1     The 2023‑24 Budget

Key Issues

·       The Government’s key priorities in the 2023‑24 Budget are focussed on strengthening public services and addressing demand issues in essential service delivery; and strategic investment in infrastructure to promote continued economic growth supporting industry, business and jobs.

·       A range of important new initiatives and reforms are also included in the 2023‑24 Budget, which will support the wellbeing of the Tasmanian community. These include the full implementation of the restructure of the former Department of Communities Tasmania, which created the Department for Education, Children and Young People and Homes Tasmania, and new funding to enable the Government’s immediate response to the Commission of Inquiry into the Tasmanian Government’s Responses to Child Sexual Abuse in Institutional Settings.

·       Funding of $12.1 billion is allocated to investment in stronger health services over the 2023‑24 Budget and Forward Estimates, representing an increase of 8.1 per cent over the 2022‑23 Budget and Forward Estimates; while investment in education expenditure will increase by 4.6 per cent to $8.9 billion over the same period.

·       Tasmanians impacted by the increasing cost of living are supported in this Budget, with the total value of concessions for water, electricity and rates increasing by approximately 13 per cent to be $345.6 million over the 2023‑24 Budget and Forward Estimates.

·       The 2023‑24 Budget continues to support substantial infrastructure investment aimed at enhancing Tasmania’s productive capacity, improving service delivery and supporting jobs in regional areas; with total funding of almost $5 billion over four years.

·       The Government’s response to the COVID‑19 pandemic over recent years has been significant. It included a substantial range of measures that had both expenditure and revenue impacts on the Budget. While these measures successfully reduced the impacts on Tasmania’s community and economy, there has been an ongoing impact on the Budget’s fiscal indicators. In response, the Government has taken action in the 2023‑24 Budget to return the Budget to a Net Operating Balance surplus in 2025‑26 and 2026‑27; whilst simultaneously ensuring that health, education, secure housing and child safety services are prioritised and remain key areas of investment.

·       Tasmania has performed particularly well over the past two years, reflecting the strong position of the economy prior to the onset of the COVID19 pandemic, the overall successful management of the virus in Tasmania and the effective transition to living with COVID19. Growth going forward is forecast to moderate reflecting the expected slowdown in the global economy. However, the outlook for Tasmania remains positive.

·       A new Fiscal Strategy is introduced in the 2023‑24 Budget, reflecting an important step in the ongoing evolution of the Government’s response to the changing fiscal environment. The new Fiscal Strategy provides a framework to guide Budget sustainability over the next decade and the provision of information to increase transparency and accountability in developing, implementing and reporting on fiscal objectives at a General Government Sector and Total State Sector level.

2023‑24 Budget Context

The national and global fiscal environment has changed dramatically since the onset of the COVID‑19 pandemic. While some impacts from the pandemic are now clear, other consequences continue to evolve and remain uncertain. In addressing and managing the impacts of these consequences, the Government, like governments across Australia and around the world, has been required to address the nature and extent of these changes by adapting its responses to ensure the provision of the greatest support possible to the Tasmanian community.

The 2023‑24 Budget has been developed in an environment of ongoing fiscal challenges, with continuing global uncertainty, high inflation and rising interest rates. The Government is not immune from these pressures, with the current Budget outlook including a softening in some revenue lines and increasing costs and demand for Government services. However, the outlook for the Tasmanian economy remains positive.

The 2023‑24 Budget continues to deliver on the Government’s existing expenditure commitments, provides funding for a range of new initiatives to further enhance essential service delivery and helps to support the Tasmanian economy and its community in the areas that need it most.

The Government’s response to the COVID‑19 pandemic over recent years has been significant, with the objective of supporting the community and the economy while the risks posed by the pandemic were actively managed. The Government’s response sought to cushion the Tasmanian community from the potential full impact of the pandemic. While this response included expenditure and revenue impacts on the Budget, the Government was committed to using its strong fiscal position to provide the support required. As the community has now effectively transitioned to living with COVID‑19, the Government is once again focussing on prudent financial management, taking action in the 2023‑24 Budget to rebuild the fiscal buffers considered necessary to address unforeseen budgetary challenges and support the needs of the Tasmanian community into the future.

The success of the Government’s response to the COVID‑19 pandemic is demonstrated by the resilience of Tasmania’s economy. The economy has performed well over the past two years, reflecting the strong position of the economy prior to the onset of the pandemic, the overall successful management of the virus in Tasmania and the effective transition to living with COVID19. Economic growth is forecast to moderate over the 2023‑24 Budget and Forward Estimates, reflecting the expected slowdown in the global economy.

Tasmanias labour market remains strong, with the unemployment rate at an historically low level of 3.8 per cent in March 2023. Employment growth is expected to grow by 2½ per cent in 202223, well above the longterm average. Following this strong result, employment growth is forecast to slow in 202324, to ½ of 1 per cent, consistent with the expected slowing of the economy, before returning closer to the longterm average in 202425, with forecast growth of 1 per cent.

Tasmania’s expanded infrastructure investment program since March 2020 has had a positive impact on jobs and economic activity. Total infrastructure investment funding in the 202324 Budget remains high with almost $5 billion of funding allocated over the 2023‑24 Budget and the Forward Estimates. This level of investment will continue to deliver important infrastructure projects, providing industry with certainty regarding the Government’s infrastructure pipeline and supporting jobs.


