The Budget - Department of Treasury and Finance · 1.2 The 2014-15 Budget 2014-15 BUDGET BACKGROUND The 201415 Budget - has beenprepared in a challenging financial and economic environment

P A R L I A M E N T O F T A S M A N I A

The Budget Budget Paper No 1

Presented by

Hon Peter Gutwein MP, Treasurer, for the information of

Honourable Members, on the occasion of the Budget, 2014-15

Useful 2014-15 Budget and Government Websites

www.premier.tas.gov.au/budget_2014 Contains the 2014-15 Budget Paper documents and related information including Budget Fact Sheets and Government Media Releases.

www.treasury.tas.gov.au Contains the 2014-15 Budget Papers and Budget Paper archives.

www.tas.gov.au Provides links to the websites of a wide range of Tasmanian public and private sector organisations.

www.service.tas.gov.au Provides a comprehensive entry point to Government services in Tasmania.

http://www.tas.gov.au/

http://www.service.tas.gov.au/

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CONTENTS

1 The 2014-15 Budget

2 Tasmanian Economy

3 The Fiscal Strategy

4 Budget Savings and Revenue Strategies

5 2014-15 Budget and Forward Estimates

6 General Government Revenue

7 Infrastructure Investment

8 Assets and Liabilities

Appendix 1 Uniform Government Reporting

Appendix 2 Consolidated Fund Estimates

Appendix 3 Budget Presentation and Accounting Issues

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INDEX

1 The 2014-15 Budget 1.1

2014-15 Budget Background 1.2

2014-15 Budget Priorities 1.4

2014-15 Budget Estimates Summary 1.6

Net Operating Balance 1.7

Fiscal Balance 1.10

Net Debt 1.11

Sources of Revenue 1.12

Purposes of Expenditure 1.13

Infrastructure Investment 1.14

Current Budget Risks and Sensitivities 1.15

Appendix 1.1 Credit Status of the State Public Sector 1.17

2 Tasmanian Economy 2.1

Current Environment - Overview 2.2

Global Conditions 2.2

Australian Conditions 2.2

Tasmanian Conditions 2.3

Economic Outlook 2.4

Summary of 2013-14 Estimates and 2014-15 Forecasts 2.5

Tasmania's Economic Outlook 2.6

Risks to the Outlook 2.12

3 The Fiscal Strategy 3.1

A New Fiscal Strategy 3.2

Strategic Actions 3.3

Overall 2014-15 Budget Assessment 3.16

4 Budget Savings and Revenue Strategies 4.1

Budget Response 4.2

Budget Savings Strategies 4.3

Budget Savings Strategies - Agency Summary 4.8

iv

5 2014-15 Budget and Forward Estimates 5.1

Overview 5.2

Government Financial Estimates 5.3

Appendix 5.1 Policy and Parameter Statement 5.9

6 General Government Revenue 6.1

Total Revenue 6.2

Grants 6.4

GST Revenue 6.5

Commonwealth Payments for Specific Purposes 6.6

Federal Financial Relations Issues 6.11

2014-15 Australian Government Budget 6.11

White Papers on Reform of the Federation and Taxation 6.12

Commonwealth Grants Commission 6.13

Other Issues 6.15

State Taxation 6.17

Taxation Measures 6.19

Payroll Tax 6.19

Taxes on Property 6.20

Taxes on the Provision of Goods and Services 6.22

Taxes on the Use of Goods and Services 6.23

Other Revenue Sources 6.25

Sales of Goods and Services 6.25

Fines and Regulatory Fees 6.26

Interest Income 6.28

Dividend, Tax and Rate Equivalent Income 6.28

Other Revenue 6.30

Statement of Risks and Sensitivities 6.32

Grants 6.32

State Taxes 6.33

Returns from Government Businesses 6.34

v

7 Infrastructure Investment 7.1

Overview 7.2

Infrastructure Investment Projects by Agency 7.5

Major Areas of Infrastructure Investment 7.11

Education 7.11

Hospitals and Health 7.12

Housing 7.13

Law and Order 7.14

Roads and Rail 7.14

Information Communications Technology 7.15

Tourism, Recreation and Culture 7.15

Roads Program 7.16

Reconciliation between Infrastructure Investment and Purchases of Non-Financial Assets 7.19

8 Assets and Liabilities 8.1

Balance Sheet 8.2

Assets 8.4

Equity Investment in PNFC and PFC Sectors 8.4

Other Financial Assets 8.5

Non-Financial Assets 8.6

Liabilities 8.6

General Government Superannuation Liability 8.7

Total State Superannuation Liability 8.11

Tasmanian Risk Management Fund 8.14

Appendix 1 Uniform Government Reporting A1.1

Introduction A1.2

Loan Council Allocation A1.2

Government Financial Estimates A1.4

vi

Appendix 2 Consolidated Fund Estimates A2.1

Introduction A2.2

Consolidated Fund 2014-15 Budget and Forward Estimates A2.3

Expenditure A2.5

Reserved By Law Items A2.7

Appendix 3 Budget Presentation and Accounting Issues A3.1

2014-15 Budget Paper Presentation and Accounting Issues A3.1

Agency Restructures A3.1

Changes in the Structure of The Budget Budget Paper No 1 A3.2

2013-14 Estimated Outcome A3.2

Superannuation Guarantee Charge Changes A3.3

27th Pay in 2015-16 A3.3

Assumptions Underlying the 2014-15 Budget and Forward Estimates A3.4

Revenue A3.4

Expenses A3.4

Budget Paper Conventions A3.5

Classification of the Tasmanian Public Sector A3.5

The 2014-15 Budget 1.1

1 THE 2014-15 BUDGET Features

• The 2014-15 Budget has been prepared in a challenging financial and economic environment. Since 2008, there has been a significant deterioration in the State's financial position with increasing Net Operating Balance deficits and an erosion of the previously strong General Government Net Debt position. Since the 2013-14 Budget, the deterioration has been particularly significant with the reasons for this deterioration being detailed in the 2013-14 Revised Estimates Report released in February 2014 and the Analysis of Budget Risks Report, prepared by Treasury and released by the Government in April 2014.

• The Government is committed to pursuing strong financial management that will return the Budget to a sustainable position in the medium-term while also delivering a range of important reforms and initiatives that will improve the Tasmanian economy and the wellbeing of the Tasmanian community.

• In preparing the 2014-15 Budget, there has been a strong focus on important priorities including delivering all of the Government's 2014 election commitments, implementing the necessary Budget Savings Strategies to place the Budget on a sustainable pathway, as well as implementing reforms in a number of areas to lay the foundations for the future.

• Compared to the financial estimates faced by the Government in the Analysis of Budget Risks Report, the estimated Net Operating Balance and General Government Net Debt over the 2014-15 Budget and Forward Estimates period represent a significant improvement.

• The achievement of this improvement will represent an important change in the State's expected financial position. However, it will be critical to ensure that expenditure is constrained to budgeted levels, the Budget Savings Strategies are effectively implemented, the Government is in a position to respond to any further negative impacts on revenue, community services are maintained and economic growth is supported.

• In 2014-15, the General Government Net Operating Balance is estimated to be a deficit of $285.6 million and as at 30 June 2015 General Government Net Debt is estimated to be negative $188.3 million.

• Over the 2014-15 Budget and Forward Estimates period, investment in infrastructure is estimated to be $1.6 billion.

1.2 The 2014-15 Budget

2014-15 BUDGET BACKGROUND The 2014-15 Budget has been prepared in a challenging financial and economic environment. The Budget has been in a deficit position since 2010-11 and, between 2008 and 2013, General Government Net Debt has deteriorated by over $800 million. The 2013-14 Budget projected that Net Operating Balance deficits would continue until 2015-16 and General Government Net Debt would deteriorate further to a positive position of over $200 million before returning to a slightly negative position of $47 million as at 30 June 2017.

A major factor compounding the Budget position has been that Budget expenditure outcomes have not been consistent with the savings strategies that have been set out in past Budgets. Taking the 2011-12 Budget estimates as the base line, over the period from 2011-12 to 2013-14, overall revenue was $171 million more than budgeted while, over the same period, expenditure was $751 million higher than budgeted.

Following the release of the 2013-14 Budget, two major reports have highlighted a significant further deterioration in the Government's financial position.

The 2013-14 Revised Estimates Report released in February 2014 detailed a total deterioration in the Net Operating Balance of $448.5 million over the Budget and Forward Estimates period. Instead of projecting a return to negative General Government Net Debt in 2017, the Report projected a revised estimate of a significant positive position of $194.7 million as at 30 June 2017.

The Analysis of Budget Risks Report (Budget Risks Report) released in April 2014 outlined a further potential deterioration of over $270 million in the Net Operating Balance over the period 2013-14 to 2017-18, since the publication of the Revised Estimates Report in February 2014. Net Debt was also estimated to exceed $400 million by 2016-17.

The deterioration in the Budget position, between February and April 2014, was primarily due to two major revenue impacts: decreases in the estimates for Goods and Services Tax (GST) and mineral royalties revenues. As outlined in this Budget, these major revenue sources are expected to either grow at a lower rate than previously expected or decline further. The Budget Risks Report also highlighted a range of other risks, including the uncertain outcomes from the Commonwealth Grants Commission 2015 Methodology Review, the Commonwealth White Papers on Reform of the Federation and Taxation and the risks arising from possible changes to Australian Government funding, in particular the National Health Reform Agreement (NHRA), the National Education Reform Agreement (NERA), the National Disability Insurance Scheme (NDIS) and other expiring National Partnership Agreements.

Some of these risks materialised following the release of the 2014-15 Australian Government Budget in May 2014, with a number of announcements regarding the cessation or variation of Australian Government funding to the states and territories. The impact on Tasmania of these Australian Government Budget savings initiatives is estimated, by Treasury, to be $2.1 billion over the period to 2024-25. Downside risks to the Budget remain from the numerous Australian Government reviews still underway (discussion of these and other risks is included later in this chapter).


The rapid deterioration in the Tasmanian Government's fiscal position only two months after the release of the Revised Estimates Report highlights Tasmania's significant vulnerability to external impacts. This is exacerbated by Tasmania's dependence on Australian Government funding, which makes up approximately 61 per cent of Tasmania's General Government revenue. Given the extent of this dependence, changes in the timing of Australian Government payments can also lead to significant variability in annual Budget outcomes, making underlying trends less transparent. As a small, open economy this vulnerability to external impacts extends to economic outcomes, as highlighted by the recent difficulties experienced by export industries such as mining. These economic outcomes can also impact on the Government's fiscal outcomes as shown by the deterioration of mineral royalties revenue compared to expectations in the 2013-14 Budget.

These factors contributed to the unsustainable Budget position described in the Budget Risks Report, characterised by a deteriorating Net Operating Balance, growth in debt and liabilities (including superannuation), long-run expenditure growth exceeding revenue growth and increasing National Partnership commitments, such as Students First and the National Disability Insurance Scheme, having higher long-run costs beyond those revealed in the Forward Estimates. These issues were highlighted by Moody's in its credit opinion released in March 2014 which revised its outlook for Tasmania's Aa1 credit rating to negative watch "reflecting an ongoing deterioration in Tasmanian's financial performance, including persistent deficits, which are expected to continue widening as expenditures outpace revenue". A comparison of the current credit ratings allocated by Moody’s and Standard and Poor's is provided in appendix 1.1 to this chapter.

Not only has the Government been faced with a very difficult financial position but it has also been faced with a challenging economic environment.

Following a period of lower demand driven by unfavourable external conditions and weaker domestic spending, the Tasmanian economy has been improving in the first half of 2014.

Household spending has returned to growth, driven in part by very strong growth in retail trade. Household confidence appears to be increasing, with growth in building approvals and finance commitments over the past year. Business confidence has also increased in recent quarters, along with private investment.

These positive factors have helped to increase employment in 2014, particularly full-time employment. However, unemployment remains high by national standards, partly due to an increase in the participation rate in recent months. The Government's long-term plan has at its centre a range of strategies to structurally improve the economy, stimulate growth, support jobs and reduce unemployment.

Tasmania's economy remains highly exposed to the strong Australian dollar and weaker prices of some key commodities. Some trade exposed sectors continue to face challenging conditions, particularly manufacturing and mining. Activity in the forestry and forest products industry remains well below the levels of recent years, despite some recent improvement. The jobs shed by these industries typically tend to be those with skills that are not easily transferable to other industries, creating a mismatch with the opportunities in those industries set for growth, which are increasingly reliant on skilled labour.

Much of Tasmania's agriculture industry is benefitting from strong demand and high prices (particularly dairy and livestock) and confidence is high that further gains will occur. Tasmania's aquaculture industry is also set for further growth and is becoming an important source of employment growth.

A detailed examination of the Tasmanian economy is provided in chapter 2 of The Budget Budget Paper No 1.


2014-15 BUDGET PRIORITIES The Government is committed to pursuing strong financial management which will return the Budget to a sustainable position in the medium-term, while also delivering a range of important reforms and initiatives that will improve the Tasmanian economy and the wellbeing of the Tasmanian community. Key priorities in the 2014-15 Budget are detailed below.

Implementing Government Election Commitments All commitments made by the Government during the 2014 Election are being implemented over the Budget and Forward Estimates period. The implementation of these election commitments is vital to the achievement of improvements in the services provided to the Tasmanian community and in creating a stronger and more competitive Tasmanian economy. Many of the election commitments also provide immediate economic stimulus, particularly in regional areas through investment in community sport and cultural assets and providing direct and needed support to local community organisations. A complete list of all 2014 election commitments is provided in chapter 1 of Government Services Budget Paper No 2 and further information is also provided in each agency's Budget chapter.

Implementing Reform Through the implementation of the Government's election commitments and other action in the 2014-15 Budget, significant steps are being taken to implement a wide range of reforms to both service delivery and the structure of the Tasmanian public sector. These include taking action to support the Tasmanian forest industry, reducing specific taxes, creating the Department of State Growth, reducing red and green tape, moving to a single Tasmanian Health Organisation from 2015-16, commencing extending High Schools to Year 12 and the collocation of integrity entities. In addition to these state-based reforms, the Government is also continuing to implement national reforms such as the National Disability Insurance Scheme, Students First and the Equal Remuneration Order.

Supporting Jobs The 2014-15 Budget is also strongly focussed on supporting the creation of jobs in Tasmania. In addition to major reforms such as those relating to the Tasmanian Forest Industry and the establishment of the Department of State Growth, jobs for Tasmanians are being supported by:

• providing payroll tax relief for the creation of new jobs;

• implementing the Buy Local Policy;

• implementation of the Government's fully funded Headworks Holiday election commitment and commencing a process that has the potential to bring about an end to headworks charges in planned growth areas permanently;

• extending the First Home Builder's Boost program;

• supporting an international shipping service;

• providing additional funding for tourism marketing;

• implementing the Small Business Jobs Bonus;

• a comprehensive red and green tape reduction strategy; and


• supporting a number of important Tasmanian businesses.

Developing Tasmania's Infrastructure The 2014-15 Budget reflects a strong commitment to the ongoing development of infrastructure in Tasmania. The infrastructure investment program over the 2014-15 Budget and Forward Estimates period will total $1.6 billion. Significant additional funding has been allocated to support road, rail, irrigation, police vessel and ICT infrastructure, while funding has also been provided to support the development of a number of important private and community infrastructure projects. In addition, Infrastructure Tasmania has been established to enable a more strategic focus to government infrastructure investment in Tasmania. Further information on the infrastructure investment program is provided in chapter 7 of The Budget Budget Paper No 1.

Implementing Budget Savings Strategies The effective implementation of Budget Savings Strategies is an important priority in the 2014-15 Budget. As part of the 2014 Election, the Government identified a number of savings strategies that would both improve the Budget position and offset the cost of its important election commitments. Due to the further deterioration that has occurred in the Budget position since the Budget Risks Report, further significant savings strategies have been required to be identified. These savings measures have been carefully considered to minimise the impact on government services and public sector employment. Detailed information on Budget savings strategies is provided in chapter 4 of The Budget Budget Paper No 1.

A New Fiscal Strategy Given the difficult financial position being faced by the Government, it is essential that a new Fiscal Strategy is implemented that will assist in driving the return of the State Budget to a sustainable position. The Government has developed a new Fiscal Strategy which is based on enduring principles of strong financial management and is outlined in detail in chapter 3 of The Budget Budget Paper No 1.


2014-15 BUDGET ESTIMATES SUMMARY The following sections provide a summary of the key Budget estimates included in the 2014-15 Budget. Further detailed information on these estimates is provided in other chapters of The Budget Budget Paper No 1 and, on an agency by agency basis, within Government Services Budget Paper No 2.

Table 1.1: Key Budget and Forward Estimate Aggregates 2013-14) 2014-15) 2015-16) 2016-17) 2017-18) Forward) Forward) Forward) Budget) Budget) Estimate) Estimate) Estimate)

$m) $m) $m) $m) $m) GENERAL GOVERNMENT

Revenue 4 792.1 4 963.7 5 086.3 5 130.0 5 257.4

Expenses 5 059.0 5 249.3 5 211.4 5 255.3 5 375.4

Net Operating Surplus/(Deficit) (266.9) (285.6) (125.2) (125.3) (118.0) Fiscal Surplus/(Deficit) (309.1) (366.8) (214.3) (246.4) (123.7) Net Debt at 30 June 226.1 (188.3) (77.2) 46.9 53.9 Infrastructure Investment 350.1 391.1 415.3 449.5 335.2


Chart 1.1 highlights the significant changes to Budget and Forward Estimate projections that have occurred since the 2013-14 Budget. In particular, it shows the significant deterioration over the Forward Estimates period that was presented in the 2013-14 Revised Estimates Report and the Budget Risks Report and the improvement now expected as a result of 2014-15 Budget decisions.

Chart 1.1: Changes in Net Operating Balance Estimates since the 2013-14 Budget1

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2014-15 2015-16 2016-17 2017-18

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2013-14 Budget 2013-14 Revised Estimates Report 2013-14 Budget Risks Report 2014-15 Budget

Note: 1. Forward Estimates for 2017-18 were not available in the Budget Risks Report, however, it is presented in the

2014-15 Budget.

Net Operating Balance The Net Operating Balance is estimated to be a deficit of $285.6 million in 2014-15. This represents an improvement of $39.9 million when compared with the 2014-15 Net Operating Balance estimate of $325.5 million presented in the Budget Risks Report. The reduction in the Net Operating Balance over the Budget and Forward Estimates period to a deficit of $118 million in 2017-18 represents the positive impact of the range of financial management strategies being implemented by the Government and detailed in the 2014-15 Budget Papers.


Chart 1.2 highlights the deterioration in the Government's Net Operating Balance position that has occurred since 2003-04 and the projected improvement in the 2014-15 Budget and Forward Estimates.

Chart 1.2: Net Operating Balance, 2003-04 to 2017-18

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Actual 2013-14 Budget Budget and Forward Estimates

It should be noted that 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 but does not factor in the expenditure of these funds on infrastructure projects.


Given this situation, the Underlying Net Operating Balance has been developed as a measure that removes the distorting impact of one-off Australian Government funding for specific capital projects. The Underlying Net Operating Balance measure also removes the timing impact of significant recurrent expenditure that has been carried forward to 2014-15.

Table 1.2: Underlying Net Operating Balance, 2014-15 to 2017-18 2014-15 2015-16 2016-17 2017-18

Budget Forward Estimate

Forward Estimate

Forward Estimate

$m $m $m $m

Net Operating Balance (285.6) (125.2) (125.3) (118.0) Less One-off Australian Government Funding

Roads and Rail Funding 89.3 108.6 109.9 65.6

Royal Hobart Hospital Redevelopment .... 50.0 .... ....

Water for the Future Funding 0.4 20.6 .... ....

89.7 179.2 109.9 65.6

Plus Other Timing Impacts

Expenditure carried forward from 2013-14 62.1 .... .... ....

Expenditure of Australian Government Funding carried from

2013-14 85.5 .... .... ....

147.6 .... .... ....

Underlying Net Operating Balance (227.7) (304.4) (235.2) (183.6)

1.10 The 2014-15 Budget

Fiscal Balance A Fiscal Balance deficit of $366.8 million is estimated for 2014-15 with this deficit decreasing significantly over the Forward Estimates period to $123.7 million in 2017-18. While the Fiscal Balance can be affected by changes in the level of capital expenditure (ie Purchase of Non-Financial Assets), this improvement primarily relates to the improvement in the Government's Net Operating Balance position over the Budget and Forward Estimates period.

Chart 1.3 illustrates the Fiscal Balance since 2003-04.

Chart 1.3: Fiscal Balance, 2003-04 to 2017-18

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The 2014-15 Budget 1.11

Net Debt It is estimated that General Government Net Debt will be negative $188.3 million as at 30 June 2015. This represents a significant improvement of $432.7 million from the estimated 30 June 2015 General Government Net Debt position of positive $244.4 million detailed in the Budget Risks Report in April 2014. This improvement reflects a number of factors including lower than expected expenditure on infrastructure in 2013-14 and the improvement in the Government's operating and cash position in 2014-15.

General Government Net Debt is currently estimated to deteriorate over the Forward Estimates period but not now enter a positive position until 2017, when a level of $46.9 million is estimated. This represents a dramatic improvement in the Government's General Government Net Debt position. In the 2013-14 Revised Estimates Report, released prior to the 2014 State Election, it was expected that the Government would have positive General Government Net Debt as at 30 June 2015 and still be in a positive position of $194.7 million as at 30 June 2017. When the further deterioration in the Government's financial position was taken into account in the Budget Risks Report it was estimated that General Government Net Debt would increase to $402.5 million as at 30 June 2017.

Chart 1.4 illustrates Net Debt since 2004.

Chart 1.4: Net Debt, 2004 to 2018

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1.12 The 2014-15 Budget

Sources of Revenue In 2014-15, General Government Sector total revenue is estimated to be $4 963.7 million. This represents a minor increase of $10.3 million on the 2013-14 Budget Forward Estimate for 2014-15 of $4 953.4 million.

Chart 1.5 provides information on the major sources of General Government Sector Revenue in 2014-15. Chapter 6 in The Budget Budget Paper No 1 provides a detailed explanation of the major revenue items included in the 2014-15 Budget and over the Forward Estimates period.

Chart 1.5: Sources of General Government Revenue, 2014-15

Grants$3 027.5m

(61.0%)

Interest Income$15.9m (0.3%)

Taxation $983.2m (19.8%)

Fines and Regulatory Fees

$103.3m (2.1%)

Sales of Goods and Services$354.1m

(7.1%)

Dividend, Tax and Rate Equivalent

Income$342.9m

(6.9%)Other Revenue

$136.8m (2.8%)

The 2014-15 Budget 1.13

Purposes of Expenditure In 2014-15, General Government Sector total expenditure is estimated to be $5 249.3 million. This represents an increase of $131.4 million on the 2013-14 Budget Forward Estimate for 2014-15 of $5 117.9 million.

Chart 1.6 provides information on the major purposes of General Government Sector Expenditure in 2014-15. Chapter 5 in The Budget Budget Paper No 1 provides a detailed explanation of the major expense items included in the 2014-15 Budget and over the Forward Estimates period.

Chart 1.6: General Government Expenses by Purpose, 2014-15

Education$1 418.8m

(27.0%)

Other$739.3m(14.1%)

Public Order and Safety

$459.5m(8.8%)

Social Security and Welfare$431.6m

(8.2%)

Nominal Interest on Superannuation

$283.1m(5.4%)

Transport and Communications

$271.3m(5.2%)

Housing and Community Amenities

$180.6m(3.4%)

Health$1 465.1m

(27.9%)

1.14 The 2014-15 Budget

Infrastructure Investment The Government is committed to ensuring that there is a strong level of investment in Tasmania's infrastructure. Infrastructure investment in 2014-15 is estimated to be $391.1 million which is an increase of $14.3 million on the 2013-14 Budget Forward Estimate for 2014-15 of $376.8 million. Over the 2014-15 Budget and Forward Estimates period, the Government has allocated $1.6 billion to investment in Tasmania's vital infrastructure.

Chart 1.7 provides details of infrastructure investment expenditure by classification. Chapter 7 in The Budget Budget Paper No 1 provides a detailed explanation of the Government's investment in infrastructure.

