.

Land and buildings is estimated to be $8 205.7 million as at 30 June 2023, an increase of $433.8 million from the 2021‑22 Budget of $7 771.9 million as at 30 June 2022. Land and buildings is estimated to increase by $891.1 million to $9 096.8 million as at 30 June 2026. This primarily reflects increased capital expenditure on schools, housing, hospital and prison assets undertaken by the Department of Education, Department of Communities Tasmania, Department of Health and Department of Justice.

Infrastructure is estimated to be $6 938.9 million as at 30 June 2023, an increase of $484 million from the 2021‑22 Budget of $6 454.9 million as at 30 June 2022. Infrastructure is estimated to increase by $1 791.1 million to $8 730 million as at 30 June 2026, which primarily reflects capital expenditure on road and bridge infrastructure assets by the Department of State Growth.

Lease - right‑of‑use assets is estimated to be $335.7 million as at 30 June 2023. This consists of $307.2 million for Land and buildings, which primarily reflects the leasing of Government office accommodation held by Finance‑General and $28.5 million for Plant and equipment, which primarily reflects the leasing of equipment by the Department of Natural Resources and Environment Tasmania.

The increase in Land and buildings and Infrastructure over the 2022‑23 Budget and Forward Estimates reflects the implementation of the Government’s infrastructure investment program. Further information on infrastructure investment is provided in chapter 6 of this Budget Paper.

 

Superannuation

General Government Sector

The Government’s superannuation liability is an estimate of the obligations of the State with respect to liabilities arising from the current and former members of unfunded or partially funded Public Sector defined benefit superannuation schemes, which were closed to new members with effect from May 1999.

The superannuation liability is an estimate of the net present value of the Government’s share of meeting current and future benefit payments for scheme members. The superannuation liability differs from many other financial liabilities, such as Borrowings, which can be called on for repayment in full at any point in time.

The superannuation liability has arisen over many decades because benefits are funded on an emerging basis when scheme members become entitled to a pension or lump sum benefit. That is, the Government’s portion of the final benefit is paid when it falls due, with the remaining part of the benefit being funded from the scheme’s assets. The major schemes currently operating in the General Government Sector that have an unfunded liability are those established under the Public Sector Superannuation Reform Act 2016, the former Parliamentary Superannuation Act 1973 and the Judges’ Contributory Pensions Act 1968. There is no longer a liability attached to the scheme established under the former Parliamentary Retiring Benefits Act 1985, as all members have now retired.

While these schemes have been closed to new members, because of the long‑term nature of superannuation benefits, the superannuation liability continues to increase as existing members accrue additional years of service as they approach retirement age.

The General Government Superannuation liability is estimated to be $8 397.6 million as at 30 June 2023, which is comprised of the estimated present value of the liability of $10 443.9 million less the estimated fair value of plan assets of $2 046.3 million.

Table 7.7:         General Government Superannuation Liability as at 30 June

 

Chart 7.7 projects the General Government Superannuation liability (net of plan assets) over the total life of the defined benefit schemes to 30 June 2083.

Chart 7.7:         General Government Superannuation Liability Projection 30 June 2023 to 30 June 2083

Chart 7.8 shows the estimated employer contribution payments, made up of both pension and lump sum benefit costs, over the period 2022-23 to 2082-83.

Chart 7.8:         Defined Benefit Superannuation Costs, 2022-23 to 2082‑83

The current projections show the cost will increase by 43.2 per cent over the next 12 years, peaking in 2033‑34. The estimated cost to the Budget is based on the most recent actuarial estimates. The current estimated peak cost of $438.8 million represents a decrease of $5.9 million from the estimated peak cost of $444.7 million included in the 2021-22 Budget.

In 2022‑23, defined benefit superannuation costs are estimated to be 3.8 per cent of Cash receipts from operating activities in the General Government Sector. Defined benefit superannuation costs, as a percentage of General Government cash receipts, is estimated to peak at 4.1 per cent in eight years (2030‑31), followed by a decrease to 3.1 per cent in 15 years (2037‑38) and 2.3 per cent in 20 years (2042‑43).

Table 7.8 shows the estimated nominal cash flows required to meet the emerging cost of superannuation benefits payable to members. This represents the estimated total cost of benefits payable and includes the General Government share, together with the share of benefits that are funded from plan assets.