 

From 2023‑24 to 2026‑27, revenue is forecast to grow by a modest $364.1 million (or by a compound annual growth rate of 1.4 per cent). While the revenue outlook for 2023‑24 and across the Forward Estimates is positive, there has been a softening in some revenue lines since the 2022‑23 Budget, and in the case of GST, since the Revised Estimates Report 2022‑23. When compared to the 2022‑23 Revised Estimates Report, GST has reduced by $898.7 million across the period 2022‑23 to 2025‑26.

A new Fiscal Strategy is introduced in the 2023‑24 Budget, recognising the changing fiscal environment and the ongoing need for the Government to continue to evolve its approach to effective fiscal management. The new Fiscal Strategy highlights 11 Strategic Actions and recognises that there is no complete single indicator of fiscal health, and it is only through a combination of indicators that a broad picture of fiscal sustainability can be appreciated.


 

2023‑24 Budget Priorities

The 2023‑24 Budget focuses on delivering Government commitments by:

·       providing additional funding to strengthen critical services and address demand issues in essential service delivery;

·       implementing initiatives supporting the Government’s priorities for Tasmania; and

·       continuing strategic investment in infrastructure to support continued economic development and jobs and increasing the productive capacity of the Tasmanian economy.

2023‑24 Budget ‑ Key Initiatives

Key initiatives reflected in the 2023‑24 Budget and Forward Estimates include:

·       the continued implementation of the Government’s 2021 election commitments;

·       $230 million of the State’s total commitment of $375 million towards the Macquarie Point Urban Renewal project;

·       $60 million for the Tasmanian AFL High Performance Centre, as well as $34.5 million for the Tasmanian AFL Team Package;

·       $50 million in additional funding towards the Digital Health Transformation project, which is also supported by a further agency investment of $10 million for the project;

·       $56 million to address the post COVID‑19 demand on the Ambulance Tasmania workforce;

·       $50 million in additional funding for the Third Family and Sexual Violence Action Plan;

·       $50 million to deliver Additional Maximum Security Accommodation at Risdon Prison;

·       $48 million for Enabling High Quality Mental Health Reforms;

·       $45.4 million as the State’s commitment towards the Energy Bill Relief Fund;

·       $41 million for VirtualCare and COVID@homeplus services, building upon the success of the COVID@home initiative;

·       $38 million to provide Sustainable access to public endoscopy services;

·       $30.4 million to provide Disaster Assistance for Flood‑impacted Communities;

·       $30 million in 2023‑24 as an initial allocation of funding to enable the Government to take immediate action in response to the Commission of Inquiry into the Tasmanian Government’s Responses to Child Sexual Abuse in Institutional Settings final report (due in August 2023), while the broader recommendations and required long‑term actions are further considered;

·       $28.2 million towards the development of a passenger transport Common Ticketing System;

·       $27.5 million to deliver the Northern Suburbs (Launceston) Community Recreation Hub Project;

·       $24 million for the Tasmanian Eating Disorder Service;

·       $20.8 million to target traffic congestion;

·       $19.5 million for the Safe at Home Family Violence Services System;

·       $15 million to build the Launceston General Hospital Helipad;

·       $10 million to support our Emergency Services Volunteers through improved facilities; and

·       $10 million to support cost pressures within the Tasmanian Prison Service.

Investment in Homes Tasmania

The 2023‑24 Budget and Forward Estimates includes $372.8 million in grant funding for Homes Tasmania to continue to deliver housing and homelessness services that were previously provided by the former Department of Communities Tasmania, deliver 2023‑24 Budget initiatives and fund borrowings undertaken to support its capital program expenditure. This funding is appropriated to the Department of Premier and Cabinet as a grant to be paid to Homes Tasmania. Homes Tasmania will deliver housing and homelessness services to the Tasmanian community utilising the grant and its own‑source revenues.

Further information on Homes Tasmania can be found in chapter 28 of Government Services Budget Paper No 2.


 

Investment in Tasmania’s Future Infrastructure Needs

The Government continues its ambitious infrastructure investment program, with funding of almost $5 billion over the 2023‑24 Budget and Forward Estimates. This investment demonstrates the Government’s ongoing commitment to investing in the infrastructure needed to support service delivery and increase the productive capacity of the Tasmanian economy.

Infrastructure investment in the General Government Sector is almost $4.3 billion over the 2023‑24 Budget and Forward Estimates, which will deliver community infrastructure project funding for:

·       Roads and Bridges ($2.2 billion);

·       Tourism, Recreation and Culture ($557.3 million);

·       Hospitals and Health ($502.9 million);

·       Law and Order ($375 million);

·       ICT Support to Service Delivery ($311.7 million);

·       Schools, Education and Skills ($305.1 million); and

·       Other Infrastructure ($26.5 million).

In addition to the significant investment in Government agencies, the 2023‑24 Budget includes $656.5 million in equity contributions to government businesses and other entities including:

·       $291.1 million to Tasmanian Irrigation Pty Ltd for Tranche 3 of the Irrigation Projects, Energy on Farms initiatives and the Lake Leake Dam Life Extension Project;

·       $197.4 million to Tasmanian Railway Pty Ltd for Tranche 3 and 4 of the Tasmanian Freight Rail Revitalisation Program, reconnection of the Bell Bay rail line to the Port of Bell Bay, construction of a new minerals hub on the Melba rail line, overhaul of TasRail’s legacy locomotives and road rail vehicles;

·       $65 million to Stadiums Tasmania for the redevelopment of UTAS Stadium in Launceston;

·       $50 million to Tasmanian Water and Sewerage Pty Ltd to support TasWater’s accelerated infrastructure program;

·       $42.2 million to Hydro Tasmania to support the redevelopment of the Tarraleah Power Station;

·       $7.5 million to Tasracing Pty Ltd for racing infrastructure in the North West of the State and for other capital works; and

·       $3.3 million to Metro Tasmania Pty Ltd to undertake an electric bus trial.


