Responding to a Changing Fiscal Environment

As a result of the COVID‑19 pandemic, the national and global fiscal environment has changed dramatically. While some consequences of this change are now very clear, other consequences continue to evolve and remain uncertain. In facing and seeking to manage the impact 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 considering and then adapting its response to ensure the provision of the greatest support possible to the Tasmanian community.

Initially the Government responded through the implementation of an extensive suite of social and economic support measures. These measures sought to cushion the Tasmanian community from the potential full impact of the pandemic. While these measures had significant expenditure and revenue impacts on the Budget, the Government was committed to using its strong fiscal position to provide the required support.

In the 2022‑23 Budget, the Government acknowledged the impact of the COVID‑19 pandemic on the Budget position and committed to taking action to achieve all the Strategic Actions over the medium‑term, including seeking to rebuild the fiscal buffers crucial to providing Budget flexibility to respond to possible future shocks. Importantly, it was stated that this would be undertaken in a measured way over time, which did not impact the provision of essential Government services. It was also noted, at that time, that Treasury had been asked to provide advice on strategies to ensure debt levels remained within manageable limits into the future so the Government can again use its balance sheet to shield Tasmanian jobs and families, should external shocks to Tasmania’s economy occur in the future.

The Government’s evolving response to the changing fiscal environment was further outlined in the Revised Estimates Report 2022‑23. In this Report, it was stated that Treasury would reassess the existing Fiscal Strategy with a view to updating and contemporising the Strategic Actions in the 2023‑24 Budget and that the review of the current Fiscal Strategy Strategic Actions would result in the development of a revised Fiscal Strategy and new Fiscal Strategy Strategic Actions that would improve financial transparency. It was also noted that the establishment of Homes Tasmania as a Public Non‑Financial Corporations Sector entity would materially impact key fiscal measures for the General Government Sector. This change illustrates the importance of a focus broader than the General Government Sector.

Establishment of the 2023‑24 Fiscal Strategy

Establishing a new Fiscal Strategy in this Budget represents an important next step in the ongoing evolution of the Government’s response to the changing fiscal environment. While driven by the changes enforced by this environment including the impact on the Government’s fiscal position, the new Fiscal Strategy looks to the future and the establishment of a framework to guide fiscal sustainability action over the term of the 2023‑24 Budget and Forward Estimates and beyond to 2032‑33.

The essential fiscal sustainability measures being implemented by the Government in this Budget are intrinsically linked to the implementation of this new Fiscal Strategy. Achievement of the new Fiscal Strategy Actions and Targets is critical to meeting the Government’s commitment to rebuilding fiscal buffers and enabling Budget flexibility. It is important that the Actions and Targets in this new Fiscal Strategy are also considered in the context of the Risks and disclosures detailed in chapter 1 of this Budget Paper.

Key Elements of the 2023‑24 Fiscal Strategy

Key elements of the 2023-24 Fiscal Strategy are highlighted below.

·       The Strategy focusses on a ten year timeframe from the 2023-24 Budget. This timeframe facilitates:

-   support for sustainable public services and strong business conditions;

-   a focus beyond the current four year Budget and Forward Estimates cycle;

-   better consideration of the impact of the Government’s important major infrastructure initiatives;

-   improved links to the Fiscal Principles embedded in the Charter of Budget Responsibility Act 2007; and

-   flexibility over time to consider the impact of changing economic and fiscal considerations.

·       Rather than the ten year targets being “rolled-forward” to the next year at the time of each Budget, the 2032‑33 targets will be maintained for the term of the current Forward Estimates. This approach will provide a clear and stable basis for the assessment of fiscal performance in the short to medium term. In the final year of the current Forward Estimates (i.e. 2026-27), there will be a review of the ten year targets in the context of the economic and fiscal environment existing at that time.