Chart 1.7: Infrastructure Investment Expenditure by Classification, 2014-15

Schools and Education

$30.8m (7.9%)

Tourism, Recreation and Culture

$12.6m (3.2%)

Housing$43.9m (11.2%)

Other$11.9m (3.0%)

Roads$191.6m (49.0%)

Hospitals and Health$100.3m (25.7%)

The 2014-15 Budget 1.15

CURRENT BUDGET RISKS AND SENSITIVITIES The Budget Risks Report that was released by the Government in April 2014 identified a number of significant risks and uncertainties facing the Budget. In preparing the 2014-15 Budget, the Government has sought to implement strategies to address these risks or seek to mitigate their impact over a period of time, however, a number of significant risks and uncertainties remain outstanding. These are detailed below.

• GST receipts - there remains uncertainty in relation to the impact of the Commonwealth Grant Commission's (CGC) 2015 Methodology Review of GST Revenue Sharing Relativities, which is due to be published by 28 February 2015. The Draft Report, released on 8 August 2014, only provides information on likely methodology changes to some assessment categories and does not provide sufficient information to reliably assess the full impact of the Review. Small changes in Tasmania's relativity factor can have a large impact on forecast GST revenue.

• Other Australian Government funding - uncertainty also remains in relation to the level of Australian Government funding to be provided under a number of agreements and for a number of national reforms. This particularly includes National Health Reform, the National Disability Insurance Scheme and Students First reforms. The required level of state matching funding for infrastructure investment such as road and rail can also have a significant impact on the Budget position, particularly in relation to infrastructure spending priorities.

• Mersey Hospital funding - the Australian Government has only committed to a 12 month extension to the Heads of Agreement to 30 June 2015. The movement away from a three year agreement for the Mersey Hospital creates a level of uncertainty as to future funding arrangements. The 2014-15 Budget assumes a continuation of Australian Government funding over the Forward Estimates. To the extent that outcomes differ from Tasmania's current expectations, the financial impact on the Budget will change.

• White Papers on Reform of the Federation and Taxation - the Federation White Paper will consider reform to Commonwealth-State roles and responsibilities, vertical fiscal imbalance and horizontal fiscal equalisation. It aims to clarify roles and responsibilities between all levels of government to ensure that, as far as possible, each level of government is sovereign in its own sphere. Australia's substantial vertical fiscal imbalance and long-term fiscal pressures for all levels of government mean that the Federation White Paper will be closely linked to reforms considered in the Taxation White Paper and will necessitate close interaction between the two White Papers. Depending on the eventual outcomes from these major national reviews, there could be significant implications for future revenue and expenditure estimates.

• Universal access to kindergarten - the Department of Education has advised that funding of $10.2 million per annum in Australian Government funding for the Universal Access to Early Childhood Education National Partnership is a high risk. The 2014-15 Australian Government Budget has allocated no funds beyond 2015-16, however, funding is allocated in a contingency line in the Australian Government's Budget. A review of the National Partnership Agreement is currently underway.

• Government business returns - Government businesses are subject to a wide range of influences that can significantly impact the level of their returns to the Government. These include market conditions, infrastructure investment requirements and the implementation of major reform programs.

1.16 The 2014-15 Budget

• Superannuation funding - the estimated General Government Superannuation Liability as at 30 June 2015 is $5 448 million, which is an estimate of the Net Present Value of the Government's share of meeting current and future benefit payments for defined benefit scheme members. While all of the defined benefit schemes have been closed, because of the long-term nature of superannuation benefits, the superannuation liability will continue to grow as members accrue additional years of service as they approach retirement age. The superannuation liability is projected to grow until 2022-23 and then gradually decline over the following five or six decades.

The emerging cash cost of defined benefit superannuation payments is met from the Consolidated Fund, funded partly by agency contributions and by a Reserved by Law contribution, which comprises the balance of the Government's share of pension and lump sum benefit costs. A key ongoing Budget risk is that the cost to the Budget will increase significantly in coming years (with cash payments forecast to increase by 83 per cent over the next 16 years and peaking in 2030-31). In 2014-15, defined benefit superannuation costs are estimated to be 4.6 per cent of Cash Receipts from Operating Activities in the General Government Cash Flow Statement. Defined benefit superannuation costs as a percentage of General Government cash receipts is estimated to peak at 5.73 per cent in 2023-24 and is estimated to decrease to 4.9 per cent in 15 years (2029-30). More information in respect of the General Government superannuation liability is provided in chapter 8 of The Budget Budget Paper No 1.

• Public Sector Wages - the 2014-15 Budget and Forward Estimates are based on the implementation of the public sector 12-month pay pause. The Forward Estimates are based on future wage increases being limited to two per cent per annum once the 12-month pay pause is lifted. As part of the annual Budget process, the Government will review the State's economic and financial conditions and consider whether higher wage increases can be supported. Given the cost of wages as a proportion of total Budget expenditure, any delays to the implementation of this wages policy will have a significant impact on the sustainability of the Budget.

• Implementation of agency Budget Savings Strategies - the effective implementation of agency Budget Savings Strategies is a key element of the Government's financial management strategy. The Government will be closely monitoring the implementation of these measures.

• Tasmanian Health Organisation (THO) Budget Overspends - in 2013-14, additional funding of $24.1 million was required to be provided from the Budget to meet the cost of Budget overspends by THO South and THO North West. While it is expected that action will be taken by these entities to ensure that such overspends do not occur again, given recent experience, it is considered that there remains a high risk of further Budget overspends by these entities.

• Royal Hobart Hospital Redevelopment - this vital project is currently subject to a major review. It is not clear at the present time what the findings of this review will mean in terms of the impact on the State Budget.

More detailed information on the above risks and other risks being faced by the Tasmanian State Budget is provided in other chapters of The Budget Budget Paper No 1.

The 2014-15 Budget 1.17

APPENDIX 1.1 CREDIT STATUS OF THE STATE PUBLIC SECTOR The current credit ratings and outlook for long-term domestic debt of the States and the Territories by the two major rating agencies, Moody's Investors Service (Moody's) and Standard & Poor's (S&P), are detailed in Table 1.3.

Table 1.3: Government Ratings Moody's Standard & Poor's

New South Wales Aaa (Stable) AAA (Negative)

Victoria Aaa (Stable) AAA (Stable)

Queensland Aa1 (Negative) AA+ (Stable)

Western Australia Aaa (Negative) AA+ (Stable)

South Australia Aa1 (Stable) AA (Stable)

Tasmania Aa1 (Negative) AA+ (Stable)

Northern Territory Aa1 (Negative) na

Australian Capital Territory na AAA (Stable)

Tasmanian Economy 2.1

2 TASMANIAN ECONOMY Features

• The State's economy is forecast to grow by 1½ per cent in 2014-15, the same rate as expected in 2013-14.

• Due to growth in domestic demand, principally household spending, the Tasmanian economy has emerged from a period of subdued activity. The labour market has also improved in recent quarters. Tourism has contributed to this growth, with record visitor numbers to the State over the past year. The outlook for household spending remains positive.

• The prospects for some parts of Tasmania's agriculture industry continue to be strong and further expansion in aquaculture is expected.

• Private investment has also shown some increase, principally through growth in business investment. Business confidence has risen in recent quarters and some major projects are set to commence.

• Tasmania has not yet experienced the growth in dwelling investment of many mainland jurisdictions. Leading indicators suggest the recent modest recovery in dwelling construction will accelerate.

• International economic conditions are less favourable, including a continuing strong exchange rate and weak prices for some key commodities that continue to put many of Tasmania's export industries under pressure. External demand, including from mainland Australia, is not expected to make a major contribution to Tasmania's economic growth in the near term. Tasmania's international exports will also suffer due to the Mount Lyell copper mine moving into a care and maintenance period and the winding down of operations at the Henty gold mine through 2015.

• Tasmania's economy is also affected by the fiscal pressure faced by all levels of government, which has constrained public spending.

• Tasmania's population growth has been slowly increasing but remains below trend. A further increase is expected in the year ahead.

• Employment is forecast to increase by 1¾ per cent in 2014-15. This, above trend growth, is forecast to reduce the year-average unemployment rate to 7¼ per cent for 2014-15 from 7.7 per cent over 2013-14.

2.2 Tasmanian Economy

CURRENT ENVIRONMENT - OVERVIEW Global Conditions Global economic conditions strengthened in 2013 and 2014, with a growing contribution from advanced economies. The prospects for Tasmania's major trading partners remain strong, though the prices of several key export commodities remain relatively weak.

The International Monetary Fund projects economic growth to be 3.4 per cent in 2014 and 4.0 per cent in 2015, driven largely by the developing countries. Compared to the past two years, advanced economies are expected to provide more support to global growth, growing at 1.8 per cent in 2014 and 2.4 per cent in 2015, around one percentage point higher than the growth estimated for 2012 and 2013. That said, variability between economies continues to be apparent.

China's economy is expected to expand at more sustainable levels than over the past decade, with most forecasters expecting annual growth of between seven per cent and eight per cent for 2014 and 2015. Japan's economy continues to improve, after an extended period of very modest growth. The outlook for India has also improved, with growth expected to increase to 5.4 per cent in 2014 and 6.4 per cent in 2015 according to the IMF's most recent forecasts.

After contractions in economic activity in both 2012 and 2013, the European Union as a whole is expected to return to modest growth in 2014, driven primarily by the key economies of Germany and France, but also a recovery in countries such as Italy and Spain whose economies had been contracting. Economic performance in the Euro area remains mixed and growth is expected to remain weak in several Euro economies that have struggled over recent years.

The United States continues to recover, driven partly by a recovery in the real estate market and improved consumer confidence, and supported by stimulatory monetary policy measures. Whilst a harsh winter has dampened original 2014 forecasts to some extent, the US economy is still expected to grow by 1.7 per cent in 2014, rising to above trend in 2015 according to the IMF's most recent forecasts.

A feature of both the European and United States economies has been the highly accommodative monetary policy. Official interest rates are at or near zero and there have been extensive additional expansionary monetary policy measures designed to stimulate their economies.

Australian Conditions

Australia continues to outperform almost all other developed economies, although growth slowed over 2013. The Australian economy is adjusting to the winding down of the resources investment boom, which had attracted labour and capital from other industries. This transition has been smoothed by a recovery in dwelling investment nationally. However, business investment in the non-resource industries has not increased to offset the decline in resource industry investment.


The value of the Australian dollar has fallen from above parity with the US dollar but remains high with many key trading partners, relative to domestic production costs. Tasmania's terms of trade have not been as strong as the national terms of trade in recent years and have eased further as the prices of Tasmania's key export commodity prices have declined. This trend is expected to continue as global supply of these commodities increases. Real incomes in Australia are therefore not expected to increase at the same rate as over the past decade, unless some major improvements in productivity are achieved.

The Reserve Bank of Australia has held the cash rate at 2.5 per cent for a year, during which inflation has been within the Reserve Bank's target band. Recent statements by the Reserve Bank have signalled that continued stability in rates is likely in the near term. While the cash rate is at an historic low level, it remains significantly above equivalent rates in most advanced economies.

Most forecasters expect the Australian economy to grow at around 2.5 per cent in 2014-15 and return to levels closer to three per cent in 2015-16.

The Australian labour market remains relatively strong by advanced economy standards and the unemployment rate continues to be relatively low. The national unemployment rate has been edging higher and the Australian Treasury expects this trend to continue over 2014-15 as jobs growth is expected to be marginally lower than the increase in the labour force. Part of this is due to the transition from the labour-intensive construction phase of the resources boom to the highly capital-intensive production phase, which requires relatively less workers.

Tasmanian Conditions

Following a period of lower demand driven by unfavourable external conditions and weaker domestic spending, the Tasmanian economy has been improving in the first half of 2014.

Household spending has returned to growth, driven in part by very strong growth in retail trade. Household confidence appears to be increasing, with growth in building approvals and finance commitments over the past year. Business confidence has also increased in recent quarters, along with private investment.

These positive factors have helped to increase employment in 2014, particularly full-time employment. Some of the high growth in full-time employment is likely due to employers increasing the hours of their existing employees, as total hours worked in Tasmania has been increasing and part-time employment has been declining. Unemployment remains high by national standards, partly due to an increase in the participation rate in recent months.

Tasmania's economy remains highly exposed to the strong Australian dollar and weaker prices of some key commodities. Some trade exposed sectors continue to face challenging conditions, particularly manufacturing and mining, which will contract due to the Mount Lyell copper mine moving into a care-and-maintenance period and the winding down of operations at the Henty gold mine. Activity in the forestry and forest products industry has seen some recent improvement, although activity remains well below the levels of recent years. The jobs shed by these industries typically tend to be those with skills that are not easily transferable to other industries, creating a mismatch with the opportunities in those industries set for growth which are increasingly reliant on skilled labour.

Much of Tasmania's agriculture industry is benefitting from strong demand and high prices, particularly dairy and livestock and confidence is high that further gains will occur. Tasmania's aquaculture industry is also set for further growth and is becoming an important source of employment growth.


Fiscal consolidation across all levels of government has resulted in public spending in Tasmania declining in real terms in recent years. The Australian and Tasmanian Governments continue to face strong fiscal pressure and further decline in public consumption spending is expected, though this will be partly offset by some major public investment projects.

ECONOMIC OUTLOOK Table 2.1 presents Treasury's estimates for key Tasmanian economic indicators for 2013-14, forecasts for 2014-15 and projections from 2015-16 to 2017-18.

Changes in gross state product are derived from component-based estimates of household consumption, private investment, government spending and net exports. This approach seeks to estimate movements in the same measures that the Australian Bureau of Statistics (ABS) reports in its Australian National Accounts.

Table 2.1: Tasmanian Economic Estimates, Forecasts and Projections

RER1 Budget 2014-15

2012-13 2013-14 2013-14 2014-15 2015-16 2016-17 2017-18 Actual Estimate Estimate Forecast Projections

Gross State Product2,3 -0.6 1¾ 1½ 1½ 2 2 2

State Final Demand2,3,4 -2.9 na 1½ 1½ 2¼ 2¼ 2¼

Employment3,5 -1.0 -1¾ -0.4 1¾ 1 1 1

Labour Force Participation Rate5,6 60.4 59½ 60.2 60¾ 60½ 60½ 60½

Unemployment Rate5,6 7.2 8 7.7 7¼ 7 7 7

Consumer Price Index (Hobart)3,5 1.1 2½ 2.5 2¼ 2½ 2½ 2½

Population3 0.1 0.2 0.3 0.4 0.6 0.6 0.6

Source: Data - ABS; Estimates Forecasts and Projections - Treasury. Notes: 1. The Revised Estimates Report 2013-14 was released in February 2014. 2. Real, percentage change. 3. Year-average, percentage change. 4. The estimates of SFD were not published in the Revised Estimates Report 2013-14. 5. Actual for 2013-14, not estimate. 6. Year-average, percentage level.

The projections over the period 2015-16 to 2017-18 contained in Table 2.1 should not be viewed as forecasts. Rather, they are based on the long-term averages in each of the series and do not take into account the potential impact of any policy changes. This is consistent with the practice of other jurisdictions and is unchanged from the forecasting process undertaken by Treasury for a number of years.


Summary of 2013-14 Estimates and 2014-15 Forecasts Household consumption and business investment have been increasing since early 2013 and contributed to economic growth in 2013-14. Retail spending, which comprises around one third of household spending, has been increasing at the highest rate in Australia, at over 9 per cent through the year to June 2014. Dwelling investment has recently increased but in year-average terms is expected to be around the same level as in 2012-13.

The value of overseas exports is expected to have grown slightly over 2013-14 in real volume terms, though the value of export sales has been declining due to weaker prices of key commodities such as zinc, iron ore and aluminium. Exports of goods to mainland Australia continue to contribute to Tasmania's economic growth to date.

Public spending across all levels of government has been detracting from Tasmania's economic growth in 2013-14, due in part to lower levels of public investment.

In 2013-14, Tasmania's gross state product and state final demand are expected to have returned to growth after declines in the previous year. The estimate of 1½ per cent growth for both gross state product and state final demand in 2013-14 is below the long-term trend of two per cent and 2¼ per cent respectively.

A decline in employment levels of 0.4 per cent in 2013-14 was estimated by the ABS. Part-time employment declined over this period while full-time increased, which is against the long-term trend of an increasing part-time employment share in Tasmania and nationally. Importantly, the ABS estimated that total hours worked increased by 2.4 per cent in 2013-14, which suggests overall labour demand has increased strongly. Average hours worked has therefore increased for many households, even though marginally fewer were employed in 2013-14 than in 2012-13.

The unemployment rate declined over the latter half of 2013-14. The high year-average rate of 7.7 per cent was due to very high rates of unemployment of over eight per cent earlier in the year. Tasmania's unemployment rate remains the highest in Australia while the participation rate continues to be the lowest, notwithstanding its recent incremental improvement.

Tasmania's population continues to grow at below trend rates and well below the national rate. The expected growth rate of 0.3 per cent in 2013-14 is marginally above the growth rate in 2012-13, as the level of net interstate out-migration from Tasmania appears to have slowed in response to fewer employment opportunities in some mainland states and a strengthening in local employment opportunities.

For 2014-15, the overall performance of Tasmania's economy is expected to be similar to 2013-14. Growth will come from private demand, with public spending detracting from gross state product as in 2013-14. The composition of private demand is likely to change, with a marginally smaller contribution from household spending after the catch-up in retail spending in 2013-14. Private investment is likely to improve further, supported by projects such as the new Myer development and the parliament square development in Hobart. Stronger growth in dwelling investment is also expected, in response to the growth in underlying demand and supported by low interest rates and the continuation of assistance to first home buyers of newly constructed homes.

The international export sector is expected to decline in 2014-15 in volume terms, due in part to a further reduction in copper exports. Exports to mainland Australia are expected to continue to grow, contributing to Tasmania's economic growth in 2014-15.


The labour market is forecast to improve in 2014-15, with employment levels expected to increase by 1¾ per cent from the 2013-14 year-average level. This follows from growth in state final demand and investment in late 2013. The labour market in 2014-15 is likely to be impacted by some confirmed new projects and also known job losses, including in the mining industry, and an expected decrease in public sector employment due to budget measures of the State and Australian Governments. The net increase in jobs growth is likely to push the unemployment rate down towards the national rate, though it will remain relatively high by national standards.

When employment opportunities were much more limited in Tasmania than in some mainland states this led to strong net interstate out-migration from Tasmania. With the decline in resource-related investment in some mainland states, the difference in employment opportunities is expected to decline in 2014-15 and Tasmania's population growth is likely to increase marginally.

Tasmania's Economic Outlook

Gross State Product Tasmania's economic growth, as measured by gross state product, has been behind Australia's economic growth in recent years, partly because external demand has not been as strong. However, the underlying economic fundamentals appear to be improving in Tasmania, driven by household spending and business investment. Growth closer to trend would have been forecast if not for weakness in the mining sector impacting on exports. Gross state product in Tasmania is estimated to have increased by 1½ per cent in 2013-14 and is also forecast to grow by 1½ per cent in 2014-15.

The key elements of Tasmania's gross state product are set out in more detail through the remainder of this chapter.

Chart 2.1: Gross State Product, Tasmania

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2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18

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Source: Australian National Accounts: State Accounts, ABS Cat No 5220.0; Treasury forecasts and projections.


State Final Demand Tasmania's state final demand, a measure of spending within the State, increased over 2013, following a decrease from mid-2011 to late 2012. In trend terms, Tasmania's state final demand remains around 2.2 per cent below the level in mid-2011 while nationally, final demand is around 6.6 per cent above the level at that time.

The improvement in business and consumer confidence suggests that private demand will continue to contribute to state final demand growth in 2014-15. This rate of growth will be tempered by constrained expenditure by all levels of government, unlike for much of the past decade. Tasmania's low population growth also constrains state final demand, though this has been offset by increased tourism-related spending. Positive growth in state final demand is expected for 2013-14 and 2014-15.

Household Consumption Household spending in Tasmania has been increasing in recent quarters but remains low in absolute terms, at around the level of early 2011. Household consumption includes the purchase of goods (retail trade), along with expenses relating to housing, electricity, transportation, education and communications. Households retain some caution, with discretionary spending still substantially lower than in late 2009, though it has very recently started to increase. The recovery has largely been confined to retail spending, which accounts for around one third of household spending, which may have been partially driven by strength in tourism. Despite low interest rates and improved housing affordability and the increase in total hours worked boosting household income, other aspects of household spending have not experienced similar growth to retail spending, although these factors do provide a positive outlook.

Household wealth has not increased to the same extent as nationally. House prices in Tasmania have risen by less than those across the rest of Australia. Direct share ownership is lower in Tasmania than nationally, so Tasmanian households have not benefited to the same extent from the share market gains in recent years. The wealth effect, which has supported the national growth in household spending and reduced national savings rates, does not appear to have been operating to the same extent in Tasmania.

The value of personal finance commitments in Tasmania, a leading indicator of household consumption, has been stable over the past two years, which suggests generally a continuation of cautiousness among households to borrow to fund their expenditure. Household spending is expected to continue to grow in 2014-15 at just below the long-term trend. The medium-term prospect is for a return to trend growth.

Private Investment Private investment accounts for a much smaller share of Tasmania's gross state product than for most mainland states. It remains subdued and is around 16 per cent below the most recent peak in late 2011, despite growth in recent quarters. Key influences have been the decline in the manufacturing industry and weak population growth, together with the reduced capacity of many businesses to invest due to the pressure on margins from the high Australian dollar.

The recent increase is mostly due to stronger business investment, which accounts for around two-thirds of private investment.

Recent business confidence indicators suggest that business investment will increase in 2014-15 by more than average due to improved confidence in some sectors. The aquaculture and dairy industries are set for further expansion and Tasmania's tourism sector has been buoyant with visitor numbers at record levels.


Some major commercial building projects are expected to commence in 2014-15 and a further boost is expected through the parliament square and Myer site redevelopments. While these projects are individually significant, the annual level of expenditure on projects of this scale accounts for a relatively small share of overall business investment in Tasmania, estimated at $2.4 billion in 2012-13. However, they will still make a contribution to growth over the years of construction.

The outlook for business investment in other industries is less favourable. Several sectors are not well placed to expand, in particular trade-exposed industries such as manufacturing and the forestry and forest products industries.

The housing market has strengthened in recent months, with property sales and house prices increasing, though not at the same rate as nationally. Following nine consecutive quarters of decline from mid-2011 to mid-2013, dwelling investment has marginally increased in the past year. Forward indicators of dwelling investment, such as residential building approvals and housing finance have improved and rental vacancy rates have decreased but this is yet to be reflected in significantly increased activity.

The Government's First Home Builder Boost is designed to stimulate demand for new dwellings from first home buyers with a grant of $30 000 until the end of December 2014. The Budget initiative of extending this program with a grant of $20 000 for the remainder of 2014-15, and the continuation of support at $10 000 ongoing will support the building sector. This grant represents a larger share of the full cost of land and construction than for comparable dwellings in mainland states. Applications have been increasing and growth in Tasmanian housing finance commitments from first home buyers has outpaced national growth in the past year.

Tasmania tends to follow the national trends in dwelling investment, which has also started to recover in recent quarters. Tasmania is expected to follow the national trend in 2014-15, with dwelling investment forecast to increase through the year.

The recovery in private investment is expected to continue in 2014-15, but it is expected to remain below the series peak levels of around $1.3 billion per quarter in late 2008. The medium-term outlook is, on balance, positive, as business confidence is at high levels and some of the new commercial building projects will extend over several years.

Government Expenditure Public spending includes Australian, state and local government consumption expenditure and investment for the General Government and government businesses sectors. In Tasmania, total public spending has been decreasing over the past year, maintaining the trend since early 2010, on average around 0.3 per cent per quarter. The decline in public consumption has been modest, while public investment has decreased significantly. Over the medium-term, fiscal pressures are expected to further constrain the extent to which public consumption expenditure by the Australian and State Government and, to a lesser extent, by local government will contribute to economic growth. Furthermore, investment from government businesses is expected to fall, especially from the electricity businesses; Tasmanian Irrigation Pty Ltd; and Tasmanian Railway Pty Ltd. However, this will be partially offset by an increase in general government public investment by the State Government. Further information on general government public investment spending can be found in chapter 7 of The Budget Budget Paper No 1.


International Trade The value of Tasmanian international merchandise exports has been falling due to some weaker export prices, the impact of the strong Australian dollar and the decline of the forestry and forest products industry in the State. Most recently, the nominal value of international merchandise exports was estimated to be $2.76 billion in the year to June 2014, down 8.8 per cent from the previous year and well below the level of $3.8 billion in the year to August 2007.