 

Rebuilding Fiscal Buffers

The Government has demonstrated its commitment to strong fiscal management since it was elected in 2014. Clear and meaningful action has been taken, when required, to restore fiscal buffers and ensure that the State can deliver essential services, programs and projects into the future on a sustainable basis.

As the State emerges from the COVID‑19 pandemic and the impacts on the Budget position are becoming clearer, the Government is taking action to rebuild fiscal buffers and ensure the long‑term sustainability of the Budget. The 2023‑24 Budget includes a $300 million Budget Efficiency Dividend, commencing in 2024‑25. The 2023‑24 Budget forecasts a return to a Net Operating Surplus in 2025-26 and 2026-27 and shows an improving Fiscal Balance outcome. In addition, the new Fiscal Strategy highlights the Government’s commitment to restoring fiscal buffers over the medium term, with a specific Strategic Action identified in relation to the Fiscal Balance.

The Budget Efficiency Dividend represents approximately 0.6 per cent of total annual expenditure in 2024‑25, and an incremental 0.6 per cent in 2025-26 and 2026-27.

The Budget Efficiency Dividend has initially been presented within Finance‑General. During 2023‑24, the Government will work with individual agencies to identify the most appropriate approach to achieving this Budget adjustment, with a strong focus on improving efficiency and minimising the impact on service delivery.

It will be important that Budget risks are carefully managed, and the Budget Efficiency Dividend requirements are met, to ensure that the Government is in a position to continue to meet emerging service demands, respond to any negative impacts on revenue and maintain appropriate investment for the future of Tasmania.

 

2023‑24 Budget Estimates Summary

The following sections provide summary information on the key 2023‑24 Budget estimates. Further information on these estimates is provided throughout this Budget Paper. Information on an entity basis is provided within Government Services Budget Paper No 2.      

Table 1.1:         Key Budget and Forward Estimate Aggregates, 2022‑23 to 2026‑27

 

2022-23 

2022-23 

2023-24 

2024-25 

2025-26 

2026-27 

 

 

Estimated 

 

Forward 

Forward 

Forward 

 

Budget 

Outcome 

Budget 

Estimate 

Estimate 

Estimate 

 

$m 

$m 

$m 

$m 

$m 

$m 

 

 

 

 

 

 

 

General Government Sector

 

 

 

 

 

 

Revenue

7 848.2 

8 540.0 

8 422.2 

8 599.4 

8 654.7 

8 786.3 

Expenses

8 322.8 

8 757.0 

8 719.7 

8 747.4 

8 642.1 

8 725.0 

Net Operating Surplus/(Deficit)

(474.6)

(217.1)

(297.5)

(148.1)

12.7 

61.2 

 

 

 

 

 

 

 

Fiscal Surplus/(Deficit)

(1 135.9)

(598.8)

(988.8)

(770.3)

(412.6)

(189.6)

 

 

 

 

 

 

 

Net Debt at 30 June1

2 994.0 

2 282.9 

3 497.2 

4 592.8 

5 135.7 

5 596.0 

 

 

 

 

 

 

 

GFS Net Debt at 30 June2

2 633.8 

1 500.9 

2 732.0 

3 864.7 

4 444.7 

4 942.4 

 

 

 

 

 

 

 

Infrastructure Investment

1 324.2 

968.5 

1 234.8 

1 204.5 

993.4 

839.2 

 

 

 

 

 

 

 

Notes:

1.    Net Debt represents Borrowings plus Lease liabilities, less the sum of Cash and deposits and Investments. This measure incorporates the impact of recognising Lease liabilities on the Balance Sheet.

2.    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 Operating Balance

The Net Operating Balance is estimated to be a deficit of $297.5 million in 2023‑24, returning to a surplus of $12.7 million in 2025‑26 and then increasing to a surplus of $61.2 million in 2026‑27.

Chart 1.1 highlights the change in the Net Operating Balance that has occurred since 2017‑18 and the current projections for the 2023‑24 Budget and Forward Estimates.

Chart 1.1:         Net Operating Balance, 2017‑18 to 2026‑27

Net Operating Balance, 2017-18 to 2026-27
The chart shows that the Net Operating Balance was in surplus in 2017-18 and 2018-19 before presenting deficits from 2019-20 to 2021-22. It will be in deficit from 2021-22 to 2024-25 before returning to a small surplus in 2025-26 and 
2026-27.

The receipt of Australian Government funding for capital programs, particularly one‑off major projects, has the effect of improving the Net Operating Balance outcome. Given the nature of the Net Operating Balance measure, it reflects the receipt of revenue from the Australian Government for infrastructure purposes but does not factor in the expenditure of these funds on infrastructure projects.

Notwithstanding that Australian Government funding for infrastructure generally continues, the Underlying Net Operating Balance has, therefore, been used for a number of years as a measure that removes the impact of one‑off Australian Government funding for specific capital projects. It should be noted that the Underlying Net Operating Balance is not a standard fiscal or accounting measure and is not reported by other state governments.


 

Table 1.2 below provides information on the Underlying Net Operating Balance.