·       The Strategy includes new Strategic Actions and Targets that will improve financial transparency. These include:

-   the explicit establishment of the maintenance of current credit ratings as a measure;

-   expansion of the focus of some measures beyond the General Government Sector. This recognises the impact that government businesses and other non-GGS entities have on the financial position of the Government and the State;

-   greater recognition of the impact of infrastructure expenditure on the Government’s financial position;

-   recognition of the importance to the Government of maintaining a level of funding independence;

-   increased clarity in relation to the linking of Strategic Actions and Targets to legislated Fiscal Principles; and

-   commentary in relation to why the Strategic Actions and Targets are important and relevant issues in relation to their calculation.

·       The establishment of long-term targets recognises that, in any given Budget year, due to the nature of the economic or fiscal environment, actual outcomes may legitimately be above or below the target. An important element of the presentation of the 2023-24 Fiscal Strategy is that it will include commentary on what action the Government will be taking over the Budget and Forward Estimates to seek to achieve the established Actions and Targets over the long term.

·       The changes being implemented in the 2023-24 Fiscal Strategy have a strong focus on the provision of additional support to the legislated Fiscal Principle requiring the Government to ensure transparency and accountability in developing, implementing and reporting on fiscal objectives.

·       The new Fiscal Strategy recognises that there is no single indicator of fiscal health, and it is only through a combination of elements that a broad picture of Budget priorities and policy impacts can be better understood.

2023‑24 Fiscal Strategy

The 2023‑24 Fiscal Strategy includes Strategic Actions in the following key areas:

·       whole‑of‑government financial position;

·       level of Government debt;

·       sustainability of Government revenue and expenditure;

·       sustainability of Government infrastructure investment; and

·       public sector productivity and service delivery.

For each Strategic Action the following is provided:

·       a description of the Strategic Action;

·       Charter of Budget Responsibility Act Fiscal Principle links;

·       the 2022-23 Estimated Outcome position;

·       the ten year 2032‑33 target;

·       commentary on the Government’s 2023-24 Budget and Forward Estimates Actions and Targets; and

·       additional information, such as commentary on why the Fiscal Measure is important and, where relevant, charts depicting recent outcomes.

The Charter of Budget Responsibility Act Fiscal Principles are:

1.   manage the State’s finances responsibly for the wellbeing of all Tasmanians;

2.   provide for the future for the next generation of Tasmanians;

3.   prepare for unexpected events by building a robust financial position;

4.   improve services to Tasmanians by building a strong economy and efficiently allocating resources to gain the maximum community benefit;

5.   formulate spending and taxation policies that ensure a reasonable degree of equity, stability and predictability; and

6.   ensure transparency and accountability in developing, implementing and reporting on fiscal objectives.

 

Strategic Actions and Targets

The following section provides detailed information on the 2023‑24 Budget Strategic Actions and Targets.

Table 3.1:         Whole‑of‑Government Financial Position ‑ Strategic Actions and Targets

Strategic Action	Fiscal Principle Links	Estimated Outcome 2022‑231	2032‑33 Target
1.   State’s current credit rating	1,2,3,4,5
·       Moody’s		Aa2	Aa2
·       Standard & Poor’s		AA+	AA+

Note:

1.    The Estimated Outcome 2022-23 represents Tasmania’s credit ratings at the time of the preparation of the 2023‑24 Budget Papers.

1.     State’s current credit rating

2023‑24 Budget and Forward Estimates Actions and Targets

The Government will seek to maintain its current credit ratings over the term of the Forward Estimates. The Government will also consider the establishment of a minimum credit rating requirement for certain government businesses.

Comment

Credit ratings, while focused on a financial assessment, include an assessment of a range of other factors such as environmental, social and governance matters. Importantly, credit ratings also reflect a focus beyond the General Government Sector to include the impact of government businesses and other non-GGS entities. As such, they provide a broad perspective on the State’s financial position which is then comparable with the position assessed for other Australian jurisdictions, as well as overseas jurisdictions.

Table 3.2 provides information on credit ratings allocated to State and Territory Governments and the Australian Government at the time of the finalisation of the 2023‑24 Budget Papers. As noted in the table, Tasmania is not rated by Fitch Ratings.