The volume of Tasmanian exports had been holding up through 2013, but it appears they declined through the first half of 2014.

Around 80 per cent of Tasmania's international merchandise exports are to Asian countries, with China (including Hong Kong) accounting for over 28 per cent in the year to June 2014. Export sales to China declined in the year to June 2014, driven largely by a decrease in the value of zinc exports.

Recent declines in international merchandise exports have been driven by a large fall in the value of exports classified as confidential (those exports whose classification is subject to confidentiality restrictions, for example to prevent the identification of the importer or exporter), particularly to the United States. In contrast, exports of dairy and non-ferrous metals have increased in the past year.

Exports of services have retained a steady share of around 10 per cent of total Tasmanian international exports over the past two decades. The tourism and education sectors continue to provide opportunities to increase this share. Tasmanian international visitor numbers have increased in recent years, particularly from Asia, with the share now reaching 40 per cent of all international visitors to the State.

The near term outlook for Tasmania's international exports is weak, due in part to the expected decline in mining exports as the Mount Lyell copper mine and the Henty gold mine accounted for around $300 million (or 10 per cent) of the State's exports in recent years. The impact of the weakness in the mining sector is an estimated detraction from growth in gross state product of around one half of a percentage point in 2014-15. The medium-term outlook is more encouraging, especially if the Australian dollar depreciates further and if there is renewed activity in the mining industry.

Labour Market The Tasmanian labour market remains weak by national standards but has improved after an extended period of decline. Total employment growth has been solid, with a return to growth in full-time employment and total hours worked.

Employment growth is forecast for 2014-15, responding to the recovery in state final demand and investment. Gains in employment levels through the first half of 2014 are expected to be sustained through 2014-15. The pressures on the Tasmanian labour market, such as the sustained higher dollar, lower public spending and recently announced redundancies in the mining industry, are balanced against several large projects committed or under construction and more favourable conditions in the housing construction market. Some tourism-related industries and primary industries are also set for further employment growth in the year ahead. On a year-average basis the level of employment is expected to increase by 1¾ per cent in 2014-15.


In trend terms, the unemployment rate peaked at 8.2 per cent in Tasmania in mid-2013, but has since improved to 7.5 per cent in July 2014, 1.4 percentage points above the national rate. The gap between the national and Tasmanian unemployment rates is expected to narrow in 2014-15 and in the out years (Chart 2.2). After trending downwards from mid-2010, Tasmania's participation rate has been increasing in 2014 to 61.0 per cent in trend terms in July 2014, but remains significantly below the national rate of 64.7 per cent. This difference is partly due to the State's older population profile. Tasmania's participation rate is relatively volatile, with changes of around one half of one per cent within a six month period not uncommon.

An increase in year-average original terms in the participation rate to 60¾ per cent is forecast for 2014-15, before easing slightly in the out-years. The longer-term participation rate in both Tasmania and Australia has been trending downward which has been impacted by the ageing of the workforce. The unemployment rate is forecast to decrease to 7¼ per cent in 2014-15.

Chart 2.2: Unemployment Rates, Tasmania and Australia

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5.5

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2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18

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Source: Labour Force, Australia, ABS Cat No 6202.0; Treasury forecasts and projections; 2014-15 Budget,

Australian Treasury.

Tasmania's Population Population growth in Tasmania has been very modest due to high rates of out-migration to mainland states driven by relatively stronger employment opportunities from the mining boom. The growth rate of 0.1 per cent in 2012-13 was well below the long-term average of 0.6 per cent. These high rates of out-migration have started to ease, most likely as the difference in job opportunities between mainland states and Tasmania have narrowed.


Chart 2.3: Annual Population Growth, Tasmania

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2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18

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Source: Australian Demographic Statistics, ABS Cat No 3101.0; Treasury forecasts and projections.

Population growth of 0.3 per cent is expected in 2013-14 and a further modest increase to 0.4 per cent is forecast for 2014-15, reflecting a further narrowing of the difference in labour market conditions in the year ahead.

Monetary Conditions Inflationary conditions remain very stable. The underlying inflation rate in Australia is currently around 2.9 per cent, which is within the Reserve Bank's medium-term target band of between two and three per cent. The Reserve Bank forecasts underlying inflation to remain consistent with the target over the medium-term.

In 2013-14, Hobart's Consumer Price Index increased by 2.5 per cent in year-average terms, due to inflation to the March and June quarters 2014 being marginally lower than for Australia as a whole. This inflation rate is then expected to ease slightly in 2014-15, consistent with national expectations, following the removal of the carbon price.

Over the past 12 months, the Reserve Bank has set the cash rate at 2.5 per cent, well below the long-term average. Lenders have maintained a higher margin than before the global economic downturn, such that some market rates are low but not at historic lows.

Most commentators expect interest rates to remain around these relatively low levels while national economic conditions remain relatively subdued and the Australian dollar remains at the current high level.


Risks to the Outlook

The Tasmanian economy has emerged from a period of weak activity driven primarily by household spending and business investment and is approaching the long-term trend growth. The risks to the outlook are, on balance, neutral. Unlike for much of the past decade, external demand and public spending are not expected to provide a strong source of increased demand.

A risk to the outlook on the downside is that businesses may not have fully adjusted to the sustained high Australian dollar and lower commodity prices contributing to pressures on the major manufacturing enterprises. Recent difficulties in the mining sector highlight the State's susceptibility to external shocks.

With the decline in resource sector investment nationally, there will be fewer Fly-in Fly-out Workers with families in Tasmania. While this increases the supply of skilled labour in the State, household income is likely to decline for these families, especially if there are few local employment opportunities. This may put upward pressure on Tasmania's unemployment rate.

On the upside, further depreciation in the Australian dollar may stimulate exports and provide some headroom for new investment in trade-exposed industries.

The low level of dwelling investment over several years has led to some pent up demand for housing which, at some stage, will trigger a recovery. Households have remained cautious and have not yet responded to the very low interest rates by increasing their borrowings for dwellings purchases. An upside risk is that dwelling investment surges in response to the incentives available, including the First Home Builder Boost, leading to a larger than expected increase in construction activity. Some parts of Australia have seen significant increases in dwelling investment and Tasmania typically lags national trends.

There is strong reliance on private demand within Tasmania and while business confidence is strong and consumer confidence has improved, this is yet to be reflected in a sustained increase in spending. An upside risk is that this business and consumer confidence strength drives private demand higher than forecast.

The Fiscal Strategy 3.1

3 THE FISCAL STRATEGY Features

• The 2014-15 Budget has been prepared in a challenging financial and economic environment. The General Government Budget position has deteriorated significantly in recent years. Importantly, there also remain a number of major risks that have the potential to have a significant negative impact on the Budget position in the future.

• The Government has carefully considered the development of its first fiscal strategy as part of the 2014-15 Budget process and has determined that it is important that a new fiscal strategy is established that reflects the current Budget position and the Government's policy priorities.

• The new Fiscal Strategy is based on enduring principles of strong and sound financial management which should be pursued by a government regardless of changes in the financial and economic environment.

• A key element of the new Fiscal Strategy is the development of a set of strategic actions that the Government will implement to achieve the established principles.

• The 2014-15 Budget and associated reforms and actions being taken by the Government are a significant early step in returning the Budget to a sustainable position. This is reflected in the early achievement of a number of the Strategic Actions that have been established as part of the new Fiscal Strategy.

• While immediate action has already been taken, it is important that all identified Strategic Actions are implemented. Further actions will be necessary to assist with returning the Budget to a sustainable position, especially if a number of significant risks to the current Budget position eventuate.

3.2 The Fiscal Strategy

A NEW FISCAL STRATEGY In developing the 2014-15 Budget, the Government carefully considered the elements required of a fiscal strategy that would assist in guiding the return of the Budget to a sustainable position and provide an appropriate basis for assessment of the Government's progress towards this important objective.

Tasmania's first fiscal strategy was announced in the 1990-91 Budget. There have been seven fiscal strategies adopted by successive governments since that time. Changes to fiscal strategies by various governments have arisen from external factors (both positive and negative) and, particularly in recent years, an inability to meet the short-term fiscal targets that have been established. A weakness in using short-term targets as the focus of a fiscal strategy is that it does not recognise that Tasmania's fiscal and economic circumstances can change quickly and significantly and, as a result, targets may lose their relevance.

An alternative approach to the development of a fiscal strategy is to focus on long-term fiscal principles, which aim to achieve financial sustainability and reflect responsible financial management. Long-term principles are designed to be enduring and applicable across financial and economic cycles. Shorter-term objectives and relevant financial and economic statistics will still be required to measure the Government's progress against the principles. However, the use of a principles-based approach recognises that a government can legitimately depart from short-term objectives in response to changing circumstances, as long as that departure is necessary, transparent and justifiable.

The Charter of Budget Responsibility Act 2007 details the following principles of sound fiscal management:

• ensure transparency and accountability in developing, implementing and reporting on fiscal objectives;

• ensure the efficient and effective allocation and sustainable use of resources in achieving objectives;

• ensure that policy decisions have regard to their financial effects on future generations;

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

• manage financial risks prudently.

In response to the previous Government's 2011-12 Budget, the Government identified a further set of principles which it considered set a framework for responsible fiscal management and were closely aligned with the Charter of Budget Responsibility Act.

These Fiscal Principles are to:

• manage the State's finances responsibly for the wellbeing of all Tasmanians;

• take care of the future for the next generation of Tasmanians;

• manage for the unexpected by building a robust financial position;

• improve services to Tasmanians by creating efficiencies and building a strong economy; and

• allocate public resources to gain the maximum community benefit.

The Government considers that the above principles provide a strong and appropriate foundation for the effective management of the State's finances. Taking into account these principles and the detailed information now available to the Government in the Budget Risks Report and the development of the 2014-15 Budget, the Government has developed a set of strategic actions to achieve these principles.


In order to mitigate the weaknesses of previous fiscal strategies, these strategic actions are focussed on the long-term and do not involve the development of specific numerical targets. It is also not intended that these indicators will be constrained to the same set annually, as that may give incorrect signals regarding progress against the Strategic Actions, depending on the economic and fiscal circumstances at the time. The Strategic Actions may also change in the longer run, in order to appropriately support the achievement of the Fiscal Principles.

STRATEGIC ACTIONS The Strategic Actions to be initially implemented by the Government to support the Fiscal Principles are detailed below.

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

2. General Government debt and defined benefit superannuation liabilities will be managed to ensure the combined annual servicing cost is less than six per cent of General Government cash receipts.

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

4. Government businesses will be required to deliver services to Tasmanians at the lowest sustainable cost, while also providing an appropriate financial return to the Government.

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

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

Further detail on and measurement of each Strategic Action, is outlined below.

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

For the first half of the decade from 2000-01 to 2009-10, the Net Operating Balance was in surplus every year (averaging $198 million per annum). These results, together with the associated cash surpluses, led to a significant improvement in General Government Net Debt over this time. In the second half of the decade, the Net Operating Balance declined significantly and varied between surplus and deficit. Stronger than expected growth in GST revenues contributed to the initial strong Budget outcomes, however, the impact of the global financial crisis subsequently weakened government revenue levels. This situation, together with continuing significant expenditure growth, led to a structural deterioration in the Budget position, with a "fiscal gap" between revenues and expenses opening-up from 2011-12.


Chart 3.1 highlights revenue and expenditure levels since 1999-00 and, most importantly, the excess of expenditure over revenue since 2011-12 and the impact of the 2014-15 Budget on reducing the fiscal gap over the Forward Estimates period.

Chart 3.1: General Government Revenues and Expenses, 1999-00 to 2017-181

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Note: 1. This Chart is based on actual data for the period 1999-00 to 2012-13, the Original Budget estimates for 2013-14 and

the 2014-15 Budget and Forward Estimates for 2014-15 to 2017-18.


Chart 3.2 provides information on changes in the annual compound average growth rates of General Government Sector revenues and expenses over differing time periods from 1999-00. It highlights the dramatic changes in revenue and expenditure growth that have occurred over the period. It also shows that, while expenditure growth slowed significantly from 2010-11 onwards relative to that in the prior decade, given the level of the decline in revenue growth, this reduction was not sufficient to improve the Budget position. If the 15 year period is considered as a whole, it can be seen that there have been clear underlying structural issues, as expenditure growth has exceeded revenue growth.

Chart 3.2: Compound Annual Growth Rates of General Government Revenue and Expenditure, 1999-00 to 2013-14

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In order to meet the Fiscal Principles and maintain a sustainable fiscal position, the Government will take action to ensure that the annual growth in General Government operating expenses does not exceed the long-term average growth in revenue. Over time, this will address the structural issues with the Budget and achieve and maintain a Net Operating Surplus. A sustainable surplus is important for a range of reasons, including building a financial buffer against shocks and to fund capital expenditure.

In the 2014-15 Budget, the Government has implemented a number of Budget Saving Strategies, including a new 12-month pay pause, as an important part of achieving this Strategic Action. These strategies are outlined in more detail in chapter 4 of The Budget Budget Paper No 1.


2014-15 Budget Assessment

General Government operating expenses are budgeted to grow at a compound annual rate of only 0.8 per cent over the Budget and Forward Estimates period. This is well below the long-run growth in revenue of 4.4 per cent and therefore meets the requirements of this Strategic Action. Importantly, expenses growth is also below the expected annual revenue growth of 1.9 per cent over the Budget and Forward Estimates period. The projected excess of revenue growth over expenditure growth over the 2014-15 Budget and Forward Estimates period is essential to returning the Budget to a sustainable operating position and commencing the process of recovering the State's previously strong Balance Sheet position (including reducing General Government Net Debt and meeting future superannuation costs). In the absence of further unforeseen fiscal shocks, it is anticipated that a return to operating surpluses will be achieved in approximately six years.

2. General Government debt and defined benefit superannuation liabilities will be managed to ensure the combined annual servicing cost is less than six per cent of General Government cash receipts.

This Strategic Action relates to principles such as taking care of the next generation of Tasmanians and managing for the unexpected by building a robust financial position. Some state governments, in particular those states with significant mining activity, have accumulated a stock of debt to fund government infrastructure investments required for fast growing economies. This is an appropriate government policy response for those particular circumstances, noting that these states are typically generating Net Operating Surpluses to service and pay down this debt. The use of debt financing may also be appropriate as a short-term response to unanticipated external events.

In the Tasmanian context, the projected increase in Net Debt on the General Government Balance Sheet has arisen as a result of the recurrent structural budget issues previously outlined, rather than as a result of substantial capital investment needs.

The Government also has a significant unfunded General Government Sector defined benefit superannuation liability. This 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 superannuation schemes, all of these schemes are now closed to new membership. Further information on the State's superannuation liability is provided in chapter 8 of The Budget Budget Paper No 1.

In order to manage the deterioration in the Government's General Government Net Debt position and the growing defined benefit superannuation liability, the Government will take action to ensure that combined annual servicing costs are less than six per cent of General Government cash receipts.


The Government expects to meet this objective in 2014-15 and over the Forward Estimates (Table 3.1).

Compared to other jurisdictions, Tasmania is relatively well positioned on this measure and currently has relatively low debt, however, defined benefit superannuation servicing costs are expected to escalate rapidly in coming years. Furthermore, given the rapid growth in the expected annual cost of the Government's superannuation liability over the next decade, as outlined in chapter 8 of The Budget Budget Paper No 1, this Strategic Action will become increasingly challenging and will require the elimination of General Government Net Debt to reduce borrowing costs and provide additional funding flexibility to offset the emerging cash cost of the defined benefit superannuation liability.


Table 3.1: General Government Borrowing and Defined Benefit Superannuation Costs, 2014-15 to 2017-18

2014-15 2015-16 2016-17 2017-18 Forward Forward Forward Budget Estimate Estimate Estimate

$m $m $m $m Superannuation - defined benefit schemes 244.3 261.9 273.5 286.0

Borrowing costs 10.8 10.4 10.2 9.9

Total borrowing and defined benefit scheme costs 255.1 272.3 283.7 295.9

Borrowing and defined benefit costs as a percentage of General Government cash receipts 4.8% 5.1% 5.3% 5.4%

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

Tasmania needs a competitive tax environment to incentivise business investment and drive economic growth. This aligns with the Government's focus on making Tasmania a competitive place to live, work and invest. However, taxes are necessary to fund essential Government services and, unlike some transfers from the Australian Government, this source of revenue is untied and fully flexible in its application. Therefore, in addition to a focus on a competitive tax environment, taxation policy should also focus on delivering efficient, fair, simple, stable and sustainable taxes.

Taxation policy reform is a key national issue. The Australian Government intends to produce two White Papers on the Reform of Federation and Reform of Australia's Taxation System by the end of 2015. The White Papers are expected to review the roles and responsibilities of governments and examine the national and state taxation systems more broadly. Reforms arising from the White Papers may have significant implications for Tasmania. The Tasmanian Government will be an active participant in the national White Paper development processes. Further information on Federal Financial Relations issues and the White Papers is provided in chapter 6 of The Budget Budget Paper No 1.


Overall taxation severity by jurisdiction, as determined by the Commonwealth Grants Commission, is shown in Chart 3.3. Tasmania currently has the second lowest taxation severity of all jurisdictions and is well below the Australian average (data for 2012-13 is the most recent data available from the Commonwealth Grants Commission).

The Government wants Tasmania to be the most competitive jurisdiction in which to live, work and invest. To further improve Tasmania's competitive tax environment, the Government has announced, in the 2014-15 Budget, a reduction in motor tax on light vehicles and insurance duty on Motor Accidents Insurance Board premiums to apply from 2017-18 and a new payroll tax rebate scheme to encourage employment. Further details on the Australian Government reviews and the 2014-15 Budget's new tax relief measures are outlined in chapter 6 of The Budget Budget Paper No 1.


Chart 3.3: Taxation Severity, 2012-13

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4. Government businesses will be required to deliver services to Tasmanians at the lowest sustainable cost, while also providing an appropriate financial return to the Government

The Government owns businesses for a range of reasons, including the need to ensure the continued provision of important or essential services to the Tasmanian community, as well as to enable the funding of large scale infrastructure to support economic development or to deliver on particular policy objectives. It is vital that these services are delivered at the lowest sustainable cost and in an efficient and effective manner, while also providing an appropriate financial return to the Government. The performance of government businesses relates directly to the Fiscal Principles of improving services to Tasmanians by creating efficiencies and allocating public resources to gain the maximum community benefit.

The performance of government businesses over recent years has been mixed. In some cases, costs for services have increased significantly for both business and residential customers. However, returns to the Government from the businesses, which are essential to assist with funding services such as health and education have, in general, been low. This is especially the case in the context of the significant equity invested by the Tasmanian community in the businesses. Equity invested in a government business carries an opportunity cost, being the benefit that the Government forgoes from an alternative use of that equity.

As at 30 June 2015, the Government's estimated total equity invested is $4.3 billion, yet historical and future expected financial performance of these government businesses has been poor. Profitability, as measured by return on equity, has generally been below the risk free rate (Chart 3.4). The exception is 2013-14 when the carbon tax improved Hydro Tasmania's financial performance, in part contributed to by Tasmanian electricity customers.


While recognising that returns to the Government need to be balanced against the price of delivering important services to customers and providing essential infrastructure to support economic development, the returns from the government business portfolio are well below the returns that could be expected from commercial businesses. It should be noted that, while the return on equity can reflect the performance of a business, it is also subject to variation in asset valuations which may not be directly controlled by a business.

In addition, the Government has also experienced increasing demand from some businesses for significant additional funding to meet capital expenditure requirements, meet Community Service Obligations or to ensure ongoing financial sustainability. In 2013-14, in the order of $275 million in Australian and State Government funding was provided to eleven government businesses (including an equity transfer from Transend Networks Pty Ltd to Tasmanian Railway Pty Ltd).

Chart 3.4: Government Business Returns, 2008-09 to 2017-181

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Notes: 1. The Chart includes ordinary dividend returns from Government Business Enterprises and State-owned Companies.

It should be noted that dividends are paid by entities in the year following the financial year to which they relate. For example, returns in 2013-14 reflect the profitability of entities in 2012-13.

2. Return on equity is calculated as the total for all government businesses of net profit divided by equity. 3. The increase in dividends in 2013-14 and 2014-15 was assisted by the increase in Hydro Tasmania's returns as a

result of the carbon tax. 4. The risk free rate is calculated as the average yearly yield on Australian Government 10 year bonds.

Government businesses are not subject to share market and capital market scrutiny and, therefore, do not have the incentives provided by share price movements and specific credit ratings to reflect the preferences of the providers of equity and debt scrutiny.

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3 4



The Government is taking a number of steps in order to improve the financial performance of government businesses, as well as their contribution to the Budget, especially in the context of the challenging Budget situation.

The Government will hold boards and management more accountable for business performance and for delivering value for taxpayers and the community. To achieve this, the Government will look at ways to further enhance the financial transparency of the government businesses and ensure that all businesses are reporting regularly against clear and measurable goals.

The Government has already taken a number of other actions. It has:

• written to all government businesses, highlighting the Government's expectations regarding efficient operations, including minimising expenditure on discretionary items, including advertising, consultancies, transport and travel;

• advised government businesses that remuneration policies should be consistent with the Government's wages policy;

• implemented stricter conditions for the reporting of overseas travel and remuneration to increase transparency;

• developed arrangements to ensure that procurement practices in government businesses are efficient, transparent and deliver the best outcome to the Tasmanian community; and

• reduced the size of most government business boards and frozen board fees, consistent with the approach taken in the broader State Service.

The Government is committed to continually improving the performance of the government business portfolio, as well as ensuring the businesses are delivering on the Government's policy objectives. Over the coming year, the Government will:

• investigate options to more closely integrate the operations of Tasmanian Ports Corporation Pty Ltd and Tasmanian Railway Pty Ltd to assess whether improved strategic and operational benefits can be delivered;

• work with Forestry Tasmania to ensure that the business is sustainable over the longer-term;

• work with Hydro Tasmania to ensure that it has an effective strategy and business model to deliver appropriate returns to Government in the future;

• review the capital structure of the electricity businesses;

• establish a Racing Industry Strategic Planning Working Group to work with the Government and Tasracing Pty Ltd to create a plan to help put the Tasmanian racing industry onto a more self-sustainable footing;

• complete the review of the Retirement Benefits Fund, with the objective to protect the best interests of its members and reduce risk to Government, noting that providing accumulation superannuation services is not a core role of Government; and

• implement the Government's policy to encourage more passengers to travel on the TT-Line vessels.


In relation to the contribution of government businesses to the Budget, the Government has increased the dividend payout ratio for government businesses. Further detail on the Government’s revised dividend policy and returns from government businesses are detailed in chapter 6 of The Budget Budget Paper No 1.

There will also be a closer focus on government business debt levels, particularly given that government businesses comprise a significant share of Total State Net Financial Liabilities. There are circumstances where increased debt can be appropriate, for example to fund the building of new productive infrastructure or to re-balance the Government's equity in its business portfolio having regard to the risk profile and capital needs of businesses within the portfolio. The provision of ongoing equity injections to government businesses is not sustainable in the long-run, as any equity injections can only be made by transfer within the government business portfolio, given the current budgetary situation. Government businesses will need to plan for these changing circumstances.

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

The Government views investment in infrastructure as a key priority to meet a number of the principles on which the new Fiscal Strategy is based. Infrastructure investment is essential to the delivery of services to the community and is also vital to supporting economic growth. It is also important to recognise that the community's infrastructure needs vary over time and that infrastructure investment is not only about the creation of new infrastructure. The maintenance and adaptation of existing infrastructure is also an important element of managing the State's infrastructure base.

Given limited resources, it is essential that infrastructure spending is appropriately prioritised. In this regard, it is noted that the Australian Government also provides significant funding for state infrastructure and often requires a significant matching funding commitment from the State. Government businesses also play a role and undertake many hundreds of millions of dollars of investment in infrastructure in Tasmania annually. The Government has established Infrastructure Tasmania to provide advice to the Government on infrastructure-related matters to assist the Government's decision making in this vital area.

Further detail on the Government's infrastructure investments is outlined in chapter 7 of The Budget Budget Paper No 1.