Table 1.2:         Underlying Net Operating Balance, 2022‑23 to 2026‑271

 

2022‑23 

2023‑24 

2024‑25 

2025‑26 

2026‑27 

 

Estimated 

 

Forward 

Forward 

Forward 

 

Outcome 

Budget 

Estimate 

Estimate 

Estimate 

 

$m 

$m 

$m 

$m 

$m 

 

 

 

 

 

 

Net Operating Balance

(217.1)

(297.5)

(148.1)

12.7

61.2

)

 

 

 

 

 

Less One‑off Australian Government funding

 

 

 

 

 

Battery of the Nation ‑ Tarraleah

(9.8)

(19.2)

(23.0)

.... 

.... 

Bell Bay Line ‑ Reconnection to the Bell Bay Wharf

.... 

.... 

(6.4)

(8.0)

(9.6)

COVID‑19 Infrastructure Stimulus Funding

(3.7)

(0.4)

.... 

.... 

(1.1)

COVID‑19 World and National Heritage

(0.5)

.... 

.... 

.... 

.... 

Cradle Mountain Experience

.... 

(5.7)

(5.3)

(19.0)

.... 

Melba Line Bulk Minerals Rail Hub

.... 

(3.2)

(6.4)

(4.8)

.... 

National Water Infrastructure Development Fund

(23.0)

(65.0)

(70.0)

(35.0)

(19.3)

New Bridgewater Bridge

(170.0)

(214.0)

(145.0)

(40.6)

(27.0)

Redevelopment of the Royal Hobart Hospital

(2.2)

(2.5)

.... 

.... 

.... 

Roads and Rail Funding (Nation Building)

(107.3)

(75.4)

(77.1)

(98.5)

(110.3)

Roads of Strategic Importance

(38.5)

(63.1)

(92.2)

(86.5)

(75.4)

Tasman Bridge Upgrade

.... 

(5.2)

(22.8)

(24.4)

(12.3)

Urban Congestion Fund

(1.1)

(5.3)

(5.2)

(2.3)

(13.7)

 

(356.1)

(459.2)

(453.3)

(319.0)

(268.7)

 

 

 

 

 

 

Underlying Net Operating Balance

(573.2)

(756.7)

(601.4)

(306.3)

(207.4)

 

 

 

 

 

 

Note:

1.    Underlying Net Operating Balance is not a standard fiscal measure applied by other state governments, and its utility is subject to interpretation.


 

Fiscal Balance

A Fiscal Balance deficit of $988.8 million is estimated in 2023‑24 with the outcome improving over the Forward Estimates to an estimated deficit of $189.6 million in 2026‑27. The 2022‑23 Estimated Outcome of a $598.8 million deficit represents a $537.1 million improvement on the $1 135.9 million deficit reflected in the 2022‑23 Budget.

Chart 1.2 illustrates the Fiscal Balance since 2017‑18.

Chart 1.2:         Fiscal Balance, 2017‑18 to 2026‑271

Fiscal Balance, 2017-18 to 2026-27
The chart shows the Fiscal Balance has been in deficit since 2017-18. It is estimated to be a deficit of $988.8 million in 2023-24 and is in a gradually decreasing deficit over the Forward Estimates period from 2024-25 to 2026-27.

Note:

1.    Due to the scale of the chart, the Fiscal Balance in 2017‑18 appears as nil. The actual figure for this period is ($4 000).


 

GFS Net Debt

GFS Net Debt represents Borrowings less the sum of Cash and deposits and Investments. A reference to ‘negative’ GFS Net Debt means that Cash and deposits and Investments exceeds Borrowings. This can also be referred to as Net Cash and Investments.

It is estimated that General Government GFS Net Debt will be $2 732 million as at 30 June 2024. General Government GFS Net Debt is estimated to be $4 942.4 million as at 30 June 2027.

The Government’s response to the COVID‑19 pandemic in recent years, which included significant expenditure measures, revenue forgone and high infrastructure investment, has resulted in an increasing profile of GFS Net Debt.

The new Fiscal Strategy establishes a Strategic Action with a focus on ensuring debt levels remain manageable.

Chart 1.3 illustrates GFS Net Debt since 2018.

Chart 1.3:         GFS Net Debt, 2018 to 20271

GFS Net Debt, 2018 to 2027
GFS Net Debt is similar to the Net Debt measure but excludes Lease liabilities and enables a consistent and comparable time series. The chart shows that GFS Net Debt was negative from 2018 to 2020. This has moved to a small positive GFS Net Debt outcome in 2021 and 2022. GFS Net Debt is estimated to be $2.7 billion at 30 June 2024, increasing to $4.9 billion by 30 June 2027.

Note:

1.    This chart presents information on a GFS Net Debt basis. GFS Net Debt reflects the methodology that is applied by the Australian Bureau of Statistics under its Government Finance Statistics reporting framework. The presentation of this chart on a GFS Net Debt basis enables a consistent and comparable time series to be presented to facilitate an understanding of changes in Net Debt over an extended period of time. Information on GFS Net Debt and the AASB 16 Leases based Net Debt calculation (applicable from 1 July 2019) is provided throughout this Budget Paper.


 

Sources of Revenue

In 2023‑24, General Government Sector total revenue is estimated to be $8 422.2 million.

Chart 1.4 provides information on the major sources of General Government Sector Revenue in 2023‑24 as presented in the General Government Sector Income Statement.

Chapter 5 of this Budget Paper provides a detailed explanation of the major revenue items included in the 2023‑24 Budget and over the Forward Estimates.

Chart 1.4:         Sources of General Government Revenue, 2023‑24

$8 422.2mSources of General Government Revenue, 2023-24
The chart shows the major sources of General Government Sector Revenue in 2023-24, showing that the major revenue item is Grants ($5.6 billion or 67%), followed by Taxation ($1.7 billion or 20%) and Sales of goods and services ($418.7 million or 5%).