 

Table 3.2:         Current State, Territory and Australian Government Credit Ratings

	Moody’s	S&P	Fitch
Tasmania	Aa2 (Stable)	AA+ (Stable)	na
New South Wales	Aaa (Stable)	AA+ (Stable)	AAA (Stable)
Victoria	Aa1 (Negative)	AA (Stable)	na
Queensland	Aa1 (Stable)	AA+ (Stable)	AA+ (Stable)
South Australia	Aa1 (Stable)	AA+ (Negative)	AA+ (Stable)
Western Australia	Aa1 (Stable)	AA+ (Positive)	na
Northern Territory	Aa3 (Stable)	na	na
Australian Capital Territory	na	AAA (Negative)	na
Australian Government	Aaa (Stable)	AAA (Stable)	AAA (Stable)

Table 3.3:         Level of Government Debt ‑ Strategic Actions and Targets1

Strategic Actions	Fiscal Principle Links	Estimated Outcome 2022‑23	2032‑33 Target
2. Gross debt per capita ($)	1,2,3,5
·       General Government Sector		10 800	<20 000
3.  Net Debt to Gross State Product (%)	1,2,3,5
·       General Government Sector		5.8	<10
4.  Cost of debt (including defined benefit superannuation) to cash receipts (%)	1,2,3,5
·       General Government Sector		4.6	<6

Note:

1.    The actions in the above table include the impact of debt and cost of debt for Homes Tasmania.

2.     Gross Debt per capita

2023‑24 Budget and Forward Estimates Actions and Targets

Over the 2023‑24 Budget and Forward Estimates, the Government is providing significant support to the Tasmanian community through service provision and infrastructure development. This includes the provision of support to government businesses and non-GGS entities, including for infrastructure investment undertaken by these entities over this period and beyond. While increases in this measure are possible over the 2023‑24 Budget and Forward Estimates, the Government is implementing important fiscal sustainability measures in this Budget that are essential to constraining the level of any increase.

 

Comment

Gross debt per capita provides a straightforward indication of the level of debt that the Government has incurred on behalf of the Tasmanian community. It is important that this measure is considered in the context of the capacity of the Budget to service the debt. The Government’s defined benefit superannuation liability is not included as it is measured on a different basis and subject to significant variability as a result of external factors.

Chart 3.1:         Gross Debt per capita, 2008‑09 to 2026‑27

 

3.     Net Debt to GSP

2023‑24 Budget and Forward Estimates Actions and Targets

As noted previously, over the 2023‑24 Budget and Forward Estimates the Government is providing significant support to the Tasmanian community through service provision and infrastructure development. This includes the provision of support to Government businesses and non-GGS entities, including for infrastructure investment undertaken by these entities over this period and beyond. While increases in this measure are possible over the 2023‑24 Budget and Forward Estimates, the Government is implementing important fiscal sustainability measures in this Budget that are essential to constraining the level of any increase.

Comment

This measure provides a different perspective to Gross debt per capita, as it includes the availability of certain assets to the Government to facilitate the repayment of Gross Debt (if that was required). It also places the Government’s Net Debt position in the context of the size of the State’s economy and the growth in the State’s economy. Net Debt to GSP provides an indication of the economy’s performance and the risk of default. The higher the ratio, the higher the risk.

4.     Cost of debt (including defined benefit superannuation) to cash receipts

2023‑24 Budget and Forward Estimates Actions and Targets

An increase in this measure in recent years reflects a range of factors, including the impact of costs associated with support provided to the Tasmanian community on debt levels and also rising interest rates. While the Government continues to provide additional support over the 2023‑24 Budget and Forward Estimates, the Government is taking action to implement fiscal sustainability measures which will be essential to constraining growth in this measure.

Comment

This measure includes the cost of debt borrowing costs and the cost of meeting the Government’s defined benefit superannuation liability obligations. The greater the cost of debt, the less funding available to provide direct services to the Tasmanian community. This is a long‑standing measure that was included in the previous Fiscal Strategy.