In recent fiscal strategies, the infrastructure investment objective was for infrastructure expenditure to exceed depreciation. While this notionally maintains the condition of existing assets, infrastructure investment by the Government should also respond to economic and population growth and reflect the changing needs of the community. As outlined in chapter 2 of The Budget Budget Paper No 1, economic and population growth are forecast to be slightly below the long-term trend rate, indicating limited pressure to increase infrastructure investment significantly beyond current levels. However, it is also important to take into account the need to renew the existing stock of infrastructure. In light of these issues and the current budgetary environment, it is considered appropriate that the requirement for infrastructure investment to continue to exceed depreciation over the Budget and Forward Estimates period is an appropriate indicator for this Strategic Action. Table 3.2 below shows that, based on the current Budget and Forward Estimates, this benchmark is achieved.


Table 3.2: Infrastructure Investment in Excess of Depreciation, 2014-15 to 2017-18

2014-15 2015-16 2016-17 2017-18 Forward Forward Forward Budget Estimate Estimate Estimate

$m $m $m $m Purchases of Non-Financial Assets 400.8 418.2 444.5 334.3 Depreciation 287.0 295.5 295.8 298.2

Surplus 113.8 122.7 148.7 36.1

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

Given the large contribution of the public sector to the Tasmanian economy, improvements in public sector productivity can make a significant difference to the State's economy, the financial position of the State and the overall well-being of the Tasmanian community. This aligns with Fiscal Principles such as improving services to Tasmanians by creating efficiencies and allocating public resources to gain the maximum community benefit. Improving the financial transparency of the Government's Budget position and financial actions is also essential to the community's capacity to assess the Government's level of achievement.

The Tasmanian State Service is the largest employer in the State, directly employing approximately 12 per cent of all employed persons in Tasmania in 2012-13. Estimated employee costs, including superannuation, are significant at $2.4 billion or 46 per cent of General Government expenditure in 2014-15.

As a proportion of State GSP, Tasmania's General Government employee expenses are higher than the national average (Chart 3.5). As shown in Chart 3.5, while nationally General Government employee expenses have been flat at around six per cent of GDP, since 2003-04, Tasmanian General Government employee expenses have increased from approximately 8.5 per cent to 10 per cent over the same period. Over the past decade, this increase in the level of expenditure was the highest of all jurisdictions. In 2012-13, Tasmania had the second highest level of employee expenses as a percentage of GSP of all states and territories, behind only the Northern Territory. However, as recognised by the Commonwealth Grants Commission, the cost of delivering a number of government services in Tasmania is also higher than the national average.


Chart 3.5: General Government Employee Expenses, 2003-04 to 2012-13

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Average public sector wages in Tasmania are only four per cent lower than those of public servants nationally. However, compared to the private sector in Tasmania, the Tasmanian public sector is (on average) relatively well remunerated (Chart 3.6), which may lead to economic inefficiency if the wages are not justified on a productivity basis. According to the ABS, average annual wages for Tasmanian public sector employees in 2012-13 were 25 per cent greater than the average in the Tasmanian private sector. This compares to a nine per cent difference nationally.


Chart 3.6: Public and Private Sector Average Wages, 2007-08 to 2012-131

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Source: Average Weekly Earnings, ABS Cat No 6302.0. Note: 1. Public sector includes employment by national, state and local government and any employment by entities directly

related to Government, such as businesses owned or run by government or public institutions. Another consideration is the conditions under public sector awards. One of the drivers of growth in General Government employee expenses has not only been the annual increases in pay levels but also employees moving up annual increments on the pay scales.

One important aspect of increasing salaries for public sector employees is the impact on the growth of the State's superannuation liability as it applies to current employees in the Retirement Benefits Fund defined benefit scheme and other defined benefit schemes, such as for fire and ambulance officers. As at 30 June 2014, there were approximately 7 500 accounts relating to current public sector employees who are a member of a defined benefit scheme. In total, it is estimated that, as at 30 June 2014 and taking into account current pension accounts and compulsorily preserved accounts, there were approximately 29 600 defined benefit scheme accounts. While access to these schemes was closed some time ago, it results in a large unfunded superannuation liability and, for future governments, significant and increasing lump sum payments and fortnightly payments over an extended period of time, which have to be met at the cost of future delivery of services to the community.

The number of employees in the Tasmanian public sector has also grown strongly which, in addition to wages growth, has driven General Government employee expenses. From 2000 to 2011, the number of General Government employees grew by 25 per cent from around 20 000 Full Time Equivalents (FTEs) to over 25 000 FTEs. Over 2011 and 2012, there was a modest reduction in employment, in response to Budget pressures but, since the beginning of 2013, there has been a return to considerable growth in FTE levels. As at 30 June 2014, the number of FTEs in the General Government Sector was approximately 24 500.


Growth in both General Government employee numbers and wages has a significant impact on the overall growth in General Government operating expenses. Ensuring efficient outcomes is important given the costs this imposes on the Tasmanian community as a whole, not just in terms of taxes but also in terms of the government services forgone.

Keeping General Government expenses growth below long-term average growth in General Government revenue is critical to restoring the Budget to a sustainable position and is an important reason behind the Government's 12-month pay pause (which is outlined in chapter 4 of The Budget Budget Paper No 1) and other Budget Savings Strategies.

The relatively high proportion of Tasmanian public sector employees as a share of total employment can be partially explained by the challenges of delivering government services in Tasmania, for example due to the dispersed population, lesser scale advantages compared to the larger mainland states and relative socio-economic disadvantages. Similarly, relatively high wages compared to the private sector may be able to be explained to an extent by the relatively high proportion of public servants who are university graduates. However, the critical factor for Government, especially in relation to wages growth, is public sector productivity.


Productivity in the public sector is difficult to measure, particularly for policy development or the provision of services and activities other than to the public. Often there are no market transactions where the value or volume of services can be recorded. Tasmania's productivity, across the whole economy and in terms of the value of Tasmania's output per unit of labour, has consistently been below the Australian level. Although this productivity gap is primarily due to a different industry mix to nationally, this gap continues to increase and productivity across the whole Tasmanian economy is currently approximately 15 per cent lower than nationally.

A similar trend may be occurring in the public sector in Tasmania. In 2010, as part of a ten year comparison of Tasmanian public sector productivity, the Auditor-General calculated that total employee costs increased more than service delivery across the public service, implying that any productivity gains during this period have not been sufficient to support the increase in salaries.

Getting better value for money out of the services delivered by the public sector is a key goal for the Government.

In addition to the new wages policy, the Government will therefore be considering a number of initiatives to drive better public sector outcomes including:

• reviewing Government programs to better allocate Government resources; and

• benchmarking Government programs and services against those delivered in the private sector where possible.


In relation to financial transparency, the Government is currently subject to a comprehensive and legislated financial reporting framework. While this is the case, the Government is committed to ensuring that the financial reporting framework reflects current best practice. The Government will therefore be taking action in the following areas:

• in support of the new Fiscal Strategy, the Government will introduce amendments to the Charter of Budget Responsibility Act in order to enshrine the Fiscal Principles and ensure annual reporting in the Budget Papers of the Government's performance against the Fiscal Principles;

• to provide further information to the Tasmanian community on the long-term position of the Budget, amendments will also be introduced to the Charter of Budget Responsibility Act to require a report to be publicly released by the Treasurer every five years on the long run sustainability of the Government's finances. It is proposed that the first such report would be released in 2015-16;

• the Government will introduce new financial management legislation to improve the efficiency, effectiveness and transparency of government financial management. The new legislation will replace the Public Account Act 1986 and the remaining financial provisions in the Financial Management and Audit Act 1990; and

• the Government will look at ways to further enhance financial transparency of government businesses and ensure that all such businesses are reporting regularly against clear and measurable goals.

OVERALL 2014-15 BUDGET ASSESSMENT The Government's financial position is currently challenging, particularly in relation to the Net Operating Balance position and the imbalance between revenue and expenditure growth. The 2014-15 Budget and associated reforms and decisions being taken by the Government are a significant early step in returning the Budget to a sustainable position. This is reflected in the achievement of a number of the Strategic Actions that have been established as part of this new Fiscal Strategy.

While immediate action has already been taken, it is important that all identified Strategic Actions are implemented. Further actions will be necessary to assist with returning the Budget to a sustainable position, especially if a number of significant risks to the current Budget position eventuate (as highlighted in chapter 1 of The Budget Budget Paper No 1).

Budget Savings and Revenue Strategies 4.1

4 BUDGET SAVINGS AND REVENUE STRATEGIES

Features

• The Analysis of Budget Risks Report (Budget Risks Report), published in April 2014, highlighted a significant deterioration in the State’s financial position. Further deterioration has occurred since that time and it has been necessary for the Government to develop a comprehensive Budget response to address the deteriorating financial position and take steps towards returning the Budget to a sustainable position.

• The Government's Budget response includes:

− implementation of $563.4 million in identified savings;

− a new wages policy which includes a 12-month pay pause followed by limited wages growth; and

− improved returns from Government Business Enterprises and State-owned Companies.

• The Forward Estimates are based on future wages growth being limited to two per cent per annum once the 12-month pay pause is lifted. As part of the annual Budget process, the Government will review the State's economic and financial conditions and consider whether higher wage increases can be supported.

• As a result of the Budget response, compared to the Budget Risks Report, the 2014-15 Budget shows:

− an improvement in the Net Operating Balance of $200.3 million over the period 2014-15 to 2016-17; and

− an improvement in Net Debt of $355.6 million by 30 June 2017.

4.2 Budget Savings and Revenue Strategies

BUDGET RESPONSE Upon its election, the Government deferred the presentation of the 2014-15 Budget until 28 August 2014 and requested Treasury to prepare a report quantifying the potential impact on the Budget and Forward Estimates of the risks highlighted in the Revised Estimates Report 2013-14. The Budget Risks Report highlighted a deterioration of over $207.8 million in the Net Operating Balance over the period 2013-14 to 2016-17, since publication of the Revised Estimates Report in February 2014. Net Debt was also estimated to exceed $400 million by 30 June 2017, as a result of this deterioration.

Treasury advised that, even with some positive risk outcomes, a return to a positive Net Operating Balance would not be achieved during the 2014-15 Budget and Forward Estimates period, and immediate action was required to address the unsustainable Budget position.

Further deterioration has occurred since the Budget Risks Report and as part of the 2014-15 Budget, the Government has developed comprehensive strategies to respond to this situation. These include:

• the implementation of a range of savings measures, including initiatives identified as a part of election commitments and other measures arising from a detailed review of all expenditures as part of the 2014-15 Budget development process;

• a new wages policy which includes a 12-month pay pause followed by limited wages growth; and

• improved returns from Government Business Enterprises and State-owned Companies.

In total, the Government will be implementing strategies totalling $993.4 million across the 2014-15 Budget and Forward Estimates period. The implementation of the Budget response will assist with returning the Budget to a sustainable financial position.

Table 4.1 summarises the level of savings that will be achieved from each element of the Budget response.

Table 4.1: Total Impact of Savings and Revenue Strategies 2014-15 2015-16 2016-17 2017-18

Budget

Forward Estimate

Forward Estimate

Forward Estimate Total

$m $m $m $m $m

Government and Agency Savings 121.5 149.6 156.7 135.6 563.4

Boards and Committees Savings1 0.3 1.0 1.1 1.1 3.5

Pay Pause 30.0 48.1 49.2 50.3 177.7

Improved Returns from Government Businesses 107.2 8.7 29.3 103.7 248.8 TOTAL 259.0 207.4 236.3 290.7 993.4

Note: 1. Savings relating to Government Business Enterprises and State-owned Companies of $2.4 million have not been

included as these are outside the General Government Sector. Savings relating to the move to a single THO Governing Council are also not reflected in Table 4.1 and will be confirmed in the 2015-16 Budget.


As a result of the Budget response, the 2014-15 Budget shows an improvement in the Net Operating Balance of $200.3 million over the period 2014-15 to 2016-17, in comparison to the Budget Risks Report. Net Debt will also improve and be $355.6 million lower by 30 June 2017 compared to estimates in the Budget Risks Report.

The implementation of savings and revenue strategies are consistent with the Strategic Actions being implemented by the Government to support the Fiscal Principles. Specifically:

• the reduction in expenses through savings strategies assists in limiting annual growth in General Government operating expenses to ensure that it remains lower than revenue growth;

• improvements in returns from government businesses ensure an appropriate financial return to the Government; and

• savings gained from the pay pause will help improve public sector productivity measures due to the lowered cost of employment.

Budget Savings Strategies

Government Savings In its response to the 2013-14 Budget, the current Government identified a range of savings that it would implement post the 2014 Election, if elected.

The following strategies will be implemented from 2014-15 and will achieve savings of $203.6 million over the Budget and Forward Estimates period:

• amalgamation of agencies to create the Department of State Growth (Department of State Growth);

• reduction of funding to 10 Days on the Island (Department of State Growth);

• abolition of the Fitness Hotline (Department of Health and Human Services);

• Year 11 and 12 regional education initiative (Department of Education);

• abolition of the Climate Change Council (Department of Premier and Cabinet);

• Biosecurity Tasmania - reduction in fox funding (Department of Primary Industries, Parks, Water and Environment);

• Integrity Commission efficiency (Integrity Commission);

• Ministerial limousines (Ministerial and Parliament Support);

• Forestry Tasmania contingency (Finance-General);

• reduction in the Treasurer's Reserve (Finance-General);

• removal of the ICT Fund (Finance-General); and

• savings from tearing up the Forestry Deal (Finance-General).

For more information in relation to these savings strategies, refer to the relevant agency Budget chapters in Government Services Budget Paper No 2.


The remaining savings strategies which the current Government identified it would implement if elected (more efficient public service, reduce the Senior Executive Service, reduce supplies and consumables, centralise government property management and reduce the car fleet) are effectively subsumed by the Agency Savings Strategies discussed below. Of note, agencies have identified savings strategies to reduce supplies and consumables expenditure by $119 million over the 2014-15 Budget and Forward Estimates.

In addition, agencies have identified savings of $3.5 million from the reduction or abolition of agency Boards and Committees. Savings of $2.4 million relating to the Boards of Government Business Enterprises (GBEs) and State-owned Companies (SOCs) have also been identified. As the GBEs and SOCs are external to the General Government Sector, these savings are not included in Table 4.1. It is also currently estimated that there will be savings of $1.1 million from the move to a single THO Governing Council. The proposed amalgamation of the THOs is expected to commence from 1 July 2015 and final savings will be reflected in the 2015-16 Budget. The current estimate of THO Governing Council savings is not reflected in Table 4.1. In total, approximately $7 million of Boards and Committees savings have been identified across the 2014-15 Budget and Forward Estimates period and this will result in the abolition of 16 boards including the amalgamation of a further seven boards into three. An additional 18 boards will also receive reduced funding and/or have reduced membership as a result of the Government’s saving strategy.

Agency Savings Strategies As part of the development of the 2014-15 Budget, the Government conducted a detailed review of agency expenditures to identify options for savings strategies over and above the Government's savings specified above that would assist in returning the Budget to a sustainable basis. From this work, a total of $359.8 million in savings strategies over the Budget and Forward Estimates period have been identified for implementation. Further details of the strategies are detailed in the section below - Budget Savings Strategies - Agency Summary.

Impact on Public Sector Employment When implementing savings, agencies will use a range of staffing and position management strategies to minimise impacts on public sector employment.

Employee costs account for 38 per cent ($374.3 million) of the Budget Savings Strategies, with 18 per cent achieved through a pay pause, and 20 per cent ($196.6 million) of the savings to be achieved by agencies reducing employee expenses.

Agencies have indicated that savings the equivalent of approximately 700 Full Time Equivalent positions are required over the 2014-15 Budget and Forward Estimates period. These figures should be taken as indicative as the actual number of FTEs reduced will be dependent upon a range of factors including individual salary rates.

Wage Policy - Pay Pause

State public sector wages, including Superannuation expense, constitute 46 per cent of General Government expenses. Successful management of the State's Budget and returning it to a sustainable position will require containment of wages and wages growth.


In addition to agency savings strategies, the Government has proposed to manage unsustainable expenditure growth through tighter management of public sector employee costs via the wages policy and through a 12-month pay pause. Implementation of a pay pause will reduce the need for additional agency savings strategies directly reducing employee positions. The proposal will pause public sector wages for 12-months, including salary increases and salary progression increments.

The Forward Estimates are based on future wage increases being limited to two per cent per annum once the 12-month pay pause is lifted. As part of the annual Budget process, the Government will review the State's economic and financial conditions and consider whether higher wage increases can be supported.

Salary progression increments will be resumed at the end of the 12-month period. Table 4.2 shows the savings from this strategy over the 2014-15 Budget and Forward Estimates period.

Table 4.2: Pay Pause 2014-15 2015-16 2016-17 2017-18

Budget

Forward Estimate

Forward Estimate


$m $m $m $m $m

Pay Pause 30.0 48.1 49.2 50.3 177.7

The 12-month pay pause has been implemented in response to the significant growth in Employee Expenses over recent years. Since 2003-04, public sector employment costs have grown by more than 80 per cent. Chart 4.1 shows growth in employee expenses between 2003-04 and 2013-14.

Chart 4.1: Employee Expenses, 2003-04 to 2013-141

1 000

1 200

1 400

1 600

1 800

2 000

2 200

2 400

2 600

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

$ m

illio

n

Employee Expenses

Note: 1. Employee Expenses includes Superannuation Expense.


The Budget Risks Report raised the concern that the Forward Estimates would not support the current level of staffing in agencies. The Budget Risks Report stated:

"In the 2011-12 Budget, the then Government announced a budget savings target which was equivalent to a reduction of approximately 1 700 Full-Time Equivalents (FTEs), by 2014-15. Since June 2011, a reduction of approximately 900 FTEs has occurred across all agencies. However, after allowing for seasonal fluctuations in education entity staffing, Treasury estimates that a structural reduction of less than 700 FTEs has occurred to the end of February 2014. Since the original savings target was established, there has been a further deterioration in the Forward Estimates and, given current wage increases and increments, and in the absence of other savings strategies, the current Forward Estimates imply that further savings, equivalent to in excess of 1 000 FTEs, need to be achieved by agencies."

Chart 4.2 shows FTEs in the General Government sector from June 2011 to June 2014 excluding the education entities staffing.

Chart 4.2: FTEs (excluding Education Entities)1

15 000

15 200

15 400

15 600

15 800

16 000

16 200

16 400

16 600

16 800

17 000

Jun

2011

Dec

201

1

Jun

2012

Dec

201

2

Jun

2013

Dec

201

3

Jun

2014

Full-

Tim

e Eq

uiva

lent

s

Note: 1. Education entities excluded due to significant seasonal fluctuations in staffing.

Chart 4.2 shows that there was a strong downward trend in employment levels in the General Government Sector in the first 18 months of the 2011-12 Budget and Forward Estimates period, consistent with the implementation of savings strategies identified in that Budget. However, from January 2013, that trend reversed, with FTE levels increasing strongly. Excluding the education entities, there were 1 036 fewer FTEs in the General Government Sector in January 2013 than in June 2011. However, from January 2013, FTEs in the General Government Sector increased by 642.

The 12-month pay pause will apply across the public sector, including general public servants, teachers, nurses, police, fire fighters, ambulance staff and doctors and also State parliamentarians and the senior executive service. If the pay pause was not implemented, it would be necessary to reduce public sector employment by in excess of a further 500 FTEs to achieve the same Budget outcome.


Improved Returns from Government Businesses

Dividends from government businesses represent a return to the community on the Government's equity investment in each business and provide an important source of annual revenue to the Government. The dividend policy for each government business has regard to the business's targeted capital structure, its working capital requirements, capital expenditure funding requirements and any contingency funds that may be required to retain financial flexibility, particularly where key financial risks exist.

In the context of the current Budget situation and the need to increase own source revenue and reduce the need for additional Budget Savings Strategies, the Government has reviewed the current dividend arrangements for all government businesses. As a result, a default dividend policy has been established that will require each government business to pay 90 per cent of net profits after tax as a dividend each year, unless a business can justify a lower payout ratio.

The new dividend policy is being introduced progressively and will mainly result in increased dividends, compared to the dividend revenue that would have been received under the previous dividend policy, from the Motor Accidents Insurance Board, Tasmanian Networks Pty Ltd and Aurora Energy Pty Ltd over the Budget and Forward Estimates period. Hydro Tasmania’s payout ratio remains unchanged in 2014-15 and increases thereafter.

In addition to ordinary dividends, the Motor Accidents Insurance Board has identified that it has equity in excess of its capital requirements and is in a position to remit a special dividend of $100 million in 2014-15.

Table 4.3 provides details of the additional dividend income as a result of the policy change.

Table 4.3: Additional Dividend Income 2014-15 2015-16 2016-17 2017-18


Forward Estimate

Forward Estimate

$m $m $m $m

) ) ) )

Dividends

Aurora Energy Pty Ltd .... 2.3 1.6 1.6

Hydro Tasmania .... .... .... 75.0

Motor Accidents Insurance Board 7.2 6.4 6.0 ....

Tasmanian Networks Pty Ltd .... .... 21.8 26.1

Tasmanian Ports Corporation .... .... .... 1.0

Special Dividends Motor Accidents Insurance Board 100.0 .... .... ....

Increase in total Dividends from Policy Change 107.2 8.7 29.3 103.7

) ) ) )

Further details of government business returns are provided in chapter 6 of The Budget Budget Paper No 1.


Budget Savings Strategies - Agency Summary Table 4.4 provides a summary of Budget Savings Strategies, including the impact of the pay pause, by agency. A discussion of the major Budget Savings Strategies for each agency follows Table 4.4.

Table 4.4: Total Agency Saving Strategies 2014-15 2015-16 2016-17 2017-18

Budget

Forward Estimate

Forward Estimate


$m $m $m $m $m

Education 21.6 38.0 44.3 44.5 148.4

Finance-General 49.3 50.3 46.8 24.8 171.2

Health and Human Services 18.9 25.5 26.4 28.3 99.1

Tasmanian Health Organisations 21.8 28.6 30.9 30.0 111.3

Justice 2.7 5.8 5.9 5.9 20.3

Ministerial and Parliamentary Support 1.6 1.8 1.8 1.8 7.1

Police and Emergency Management 7.5 11.2 11.7 11.9 42.2

Premier and Cabinet 4.6 4.5 4.6 4.7 18.3

Primary Industries, Parks, Water and Environment 7.7 10.6 10.7 10.7 39.7

State Growth 13.1 17.7 18.8 19.4 68.9

Treasury and Finance 1.1 1.8 1.8 1.8 6.5

House of Assembly 0.1 0.2 0.3 0.3 0.9

Integrity Commission 0.5 0.8 0.8 0.8 3.1

Legislative Council 0.1 0.2 0.3 0.3 0.8

Legislature-General 0.1 0.2 0.2 0.2 0.6

Office of the Director of Public Prosecutions 0.4 0.5 0.5 0.5 1.9

Office of the Governor .... 0.1 0.1 0.1 0.2

Office of the Ombudsman .... 0.2 0.2 0.2 0.6

Tasmanian Audit Office 0.1 0.1 0.1 0.1 0.5

Tourism Tasmania 0.6 0.7 0.7 0.7 2.8

TOTAL 151.9 198.7 207.0 187.0 744.6


Department of Education The Department will implement savings of $148.4 million over the Budget and Forward Estimates, with savings of $21.6 million in 2014-15, $38 million in 2015-16, $44.3 million in 2016-17 and $44.5 million in 2017-18. Savings strategies include:

• redesigning the approach taken to pathway planning;

• consolidating the activities of Learning Services North and Learning Services North West into a new single service;

• improving access and sustainability of rural libraries and on-line access centres, including collocation with local school libraries and LINCs;

• implementing a new operating model for Years 11 and 12 course development and accreditation;

• gaining efficiencies through revised organisational and operational structures and statutory arrangements; and

• the implementation of the Government's policy to constrain public sector wages through a 12-month pay pause.

Finance-General Finance-General will implement savings of $171.2 million over the Budget and Forward Estimates, with savings of $49.3 million in 2014-15, $50.3 million in 2015-16, $46.8 million in 2016-17 and $24.8 million in 2017-18. Savings strategies include:

• removing the Forestry Tasmania contingency fund;

• removing the ICT Fund; and

• reducing the Treasurer's Reserve.