 

Purposes of Expenditure

In 2023‑24, General Government Sector total expenditure is estimated to be $8 719.7 million.

Chart 1.5 provides information on the major purposes of General Government Sector expenditure in 2023‑24. This Chart reflects the detailed information in appendix 1 of this Budget Paper.

Chapter 4 of this Budget Paper provides information on expenditure variations included in the 2023‑24 Budget and over the Forward Estimates.

Chart 1.5:         General Government Expenses by Purpose, 2023‑241

General Government Expenses by Purpose, 2023-24
The chart shows the major purposes of General Government Expenses, with the largest items being: Health at $2.9 billion or 33%; followed by Education at $2.1 billion or 25%; and Public order and safety at $840.1 million or 10%.

 

Note:

1.    This chart has been prepared in accordance with the Classification of the Functions of Government ‑ Australia framework. This framework is not directly comparable to other classification methodologies used throughout the 2023‑24 Budget Papers.


Agency Infrastructure Investment

Infrastructure investment delivered through the General Government Sector is estimated to be $1 234.8 million in 2023‑24 and totals almost $4.3 billion over the 2023‑24 Budget and Forward Estimates.

Chart 1.6 provides a breakdown of the 2023‑24 agency infrastructure expenditure by ABS classification.

Chapter 6 of this Budget Paper provides information on the Government’s investment in agency infrastructure over the 2023‑24 Budget and Forward Estimates.

Chart 1.6:         2023‑24 Infrastructure Investment by Classification1

2023-24 Infrastructure Investment by Classification
The chart shows that the largest area of infrastructure investment in 2023-24 is Roads and Bridges  at $683.1 million or 55%, followed by Hospitals and Health at $161.3 million or 13% and then Schools, Education and Skills at $128.3 million or 11%.

Note:

1.    This chart has been prepared in accordance with the Classification of the Functions of Government ‑ Australia framework. This framework is not directly comparable to other classification methodologies used throughout the 2023‑24 Budget Papers.


 

Budget Risks and Sensitivities

This section outlines a number of known risks and sensitivities that are not reflected in the financial projections included in the 2023‑24 Budget. These are summarised in three main sections:

·       risks to revenue;

·       risks to expenditure; and

·       risks to the General Government Sector from the ownership of government businesses.

These risks can arise as a result of a range of factors including fluctuations in economic activity, changes in demand for government services or changes in Australian Government funding and policies and may be both positive and negative. In many cases, the value of any potential variation is likely to increase across the Forward Estimates.

Risks to the economic outlook and the economic estimates, forecasts and projections are separately discussed in chapter 2 of this Budget Paper.

Revenue risks

Goods and Services Tax Revenue

As detailed in chapter 5 of this Budget Paper, GST revenue is the single largest source of revenue for Tasmania representing around 41.8 per cent of total General Government Sector revenue in 2023‑24.

Tasmania’s GST revenue is largely determined by three key factors:

·       the amount of GST collected by the Australian Government (the national GST pool);

·       Tasmania’s GST relativity, as determined by the Commonwealth Grants Commission; and

·       Tasmania’s share of the national population.

National GST Pool

GST revenue collections are highly sensitive to changes in national consumer spending patterns. There has been considerable volatility in the GST pool in recent years, reflecting the impact of the COVID‑19 pandemic on the national economy. Recent monetary policy responses required to curb inflationary pressures may lead to greater variability in the demand for goods and services and hence GST revenue.

Changes to the GST pool can have a material impact on Tasmania’s GST revenue, with each 1 per cent change to the GST pool in 2023‑24 resulting in a $35.2 million change in Tasmania’s forecast GST revenue.

GST Relativities

Relativities are sensitive to a range of factors including differences in jurisdictions’ relative social, demographic and fiscal positions. As indicated in previous Budget Papers, Tasmania’s relativity had been at a historically high level in recent years and had been forecast to fall as a result of Tasmania’s relative economic strength in recent years.  


 

With the recent reduction in Tasmania’s relativity recommended by the Commonwealth Grants Commission as part of its 2023 Update, it is now forecast to remain relatively stable over the Budget and Forward Estimates. However, actual relativities will be subject to annual updates and could be influenced by a range of outcomes in both Tasmania and other jurisdictions, including among other things, changes in property markets and commodity prices, particularly iron ore and coal.

Changes to relativities have a material impact on Tasmania’s GST revenue, with each change of 0.01 in Tasmania’s relativity resulting in an $18.3 million change in Tasmania’s forecast GST revenue.

The CGC is also currently undertaking its regular five‑yearly review of the methodology it uses to distribute GST to the states and territories. There is a risk that changes to the CGC’s methodology from 2025 may result in reductions in Tasmania’s relativity. In addition, there are likely to be further fiscal risks for Tasmania in the future, based on definitional matters related to remoteness.

Population

Tasmania’s GST distribution is also affected by the State’s share of the national population. While Tasmania’s share of the national population has been increasing for a number of years, it is forecast to weaken slightly over the Budget and Forward Estimates relative to other jurisdictions. If Tasmania’s population growth compared to other states is lower than forecast, this will have a negative impact on Tasmania’s GST revenue.

Australian Government’s new GST Distribution Arrangements

Under the Australian Government’s GST distribution arrangements legislated in 2018, jurisdictions’ fiscal capacities are now equalised to the fiscal capacity of the second highest jurisdiction (effectively the higher of New South Wales or Victoria), rather than the long‑established principle of equalising to the level of the state with the highest fiscal capacity.