Table 7.8:         Undiscounted Defined Benefit Obligations Payable to Employees of the General Government Sector

	2022
	Estimate
	$m
Estimated total benefit payments to be made in the period
No later than 1 year	468.2
Later than 1 year and no later than 2 years	440.5
Later than 2 years and no later than 5 years	1 398.9
Later than 5 years and no later than 10 years	2 612.9
Later than 10 years and no later than 15 years	2 733.8
Later than 15 years and no later than 20 years	2 538.0
Later than 20 years and no later than 25 years	2 212.3
Later than 25 years and no later than 30 years	1 821.8
Later than 30 years and no later than 35 years	1 357.7
Later than 35 years and no later than 40 years	880.8
Later than 40 years and no later than 45 years	474.7
Later than 45 years and no later than 50 years	199.0
Undiscounted defined benefit obligation	17 138.5
After 50 years there is expected to be a reducing level of cash for a further 25 years totalling approximately:	69.7

Actuarial Assumptions and Sensitivity Analysis

Independent actuarial assessments are prepared by the State Actuary to provide reporting and disclosure information, relating to the General Government Superannuation liability, in respect of current and former employees who have defined benefits arising from membership of the closed defined benefit superannuation schemes.

The actuarial assumptions are used for the variables that will determine the ultimate cost of providing long‑term superannuation benefits. Actuarial assumptions must be unbiased (i.e. neither imprudent nor excessively conservative) and should reflect the economic relationships between factors such as inflation, rates of salary increase, the return on scheme assets and discount rates.

Table 7.9 shows the key assumptions used by the State Actuary in preparing 2021‑22 Budget, and the 2022‑23 Budget and Forward Estimates.

Table 7.9:         Actuarial Assumptions

		2022 Budget	2023 Budget and Forward Estimates
		%	%
Discount rate		1.5	2.5
Salary increase rate		3.0	3.0
Pension increase rate		2.25	2.25
Asset earnings rate		1.5	2.5

 

It is important to recognise that the actuarial estimate is a snapshot of a scheme’s estimated financial position at a particular point in time, and that the actuarial results do not predict a scheme’s future financial position or its ability to pay benefits in the future. Over time, a scheme’s total cost will depend on a number of factors, including the amount of benefits the scheme pays, the number of people paid benefits (for example mortality and marital status are estimated), scheme expenses and the amount earned on any assets invested to pay the benefits. These variables will change over the life of the liability. The variables are uncertain at the valuation date and are estimated by the State Actuary.

The 2021-22 Budget was based on a discount rate of 1.5 per cent, which was calculated using a point in time, 10 year Government Bond rate rounded to the nearest 0.5 per cent. Bond rates have been increasing slightly and as a result, the discount rate applied to determine the Superannuation Liability for the 2022‑23 Budget has increased to 2.5 per cent, which is again based on the current 10 year Government Bond rate.

There is a strong inverse relationship between the discount rate and the valuation of the liability. Chart 7.9 shows the impact of an increase or decrease of 50 basis points in the average discount rate used to value the General Government Superannuation liability. The base rate column represents the estimated present value of the superannuation liability (gross) as at 30 June in each year valued by the State Actuary using a discount rate of 2.5 per cent.

Chart 7.9:         Sensitivity Analysis of the General Government Superannuation Liability as at 30 June

Movements in the discount rate assumption have a significant impact on the valuation of the superannuation liability at any point of time. However, these movements have no impact on the cash flows required to meet the emerging cost of benefits paid to members. The asset earnings rate is an assumption that impacts on the cash cost of employer contributions. A change in the asset earnings rate will directly impact on the value of Plan Assets.

Chart 7.10 shows the value of Plan Assets based on a number of different asset earning rate assumptions, ranging from the Budget assumption of 2.5 per cent up to 6 per cent.

Chart 7.10:       General Government Superannuation Plan Assets based on different Asset Earning Rates

An increase in Plan Assets will have an impact on the cash‑based cost of Employer contributions as more assets are available to be used to fund the emerging cost of the liability. The difference in Employer contributions under each scenario for asset earning rates is shown in Chart 7.11. The chart shows an increase in the asset earning rate can reduce the cash cost of employer contributions over the life of the scheme.

Chart 7.11:       General Government Employer Contributions based on different Asset Earning Rates

Total State Sector Superannuation

The Total State Superannuation Liability as at 30 June 2023 is estimated to be $9 003.3 million, which is comprised of the estimated present value of the liability of $11 191.0 million less the estimated fair value of plan assets of $2 187.8 million. Total State Superannuation includes government businesses.

Table 7.10:       Total State Superannuation Liability as at 30 June

 

 

Chart 7.12 shows the impact of an increase or decrease of 50 basis points in the discount rate used to value the Total State Superannuation Liability. The base rate column represents the estimated present value of the superannuation liability (gross) as at 30 June in each year valued by the State Actuary using a discount rate of 2.5 per cent.

Chart 7.12:       Sensitivity Analysis of the Total State Superannuation Liability as at 30 June

Table 7.11 shows the estimated nominal cash flows required to meet the emerging cost of superannuation benefits payable to members. This represents the estimated total cost of benefits payable and includes the Total State share, together with the share of benefits that are funded from plan assets.