Department of Health and Human Services The Department will implement savings of $99.1 million over the Budget and Forward Estimates, with savings of $18.9 million in 2014-15, $25.5 million in 2015-16, $26.4 million in 2016-17 and $28.3 million in 2017-18. Savings strategies include:

• redesigning and consolidating the corporate back office functions undertaken by the Department, into central business units, to achieve economies of scale;

• the redesign of selected departmental workgroups and service processes to deliver improved business efficiency and productivity;

• a reduction in operational costs such as consultants, property costs, travel, advertising and transport;

• a review of non-direct services funded by the Department; and



In addition, the Department will monitor the implementation of savings of $111.3 million over the Budget and Forward Estimates by the Tasmanian Health Organisations (THOs), including:

• the restructure of THO corporate management services across each THO to deliver operational efficiencies;

• the reduction of non-salary expenditure for goods and services through the renegotiation and retendering of a range of state-wide contracts and carefully managing expenditure on travel, communication, advertising and procurement;

• the delivery of workforce and operational efficiencies that enhance service delivery and quality care; and


Further information in relation to the savings to be made in the amalgamation of the three THOs into a single entity (One State, One Health System, Better Outcomes) is contained in chapter 4 in Government Services Budget Paper No 2.

Department of Justice The Department will implement savings of $20.3 million over the Budget and Forward Estimates, with savings of $2.7 million in 2014-15, $5.8 million in 2015-16, $5.9 million in 2016-17 and $5.9 million in 2017-18. Savings strategies include:

• implementing a model to collocate Tasmania's integrity entities including the Integrity Commission, Office of the Ombudsman and the Anti-Discrimination Commission;

• redesigning the service models provided by Consumer Affairs and Fair Trading and WorkSafe Tasmania;

• achieving efficiencies in the operation of the Hobart Magistrates Court, Hobart Supreme Court, Tasmanian Planning Commission and Tasmanian Electoral Commission;

• creating efficiencies through realignment of Electrical Safety Inspection Services with Building Standards and Occupational Licensing;

• reducing the number of Departmental boards and committees including the Building Regulatory Advisory Committee (in 2015-16 once the current building regulation review has been completed) and the Forest Practices Tribunal; and


Ministerial and Parliamentary Support The Agency will implement savings of $7.1 million over the Budget and Forward Estimates, with savings of $1.6 million in 2014-15 and $1.8 million delivered annually from 2015-16. Savings strategies include:

• reducing Ministerial limousine services;

• reducing operational costs for Ministerial and Electorate Offices; and



Department of Police and Emergency Management The Department will implement savings of $42.2 million over the Budget and Forward Estimates, with savings of $7.5 million in 2014-15, $11.2 million in 2015-16, $11.7 million in 2016-17 and $11.9 million in 2017-18. Savings strategies include:

• the State Emergency Service reporting through the Chief Fire Officer to achieve economies of scale and eliminate duplication of services;

• reviewing the management of the Department's vehicle fleet;

• reviewing the Department's accommodation arrangements;

• reviewing support service arrangements and business processes with a view to creating structural savings; and


Department of Premier and Cabinet The Department will implement savings of $18.3 million over the Budget and Forward Estimates, with estimated savings of $4.6 million in 2014-15, $4.5 million in 2015-16, $4.6 million in 2016-17 and $4.7 million in 2017-18. Savings strategies include:

• reviewing grant funding provided by the Department, and a reduction in the Premier's discretionary fund;

• reviewing programs to ensure a focus on those services and activities which directly underpin the Department's core roles;

• reviewing organisational structures as a means of delivering improved departmental efficiencies;

• continuing the review of operational (non-salary) expenditure to ensure it is necessary; and


Department of Primary Industries, Parks, Water and Environment The Department will implement savings of $39.7 million over the Budget and Forward Estimates, with savings of $7.7 million in 2014-15, $10.6 million in 2015-16, $10.7 million in 2016-17 and $10.7 million in 2017-18. Savings strategies include:

• the review, restructure and realignment of agency functions to achieve organisational efficiencies;

• the delivery of workforce efficiencies through service redesign while maintaining service delivery standards;

• the review of the allocation of grants funding by the Department; and



Department of State Growth The Department will implement savings of $68.9 million over the Budget and Forward Estimates, with savings of $13.1 million in 2014-15, $17.7 million in 2015-16, $18.8 million in 2016-17 and $19.4 million in 2017-18. Savings strategies include:

• gaining efficiencies through revised organisational and operational structures, including amalgamating the former Department of Infrastructure, Energy and Resources with the former Department of Economic Development, Tourism and the Arts in creating the Department of State Growth;

• reprioritising existing project related funding;

• re-scoping of existing activities and programs;

• gaining efficiencies by improving service delivery processes;

• reviewing the allocation of grant funding by the Department, including funding of TasTAFE; and


Department of Treasury and Finance The Department has identified total savings of $6.5 million over the Budget and Forward Estimates, with savings of $1.1 million in 2014-15 and $1.8 million delivered annually from 2015-16. Savings strategies include:

• a revised model of risk based compliance and client education activities associated with liquor and gaming regulation;

• revised administrative support arrangements;

• merging the Tasmanian Gaming Commission and Liquor Licensing Board; and


House of Assembly The House of Assembly will implement savings of $860 000 over the Budget and Forward Estimates. To deliver on this commitment, during 2014-15, the three Parliamentary entities will work together to identify efficiencies to be achieved from 2015-16. The savings of $860 000 include the implementation of the 12-month pay pause.

Integrity Commission The Integrity Commission will implement savings of $3.1 million over the Budget and Forward Estimates period, with savings of $532 000 in 2014-15 and $846 000 delivered annually from 2015-16. Savings strategies include:

• focussing on areas of highest priority and achieving efficiencies across all areas of operations;

• implementing a model to collocate Tasmania’s integrity entities;


• reducing the size and cost of the Integrity Commission Board, in accordance with the Government's commitment to reduce spending on Government Boards and Committees; and


Legislative Council The Legislative Council will implement savings of $795 000 over the Budget and Forward Estimates. To deliver on this commitment, during 2014-15, the three Parliamentary entities will work together to identify efficiencies to be achieved from 2015-16. The savings of $795 000 include the implementation of the 12-month pay pause.

Legislature-General Legislature-General will implement savings of $646 000 over the Budget and Forward Estimates. To deliver on this commitment, during 2014-15, the three Parliamentary entities will work together to identify efficiencies to be achieved from 2015-16. The savings of $646 000 include the implementation of the 12-month pay pause.

Office of the Director of Public Prosecutions The Office of the Director of Public Prosecutions will implement savings of $1.9 million over the Budget and Forward Estimates, with savings of $412 000 in 2014-15, $486 000 in 2015-16, $498 000 in 2016-17 and $506 000 in 2017-18. Savings strategies include:

• continuing to maintain strict vacancy control to produce salary savings from existing vacancies;

• reducing non-salary and discretionary expenditure;

• reducing travel expenditure; and


Office of the Governor The Office of the Governor will implement savings of $216 000 over the Budget and Forward Estimates through the implementation of the Government's policy to constrain public sector wages through a 12-month pay pause, with savings of $34 000 in 2014-15, $60 000 in 2015-16 and $61 000 in 2016-17 and 2017-18.

Office of the Ombudsman The Office of the Ombudsman will implement savings of $576 000 over the Budget and Forward Estimates, with savings of $27 000 in 2014-15, $182 000 in 2015-16, $183 000 in 2016-17 and $184 000 in 2017-18. Savings strategies include a strategy to collocate Tasmania's integrity entities and the implementation of the Government’s policy to constrain public sector wages through a 12-month pay pause.


Tasmanian Audit Office The Tasmanian Audit Office will implement savings of $540 000 over the Budget and Forward Estimates, with savings of $120 000 in 2014-15, $138 000 in 2015-16, $140 000 in 2016-17 and $142 000 in 2017-18. Savings strategies include:

• reducing the operational cost of printing the Office's Parliamentary Reports;

• managing the number and scope of Employer Review projects to a revised budget; and


Tourism Tasmania The Agency will implement savings of $2.8 million over the Budget and Forward Estimates, with savings of $600 000 in 2014-15 and $700 000 delivered annually from 2015-16. These savings strategies include:

• streamlining and creating efficiencies as part of the realignment and restructure of the Agency; and

• the implementation of the Government’s policy to constrain public sector wages through a 12-month pay pause.

2014-15 Budget and Forward Estimates 5.1

5 2014-15 BUDGET AND FORWARD ESTIMATES

Features

• Total General Government expenses are anticipated to be $5 249.3 million in 2014-15, an increase of $190.3 million or 3.8 per cent above the 2013-14 budgeted expenses of $5 059 million.

• Over the Budget and Forward Estimates period, expenditure growth has been constrained to a compound annual rate of 0.8 per cent, well below the expected annual revenue growth rate of 1.9 per cent over the same period and the long-run annual revenue growth rate of 4.4 per cent. This low expenditure growth rate reflects the implementation of the Budget Savings Strategies, resulting in projected decreased total expenditure of $5 211.4 million in 2015-16, rising to similar to 2014-15 levels in 2016-17 ($5 255.3 million).

• The 2014-15 Budget includes funding to implement all of the Government's election commitments, while still achieving significant improvements in the General Government Net Operating Balance and General Government Net Debt over the 2014-15 Budget and Forward Estimates period.

• In 2014-15, the General Government Net Operating Balance is estimated to be a deficit of $285.6 million and, as at 30 June 2015, General Government Net Debt is estimated to be negative $188.3 million.

5.2 2014-15 Budget and Forward Estimates

OVERVIEW This chapter includes the General Government Sector Financial Statements for the 2014-15 Budget and Forward Estimates period and the Policy and Parameter Statement which reflects changes between the Budget and Forward Estimates reported in the 2013-14 Budget Papers and the 2014-15 Budget Papers.

The financial statements in this chapter have been prepared in accordance with the Uniform Presentation Framework (UPF). The statements present information for the 2013-14 Budget and for the 2014-15 Budget and Forward Estimates. Taxation information, required under the UPF, is provided in chapter 6 of The Budget Budget Paper No 1.

In accordance with the UPF, the final end of year results for the General Government Sector will be available in the Treasurer's Annual Financial Report 2013-14, which will be publicly released by no later than 31 October 2014.


GOVERNMENT FINANCIAL ESTIMATES Tables 5.1 to 5.3 detail the Income Statement, Balance Sheet and Cash Flow Statement for the General Government Sector.

Table 5.1: General Government Income Statement

2013-14) )

Budget)

2014-15) )

Budget)

2015-16) Forward) Estimate)



$m) $m) $m) $m) $m)

Revenue from Transactions

Grants 2 850.9) 3 027.5) 3 301.5) 3 303.7) 3 329.5)

Taxation 940.0) 983.2) 1 019.2) 1 053.6) 1 070.7)

Sales of Goods and Services 354.9) 354.1) 353.7) 354.5) 360.5)

Fines and Regulatory Fees 106.4) 103.3) 105.8) 107.8) 102.3)

Interest Income 13.8) 15.9) 16.4) 15.3) 14.3)

Dividend, Tax and Rate Equivalent Income 330.1) 342.9) 155.0) 162.7) 248.4)

Other Revenue 195.9) 136.8) 134.8) 132.4) 131.6)

4 792.1) 4 963.7) 5 086.3) 5 130.0) 5 257.4)

Less Expenses from Transactions

Employee Expenses 2 109.9) 2 137.0) 2 142.0) 2 169.6) 2 222.2)

Superannuation 248.1) 268.3) 266.2) 270.3) 284.4)

Depreciation 276.3) 287.0) 295.5) 295.8) 298.2)

Supplies and Consumables 1 086.9) 1 083.9) 1 071.5) 1 056.3) 1 063.3)

Nominal Superannuation Interest Expense 268.2) 283.1) 291.6) 299.1) 306.1)

Borrowing Costs 11.9) 11.0) 10.6) 10.3) 10.1)

Grant Expenses 1 025.9) 1 148.3) 1 104.7) 1 128.7) 1 166.4)

Other Expenses 31.9) 30.5) 29.4) 25.1) 24.7)

5 059.0) 5 249.3) 5 211.4) 5 255.3) 5 375.4)

Equals NET OPERATING BALANCE (266.9) (285.6) (125.2) (125.3) (118.0)

Plus Other Economic Flows - Included in Operating

Result

Gain/(Loss) on Disposal of Non-Financial Assets 8.3) 11.3) 11.1) 10.7) 10.7)

Movement in Investments in GBEs and SOCs 120.8) (347.8) (46.9) 13.1) (12.8)

Other Gains/(Losses) 11.9) (176.8) 27.0) 39.0) 31.8)

140.9) (513.2) (8.8) 62.8) 29.7)

Equals Operating Result (126.0) (798.8) (134.0) (62.5) (88.3)


Table 5.1: General Government Income Statement (continued)

2013-14) )

Budget)

2014-15) )

Budget)




$m) $m) $m) $m) $m)

Plus Other Economic Flows - Other Movements in Equity

Revaluations of Non-Financial Assets 326.1) 340.7) 328.1) 352.4) 338.0)

Other Non-Owner Movements in Equity (59.7) 3.8) 3.8) 3.8) (8.4)

266.5) 344.5) 331.9) 356.2) 329.6)

Equals Comprehensive Result 140.5) (454.3) 197.9) 293.7) 241.3)

KEY FISCAL AGGREGATES

NET OPERATING BALANCE (266.9) (285.6) (125.2) (125.3) (118.0)

Less Net Acquisition of Non-Financial Assets

Purchases of Non-Financial Assets 344.8) 400.8) 418.2) 444.5) 334.3)

Less Sale of Non-Financial Assets 26.3) 32.6) 33.6) 27.6) 30.5)

Less Depreciation 276.3) 287.0) 295.5) 295.8) 298.2)

42.2) 81.2) 89.1) 121.1) 5.6)

Equals FISCAL BALANCE (309.1) (366.8) (214.3) (246.4) (123.7)


Table 5.2: General Government Balance Sheet as at 30 June

2014)

Budget)

2015)

Budget)

2016) Forward) Estimate)



$m) $m) $m) $m) $m) Assets

Financial Assets

Cash and Deposits 857.6) 1 041.1) 976.4) 816.0) 750.0)

Investments 42.4) 77.7) 79.5) 81.1) 85.6)

Equity Investment in PNFC & PFC Sectors1 6 628.0) 4 331.7) 4 343.0) 4 393.1) 4 410.9)

Other Equity Investments 16.4) 14.7) 17.2) 19.3) 21.3)

Receivables 354.5) 304.3) 306.2) 315.4) 317.0)

Other Financial Assets 1 220.3) 755.2) 735.2) 751.8) 760.3)

9 119.2) 6 524.8) 6 457.6) 6 376.6) 6 345.2)

Non-Financial Assets

Land and Buildings 6 948.3) 5 829.6) 6 057.1) 6 333.9) 6 457.8)

Infrastructure 4 390.1) 4 634.4) 4 832.0) 5 044.4) 5 282.2)

Plant and Equipment 240.5) 231.2) 232.4) 221.4) 209.3)

Heritage and Cultural Assets 473.9) 485.0) 497.1) 509.2) 521.3)

Investment Property 12.5) 11.9) 12.2) 12.5) 12.7)

Intangibles 34.6) 35.1) 35.5) 37.4) 37.1)

Assets Held for Sale 11.3) 10.9) 10.0) 9.0) 8.0)

Other Non-Financial Assets 42.8) 36.9) 37.0) 37.3) 38.2)

12 154.0) 11 274.9) 11 713.2) 12 205.0) 12 566.7)

Total Assets 21 273.2) 17 799.7) 18 170.8) 18 581.7) 18 911.9) Liabilities

Borrowings 1 126.1) 930.6) 978.8) 944.0) 889.5)

Superannuation 5 150.2) 5 448.0) 5 588.8) 5 720.4) 5 839.9)

Employee Entitlements 673.6) 561.7) 533.8) 542.2) 553.3)

Payables 115.6) 91.0) 93.7) 95.5) 97.6)

Other Liabilities 417.9) 408.7) 418.0) 428.1) 438.9)

Total Liabilities 7 483.4) 7 439.9) 7 613.1) 7 730.3) 7 819.2)

NET ASSETS 13 789.8) 10 359.7) 10 557.7) 10 851.4) 11 092.6)

Equity

Accumulated Funds 9 035.3) 5 434.6) 5 304.4) 5 245.8) 5 149.1)

Asset Revaluation Reserve 4 754.5) 4 925.2) 5 253.2) 5 605.6) 5 943.6)

Total Equity 13 789.8) 10 359.7) 10 557.7) 10 851.4) 11 092.6)


Table 5.2: General Government Balance Sheet as at 30 June (continued)

2014)

Budget)

2015)

Budget)




$m) $m) $m) $m) $m) NET WORTH2 13 789.8) 10 359.7) 10 557.7) 10 851.4) 11 092.6) NET FINANCIAL WORTH3 1 635.7) (915.1) (1 155.6) (1 353.6) (1 474.1) NET FINANCIAL LIABILITIES4 4 992.3) 5 246.8) 5 498.5) 5 746.7) 5 884.9) NET DEBT5 226.1) (188.3) (77.2) 46.9) 53.9) Notes: 1. The decrease in Equity Investment in PNFC & PFC Sectors in 2015 primarily reflects the reclassification of

TasWater Pty Ltd to the Local Government Sector by the ABS. 2. Net Worth represents Total Assets less Total Liabilities. The reduction in Net Worth primarily reflects the

reclassification of TasWater Pty Ltd to the Local Government Sector by the ABS, and a decrease in Income Tax Equivalents Receivable resulting from revised tax estimates for Tasmania's electricity entities.

3. Net Financial Worth represents Financial Assets less Total Liabilities. 4. Net Financial Liabilities represents Total Liabilities less Financial Assets, excluding Equity Investment in the PNFC

and PFC Sectors. 5. Net Debt represents Borrowings less the sum of Cash and Deposits and Investments.


Table 5.3: General Government Cash Flow Statement

2013-14) )

Budget)

2014-15) )

Budget)




$m) $m) $m) $m) $m)

Cash Flows from Operating Activities Cash Receipts from Operating Activities

Grants Received 2 850.9) 3 027.5) 3 301.5) 3 303.7) 3 329.3)

Taxation 941.2) 983.4) 1 018.8) 1 053.5) 1 070.7)



Interest Received 13.2) 16.1) 16.4) 15.3) 14.3)

Dividend, Tax and Rate Equivalents 352.0) 576.7) 213.8) 189.9) 272.5)

Other Receipts 365.1) 305.9) 305.6) 305.4) 306.6)

4 982.5) 5 366.7) 5 313.4) 5 328.8) 5 454.2)

Cash Payments from Operating Activities

Employee Entitlements (2 090.0) (2 128.6) (2 163.2) (2 159.0) (2 208.8)

Superannuation (375.5) (397.3) (420.3) (436.8) (470.3)

Supplies and Consumables (1 095.8) (1 097.3) (1 082.2) (1 069.9) (1 076.6)

Borrowing Costs (11.7) (10.8) (10.4) (10.2) (9.9)

Grants and Subsidies Paid (1 025.8) (1 148.4) (1 104.3) (1 128.2) (1 165.8)

Other Payments (201.6) (199.8) (200.5) (198.4) (200.0)

(4 800.4) (4 982.1) (4 981.0) (5 002.5) (5 131.4)

Net Cash Flows from Operating Activities 182.1) 384.6) 332.4) 326.3) 322.9)

Cash Flows from Investing Activities Net Cash Flows from Non-Financial Assets

Purchases of Non-Financial Assets (344.8) (400.3) (415.2) (439.0) (327.8)

Sales of Non-Financial Assets 26.3) 36.8) 33.6) 27.6) 30.5)

(318.5) (363.5) (381.6) (411.4) (297.4)

Net Cash Flows from Financial Assets (Policy Purposes)

Equity Injections (65.9) (42.8) (60.6) (39.0) (32.6)

Net Advances Paid (0.5) (20.6) (1.5) (1.6) (4.4)

(66.4) (63.4) (62.2) (40.6) (37.0)


Table 5.3: General Government Cash Flow Statement (continued)

2013-14) )

Budget)

2014-15) )

Budget)




$m) $m) $m) $m) $m)

Net Cash Flows from Financial Assets (Liquidity Purposes)

Net Purchase of Investments ....) 0.7) 0.7) ....) ....)

....) 0.7) 0.7) ....) ....)

Net Cash Flows from Investing Activities (384.9) (426.2) (443.1) (452.0) (334.4)

Net Cash Flows from Financing Activities

Net Borrowing 51.3) (229.5) 46.0) (34.8) (54.5)

51.3) (229.5) 46.0) (34.8) (54.5)

Net Increase/(Decrease) in Cash Held (151.5) (271.2) (64.7) (160.4) (66.0)

Cash at Beginning of the Year 1 009.1) 1 312.4) 1 041.1) 976.4) 816.0) Cash at End of the Year 857.6) 1 041.1) 976.4) 816.0) 750.0)


Net Cash Flows from Operating Activities 182.1) 384.6) 332.4) 326.3) 322.9)

Plus Net Cash Flows from Non-Financial Assets (318.5) (363.5) (381.6) (411.4) (297.4)

Equals CASH SURPLUS/(DEFICIT) (136.4) 21.0) (49.2) (85.0) 25.5)


APPENDIX 5.1 POLICY AND PARAMETER STATEMENT Introduction

The Policy and Parameter Statement (PPS) is a reconciliation of the major movements in the Net Operating Balance and the Fiscal Balance between two points in time. The movements reflect changes between the Budget and Forward Estimates reported in the 2013-14 Budget Papers and the 2014-15 Budget Papers.

The movements in the PPS are classified as revenue, expenses or net acquisition of non-financial assets and then further categorised as a policy or parameter change. The classification of a variation as a policy or parameter change is a matter of judgment and it is recognised there may be some instances where part of a Government initiative may have both policy and parameter components. In exercising judgement, Treasury aims to ensure that Government decisions are made transparent.

Policy Variation For the purpose of the PPS, a policy variation reflects a specific decision by the Government that has an impact on the Budget and Forward Estimates and is related to a new policy or represents a change in the Government's existing policy position since the previous Budget. A decision to change a Budget or Forward Estimate aggregate, which is consistent with an existing policy, is not a policy decision.

Parameter Variation A parameter variation reflects changes to the Budget and Forward Estimates due to the economic environment, the agency operating environment or the timing of a transaction.

Parameter variations will reflect the impact of changes in taxes, grants or other income that do not arise because of a Government decision and demand and cost variations in agency service delivery, including the provision of indexation. Variations resulting from the rollover of a new Forward Estimate year and changes in accounting policies, such as a change in an agency depreciation policy, or the impact on estimates of a change in an Australian Accounting Standard are classified as parameter variations.

Table A5.1 provides a summary of the policy and parameter changes detailed in Table A5.2 that have impacted on the formulation of the 2014-15 Budget since the 2013-14 Budget.

Further Information Additional information on revenue estimates is provided in chapter 6 of The Budget Budget Paper No 1. Additional information on agency expenditure estimates is included in the relevant agency chapters in Government Services Budget Paper No 2.


Table A5.1: Summary Policy and Parameter Statement, 2014-15 to 2017-18

2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m) Forward Estimates (Net Operating Balance) as per the

2013-14 Budget (A) (164.5) (33.9) 9.9) ....) Forward Estimates (Fiscal Balance) as per the 2013-14

Budget (B) (215.2) (26.9) (18.7) ....)

REVENUE

Policy Decisions 108.4) 11.9) 32.5) 97.0)

Parameter Adjustments (98.1) (113.2) (211.8) ....)

TOTAL REVENUE VARIATIONS (C) 10.3) (101.3) (179.3) ....)

EXPENSES

Policy Decisions (27.5) (73.6) (81.8) (21.5)

Parameter Adjustments 158.9) 63.6) 37.6) ....)

TOTAL EXPENSES VARIATIONS (D) 131.4) (10.0) (44.2) ....)

NET OPERATING BALANCE (A+C-D) (285.6) (125.2) (125.3) (118.0)

less NET ACQUISITION OF NON-FINANCIAL ASSETS

Purchases of Non-Financial Assets

Total Policy Decisions 9.9) 26.3) 43.5) 37.6)

Total Parameter Adjustments 23.7) 88.2) 65.7) ....)

33.5) 114.5) 109.2) ....)

Less Sales of Non-Financial Assets (4.0) 6.4) 5.3) ....) Less Depreciation - Total Parameter Adjustments 7.1) 11.9) 11.4) ....)

NET ACQUISITION OF NON-FINANCIAL ASSETS VARIATIONS (E) 30.5) 96.1) 92.6) ....)