As noted in chapter 5, Tasmania and most other states and territories are currently forecast to be worse off under the new arrangements in each year of the Budget and Forward Estimates. The Australian Government’s current no‑worse‑off guarantee ensures that no state will be worse off in total under the new distribution arrangements during the transition period up to 2026‑27. Based on current modelling, this means that Tasmania could be worse off by around $75 million in 2027‑28 (assuming other factors remain unchanged).

Other Australian Government Funding and Agreements

Australian Government payments for specific purposes, facilitated through the Intergovernmental Agreement on Federal Financial Relations, are Tasmania’s second largest source of revenue after the GST distribution.

As outlined in chapter 5, payments for specific purposes include Specific Purpose Payments and National Partnership Payments. These payments are given effect through the State entering into agreements with the Australian Government.

There is a range of inherent risks for Tasmania in these agreements. Contrary to the principles of the IGAFFR, there is a continuing trend towards prescriptive agreements that include requirements for matched funding, maintenance of effort, transfer of risks to the states and onerous reporting and input controls. These impose additional budgetary risks to Tasmania and reduce the State’s flexibility to fund its own expenditure priorities or respond to specific fiscal circumstances.

In addition, a number of major national agreements which provide funding for core Government services are currently being reviewed, with an increasing trend for the Australian Government to shift costs to the states as it addresses its own budgetary constraints.

In particular, an Independent Review of the National Disability Insurance Scheme is currently underway, with the Australian Government consistently indicating that its focus is on ensuring the Scheme’s fiscal sustainability. In this context, there is some uncertainty as to how the Review’s findings may impact which services will be delivered as part of the NDIS and which may be returned to the responsibility of states, presenting underlying risks to the Budget and Forward Estimates.

The Australian Government has also announced it will undertake a review of the national infrastructure investment program, focussing on projects that are yet to commence. This review presents a risk to funding for a number of Tasmanian infrastructure projects included in the Budget and Forward Estimates.

State Taxation

State taxation revenue estimates are sensitive to changes in a range of economic parameters, such as employment, wages growth and inflation. The uncertainty around monetary policy settings and the impact that tightening will have on households and businesses remains a risk to State Taxation over the Forward Estimates.

Conveyance duty is particularly sensitive to a range of factors including interest rates, population growth and housing supply, which can result in volatility from year‑to‑year. As outlined in chapter 5, conveyance duty forecasts have been prepared against a background of a weakening Tasmanian property market in the context of ongoing tightening monetary policy.

Whilst there is a risk that conveyance duty revenue may continue to fall, given the drivers of property transaction volumes and prices, there is no way of accurately predicting the timing, direction or duration of any changes. While Land Tax and Payroll Tax are less volatile than Conveyance Duty there remains a risk that a downturn in economic conditions will impact these revenue lines. For example, a decrease in land values on the back of a weakened property market may impact future Land Tax receipts while a fall in Tasmanian employment may have a negative impact on Payroll Tax receipts.

In addition, reductions to taxation rates and restrictions to the revenue base for particular taxation lines, in the absence of new sources of revenue, will impact on Tasmania’s capacity to grow own source revenue in the future.

Returns from Government Businesses

Returns from government businesses primarily take the form of dividends and tax equivalents. As such, returns are based on the level of profitability achieved by government businesses which is, in turn, subject to the impact of a range of factors that can significantly impact profitability, both positively and negatively. Risk to the Budget relating to government business returns is increased due to the fact that only a small number of government businesses provide substantive returns to the Government (especially in the form of dividends). A material impact on the profitability of a single entity can, therefore, have a substantial impact on total returns. Dividend estimates are also based on assumptions in relation to the application of the Government’s current dividend policy for each business.

Expenditure risks

Commission of Inquiry Response and Child Safety

The Commission of Inquiry into the Tasmanian Government’s Responses to Child Sexual Abuse in Institutional Settings was established by Order of the Governor of Tasmania on 15 March 2021. The final report and recommendations are expected to be delivered by 31 August 2023. The Commission is a separate entity to the Department of Justice, with costs associated with its operation funded in the 2023‑24 Budget through a separate output of the Department.

The Government has committed to acting on recommendations arising from the Commission of Inquiry. Although the 2023‑24 Budget reflects an allocation of $30 million through the Department of Premier and Cabinet to enable immediate response actions when the final report is received, it is anticipated that the recommendations will require further action and consideration over the Forward Estimates. Future costs associated with recommendations of the Commission may be significant and will be considered once the final report is received.

Macquarie Point Urban Renewal Project

The 2023‑24 Budget and Forward Estimates reflect funding of $230 million of the State’s total commitment of $375 million to deliver a new multi­purpose arts, entertainment and sporting precinct as part of the Macquarie Point Urban Renewal project. Contributions from other parties will be reflected as the timing of payments are confirmed.

As a large infrastructure project, and with the scope of the project yet to be fully defined, the project may be subject to the same ongoing supply constraints and cost escalations that other major projects across both the public and private sectors are experiencing as a result of high levels of activity in the Tasmanian construction sector.

Deliverability of Efficiency Measures

The 2023‑24 Budget includes a $300 million Budget Efficiency Dividend, commencing in 2024-25. Over the course of 2023‑24, the Government will determine appropriate strategies to implement the Budget Efficiency Dividend. In the event that the Government does not achieve the Budget Efficiency Dividend, there will be a corresponding risk to the fiscal indicators presented in the 2023‑24 Budget.