 

Table 7.11:       Undiscounted Defined Benefit Obligations Payable to Employees of the Total State Sector

	2022
	Estimate
	$m
Estimated total benefit payments to be made in the period
No later than 1 year	500.7
Later than 1 year and no later than 2 years	471.5
Later than 2 years and no later than 5 years	1 497.7
Later than 5 years and no later than 10 years	2 798.1
Later than 10 years and no later than 15 years	2 928.9
Later than 15 years and no later than 20 years	2 719.4
Later than 20 years and no later than 25 years	2 371.1
Later than 25 years and no later than 30 years	1 953.2
Later than 30 years and no later than 35 years	1 456.1
Later than 35 years and no later than 40 years	944.6
Later than 40 years and no later than 45 years	509.1
Later than 45 years and no later than 50 years	213.5
Undiscounted defined benefit obligation	18 363.8
After 50 years there is expected to be a reducing level of cash for a further 25 years totalling approximately:	74.8

 

 

Tasmanian Risk Management Fund

Purpose of the Fund

The Tasmanian Risk Management Fund claims liability is recognised within Other liabilities on the General Government Sector Balance Sheet. The Fund was established on 1 January 1999 to provide a whole‑of‑government approach to managing the funding of insurable liabilities of inner‑Budget agencies.

Agencies are covered for the majority of insurable risks to which they are exposed or for which they choose to accept responsibility and the Fund agrees to cover, including:

·       personal injury (including workers’ compensation and personal accident);

·       property (including buildings and contents, business interruption, motor vehicles, machinery, marine hull, transit and fraud);

·       liability (including public and products, professional, and directors and officers liability);

·       medical liability; and

·       travel.

All classes are self‑insured by the Fund apart from marine hull and travel. These classes remain insured through the purchase of a commercial insurance policy, as this is more cost-effective than self‑insurance for these two categories of risk. From 1 July 2015, an Industrial Special Risks insurance policy has also been purchased to cover catastrophe risk for property assets for claims above $6.25 million.

Performance of the Fund

The Fund operates on a cost recovery basis with all inner‑Budget agencies making contributions each year in order to build up reserves to meet current and emerging costs. Contributions are based on advice from an independent actuary and are adjusted over time according to the claims experience of agencies.

The overall increase in contributions for 2022-23 is principally due to a significant increase in workers’ compensation contributions and to a lesser degree an increase in medical liability and general property contributions. The workers’ compensation contribution increase is primarily as a result of materially higher claim costs in recent years, an increase in the number of claims, higher staffing costs and inflationary factors. The moderate increase in medical liability contributions is mainly due to substantial cost developments on a number of large claims and risk exposure information that reflects medical activity returning to higher levels following the reduction observed during 2019-20. The contributions for general property also increased moderately reflecting the inclusion of an allowance to rebuild the large claim provision and increases in asset values as a result of the 2021 asset review. While contributions also increased for all other categories of risk, the increases were not significant in terms of quantum. Overall, total agency contributions increased from $107.9 million in 2021‑22 to an estimated $132.2 million in 2022‑23.

The forecast cash and cash equivalent balance in the 2022 Estimated Outcome reflects an expected transfer to the Fund of $105 million (as reflected in the 2021-22 Supplementary Appropriation Bill), to fund historical liabilities in the workers’ compensation risk category.

Table 7.12:       Financial Position of the Tasmanian Risk Management Fund
                      as at 30 June

	2022	2022	2023	2024	2025	2026
		Estimated		Forward	Forward	Forward
	Budget	Outcome	Budget	Estimate	Estimate	Estimate
	$m	$m	$m	$m	$m	$m
Assets
Cash and cash equivalents	294.9	400.2	429.0	452.8	476.2	500.9
Receivables	2.4	1.2	1.2	1.2	1.2	1.2
	297.3	401.5	430.2	454.0	477.4	502.2
Liabilities1
Personal injury	167.2	217.4	240.3	260.9	278.1	293.6
Property	5.0	10.9	8.7	8.6	9.0	9.3
Motor vehicle	0.3	0.7	0.7	0.7	0.8	0.8
Liability	4.8	5.9	6.0	6.2	6.3	6.5
Medical	122.0	138.7	142.9	148.2	154.8	160.9
Payables and Employee entitlements	1.6	1.2	1.2	1.2	1.2	1.2
	300.8	374.8	399.8	425.9	450.2	472.4
Net Assets	(3.6)	26.7	30.4	28.1	27.2	29.8

Note:

1.    Liabilities are calculated by the Fund’s Actuary as at 31 December 2021.