Table 3.4:         General Government Borrowing and Defined Benefits Superannuation Costs, 2023‑24 to 2026‑27

	2023‑24	2024‑25	2025‑26	2026‑27
		Forward	Forward	Forward
	Budget	Estimate	Estimate	Estimate
	$m	$m	$m	$m
Superannuation ‑ defined benefit schemes	352.2	368.6	380.6	392.9
Homes Tasmania Supported Borrowings	11.4	15.1	18.9	23.3
Other GGS Borrowing costs	143.4	201.7	251.9	285.7
Total borrowing and defined benefit scheme costs	506.9	585.5	651.4	701.8
Borrowing and defined benefit costs as a percentage of General Government cash receipts	5.8%	6.7%	7.3%	7.8%

 

 

Table 3.5:         Sustainability of Government Revenue and Expenditure ‑ Strategic Actions and Targets

Strategic Actions	Fiscal Principle Links	Estimated Outcome 2022‑23	2032‑33 Target
5.   Fiscal Balance ($m)	1,2,3,4,5
·       General Government Sector		(514)	Balanced fiscal position over a rolling four year average
·       Total State Sector		(989)
6.   Total General Government Sector Own-Source Revenues as a percentage of total expenditure (%)	1,3,5	32.1	>37
7.   Impact of Government Business Enterprises and State‑Owned Companies on the General Government Sector Financial Position ($m)	1,2,3,5	(41.1)	Positive impact

5.   Fiscal Balance

2023‑24 Budget and Forward Estimates Actions and Targets

Over the 2023‑24 Budget and Forward Estimates the Government is providing significant support to the Tasmanian community through service provision and infrastructure development. This is reflected in current Fiscal Balance deficits. The Government is, however, also taking action to improve the Fiscal Balance over time, as demonstrated by the fiscal measures included in this Budget. Improvement in the Fiscal Balance to achieve the long‑term target will require the achievement of the established measures and an ongoing focus on Budget productivity and efficiency improvements.

Comment

There is no single ideal measure of sustainability. A suite of measures needs to be considered in order to obtain an appropriate understanding of the position. The Fiscal Balance takes into account the accrual impacts of Government revenue and expenditure, as well as investment in infrastructure. The target (based on a rolling four year average) reflects an appropriate balance between revenues, expenditure and investment decisions, in the context of the broader economic, social and fiscal conditions that may be impacting Government. It recognises that a short‑term deficit may not be an issue for concern while also recognising the importance of the capacity to repay debt. The Estimated Outcome is based on a historical rolling four year average with the final year being the Estimated Outcome year.

 

6.   Total General Government Sector Own‑Source Revenues as a percentage of total expenditure

2023‑24 Budget and Forward Estimates Actions and Targets

Variation in this measure can be impacted, on a year‑by‑year basis, by factors outside of the Government’s control. Over the 2023‑24 Budget and Forward Estimates the Government will target an average of greater than 37 per cent. The Government will also continue to consider the competitiveness of state taxes, fees and charges and ensure appropriate returns from Government businesses.

Comment

While a fair share of funding for Tasmania will always be sought under established Australian Government funding arrangements, it is important for Tasmania’s Budget independence and service provision that an appropriate capacity to generate own source revenues is maintained. The target represents the average of the past 10 years.

Chart 3.2:         General Government Sector Own‑Source Revenue as a Proportion of Total Expenditure, 2008‑09 to 2026‑27

7.   Impact of Government Business Enterprises and State Owned Companies on the General Government Sector Financial Position

2023‑24 Budget and Forward Estimates Actions and Targets

This measure can vary materially on a year‑by‑year basis. Over the 2023‑24 Budget and Forward Estimates the Government is providing significant support to government businesses to undertake major infrastructure investment and Government initiatives. This support is provided on the basis that, over time, government businesses will provide improved services to the community and a return to the Government in the form of dividends and other returns.

Comment

GBEs and SOCs can provide a benefit to the GGS through the provision of returns such as dividends, tax equivalents, guarantee fees and rates equivalents while also imposing a cost on the GGS through the provision of support through grant payments (to support the delivery of services and financial position) and equity contributions (to support infrastructure investment and financial position). Given the capacity of GBEs and SOCs to separately raise revenues, these entities should, over time, not be a net drain on the General Government Sector. The average annual impact over the past 10 years has been positive $57 million.