Health Demand and Expenditure

Improving health services in Tasmania is one of the Government’s highest priorities and this is reflected in the significant level of additional funding that the Government commits annually to this essential service. Notwithstanding the provision of significant funding on an ongoing basis, delivery of health services to the Tasmanian community continues to present a significant budget challenge (as it is across all Australian jurisdictions). The Government is continuing to monitor health demand and service requirements.

The Australian Government’s funding contribution to Health Services is funded under the National Health Reform Agreement. However, growth in Australian Government funding to the states and territories is capped at 6.5 per cent per year. There remains a risk to the Budget and Forward Estimates that additional State funding provided to meet the demand for health services in Tasmania may grow at a faster rate than growth in the Australian Government’s capped funding contribution.

General Agency Cost Pressures

While all agencies are expected to deliver services within their allocated Budget and Forward Estimates, there continues to be a range of pressures that agencies need to manage, including staffing levels, general increases in the cost of inputs, increasing employee costs arising from recent wage agreement outcomes and increasing demand for services. These issues will require ongoing management and review.

Claims against the State by Survivors of Institutional Child Sexual Abuse

The Government has provided funding of almost $185 million to meet compensation and administration costs under the National Redress Scheme for Institutional Child Sexual Abuse and other associated civil claims. Whilst the magnitude of claims and civil action remains uncertain, it is possible that additional costs will be incurred.

Variability of Infrastructure Expenditure

The Government is continuing its strong focus on the development of infrastructure in the 2023‑24 Budget. Actual infrastructure expenditure can vary considerably year‑on‑year due to a range of factors, with the resulting variance potentially creating a material impact on the key fiscal measures in the Budget. This risk is currently exacerbated by the lagging impact of the COVID‑19 pandemic and associated supply constraints, low unemployment and the ongoing high level of activity in the construction sector, which are placing pressure on construction prices and project timelines.

Royal Commission into Violence, Abuse, Neglect and Exploitation of People with Disability

The Royal Commission into Violence, Abuse, Neglect and Exploitation of People with Disability is expected to deliver a final report to the Australian Government by 29 September 2023. It is possible there will be costs associated with any Tasmanian Government response to the Royal Commission’s findings and recommendations.

Unfunded Commitments

Commitments made subsequent to the finalisation of the 2023‑24 Budget estimates have not been included in the 2023‑24 Budget Papers. These will be reflected in the 2023‑24 Revised Estimates Report.

Funding Requirements beyond the Forward Estimates

Expenditure estimates presented in this Budget Paper are based on a Budget and Forward Estimates period of four years. As such, expenditure levels beyond this period are not identified. As is established practice, such impacts are taken into account in the ongoing development and management of the Budget.

Interest Rates

Over the 2023‑24 Budget and Forward Estimates, Net Debt is forecast to increase to $5.6 billion. Debt servicing costs are increasing due to rising forecast borrowings and increasing interest rates. If interest rates vary from current forecasts, debt servicing costs will also vary from current forecasts.

Risks from the Ownership of Government Businesses

Government Business Support and Ownership Risk

As the owner of government businesses, the Government is ultimately responsible for the financial position of those businesses (whether that be legal or perceived). Where the Tasmanian Public Finance Corporation undertakes borrowings to facilitate the provision of funding to businesses by way of debt, these borrowings are guaranteed by the Government. The Government has also announced that it will introduce legislation to provide a standing guarantee to Tascorp in relation to any borrowings provided by it to government entities (this includes government businesses and entities such as Homes Tasmania and Stadiums Tasmania).

The Government also provides significant support to government businesses to facilitate the provision of services to the Tasmanian community or investment in infrastructure. The level of this support can vary considerably over time and, in the case of infrastructure support, can be materially impacted by risks associated with changes in cost estimates, project scope and project timing. Infrastructure support provided to government businesses is primarily provided in the form of equity contributions. While equity contributions do not impact the General Government Sector Net Operating Balance or the Fiscal Balance (due to their accounting treatment), they do impact cash balances and thereby also the level of Government debt.

Significant Energy Projects

The Government continues to support development work in relation to Marinus Link, Battery of the Nation and North West Transmission Developments. In total, the current estimated cost of these projects is in excess of $6.4 billion. In the context of Total State Sector Net Assets, this level of investment has a high level of materiality. The Government has signed a non‑binding Letter of Intent with the Australian Government in relation to initial project positions on issues such as concessional finance and equity contribution arrangements, however, further work remains to be undertaken to reach final agreement on these and other important issues. A revised Memorandum of Understanding with the Australian and Victorian Governments is in the process of being negotiated that will include the more detailed arrangements.

Substantial work has been underway throughout 2022‑23 and will continue through to late 2024 to ensure that sufficient information is available to enable Final Investment Decisions to be made by the Government in December 2024. Substantial costs will be incurred by the Government and government businesses to progress these projects over the term of the 2023‑24 Budget and Forward Estimates. In addition, important decisions that have the potential to have a significant impact on the General Government and Total State Sector financial positions will be required to be made during this time. There is a risk that, prior to a FID being made, there will be a requirement to underwrite or pre-commit significant funding to early works as part of the procurement processes in order to secure the necessary expertise and resources in the desired timeframes.


 

The Government is also progressing plans for the development of a green hydrogen industry in Tasmania. Bell Bay has been identified as the preferred site for Tasmania’s initial Green Hydrogen Hub. Developing hydrogen export capacity at Bell Bay is expected to require new infrastructure investment, particularly port, water and transmission network upgrades. This infrastructure may be delivered by government businesses, although capital costs are anticipated to be recovered through commercial arrangements with end users. At the present time, significant uncertainty exists in relation to: the nature of this project; the timing of its implementation; the costs to be borne by the Government and the impact on the Total State Sector financial position.