FISCAL BALANCE (B+C-D-E) (366.8) (214.3) (246.4) (123.7)

Note: 1. Parameter adjustments for 2017-18 are not reflected in the Table as the 2017-18 Forward Estimate was not

published in the 2013-14 Budget. However, policy adjustments are reflected to show their full impact on the Budget and Forward Estimates.


Table A5.2: Policy and Parameter Statement 2014-15 to 2017-18

2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m) Forward Estimates (Net Operating Balance) as per the

2013-14 Budget (A) (164.5) (33.9) 9.9) ....) Forward Estimates (Fiscal Balance) as per the 2013-14

Budget (B) (215.2) (26.9) (18.7) ....) REVENUE

Policy Decisions Election Commitments

Reduced Revenue - Motor Tax and Insurance Duty ....) ....) ....) (9.9)

....) ....) ....) (9.9) Other Policy Decisions Fines and Regulatory Fees Policy

Commitment to Increase Fines Revenue 1.5) 3.0) 3.0) 3.0)

Decrease in Abalone Royalty Rate (0.3) (0.5) (0.5) (0.5)

Making Criminals Pay ....) 0.8) 0.8) 0.8)

1.2) 3.2) 3.2) 3.2) Dividend Policy

Aurora Energy Pty Ltd ....) 2.3) 1.6) 1.6)

Hydro Tasmania ....) ....) ....) 75.0)

Motor Accidents Insurance Board 7.2) 6.4) 6.0) ....)

Tasmanian Ports Corporation ....) ....) ....) 1.0)

Tasmanian Networks Pty Ltd ....) ....) 21.8) 26.1)

7.2) 8.7) 29.3) 103.7) Special Dividend Policy

Motor Accidents Insurance Board 100.0) ....) ....) ....)

100.0) ....) ....) ....)

Total Policy Decisions 108.4) 11.9) 32.5) 97.0) Parameter Adjustments

Taxation

Betting Exchange Taxes and Levies 0.5) 0.3) 0.6) ....)

Casino Tax and Licence Fees (3.7) (5.1) (6.3) ....)

Duties2 25.1) 24.5) 23.7) ....)

Guarantee Fees (6.0) (2.4) (1.1) ....)

Land Tax (3.0) (2.4) (1.9) ....)

Lottery Tax (0.8) (0.8) (0.8) ....)

Motor Tax 1.1) 1.2) 1.2) ....)

Payroll Tax (1.9) (1.3) (2.5) ....)

State Fire Commission Receipts 0.7) 1.2) 1.2) ....)


Table A5.2: Policy and Parameter Statement 2014-15 to 2017-18 (continued)

2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m)

Taxation (continued)

Totalizator Wagering Levy (0.1) (0.1) (0.1) ....)

Vehicle Registration Fees 0.4) 0.2) (0.1) ....)

12.4) 15.3) 13.8) ....)

Dividend, Tax and Rate Equivalent Income Dividend Income

Aurora Energy Pty Ltd ....) 4.6) 3.2) ....)

Hydro Tasmania (9.5) (98.8) (27.3) ....)

Motor Accidents Insurance Board 12.2) 11.8) 10.9) ....)

Tasmanian Networks Pty Ltd (57.6) 29.4) 19.6) ....)

Tasmanian Ports Corporation ....) (0.5) (0.5) ....)

Tasmanian Public Finance Corporation 7.3) ....) 1.2) ....)

(47.5)) (53.4) 7.0) ....) Income Tax Equivalents

Aurora Energy Pty Ltd 3.3) 2.3) 2.2) ....)

Forestry Tasmania (2.5) (1.1) 2.2) ....)

Hydro Tasmania (53.5) (31.0) (37.0) ....)

Metro Tasmania Pty Ltd 0.4) 0.4) 0.4) ....)

Motor Accidents Insurance Board (10.3) (18.1) (20.6) ....)

Tasmanian Irrigation Pty Ltd (0.3) (0.6) (0.3) ....)

Tasmanian Networks Pty Ltd 9.4) 2.7) 2.4) ....)

Tasmanian Ports Corporation (2.6) (1.6) 0.9) ....)

Tasmanian Public Finance Corporation .... ) (1.2) 0.6) ....)

The Public Trustee .... ) (0.1) (0.1) ....)

TT Line Pty Ltd 1.5 ) (2.0) (2.3) ....)

(54.8) (50.3) (51.6) ....) Rates Equivalent Payments

Hydro Tasmania 0.2) 0.2) 0.2) ....)

0.2) 0.2) 0.2) ....)

Total Dividend, Tax and Rate Equivalent Income (102.1) (103.5) (44.4) ....)

Interest Income 3.2)) 0.2)) (6.4) .... )



2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m)

Australian Government Grants General Purpose Payments

GST Revenue (38.0) (89.2)) (169.1) ....)

(38.0) (89.2)) (169.1) ....)

National Partnership Payments

Community Services (including Disability) 21.9) 9.2) 10.5) ....)

Education (13.8) (21.4) (12.1) ....)

Environment (20.5) (8.3) (11.2) ....)

Healthcare 5.9) 59.3) (46.7) ....)

Infrastructure 54.7) 74.0) 75.4) ....)

Other Services (2.2) (6.1) (7.7) ....)

Skills and Workforce Development 0.2) ....) 11.6) ....)

46.3) 106.8) 19.7) ....)

Specific Purpose Payments

Students First 48.4) 61.5) 84.3) ....)

Skills and Workforce Development (0.6) (0.7) (0.6) ....)

National Disability Services (0.4) (1.7) (1.6) ....)

National Affordable Housing 2.7) 2.9) 3.3) ....)

National Health Reform (22.7) (43.1) (38.5) ....)

27.5) 18.9) 46.9) ....)

Other Australian Government Grants 31.3) 29.1) 20.5) ....)

Total Australian Government Grants 67.2) 65.6) (82.1) ....)

Agency Revenue

Education 0.4) 0.3) ....) ....)

Finance-General 1.9) 2.0) 2.0) ....)

Health and Human Services (37.9) (45.0) (44.4) ....)

Inland Fisheries Service (0.5) (0.9) (1.0) ....)

Justice (4.2) (7.5) (5.8) ....) Marine and Safety Tasmania 0.3) 0.2) 0.1) ....)

Police and Emergency Management 7.2) 7.2) 7.2) ....)

Premier and Cabinet 0.9) 0.8) 1.0) ....)



2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m)

Agency Revenue (continued)

Primary Industries, Parks, Water and Environment (1.8) (1.6) (1.7) ....)

Royal Tasmanian Botanical Gardens (0.2) (0.3) (0.2) ....)

State Fire Commission ....) ....) 0.1) ....)

State Growth3 (26.1) (26.3) (27.3)

Tasmanian Audit Office (0.2) (0.3) (0.3) ....)

Tasmanian Health Organisations ....)

North West (8.0) (7.7) (7.2) ....)

South ....) (1.4) (4.3) ....)

North (9.6) (9.5) (10.0) ....)

TasTAFE (0.4) (0.9) (0.8) ....)

Treasury and Finance (0.8) 0.1) ....) ....)

Total Agency Revenue (78.8) (90.8) (92.7) ....)

Total Parameter Adjustments (98.1) (113.2) (211.8) ....)

TOTAL REVENUE VARIATIONS (C) 10.3) (101.3) (179.3) ....)

EXPENSES

Policy Decisions Election Commitments4,5

Education 6.3) 11.3) 17.3) 22.7)

Finance-General 4.8) 6.9) ....) ....)

Health and Human Services & Tasmanian Health

Organisations 24.3) 28.2) 27.7) 27.3)

Justice 0.5) 0.5) 0.5) 0.5)

Police and Emergency Management 3.7) 7.0) 10.3) 13.6)

Premier and Cabinet 9.5) 5.6) 1.6) 0.4)

Primary Industries, Parks, Water and Environment 7.2) 9.4) 11.5) 10.9)

State Growth 25.7) 27.0) 18.1) 5.1)

Tourism Tasmania 4.0) 4.0) 4.0) 4.0)

86.1) 100.0) 91.0) 84.4)



2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m)

Budget Savings Strategies6,7

Education (21.6) (38.0) (44.3) (44.5)

Finance-General (49.3) (50.3) (46.8) (24.8)

Health and Human Services & Tasmanian Health

Organisations (38.9) (53.9) (57.1) (58.1)

Justice (2.7) (5.8) (5.9) (5.9)

Ministerial and Parliamentary Support (1.6) (1.8) (1.8) (1.8)

Police and Emergency Management (7.5) (11.2) (11.7) (11.9)

Premier and Cabinet (4.6) (4.5) (4.6) (4.7)

Primary Industries, Parks, Water and Environment (7.7) (10.6) (10.7) (10.7)

State Growth (13.1) (17.7) (18.8) (19.4)

Treasury and Finance (1.0) (1.6) (1.7) (1.8)

House of Assembly (0.1) (0.2) (0.3) (0.3)

Integrity Commission (0.5) (0.8) (0.8) (0.8)

Legislative Council (0.1) (0.2) (0.3) (0.3)

Legislature-General (0.1) (0.2) (0.2) (0.2)

Office of the Director of Public Prosecutions (0.4) (0.5) (0.5) (0.5)

Office of the Governor ....) (0.1) (0.1) (0.1)

Office of the Ombudsman ....) (0.2) (0.2) (0.2)

Tasmanian Audit Office (0.1) (0.1) (0.1) (0.1)

Tourism Tasmania (0.6) (0.7) (0.7) (0.7)

(150.0) (198.4) (206.6) (186.8)

Agency Expenditure Finance-General

Assistance to First Home Buyers of New Homes 9.2) 1.2) 1.5) 2.4)

Forestry Tasmania Funding for non-commercial

activities 4.0) 4.0) 4.0) 4.0)

Tasmanian Forests Agreement 7.1) 6.8) 6.8) 4.8)

Qantas Industry Assistance Package 0.8) 1.0) 1.0) 1.0)

21.0) 13.0) 13.3) 12.2) Health and Human Services

Equal Remuneration Order ....) ....) ....) 9.2)

National Disability Insurance Scheme ....) ....) ....) 39.6)

....) ....) ....) 48.8)



2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m)

Justice

Additional Mining Inspector 0.1) 0.1) 0.1) 0.1)

Poppy Industry Funding 0.7) 0.7) ....) ....)

Tasmanian Prison Service Funding 4.7) 4.5) 3.8) 3.0)

5.5) 5.3) 3.9) 3.1) Premier and Cabinet

Emergency Communication Website (TasAlert) 0.3) 0.3) 0.3) 0.3)

Netball Tasmania Funding 0.2) 0.2) 0.2) 0.2)

Silverdome 0.4) ....) ....) ....)

Sport and Recreation Tasmania State Grants Program 0.3) 0.3) 0.3) 0.3)

1.1) 0.8) 0.8) 0.8) Primary Industries, Parks, Water and Environment

Industry development contribution to the Tasmanian

Abalone Council Ltd 0.2) 0.2) 0.2) 0.2)

Matching industry contributions to the Fisheries

Research Development Corporation 0.4) 0.4) 0.4) 0.4)

Royal Tasmanian Botanical Gardens General

Infrastructure 0.1) 0.1) ....) ....)

Tasmanian Forests Agreement - Reserve Management 3.2) 3.2) 3.2) 3.2)

3.8) 3.8) 3.7) 3.7) State Growth

Australian Government Infrastructure - Co-funding

(Road Safety Levy funded) (0.4) (0.4) (1.0) (1.0)

Cricket World Cup 2015 1.5) ....) ....) ....)

Huon Aquaculture Assistance Package 0.2) 0.3) 0.3) 0.3)

Major Development Infrastructure Assistance Fund 0.7) ....) ....) ....)

National Reforms - Heavy Vehicle Regulator 1.3) 1.2) 1.3) ....)

Qantas Industry Assistance Package 0.9) ....) ....) ....)

Rail (provision) ....) ....) 11.0) 11.6)

Regional Forest Agreement Review 0.3) 0.3) ....) ....)

V8 Supercars 0.6) 0.6) 0.6) 1.4)

4.9) 1.9) 12.2) 12.3)

Total Policy Decisions (27.5) (73.6) (81.8) (21.5)



2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m) Parameter Adjustments

Depreciation 7.1) 11.9) 11.4) ....) Nominal Superannuation Interest Expense 7.5) 9.2) 10.4) ....) Borrowing Costs (0.3) (0.3) (0.2) ....)

Agency Expenditure

Education 81.3) 64.4) 95.9) ....)

Finance-General 34.9) 50.7) 28.1) ....)

Health and Human Services (14.6) (37.7) (82.5) ....)

Inland Fisheries Service (0.4) (0.8) (0.9) ....)

Justice 1.3) (2.2) (0.4) ....)

Legislative Council 0.1) 0.1) 0.2) ....) Marine and Safety Tasmania 2.2) 0.3) 0.4) ....)

Ministerial and Parliamentary Support 0.6) ....) ....) ....)

Office of the Governor ....) 0.1) ....) ....)

Office of the Ombudsman 0.1) ....) ....) ....)

Police and Emergency Management 3.7) 2.8) 4.8) ....)

Premier and Cabinet 0.4) (0.5) 3.0) ....)

Primary Industries, Parks, Water and Environment 7.9) 5.1) 0.5) ....)

Royal Tasmanian Botanical Gardens (0.4) (0.5) (0.6) ....)

State Fire Commission 1.5) 2.1) 0.2) ....)

State Growth 31.8) 10.4) 16.0) ....)

Tasmanian Health Organisations ....)

North West (6.0) (9.3) (7.0) ....)

South 6.1) (17.7) (25.2) ....)

North (1.6) (19.3) (23.0) ....)

TasTAFE (1.5) 0.3) (2.6) ....)

Tasmanian Audit Office (0.1) (0.2) (0.2) ....)

Tourism Tasmania (0.9) (0.9) (0.9) ....)

Treasury and Finance (1.9) (1.8) (1.7) ....)

Other8 0.3) (2.7) 11.8) ....)

Total Agency Expenditure 144.7) 42.8) 16.1) ....) Total Parameter Adjustments 158.9) 63.6) 37.6) ....) TOTAL EXPENSES FROM TRANSACTIONS VARIANCE

(D) 131.4) (10.0) (44.2) ....)



2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m)

NET OPERATING BALANCE9 (285.6) (125.2) (125.3) (118.0) less NET ACQUISITION OF NON-FINANCIAL ASSETS

FROM TRANSACTIONS Purchases of Non-Financial Assets from Transactions

Policy Decisions Election Commitments4,5

Education 1.7) 1.8) 1.5) 1.5)

Health and Human Services ....) ....) 0.3) 2.8)

Primary Industries, Parks, Water and Environment 1.8) 4.4) 1.4) 0.8)

State Growth 0.2) 0.8) 0.7) ....)

3.7) 6.9) 3.8) 5.0) Budget Savings Strategies6,7

Health and Human Services (1.8) (0.3) (0.3) (0.3)

Treasury and Finance (0.1) (0.1) (0.1) ....)

(1.9) (0.4) (0.4) (0.3) Other Policy Decisions Police and Emergency Management

Vessel Replacement 0.5) 4.5) ....) ....)

0.5) 4.5) ....) ....) Premier and Cabinet

Integrated Tasmanian Government Contact Centre 0.5) ....) ....) ....)

0.5) ....) ....) ....) Primary Industries, Parks, Water and Environment

Tasmanian Forests Agreement 0.3) 0.3) 0.3) 0.3)

0.3) 0.3) 0.3) 0.3) State Growth

Australian Government Infrastructure - Co-funding 2.0) 5.0) 10.8) 11.0)


(Road Safety Levy funded) ....) 1.0) 14.0) 5.0)


(Road Safety Levy funded) (4.6) (4.6) (5.2) (2.8)

Roads for the Future5, 10 8.0) 10.3) 16.5) 17.8)

5.4) 11.7) 36.1) 31.0)



2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m)

Treasury and Finance

Budget Information Management System Project 0.6) 2.5) 2.9) 1.5)

State Revenue System Replacement - Payroll Tax and

Duties 0.7) 0.7) 0.7) ....)

1.3) 3.2) 3.6) 1.5) Total Policy Decisions 9.9) 26.3) 43.5) 37.6)

Parameter Adjustments

Education 12.4) (2.3) ....) ....)

Finance-General (3.7) 10.8) 7.7) ....)

Health and Human Services (47.5) 41.8) 34.6) ....)

Justice 8.6) ....) ....) ....) Marine and Safety Tasmania 2.6) ....) ....) ....)

Premier and Cabinet ....) ....) 0.3) ....)

Primary Industries, Parks, Water and Environment 0.2) 4.5) 0.3) ....)

State Fire Commission (0.4) (0.3) ....) ....)

State Growth 68.3) 78.8) 82.2) ....)

Tasmanian Health Organisations

North West 4.0) 1.1) 1.4) ....)

South 1.4) (0.1) (0.1) ....)

North 8.4) ....) ....) ....)

TasTAFE 2.7) 3.7) 4.2) ....)

Tourism Tasmania 1.7) ....) ....) ....)

Treasury and Finance 0.1) ....) ....) ....)

Estimated Future Australian Government Roads Funding (35.0) (35.0) (35.0)

Provision for Future Infrastructure Investment ....) (15.0) (30.0) ....)

Total Parameter Adjustments 23.7) 88.2) 65.7) ....) Total Purchases of Non-Financial Assets from

Transactions (E) 33.5) 114.5) 109.2) ....)



2014-15)

Budget)



2017-18) Forward)

Estimate1)

$m) $m) $m) $m) Less Sales of Non-Financial Assets from transactions (F) (4.0) 6.4) 5.3) ....) Less Depreciation - Total Parameter Adjustments (G) 7.1) 11.9) 11.4) ....)

TOTAL NET ACQUISITION OF NON-FINANCIAL ASSETS FROM TRANSACTIONS VARIANCE (H)11 30.5) 96.1) 92.6) ....)

FISCAL BALANCE12 (366.8) (214.3) (246.4) (123.7)

Notes: 1. Parameter adjustments for 2017-18 are not reflected in the Table as the 2017-18 Forward Estimate was not

published in the 2013-14 Budget. However, policy adjustments are reflected to show their full impact on the Budget and Forward Estimates.

2. Duties reflects changes in estimates for Conveyance Duty, Motor Vehicle Duty and Insurance Duty. 3. The decrease in State Growth primarily reflects reduced Mineral Royalty receipts of $81.7 million over the three

years 2014-15 to 2016-17. 4. For further information on election commitments refer to chapter 1 of The Budget Budget Paper No 1and the relevant

Agency chapter in Government Services Budget Paper No 2. 5. Election commitments total $400.7 million; $9.9 million (page 5.11), $361.4 million (page 5.14), $19.5 million

(page 5.18) and $10 million Additional Roads Funding (page 5.18). 6. For further information on Budget Savings Strategies refer to chapter 4 of The Budget Budget Paper No 1. 7. Budget Savings Strategies total $744.6 million; $741.7 million (page 5.15) and $2.9 million (page 5.18). 8. The movement in Other primarily reflects adjustments to eliminations and indexation as well as cost estimates

associated with the State's superannuation expense and liability. 9. Net Operating Balance is equal to A + C - D. 10. Roads for the Future includes a $10 million election commitment for Additional Road Upgrades. 11. Total Net Acquisition of Non-Financial Assets is equal to E - F - G. 12. Fiscal Balance is equal to B + C - D - H.


MAJOR REVENUE VARIATIONS Policy Decisions

Reduced Revenue - Motor Tax and Insurance Duty The $9.9 million reduction in Motor Tax and the duty charged on Motor Accident Insurance Board premiums (which form part of Insurance Duty) in 2017-18 reflects the decision to abolish the recent tax increases to motorists that were introduced by the previous Government on 1 October 2012.

Commitment to Increase Fines Revenue This Policy imposes a modest increase in fines. This will increase revenue by $1.5 million in 2014-15 and $3 million per annum from 2015-16 onwards.

Decrease in Abalone Royalty Rate The decrease in Abalone Royalty revenue reflects the decision to reduce the royalty rate for abalone quota holders on the new deed agreement from eight per cent to seven per cent. This will lead to a reduction in revenue of $261 000 in 2014-15 and $522 000 per annum from 2015-16 onwards.

Making Criminals Pay This increase in revenue of $750 000 from 2015-16 reflects the decision to impose an extra fee on those convicted in either the Magistrates Court or Supreme Court, of a criminal offence. Convictions in the Magistrates Court will attract a $50 fee and convictions in the Supreme Court will attract a fee of $150.

Dividend Policy In view of the current Budget situation and the need to increase own source revenue, the Government has reviewed the current dividend arrangements for all government businesses. As a result, a default dividend policy has been established that will require each government business to pay 90 per cent of net profits after tax as a dividend each year, unless a business can justify a lower payout ratio. Further information is available in chapters 4 and 6 of The Budget Budget Paper No 1.

Special Dividend Policy In addition to the ordinary dividend policy change mentioned above, the Motor Accidents Insurance Board will remit a special dividend of $100 million in 2014-15.



Casino Tax and Licence Fees The decrease in Casino Tax and Licence Fees reflects anticipated minimal growth rates for this revenue stream. Gross profits from expenditure on electronic gaming machines (EGMs) is not expected to increase in 2014-15. EGMs make up 89 per cent of casino tax revenue and minimal growth is expected from the remaining tax lines and fees.

Duties The increase in Duties primarily reflects an increase in duty from conveyances due to higher expected activity in the property market. Estimates for 2013-14 show conveyance duty exceeding the 2013-14 Budget estimate by approximately $24.5 million.

Growth in conveyance duty is expected to dampen in 2014-15 as the recent demand for property eases. However, due to the higher starting base of 2013-14, forecasts for the Forward Estimates period have also increased.

Government Guarantee Fees Guarantee fees from Tasmanian Networks Pty Ltd have reduced by $20.2 million over three years and Hydro Tasmania's guarantee fees have been revised upwards by $4.2 million in both 2015-16 and 2016-17 due to changed assumptions across the three energy businesses in relation to the allocation of debt.

Dividend, Tax and Rate Equivalent Income The increase in Dividends and Income Tax Equivalents from Aurora Energy Pty Ltd reflects the continued operation of Aurora as a standalone retailer from 1 July 2014. Previously, in the 2013-14 Budget, it was anticipated that the business would be sold.

The decrease in Dividends and Income Tax Equivalents from Hydro Tasmania reflects a continued softening of demand and wholesale market prices across the national electricity market and the repeal of the carbon tax.

The increase in Dividends from the Motor Accidents Insurance Board reflects forecast improvements in claims experience and investment returns in 2013-14 and, to a lesser extent increased premium revenue and the impact of these factors on MAIB's five-year rolling average dividend policy. Income Tax Equivalents from the Motor Accidents Insurance Board have decreased, primarily as a result of the restructure of its investment portfolio.

Dividends from Tasmanian Networks have been revised downward in 2014-15 as dividends of $61.1 million were declared by Aurora Energy and Transend Networks Pty Ltd in 2013-14. Recognised as accrued revenue in that year, these dividends will be paid by Tasmanian Networks Pty Ltd in 2014-15.

Forecast Income Tax Equivalents have been revised to reflect current estimates provided by the businesses.


GST Revenue The movement in GST receipts reflects estimates and assumptions regarding the size of the GST pool, Tasmania's population and its GST relativity as reflected in the Australian Government 2014-15 Budget. For more information on GST receipts, refer to chapter 6 of The Budget Budget Paper No 1.

National Partnership Payments The increase in Community Services primarily reflects the inclusion of the Transitioning Responsibilities for Aged Care and Disability Services funding within this category. This increase is largely offset by the reduction in Australian Government funding for certain concessions which has ceased, as outlined in the 2014-15 Australian Government Budget.

The decrease in Education reflects the 2013-14 Australian Government Budget, which removed National Partnership Payments for a number of programs including:

• Smarter Schools Low Socio-economic Status;

• Rewards for Great Teachers; and

• Empowering Local Schools.

The movement in Environment reflects revised cash flows for the Water for the Future Program and the exclusion from the 2014-15 Budget of any estimates on future funding from the Australian Government for the Tasmanian Forests Agreement, as negotiations regarding future commitment have not been completed.

The movement in Healthcare primarily reflects revised cash flows for the Royal Hobart Hospital Redevelopment, including a $50 million payment that was estimated to be received in 2016-17 at the time of the 2013-14 Budget, which is now estimated to be received in 2015-16.

The increase in Infrastructure relates to additional Roads Program funding.