Chart 3.3:         Impact of Government Business Enterprises and State‑Owned Companies on the General Government Sector Financial Position

 

Table 3.6:         Sustainability of Government Infrastructure Investment ‑ Strategic Actions and Targets

Strategic Actions	Fiscal Principle Links	Estimated Outcome 2022‑23	2032‑33 Target
8.   General Government Sector Infrastructure Investment	1,2,4,5
·       Annual investment in infrastructure no less than depreciation		Yes	GGS Income Statement infrastructure investment >depreciation
9.   Government business infrastructure investment	1,2,4,5
·       The proportion of GBE and SOC infrastructure projects in excess of $50 million, for which Board approval is provided in the Budget year, that have a positive Net Present Value and/or positive Benefit Cost Ratio calculated as part of a Cost Benefit Analysis undertaken in accordance with the Infrastructure Australia Assessment Framework (%)		na1	100

Note:

1.    Work on the development of this framework will commence in 2023‑24.

8.     General Government Sector Infrastructure Investment

2023‑24 Budget and Forward Estimates Actions and Targets

The Government’s General Government Sector infrastructure investment program totals approximately $4.3 billion over 2023‑24 Budget and Forward Estimates, with a significant focus on investment in critical health, transport, education and natural resources infrastructure. The annual investment in the infrastructure program remains at a level which is equal to, or exceeding, the annual depreciation expense.

Comment

Infrastructure investment represents a significant portion of the broader General Government Sector budget. Given the asset life cycle for investments can be anywhere from three, to in excess of 50 years, it is important that investments are strategic, address Tasmania’s future population needs and support enhanced outcomes and community experience.

Chart 3.4:         Purchases of Non‑Financial Assets in Excess of Depreciation

9.     Government business infrastructure investment

2023‑24 Budget and Forward Estimates Actions and Targets

The Government will establish the necessary framework to support this requirement and, once the framework is established, seek to ensure that 100 per cent of projects are subject to this assessment.

Comment

The Infrastructure Australia Assessment Framework provides a comprehensive basis for the determination of the benefit or cost of major infrastructure projects being undertaken by governments. This assessment requires the consideration of both quantitative and qualitative impacts. A positive outcome from this analysis suggests a positive outcome for the Tasmanian community. This approach is also consistent with more recent recommendations included in the latest Productivity Commission’s five‑year productivity review, Advancing Prosperity, released on 17 March 2023, which recommended that Australian, State and Territory Governments improve the rigour of Cost Benefit Analysis in relation to investment decisions.

Projects do not include “business as usual” maintenance projects undertaken by government businesses on an ongoing basis.

Table 3.7:         Public Sector Productivity and Service Delivery ‑ Strategic Actions and Targets

Strategic Actions	Fiscal Principle Links	Estimated Outcome 2022‑23	2032‑33 Target
10. General Government Sector FTEs per capita (including Homes Tasmania) (per 100 000 persons)1	4	5 3082	No increase compared to 30 June 2022
11. Public sector efficiency, productivity and financial transparency will be improved	4	Actions include the ongoing implementation of major projects such as the Independent Review of the State Service and establishment of new Fiscal Strategy	Review to be undertaken in 2032‑33 to assess the impact of action taken

Notes:

1.    This action reflects the total number of FTEs employed within the General Government Sector. There may be differences between the total number of FTEs under this action and the State Service Workforce Report, which only includes FTEs employed under the State Service Act 2000 and excludes those FTEs employed under other Acts (such as sworn Police Officers under the Police Act 2003).

2.    Due to the absence of estimates for 30 June 2023, the Estimated Outcome 2022‑23 reflects the outcome as at 30 June 2022.

10.  General Government Sector FTEs per capita

2023‑24 Budget and Forward Estimates Actions and Targets

The Government is committed to improving the provision of services to the community over the 2023‑24 Budget and Forward Estimates. In this context, the Government will seek to improve public sector productivity by carefully managing and transparently reporting FTE growth.