National Energy Market Change and Volatility

The National Electricity Market is currently experiencing significant change and volatility. This is being driven by a wide range of factors (both national and international) such as: the transition towards more renewable energy sources; the pursuit of greater levels of electrification; increased network interconnection; and the impact of the war in Ukraine on global energy markets and resources.

As a consequence of these issues, wholesale electricity prices reached very high levels in 2022, which raised concerns in the community and government about the negative impact of these prices on the cost of living for the Australian community. These concerns led to a number of national and local support initiatives, including: an intervention by the Australian Government to temporarily cap coal and gas prices; a co-funded Energy Price Relief Fund to provide financial support to vulnerable Tasmanian customer groups and small businesses; and a support scheme to assist eligible large Tasmanian businesses on unregulated contracts.

While wholesale electricity prices have fallen significantly since the record highs in 2022, a high level of uncertainty in the NEM is expected to continue for some time. This uncertainty is likely to have a broad range of implications for the Government including the risk that existing programs providing support incur costs greater than budgeted, the potential for calls for the extension or provision of additional financial support, impacts on the profitability of government businesses and the returns to the Government from these businesses and impacts on infrastructure investment decisions.

Macquarie Point Wastewater Treatment Plant Relocation

The Government has committed $100 million to support the relocation of the Macquarie Point wastewater treatment plant and agreed to share potential shortfall costs with TasWater, in direct proportion to the initial contribution by the two parties. While updated detailed estimates of the total cost of the project are yet to be provided to the Government by TasWater, given the inflationary impacts on infrastructure projects since the initial cost estimates, it is currently expected that final project costs will exceed original estimates. Under the terms of the established agreement, a proportional increased contribution will be required to be made by the Government to meet project cost overruns.

Tasmanian Irrigation

The Government continues to support the delivery of the Tranche 3 irrigation scheme program. The Don Irrigation Scheme is under construction, a business case has been approved for the Northern Midlands Irrigation Scheme and a business case has been submitted to the Australian Government in relation to the Sassafras Wesley Vale Irrigation Scheme Augmentation. Tranche 3 funding arrangements are the subject of ongoing discussions with the Australian Government with material additional Australian and State Government funding required to support its implementation.

2023‑24 Budget Presentational Issues

2022‑23 Estimated Outcome

Given the timing of the 2023‑24 Budget, full year actuals are not available for 2022‑23. The most recent full year information is the 2022‑23 Estimated Outcome which is included in relevant financial tables throughout this Budget Paper. Appendix 2 of this Budget Paper provides actual information to 31 March 2023.

The 2022‑23 Estimated Outcome information presented reflects financial estimates available at the time of the finalisation of the Budget Papers and includes agency assessments of funding requirements, current estimates of State taxation and information available from the Australian Government and government businesses. Material changes to revenue and expenditure estimates can occur between the preparation of these estimates and those reported in future reports on the 2022‑23 actual outcome.

Detailed information on the final outcome for 2022‑23 will be published in:

·       the Preliminary Outcomes Report, required to be published by 15 August 2023 in the event that the preliminary outcomes result differs materially from the Estimated Outcome published in appendix 2 of this Budget Paper; and

·       the Treasurer’s Annual Financial Report, which will be tabled in Parliament by 31 October 2023.

Economic Estimates and Forecasts

This Budget Paper includes Treasury’s estimates for key Tasmanian economic indicators for the 2022‑23 financial year, forecasts for 2023‑24 and 2024‑25 and projections for 2025‑26 and 2026‑27.

The estimates and forecasts included in this chapter use a number of assumptions and judgements that are based on information available at the time of preparation and are inherently uncertain and subject to change, particularly in the current environment.

2023‑24 Australian Government Budget

Due to the brief period of time available between the publication of the 2023‑24 Australian Government Budget and the release of the Tasmanian 2023‑24 State Budget, the impact of the Australian Government Budget has not been reflected in the numbers presented. Information relating to the impact of the 2023‑24 Australian Government Budget will be reflected in the 2023‑24 Revised Estimates Report.

Homes Tasmania

Homes Tasmania was established as a new statutory authority under the Homes Tasmania Act 2022 on 1 December 2022. The Act sets out the purpose, objectives and functions of the Authority, which was created to support the delivery of improved housing services, including access to and supply of affordable housing.

Homes Tasmania has been classified as a Public Non‑Financial Corporations Sector entity and is outside of the General Government Sector. As such, it does not receive a direct appropriation from the Public Account.

Under the Appropriation (Supplementary Appropriation for 2022‑23) Act 2022, appropriation funding to support Homes Tasmania in 2022‑23 was allocated to Finance‑General to be paid as a grant to Homes Tasmania. From 2023‑24 onwards, appropriation funding is allocated to the Department of Premier and Cabinet as the administering agency.

Accordingly, the receipts, expenditure and balance sheet items of Homes Tasmania do not form part of the General Government Sector Statements detailed throughout this Budget Paper. Homes Tasmania is now included in the Public Non‑Financial Corporations Sector Statements in appendix 1.

Actual outcomes for the General Government Sector prior to 2022‑23 include outcomes for the former Department of Communities Tasmania, including for housing and homelessness initiatives that are now delivered by Homes Tasmania.

Given the ongoing financial support provided to Homes Tasmania that is funded from the Public Account and to maintain transparency and accountability on the delivery of essential housing and homelessness services, a new Part 4 has been created in Government Services Budget Paper No 2. Further information on Homes Tasmania is included in chapter 28 of that Budget Paper.