The increase in Skills and Workforce development in 2016-17 reflects funding for the Building Australia's Future Workforce program.


The increase in the Students First SPP reflects revised amounts to be provided by the Australian Government under the Students First Program.

The decrease in National Health Reform funding reflects the Australian Government's decision in the 2014-15 Budget to fund the State, through the Agreement, based on actual service activity levels from 1 July 2014, with the removal of all top-up funding.

Other Australian Government Grants The increase in Other Australian Government Grants primarily reflects the reclassification of Commonwealth Own Purpose Expenditure funding by the THOs from Other Revenue to Australian Government Grants.


Agency Revenue

Health and Human Services

The decrease in Health and Human Services primarily reflects the elimination of Business Services Network payments between the Department and the THOs for shared services costs. This revenue was not eliminated in the 2013-14 Budget estimates and the recognition of the elimination in 2014-15 reduces Health and Human Services revenue estimates, with a corresponding decrease in the THO's expenditure estimates. The decrease also reflects a reduction in rent as a result of revised estimates for the Better Housing Futures program.

State Growth

The decrease in State Growth primarily reflects reduced Mineral Royalty receipts as a result of the Mount Lyell mine (Copper Mines of Tasmania) moving into a care and maintenance period and the winding down of the operations at the Henty gold mine through to 2015 and a decrease in iron ore prices.


The decrease in the THOs primarily reflects the reclassification of COPE funding from Other Revenue to Australian Government Grants.


MAJOR EXPENSE VARIATIONS Policy Decisions

Finance-General

Assistance to First Home Buyers of New Homes

Additional funding has been provided to extend the First Home Builders Boost scheme and then bring it into line with comparable national levels. The $30 000 First Home Builders Boost for first home buyers who build or buy a new home was scheduled to cease on 31 December 2014. The Government has decided to extend the arrangements for six months from 1 January 2015 to 30 June 2015 at a level of $20 000 and then continue the scheme at $10 000 from 1 July 2015 on an ongoing basis.

Forestry Tasmania Funding for non-commerical activities

A provision of $4 million is provided in 2014-15 and subsequent years for Forestry Tasmania to deliver its non-commercial activities as identified in its Ministerial Charter.

Tasmanian Forests Agreement

Funding is provided to support rescheduled harvesting, plantation management and Forest Stewardship Council certification of Tasmanian public forests.

Qantas Industry Assistance Package

The Government has announced an agreement with Qantas Airways Limited in relation to the consolidation of all of its Qantas's Australian Contact Centre operations in Hobart. As part of this agreement, the Government is offering a financial assistance package to Qantas, including payroll tax relief of $750 000 in 2014-15 and $1 million per annum, for nine years, ending with a final reimbursement of $250 000 in 2024-25. This payroll tax relief is part of a broader agreement with Qantas to secure existing Qantas Contact Centre positions, and through the consolidation of Australia wide operations, provides for increased employment at the Hobart Contact Centre.


Equal Remuneration Order (ERO)

Additional ERO Supplementation of $9.2 million will be provided in 2017-18 to increase the total State allocation to $24.2 million in 2017-18. The ERO is being implemented in nine instalments over eight years. This funding will enable community sector organisations to fully meet their obligations and requirements under the Fair Work Australia ERO.

The additional supplementation included in this Budget is on top of the $58.3 million included in the 2013-14 Budget for the first five years of the ERO. In total, the Tasmanian Government has committed $82.5 million to funding the first six years of the ERO. This funding represents the total cost of the ERO in Tasmania, less a contribution by the Australian Government of $17.2 million for the same period. The Australian Government commitment is split across payments made to the State and paid directly to DisabilityCare Australia.


National Disability Insurance Scheme (NDIS)

Additional funding of $39.6 million is provided in 2017-18 for costs associated with the transition to the full NDIS. This brings total funding to $55.2 million over the next four years to assist with the introduction of the NDIS in Tasmania.

Justice

Tasmanian Prison Service Funding

Additional funding of $16 million over four years has been provided to align the Tasmanian Prison Service's Budget to meet current demand and reviewed cost for correctional services. Cost pressures include increases in correctional salaries and workers' compensation premiums, aligning the Service with Australian Standards, increased costs associated with Tasmanian Industrial Commission rulings and other non-salary costs.

Primary Industries, Parks, Water and Environment

Tasmanian Forests Agreement - Reserve Management

Additional funding of $3.2 million will be provided each year as the State Government's contribution for the additional areas of reserved lands transferred to the Department under the Forest Management Act 2013 and Tasmanian Forests Agreement Act 2013.

State Growth

National Reforms - Heavy Vehicle Regulator

Tasmania is a signatory to the Intergovernmental Agreement on Heavy Vehicle Regulatory Reform that established the National Heavy Vehicle Regulator (NHVR). Under this Agreement, the NHVR will have ownership of the regulatory component of the registration charges and the State will retain the road costs component. Funding of $3.8 million will be provided over three years towards the cost of the NHVR until it is funded by the regulatory component.

Rail (provision)

The 2014-15 Australian Government Budget announced the allocation of funding of $119.6 million over a five year period for Tasmanian Rail-Freight Revitalisation.

As part of the 2014-15 Budget, the State will contribute $97 million over a five year period for Rail-Freight Revitalisation. A total provision of $22.6 million over 2016-17 to 2017-18 has been made pending the outcome of Australian Government funding matching negotiations.


Agency Expenditure

Education

The increase in Education primarily reflects increased expenditure as a result of increased funding from the Australian Government for the Students First Program.


Finance-General

The increase in Finance-General primarily reflects the transfer of the Aurora Energy Concessions Community Service Obligation payments from the Department of Health and Human Services to Finance-General.


The decrease in Health and Human Services primarily reflects the transfer of the Aurora Energy Community Service Obligation payments to Finance-General. The decrease also reflects a reduction in maintenance and other property related costs as a result of revised estimates for the Better Housing Futures program. The decrease in 2016-17 also reflects the correction of a coding error. The Department's budgeted expenditure for 2016-17 was overstated within the 2013-14 Budget Papers, the correction of this error results in a decrease in the Department's budgeted expenditure of $35.6 million.

State Growth

The increase in State Growth primarily reflects additional funding from the Australian Government for the Roads Program and revised cash flows for Skills and Workforce Development NPPs.


The decrease in the THOs primarily reflects revised estimates for National Health Reform revenue and expenditure. The decrease also reflects the elimination of Business Services Network payments that are paid by the THOs for shared services costs to the Department of Health and Human Services. These decreases in expenditure are partially offset by an increase in NPP expenditure in 2014-15 and 2015-16 and the transfer of services from Health and Human Services to the THOs.


MAJOR PURCHASES OF NON-FINANCIAL ASSETS VARIATIONS Policy Decisions For further information on Policy Decisions refer to chapter 7 of The Budget Budget Paper No 1.


Education

The increase in Education in 2014-15 reflects the carry forward of funds of $10.1 million from 2013-14 for a number of infrastructure projects, with those funds to be utilised in 2014-15.

Finance-General

The movement in Finance-General reflects current replacement schedules for the Government's light vehicle fleet.


The movement in Health and Human Services reflects revised cash flows for major infrastructure projects, including the Royal Hobart Hospital Redevelopment and Special Capital Investment Fund projects.

Justice

The increase in Justice in 2014-15 primarily reflects revised cash flows for the Prison Infrastructure Redevelopment Program.

State Growth

The increase in State Growth primarily reflects additional funding of $238.6 million provided through the new agreement with the Australian Government for Roads Program funding.


The increase in THO - North and THO - South in 2014-15 primarily reflects the carry forward of funds from 2013-14 for a number of infrastructure projects, with those funds to be utilised in 2014-15. The increase in THO - North West reflects additional Australian Government funding for the Mersey Community Hospital.

Estimated Future Australian Government Roads Funding

The decrease in Estimated Future Australian Government Roads Funding removes the provision made in the 2013-14 Budget and reflects the fact that a new agreement has been reached with the Australian Government and the provision of funds to specific projects.

Provision for Future Infrastructure Investment

The decrease in the Provision for Future Infrastructure Investment reflects the allocation of funds to specific infrastructure projects.

General Government Revenue 6.1

6 GENERAL GOVERNMENT REVENUE

Features

• Total General Government Sector revenue is estimated to be $4 963.7 million in 2014-15, an increase of $171.7 million above the 2013-14 Budget estimate of $4 792.1 million.

• Total revenue growth over the 2014-15 Budget and Forward Estimates is estimated to be an average annual rate of 1.9 per cent, below the long run trend of 4.4 per cent per annum.

• Key components of General Government Sector revenue in 2014-15 include:

− GST Revenue is estimated to be $1 911.4 million, an increase of 6.2 per cent above the 2013-14 estimate of $1 800.5 million;

− Australian Government National Partnership Payments are estimated to be $253.3 million, a decrease of 11.5 per cent below the 2013-14 estimate of $286.2 million. This primarily reflects the cessation of a number of NPPs through expiry or cancellation by the Australian Government;

− Tasmania's share of revenue from Grants, including GST and Australian Government Grants for Specific Purposes, equates to 61 per cent of total General Government Revenue; and

− Taxation Revenue is estimated to be $983.2 million, an increase of 4.6 per cent above the 2013-14 estimate of $940 million. There are no new taxes or increases in the rate of taxes associated with this growth in revenue, rather it is a function of economic activity levels and inflation.

• The 2014-15 Australian Government Budget has had a significant impact on General Government Sector revenue over the 2014-15 Budget and Forward Estimates. The projected total impact on Tasmania from the Australian Government ceasing or varying agreed payments is approximately $2.1 billion to 2024-25.

• There are significant issues impacting on Federal Financial Relations that present a range of risks to Grant funding over the Forward Estimates.

6.2 General Government Revenue

TOTAL REVENUE This chapter provides an overview of Revenue for the 2014-15 Budget year and the Forward Estimate years 2015-16 to 2017-18. Table 6.1 lists the major General Government Sector Revenue sources.

Table 6.1: General Government Sector Revenue

2013-14) )

Budget)

2014-15) )

Budget)




$m) $m) $m) $m) $m)

Grants 2 850.9) 3 027.5) 3 301.5) 3 303.7) 3 329.5)

Taxation 940.0) 983.2) 1 019.2) 1 053.6) 1 070.7)



Interest Income 13.8) 15.9) 16.4) 15.3) 14.3)

Dividend, Tax and Rate Equivalent Income 330.1) 342.9) 155.0) 162.7) 248.4)

Other Revenue 195.9) 136.8) 134.8) 132.4) 131.6)

Total 4 792.1) 4 963.7) 5 086.3) 5 130.0) 5 257.4)

In 2014-15, Total General Government Sector revenue is forecast to be 3.6 per cent ($171.7 million) higher than the 2013-14 Budget. From 2014-15 to 2017-18, Total General Government Sector revenue is expected to grow by an average 1.9 per cent per annum which is below the long-run trend of 4.4 per cent per annum. Lower than average growth is mainly influenced by a reduction in returns from government businesses, primarily from Hydro Tasmania, that have been partially offset by additional returns from the Government's new dividend policy.

Chart 6.1 shows the components of Total General Government Sector revenue for 2014-15. State Own-Source Revenue accounts for 39 per cent of Total revenue. The largest source of State Own-Source Revenue is Taxation at 19.8 per cent of Total revenue, followed by Sales of Goods and Services at 7.1 per cent. Tasmania's most significant source of funding is from Australian Government Grant payments and subsidies, comprising 61 per cent of Total revenue.


Chart 6.1: Composition of Total Revenue, 2014-15

Grants$3 027.5m

(61.0%)

Taxation$983.2m(19.8%)

Sales of Goods and Services$354.1m(7.1%)


$103.3m(2.1%)

Interest Income$15.9m (0.3%)

Dividend, Tax and Rate Equivalent

Income$342.9m(6.9%) Other Revenue

$136.8m(2.8%)

Chart 6.2 shows the composition of Total General Government Sector revenue over time.

Chart 6.2: Total Revenue, 2003-04 to 2017-181

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

5 500

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

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2009

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2010

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2011

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2012

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2013

-14

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2015

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2016

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2017

-18

$ m

illio

n

Other Taxation GST Grants Other Australian Government Grants

Forecasts

Note: 1. Original Budget figure used for 2013-14 and actuals for 2003-04 to 2012-13.


GRANTS Grants primarily reflect transfers of funding from the Australian Government and are estimated to be $3 027.5 million in 2014-15. This is an increase of 6.2 per cent above the 2013-14 Budget estimate of $2 850.9 million.

Table 6.2: Grants 2013-14) 2014-15) 2015-16) 2016-17) 2017-18)

Budget) Budget)

Forward) Estimate)

Forward) Estimate)

Forward) Estimate)

$m) $m) $m) $m) $m)

General Purpose Payments (Untied Funding) ) ) ) )

GST Revenue 1 800.5 1 911.4 2 095.2 2 149.6 2 202.9

Payments for Specific Purposes (Tied Funding)


To the State1 495.2 539.1 559.3 581.0 596.1

Through the State 175.4 199.9 217.8 235.4 252.4

670.6 739.1 777.1 816.4 848.5 National Partnership Payments

To the State 212.4 181.2 235.9 153.6 93.4

Through the State 73.8 72.1 71.6 71.1 73.6

286.2 253.3 307.5 224.7 167.0

Total Payments for Specific Purposes 956.7 992.4 1 084.7 1 041.1 1 015.5 Other Grants and Subsidies 93.7 123.7 121.6 112.9 111.0

Total 2 850.9 3 027.5 3 301.5 3 303.7 3 329.5

) )

Note: 1. Includes National Health Reform and Students First funding.

In accordance with the Intergovernmental Agreement on Federal Financial Relations (IGA), transfers from the Australian Government fall into two categories:

• General Purpose Payments, which are ''untied'' payments that can be used at the State's discretion. The GST distribution will be the only GPP received by Tasmania in 2014-15; and

• conditional (tied) funding in the form of Payments for Specific Purposes, including, National Partnership Payments (NPPs), Specific Purpose Payments (SPPs), National Health Reform funding and Students First funding. These payments must only be spent for purposes as agreed with the Australian Government.

These transfers are discussed in further detail in the Federal Financial Relations Issues section, later in this chapter.


GST Revenue In accordance with the IGA, all GST revenue collected by the Australian Government is distributed amongst the states and territories.

Each State's GST entitlement is dependent on three factors: national GST collections, the State's per capita relativity and the State's share of the national population. The Commonwealth Grants Commission (CGC) updates its recommended GST relativities each year according to the principle of horizontal fiscal equalisation (HFE). An explanation of the Commonwealth Grants Commission's (CGC) methodology is set out in the Federal Financial Relations Issues section below.

Historically, Tasmania has been assessed by the CGC as having a lower than average fiscal capacity and requiring a greater than its population share of GST. This reflects the relatively higher cost of service provision in the State and Tasmania's below average capacity to raise revenue.

In the 2012-13 and 2013-14 Budgets, the Department of Treasury and Finance used its own financial model to forecast per capita relativities over the Forward Estimates period. This model seeks to replicate the CGC's methodologies to calculate per capita relativities.

The CGC's 2015 Methodology Review of GST Revenue Sharing Relativities, which is due to be published by 28 February 2015, will introduce methodology changes to the way the CGC calculates its per capita relativities. The new methodology will apply from 2015-16.

It is not possible to forecast the impact of methodology changes with any precision. While the CGC's draft report on the 2015 methodology review provides information on potential methodology changes to some assessment categories, it does not provide sufficient information to assess the full impact of the 2015 methodology review. In addition, there will be changes made between the draft and final report.

Treasury has reverted to the approach used prior to 2012-13, and the 2014-15 Budget and Forward Estimates of GST revenue to Tasmania are taken from the Australian Government 2014-15 Budget. Treasury will review its forecasting approach for the 2015-16 Budget following receipt of the 2015 methodology review. Table 6.3 shows GST revenue estimates for the national pool and Tasmania.

Table 6.3: Tasmanian GST Revenue estimates

2014-15 2015-16 2016-17 2017-18

)


Forward Estimate

Forward Estimate

) ) ) )

National GST Collections ($m) 53 710 57 020 60 440 63 810

Tasmania's GST Share (%)1 3.56 3.67 3.56 3.45

Tasmania's GST Revenue ($m)1 1 911.4 2 095.2 2 149.6 2 202.9

) ) ) ) Note: 1. 2014-15 Budget is based on the actual relativity that will apply in 2014-15 as determined by the CGC.

GST payments to Tasmania are expected to be $1.9 billion in 2014-15, or 6.2 per cent higher than the 2013-14 Budget. This growth in GST revenue to Tasmania reflects GST pool growth and an increase in Tasmania's GST relativity, partially offset by lower than average population growth.


The national GST pool is forecast by the Australian Government to grow by 5.9 per cent per annum in 2014-15 and over the Forward Estimates, which is below the growth rates recorded in years prior to the global financial crisis.

Chart 6.3 below illustrates the difference between the 2013-14 and 2014-15 State Budget estimates of GST revenue to Tasmania over the Forward Estimates. Despite the improvement in growth of the total GST pool since 2013-14, Tasmania's share of GST is expected to be lower over the 2014-15 Budget and Forward Estimates period.

Chart 6.3: GST Revenue to Tasmania, 2007-08 to 2017-18

1 500

1 600

1 700

1 800

1 900

2 000

2 100

2 200

2 300

2 400

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

$ m

illio

n

Actual 2013-14 Budget 2014-15 Budget

Sources: Tasmanian Government Budget Paper No 1 - The Budget (various years); Australian Government Final Budget Outcome (various years); Department of Treasury and Finance modelling.

Commonwealth Payments for Specific Purposes

Specific Purpose Payments and Reform Funding

In 2014-15, Tasmania will receive an estimated $739.1 million in SPPs and reform agreement funding. This is an increase of $68.5 million or 10.2 per cent above the $670.6 million estimated in the 2013-14 Budget. The growth in SPPs and reform funding primarily reflects an increase in Education funding under the Students First reform arrangements. This is discussed further below.

SPPs are an ongoing funding arrangement from the Australian Government to the States for service delivery in a particular sector. There are currently three SPPs in operation: the National Skills and Workforce Development SPP; the National Disability Services SPP; and the National Affordable Housing SPP. In recent years, the Education and Health SPPs have been replaced by reform agreements, namely the Students First funding arrangement and the National Health Reform (NHR) agreement respectively.


Students First Funding The Students First funding arrangement replaced the National Schools SPP as of 1 January 2014. In 2014-15, Tasmania will receive an estimated $347.3 million in Students First funding, comprising $147.3 million for Government schools and $199.9 million for non-Government schools.

National Health Reform Funding Under the National Health Reform (NHR) Agreement, Tasmania receives NHR funding for the provision of public hospital services. This funding replaced the National Healthcare SPP as of 1 July 2012. In 2014-15, Tasmania will receive an estimated $315.7 million in NHR funding.

National Partnership Payments National Partnership Payments (NPPs) are provided to each State through National Partnership Agreements (NPAs) and Project Agreements (PAs). The agreements are usually time limited and aim to support the delivery of projects, facilitate reforms within the State or reward the State for delivering on national reforms.

In 2014-15, Tasmania will receive an estimated $253.3 million of funding in NPPs, a decrease of 11.5 per cent below the $286.2 million estimated for 2013-14. This primarily reflects the cessation of a number of NPPs through expiry or cancellation by the Australian Government, such as Certain Concessions for Pensioners and Seniors Card Holders.

Table 6.4 details the Payments for Specific Purposes that Tasmania will receive from the Australian Government in 2014-15 and over the Forward Estimates period.


Table 6.4: Commonwealth Payments for Specific Purposes 2013-14 2014-15 2015-16 2016-17 2017-18

Budget Budget

Forward Estimate

Forward Estimate

Forward Estimate

$m $m $m $m $m

Specific Purpose Payments )

Education )

Students First - Government Schools 107.3 147.3 159.3 172.5 179.0

Students First - Non-Government Schools 175.4 199.9 217.8 235.4 252.4

National Skills and Workforce Development 31.8 31.2 31.2 31.4 31.4

Total Education Specific Purpose Payments 314.5 378.4 408.4 439.3 462.8 ) Health and Human Services

National Health Reform1 311.7 315.7 323.7 331.9 340.3

National Disability Services 15.5 16.6 16.7 16.7 16.8

National Affordable Housing 28.9 28.4 28.4 28.5 28.6

Total Health and Human Services Specific Purpose Payments 356.1 360.6 368.8 377.1 385.7

Total Specific Purpose Payments 670.6 739.1 777.1 816.4 848.5 National Partnership Payments ) ) ) )

Education ) ) ) )

Early Childhood Education2 9.0 5.2 .... .... ....

Indigenous Early Childhood Development 2.0 .... .... .... ....

Trade Training Centres in Schools 3.0 1.8 .... .... ....

Supporting Students with Disabilities 0.8 1.2 .... .... ....

Independent Public Schools .... 0.6 0.6 0.6 .... Smarter Schools

Low SES School Communities 10.4 .... .... .... ....

Improving Teacher Quality 4.2 .... .... .... ....

Other 3.6 .... .... .... ....

Total Education National Partnerships 33.0 8.8 0.6 0.6 ....


Table 6.4: Commonwealth Payments for Specific Purposes (continued)

2013-14 2014-15 2015-16 2016-17 2017-18

Budget Budget Forward Estimate

Forward Estimate

Forward Estimate

$m $m $m $m $m Healthcare

Improving Health Services in Tasmania

Reducing Elective Surgery Lists 8.3 7.1 6.2 .... ....

Innovative Flexible Funding for Mental Health .... 1.0 1.0 .... ....

Improving Patient Pathways through Clinical and

System Redesign .... 5.1 5.1 .... ....

Enhancing Subacute Care - Better Access to

Community Based Palliative Care Services .... 1.7 1.7 .... .... Health and Hospitals Fund

Royal Hobart Hospital Redevelopment3 .... .... 50.0 .... ....

National Cancer System 6.6 6.8 0.5 .... ....

Essential Vaccines 4.7 5.0 4.7 3.9 0.1

Commonwealth Dental Health Program 5.5 4.3 .... .... .... National Health and Hospitals Network Package

Sub-Acute Beds 14.0 .... .... .... ....

Supporting National Mental Health Reform 1.6 1.6 1.7 .... ....

Other 8.3 1.7 0.4 .... ....

Total Healthcare National Partnerships 49.0 34.3 71.3 3.9 0.1

Community Services (including Disability) )

Transitioning Responsibilities for Aged Care and

Disability Services .... 27.0 14.8 15.8 16.8

Certain Concessions for Pensioners and Seniors Card

Holders 8.6 .... .... .... ....

Pay Equity for the Social and Community Services

Sector .... 3.2 2.7 3.6 4.5

Other .... 0.6 0.6 .... ....

Total Community Services (including Disability) National Partnerships 8.6 30.8 18.1 19.4 21.3

Housing

Indigenous Housing 2.9 .... .... .... ....

Total Housing National Partnerships 2.9 .... .... .... .... )


Table 6.4: Commonwealth Payments for Specific Purposes (continued)

2013-14) 2014-15) 2015-16) 2016-17) 2017-18)

Budget) Budget) Forward) Estimate)

Forward) Estimate)

Forward) Estimate)

$m) $m) $m) $m) $m)

Infrastructure Land Transport Infrastructure Projects (includes former

Auslink) 50.8 89.3 108.6 109.9 65.6

Abt Railway 6.0 .... .... .... ....

Other .... 0.4 0.4 0.5 ....

Total Infrastructure National Partnerships 56.8 89.7 109.0 110.4 65.6

) ) ) ) )

Skills and Workforce Development Australia's Future Workforce - National Partnership on

Skills reform 5.3 8.4 8.4 11.6 ....

Other 1.7 0.3 .... .... ....

Total Skills and Workforce Development National Partnership Payments 7.0 8.7 8.4 11.6 ....

)

Environment Water for the Future

Sustainable Rural Water Use and Infrastructure 36.3 0.4 20.6 .... ....

National Framework for Compliance 0.8 .... .... .... ....

Tasmanian Forests Intergovernmental Agreement4 7.4 .... .... .... ....

Caring for Our Country 4.6 0.2 .... .... ....

Total Environment National Partnership Payments 49.1 0.6 20.6 .... ....

Other Services

Financial Assistance Grants to Local Government 73.8 72.1 71.6 71.1 73.6

Legal Aid 6.0 6.1 6.2 6.3 6.4

Other .... 2.2 1.6 1.6 ....