Comment

General Government Sector FTEs are required to deliver services to the community. Over recent years, and particularly since the COVID‑19 pandemic, there has been a significant increase in the number of GGS FTEs. The rate of growth in GGS FTEs has been greater than the rate of growth in Tasmania’s population, The establishment of a Strategic Action focussed on GGS FTEs in this Fiscal Strategy increases the level of transparency and accountability in relation to this issue, and will help drive productivity improvements in the public sector.

 

Chart 3.5:         General Government Sector FTEs per 100 000 persons

11.  Public sector efficiency, productivity and financial transparency will be improved

2023‑24 Budget and Forward Estimates Actions and Targets

The Government will continue the implementation of the recommendations of the Independent Review of the Tasmanian State Service Final Report. The establishment of this new Fiscal Strategy and monitoring against the new Fiscal Actions represents an important step in reporting on the Government’s financial position.

Comment

This action reflects the Government’s commitment to ongoing improvement in the operation of the Tasmanian public sector. It is qualitative in nature, as it will reflect the implementation by the Government of a wide range of projects.

 

Table 3.8:         Summary of Strategic Actions and Targets

Strategic Actions	Fiscal Principle Links	Estimated Outcome 2022‑23	2032‑33 Target
1. State’s current credit rating	1,2,3,4,5
·       Moody’s		Aa21	Aa2
·       Standard & Poor’s		AA+1	AA+
2.   Gross debt per capita ($)2	1,2,3,5
·         General Government Sector		10 800	<20 000
3.   Net Debt to Gross State Product (%)2	1,2,3,5
·         General Government Sector		5.8	<10
4.   Cost of debt (including defined benefit superannuation) to cash receipts (%)2	1,2,3,5
·         General Government Sector		4.6	<6
5.   Fiscal Balance ($m)	1,2,3,4,5
·         General Government Sector		(514)	Balanced fiscal position over a rolling four year average
·         Total State Sector		(989)
6.   Total General Government Sector Own‑Source Revenues as a percentage of total expenditure (%)	1,3,5	32.1	>37
7.   Impact of Government Business Enterprises and State‑Owned Companies on the General Government Sector Financial Position ($m)	1,2,3,5	(41.1)	Positive impact
8.   General Government Sector Infrastructure Investment	1,2,4,5
·         Annual investment in infrastructure no less than depreciation		Yes	GGS Income Statement infrastructure investment > depreciation
9.   Government business infrastructure investment	1,2,4,5
·         The proportion of GBE and SOC infrastructure projects in excess of $50 million, for which Board approval is provided in the Budget year, that have a positive Net Present Value and/or positive Benefit Cost Ratio calculated as part of a Cost Benefit Analysis undertaken in accordance with the Infrastructure Australia Assessment Framework (%)		na3	100

Table 3.8:         Summary Strategic Actions and Targets (continued)

Strategic Actions	Fiscal Principle Links	Estimated Outcome 2022‑23	2032‑33 Target
10. General Government Sector FTEs per capita (including Homes Tasmania) (per 100 000 persons)4	4	5 3085	No increase compared to 30 June 2022
11. Public sector efficiency, productivity and financial transparency will be improved	4	Actions include the ongoing implementation of major projects such as the Independent Review of the State Service and establishment of new Fiscal Strategy	Review to be undertaken in 2032‑33 to assess the impact of action taken

Notes:

1.    The Estimated Outcome 2022‑23 represents Tasmania’s credit ratings at the time of the preparation of the 2023‑24 Budget Papers.

2.    The actions in the above table include the impact of debt and cost of debt for Homes Tasmania.

3.    Work on the development of this framework will commence in 2023‑24.

4.    This action reflects the total number of FTEs employed within the General Government Sector. There may be differences between the total number of FTEs under this action and the State Service Workforce Report, which only includes FTEs employed under the State Service Act 2000 and excludes those FTEs employed under other Acts (such as sworn Police Officers under the Police Act 2003).

5.    Due to the absence of estimates as at 30 June 2023, the Estimated Outcome 2022‑23 reflects the figure as at 30 June 2022.