Total Other Services National Partnership Payments 79.8 80.4 79.4 78.9 80.0 Total National Partnership Payments 286.2 253.3 307.5 224.7 167.0 TOTAL PAYMENTS FOR SPECIFIC PURPOSES 956.7 992.4 1 084.7 1 041.1 1 015.5

Total to the State 707.5 720.3 795.3 734.6 689.5 Total through the State 249.2 272.1 289.4 306.5 326.0

956.7 992.4 1 084.7 1 041.1 1 015.5


Notes: 1. From 2017-18, the Australian Government funding growth for Public Hospital services will reduce to CPI plus

population growth. 2. Australian Government Funding for Universal Access to Kindergarten, from calendar year 2015, is subject to

negotiation with the Australian Government. 3. The changed timing of payment from 2016-17 to 2015-16 is due to revised cash flows outlined in the

2014-15 Australian Government Budget. 4. Australian Government Funding for the management of forestry reserves beyond 2013-14 is subject to negotiations

with the Australian Government.

FEDERAL FINANCIAL RELATIONS ISSUES Australia's federal financial relations have been characterised by the high degree of vertical fiscal imbalance that exists across the federation. Since federation, the financial relationship between the Australian Government and State Governments has evolved in such a way that the dominant characteristic is a fundamental imbalance between the revenue raising powers and expenditure responsibilities of each level of government. As a result, revenue transfers from the Australian Government are a vital source of revenue for States.

Along with other states, Tasmania relies heavily on Australian Government funding in order to provide adequate services to its citizens. In 2014-15, it is estimated that Tasmania's total grants, which primarily reflects transfers from the Australian Government in the form of GST and grants for specific purposes, will equate to 61 per cent of Tasmania's total General Government Sector Revenue.

The main challenges Tasmania faces within this environment are outlined below.

2014-15 Australian Government Budget

The 2014-15 Australian Government Budget contained a number of unexpected announcements regarding the cessation or variation of funding to the States, highlighting the volatility and uncertainty that Tasmania, and other states, experience due to their reliance on Australian Government funding.

The Australian Government's Budget Overview stated that:

"the Government is adopting sensible indexation arrangements for schools from 2018, and hospitals from 2017-18, and removing funding guarantees for public hospitals. These measures will achieve cumulative savings of over $80 billion by 2024-25. The Government will also reduce or terminate some Commonwealth payments that are ineffective or duplicate State responsibilities. These include National Partnership Agreements on Preventive Health, Improving Public Hospital Services and Certain Concessions for Pensioners and Seniors Card Holders. The States will be expected to continue contributing to these arrangements at their expense".

The Australian Government's budget decisions have had a significant impact on the level of funding expected to be received, particularly under the National Health Reform and Students First funding arrangements. The total impact on Tasmania from the Australian Government 2014-15 Budget is estimated to be $2.1 billion over the period to 2024-25.


Under the NHR agreement, the growth rate of NHR funding from the Australian Government from 2017-18 was to increase from 45 per cent to 50 per cent of the efficient price per unit of hospital activity. However, the indexation arrangements were reduced in the 2014-15 Australian Government Budget and funding from 2017-18 onwards will now be indexed by a combination of CPI and population growth. Further to this, the Budget also announced the removal of the funding guarantees agreed under the NHR agreement. These were a feature that ensured a guaranteed amount of additional funding would flow to Tasmania irrespective of any growth in public hospital activity. These changes have had a significant impact on NHR funding to Tasmania over the Forward Estimates with an even greater impact expected beyond the Forward Estimates period.

The Students First funding arrangement was also significantly impacted by decisions announced in the Australian Government 2014-15 Budget. Education funding arrangements had been agreed with the previous Government under the National Education Reform Agreement (NERA) (since renamed as Students First). However, it was announced that the previous Government's education funding commitment under NERA will only be honoured until the end of the 2017 calendar year. Funding from the 2018 calendar year onwards will instead be based on 2017 funding levels, indexed by CPI with an allowance for changes to enrolment numbers. This has had an impact on the 2017-18 Forward Estimate. However, the majority of the impact of this decision will occur beyond the Forward Estimate period from 2018-19 onward.

The Australian Government also terminated the Certain Concessions for Pensioners and Seniors Card Holders agreement (a funding impact of $35.6 million to 2017-18), expressing the expectation that States continue contributing to these arrangements at their own expense. The Tasmanian Government has committed to funding pensioner concessions at their current rate for 2014-15 and across the Forward Estimates.

White Papers on the Reform of the Federation and Taxation The Australian Government has committed to producing White Papers, on Reform of the Federation and the Reform of Australia's Taxation System, by the end of 2015.

The Federation White Paper will consider reform to Commonwealth-State roles and responsibilities, vertical fiscal imbalance and horizontal fiscal equalisation. It aims to clarify roles and responsibilities between all levels of Government to ensure that, as far as possible, each level of Government is sovereign in its own sphere.

Australia's substantial vertical fiscal imbalance and long-term fiscal pressures for all levels of government mean that the Federation White Paper will be closely linked to reforms considered in the Taxation White Paper and will necessitate close interaction between the two White Papers.

The Federation White Paper will also be informed by the recommendations of the National Commission of Audit, released in May 2014. The Audit considered the split of roles and responsibilities between levels of governments, including areas of duplication, along with ways to improve the overall efficiency and effectiveness of government services.

It is intended that States will be extensively engaged in the development of the White Papers. Tasmania strongly supports a coordinated approach to considering national and state taxation reform, recognising that there are inherent difficulties that inhibit individual states from achieving significant reform independently or without the support of the Australian Government.


Tasmania strongly supports retaining the principles of Horizontal Fiscal Equalisation (HFE). HFE is a cornerstone of the success of Australian society. It has served Australia well by responding and adapting to changing State circumstances, and allowing for the mobility of labour and capital across the national economy. Without HFE, certain states within our federation, including Tasmania, would be significantly disadvantaged due to unavoidable differences in fiscal capacities and the cost of providing government services, given factors such as the composition of the State's population.

Due to these factors, Tasmania is a major beneficiary of the horizontal fiscal equalisation process. In 2014-15, Tasmania will receive approximately 1.63 times its population share in GST, which is $747 million above its population share. Tasmania will be materially disadvantaged by any softening of the principle of HFE and will continue to argue strongly that the current system has served the nation well.

It is important to note that the majority of the GST pool is distributed on a per capita basis, with around 10 per cent of the pool used for equalisation purposes.

Tasmania will continue to actively participate in the future development of the two White Papers.

Commonwealth Grants Commission

Established in 1933, the Commonwealth Grants Commission is an independent Australian Government statutory body charged with the task of making recommendations to the Australian Treasurer, in the form of per capita relativity factors, on how GST revenue should be distributed between the States each year.

Since 1981, the basis for its recommendations has been an assessment of the relative fiscal capacities of the States. These assessments are carried out in accordance with the principle of HFE.

The CGC's assessments also provide the states with an important source of comparable data on which to assess their relative performance in the areas of expenditure efficiency and revenue raising effort.

The current HFE framework takes, as its starting point, the scope of State transactions and functions that are considered the normal responsibility of state governments, including all related recurrent expenditures and revenues, as well as physical and financial capital investment requirements. The CGC then undertakes assessments that attempt to measure the level of services each state could provide and the amount of revenue it could raise, if it made the average Australian effort. The difference between the assessed levels of service and revenue and the Australian average determines the shares of GST revenue. It does not ''compensate'' for differences attributable to policy, practice and relative inefficiency. In this way, the smaller jurisdictions such as South Australia, Tasmania, the ACT and the Northern Territory, which on the whole face higher than average per capita costs and/or lower than average revenue raising abilities, are granted a greater than proportional share of general revenue assistance. This enables them to discharge their standard functions without necessarily having to impose above average revenue raising measures on their communities.

Equalising the fiscal capacity of states is a central element of federation. It protects state autonomy and enables the provision of services to state communities, reflecting the specific and varied priorities of those communities. There are risks associated with HFE as the nature of the GST revenue pool distribution is ''zero sum'' in that for a state to receive above population share, another has to receive below population share.


Any departure from the principle of HFE, or significant change in the CGC's current methodology represents a risk to Tasmania. The CGC is currently undertaking a scheduled five-yearly review of its methodology, which will impact on GST share grants from 2015-16 onwards.

Commonwealth Grants Commission 2015 Methodology Review

In June 2013, the CGC commenced its 2015 Methodology Review.

It was agreed by the Council for Federal Financial Relations (CFFR) that the 2015 Review should have regard to certain recommendations of the GST Distribution Review. Initiated in November 2011, the GST Distribution Review was tasked with considering whether the current approach to sharing GST revenue among States would ensure that Australia is best placed to respond to emerging structural and other challenges of the 21st century.

The 2015 Review will have regard to the Panel's recommendations relating to the assessment of mining revenue; mining expenditure; transport infrastructure; the treatment of capital; and further simplification of the methodology.

The terms of reference for the Review request that the CGC provide a final report by 28 February 2015, including GST revenue sharing relativities to be used for the distribution of GST revenue among the States from 2015-16.

A draft report was publicly released on 8 August 2014. While the draft report provides preliminary results at the individual category level for a single year for some assessment categories, the CGC has not aggregated these because it does not consider that an aggregation would provide a reliable indicator of the final outcome. In addition, there will be changes to both methods and data made between the draft and final report.

Tasmania will continue to actively engage with the CGC on all aspects of the 2015 Review. Subject to endorsement by the CFFR and Council of Australian Governments (COAG) as well as a final determination by the Federal Treasurer, the outcome of the Review will impact the determination of the GST shares between States from 2015-16.

Commonwealth Grants Commission 2014 Update Report

In the years between the five-yearly methodology Reviews, the CGC undertakes annual updates of state relativities using the methods recommended in the previous review.

The CGC's Report on GST Revenue Sharing Relativities - 2014 Update (2014 CGC Report) provided state relativities used in determining the distribution of GST revenue amongst the states for 2014-15. The Report shows that Tasmania's assessed per capita GST relativity has increased slightly since the 2013 CGC Report. This means that Tasmania will receive more GST revenue for 2014-15 than it would have done if the 2014-15 GST pool was distributed to the states according to the 2013-14 relativity.

The 2014-15 relativity is based on data from 2010-11 to 2012-13. The increase in Tasmania's 2014-15 Relativity primarily reflects:

• a decrease in Tasmania's share of Australian Government payments other than GST, especially Building the Education Revolution and road infrastructure payments;


• below average growth in taxable private sector payrolls and property transfers in Tasmania relative to other jurisdictions; and

• the CGC’s assessment of strengthening own-source revenue raising capacity in Western Australia from increased iron ore production.

These influences are partially offset by below average population growth, which has reduced Tasmania's assessed need for capital compared to the other states and territories

Tasmania has the second lowest assessed fiscal capacity. Western Australia has the strongest assessed fiscal capacity. Tasmania has a higher per capita GST need than most other States and is a major beneficiary of the equalisation process. Tasmania will receive more than one and a half times its population share in GST revenue in 2014-15 because of the equalisation process. Tasmania's share of the GST Pool is estimated to remain constant at 3.6 per cent from 2013-14 to 2014-15. This is reflective of the increase in Tasmania's relativity being offset by the decrease in Tasmania's share of the total population.

Further information on the 2014 CGC Report can be found on the CGC website at www.cgc.gov.au.

Other Issues

National Health Reform Funding Tasmania receives funding for the provision of public hospital services through the NHR Agreement. NHR funding replaced the National Healthcare SPP as of 1 July 2012.

Under the NHR Agreement, the Australian Government was to provide States with a base level of funding that was at least the equivalent of the National Healthcare SPP, guaranteeing States would be ''no worse off''. Further, the Agreement also included an additional minimum State-specific growth funding guarantee. Together, these guarantees provided certainty in terms of the level and growth rate of NHR funding to Tasmania over the period from 2014-15 to 2020-21. NHR funding was therefore considered relatively low risk.

In its 2014-15 Budget, the Australian Government announced the removal of these funding guarantees, along with reduced indexation arrangements from 2017-18 onwards. With the removal of these guarantees, the Australian Government's NHR funding contribution will not be guaranteed at a particular level and will fluctuate with Tasmania's activity levels. To the extent that Tasmania's actual activity levels differ from current estimates, NHR funding will vary accordingly.

As discussed above, the Australian Government Budget changes have had a significant impact on NHR funding to Tasmania over the Forward Estimates, with an even greater impact expected beyond the Forward Estimates period.

Students First From 1 January 2014, the National Schools SPP was replaced by Students First funding (previously referred to as the NERA). Negotiated by previous Australian and Tasmanian Governments, the NERA agreed each Government's respective education funding contributions for the six year period from the 2014 calendar year until 2019, with the majority (more than half) of additional Australian Government funding to be provided in 2018 and 2019.

http://www.cgc.gov.au/


The 2014-15 Australian Government Budget announced significant changes to these education funding arrangements. The current Australian Government will honour the previous Government's education funding commitment until the end of 2017, but not for the final two years in 2018 and 2019. Funding from the 2018 school year onwards will instead be indexed by CPI with an allowance for enrolment numbers. This decision has had a minor impact on the Forward Estimates and there is a risk that the 2017-18 Forward Estimate may change marginally once the actual CPI and enrolment numbers are known. However, the changes will have a significant impact on education funding to Tasmania beyond the Forward Estimates.

Despite these changes imposed by the Australian Government, consistent with its election commitment, the Tasmanian Government will fully honour its funding commitment under the Students First Agreement, with $134 million committed over the six year period.

Mersey Hospital

In 2007, the Australian Government assumed ownership and funding responsibility for the Mersey Community Hospital. Since 1 September 2008, the Tasmanian Government has managed the Mersey on the Australian Government's behalf under successive Heads of Agreements, each for a period of three years. The most recent three year Heads of Agreement for the continued management, operation and funding of the Mersey expired on 30 June 2014. The Australian Government has offered a 12 month extension to the existing Heads of Agreement, until 30 June 2015, which Tasmania has accepted.

The movement away from a three year agreement for the Mersey creates a level of uncertainty as to future funding arrangements. The 2014-15 Budget assumes a continuation of Australian Government funding over the Forward Estimates. To the extent that outcomes differ from Tasmania's current expectations, the financial impact on the Budget will change.

National Disability Insurance Scheme

The previous Tasmanian and Australian Governments signed the Heads of Agreement on the National Disability Insurance Scheme (NDIS) (full scheme) in May 2013. The Heads of Agreement covers a six year period, with a significant increase in required State and Australian Government contributions beyond the Forward Estimates period.

The Heads of Agreement provides that the transition profile of clients coming into the scheme between 2016 and 2019 will be agreed by September 2015 and that, by 2017, the risk sharing arrangements between the State and the Australian Government will be re-negotiated. To the extent that the outcomes differ from Tasmania's current estimates, these negotiations may have a material impact on the timing and size of Tasmania's financial contribution. It is expected that the future funding will be mutually agreed within the timeframes specified in the Agreement.

The current Australian Government has committed to fund the NDIS for a four year period. It is not clear when the Australian Government will address arrangements for the long-term funding of the NDIS and this creates uncertainty beyond the current four year funding commitment. In the 2013-14 Budget, the Tasmanian Government committed $16.8 million to the NDIS over the four years from 2013-14 to 2016-17; and in the 2014-15 Budget, the Tasmanian Government has committed additional funding of $39.6 million in 2017-18 for the costs associated with the transition to the full NDIS in that year.


Equal Remuneration Order

On 1 February 2012, Fair Work Australia issued a decision to significantly increase wages for some employees covered by the Social, Community, Home Care and Disability Services Award 2010. These wage increases are to be phased in between 2013-14 and 2020-21, with nine instalments over eight years.

The Australian Government has committed to provide funding totalling $40.9 million over the nine-year period, while the total cost of the ERO over this period is estimated to be $237.9 million. It was originally expected that non-Government sector employers would contribute to this additional cost; however, the previous Tasmanian Government made a decision to provide the additional funding required until 2016-17 to meet the full cost (in addition to the Australian Government funding).

In the 2014-15 Budget, additional ERO supplementation of $24.2 million is included in 2017-18, which will be year six of the ERO. The additional supplementation included in the Budget is on top of the $58.3 million included in the 2013-14 Budget for the first five years of the ERO. In total, the Tasmanian Government has committed $82.5 million to funding the first six years of the ERO, which represents the total cost of the ERO in Tasmania, less the Australian Government contribution of $17.2 million for the same period. Together, the Tasmanian and Australian Government funding will enable community sector organisations to fully meet their obligations and requirements under the Fair Work Australia ERO up to 2017-18.

Australian Government Forestry Funding

The 2014-15 Australian Government Budget includes funding continuing to be paid under the National Partnership Agreement on the implementation of the Tasmania Forests Intergovernmental Agreement 2013 (NPA). This includes ongoing funding indexed to CPI for reserve management and funding in 2014-15 and 2015-16 for implementation for ongoing residue solutions and to support Forest Stewardship Council (FSC) Certification and the Special Council. As discussions regarding the future funding commitments by the Australian Government under the NPA had not been completed at the time of preparation of the State Budget, the 2014-15 State Budget does not include receipt of this funding from the Australian Government or expenditure of these funds.

STATE TAXATION In 2014-15, State Taxation revenue is forecast to be 4.6 per cent ($43.2 million) higher than the 2013-14 Budget, primarily due to an 18.5 per cent increase ($24.4 million) in Conveyance Duty revenue.

Over the Forward Estimates, State Taxation revenue is forecast to grow at an average rate of 2.9 per cent per annum from 2014-15.

Consistent with its election commitments, the Government has not introduced any new taxes or increased the rate of any existing taxes in the Budget or over the Forward Estimates period.

Table 6.5 provides details of the components of the State Taxation estimates.


Table 6.5: State Taxation 2013-14) 2014-15) 2015-16) 2016-17) 2017-18) )

Budget) )

Budget) Forward) Estimate)

Forward) Estimate)

Forward) Estimate)

$m) $m) $m) $m) $m) ) ) Payroll Tax 303.9 316.7 329.9 343.2 357.3 Taxes on Property

Land Tax 89.8 88.6 91.5 94.4 97.4

Fire Service Levies1

Fire Service Contribution 34.9 36.8 38.9 40.4 42.0

Insurance Fire Levy 17.8 18.0 18.2 18.4 18.6

Government Guarantee Fees 30.5 24.9 30.3 33.7 29.3

Taxes on Financial and Capital Transactions

Conveyance Duty 131.5 155.8 159.7 163.7 167.8

Sundry Legal Documents Duty2 ....) ....) ....) ....) ....)

304.5 324.2 338.7 350.7 355.2 Taxes on the Provision of Goods and Services

Gambling Taxes )

Casino Tax and Licence Fees 57.9 55.5 55.6 55.8 55.9

Betting Exchange Taxes and Levies 2.8 3.4 3.3 3.7 3.8

Lottery Tax 29.7 29.7 30.4 31.2 32.0

Totalizator Wagering Levy 6.9 7.0 7.2 7.4 7.6

Other Gaming3 0.1 ....) ....) ....) ....)

Insurance Duty4 79.6 83.0 86.5 90.1 89.3

177.0 178.6 183.0 188.2 188.6 Taxes On The Use Of Goods and Services

Vehicle Registration Fees 35.0 36.4 37.0 37.7 38.3

Motor Vehicle Fees and Taxes

Motor Vehicle Duty 35.9 39.1 39.1 39.1 39.1

Motor Tax4 77.0 80.7 83.6 86.6 83.8

Motor Vehicle Fire Levy1 6.8 7.4 7.7 8.1 8.4

154.6 163.7 167.5 171.5 169.6

TOTAL STATE TAXATION 940.0 983.2 1 019.2 1 053.6 1 070.7

Notes: 1. Fire Service Levies are reported as a tax for the purposes of the Uniform Presentation Framework, however, all

revenues go directly to the State Fire Commission. 2. Duty from Sundry Legal Documents is forecast to be $40 000 across all years. This amount does not appear in the

Table due to rounding. 3. Other Gaming is forecast to be $32 000 across all years. This amount does not appear in the Table due to rounding. 4. Motor Tax and Insurance Duty receipts reduce in 2017-18 reflecting the Government's commitment to reinstate the

pre 1 October 2012 (adjusted by inflation) levels of Motor Tax for light vehicles and duty on Motor Accident Insurance Board premiums.


Taxation Measures

As part of the Government's commitment to unwind recent tax increases to motorists, the Motor Tax rate on light vehicles and duty on the Motor Accidents Insurance Board premium will revert to pre 1 October 2012 levels - less an adjustment for inflation. These changes will commence from 1 July 2017 and will be implemented over two years. The revised rates will reduce revenue in 2017-18 by $4.4 million for Insurance Duty and by $5.5 million for Motor Tax. These measures are included in the estimates in Table 6.5.

Payroll Tax Payroll Tax is imposed under the Payroll Tax Act 2008. It is levied on employee wages and salaries, taxable fringe benefits, employer superannuation contributions, and in some instances, contractor payments.

Payroll Tax revenue for 2014-15 is forecast to be 4.2 per cent ($12.8 million) higher than the 2013-14 Budget. This increase is due to a forecast improvement in employment growth and continued wage growth. Growth in Payroll Tax across the Forward Estimates is forecast to average 4.1 per cent per annum.

Payroll Tax is the largest source of State Taxation revenue for the Government, representing 32.2 per cent of this revenue source in 2014-15.

Payroll Tax revenue has grown at an average rate of 6.1 per cent per annum in the 10 years to 2013-14 compared to the average growth rate for total State Taxation revenue of 4.3 per cent per year over the same period.

However, since 2008-09, Payroll Tax revenue growth has slowed to 3.1 per cent per annum reflecting lower employment growth.

Chart 6.4 shows that employment and wages are the key drivers of Payroll Tax revenue growth.


Chart 6.4: Indexation of Payroll Tax Revenue, Total Employment and Average Weekly Earnings, 2002-03 to 2017-18

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Forecasts

Approximately 11 per cent of businesses registered in Tasmania pay Payroll Tax. This group of employers employ around 55 per cent of non-public service employees. Significantly, the top 20 payroll tax payers employ approximately 11 per cent of Tasmania's workforce.

As part of the Tasmanian Government's Job Creation Package, the 2014-15 Budget introduces the fourth Employee Incentive Scheme Payroll Tax Rebate (EISPR4). This measure will provide a payroll tax rebate of up to two years for private sector employers who create additional, eligible positions in Tasmania from 30 June 2014 to 30 June 2015. The additional positions must be maintained until at least 30 June 2016. The Government estimates EISPR4 will cost $4 million over the Budget and Forward Estimates and create approximately 600 new jobs for Tasmanians during this time.

Taxes on Property

Land Tax Land Tax is imposed under the Land Tax Act 2000 and is calculated on the assessed land value, as calculated by the Valuer-General, as at 1 July each year. In 2014-15, Land Tax applies to the general land category, which includes commercial land, industrial land, vacant land, and residential rental properties.

The 2014-15 Budget estimates Land Tax collections will be 1.4 per cent less than the 2013-14 Budget. Changes in Land Tax are driven by land revaluations (as determined by the Valuer-General), variations in the use of land over time and the distribution of the ownership of land.

Over the Forward Estimates, the annual growth in Land Tax is expected to average 3.2 per cent.


Fire Service Levies The major source of revenue for meeting the operational costs and capital needs of the State Fire Commission is received via a number of levies applied in accordance with the Fire Service Act 1979. The levies are a fire service contribution on property (levied on assessed annual values) that is collected by councils; a fire levy on prescribed classes of insurance; and a motor vehicle fire levy on vehicle registrations, excluding motor cycles.

In 2014-15, revenue from Fire Service Levies (including the motor vehicle fire levy) is estimated to increase by 4.5 per cent from the 2013-14 Budget. Across the Forward Estimates, growth is expected to be more subdued, at an average growth rate of 3.5 per cent each year.

Government Guarantee Fees Guarantee Fees are payable by Government Business Enterprises and State-owned Companies, on financial accommodation (primarily loans obtained from the Tasmanian Public Finance Corporation) to offset the borrowing cost advantage of public ownership. Without the payment of Guarantee Fees, Government businesses would receive an unfair advantage over their private sector counterparts as they would be able to access borrowings at lower costs given the implicit Government support.

It is expected that revenue from Guarantee Fees will be $24.9 million in 2014-15 on an accrual basis, a decrease of $5.6 million on the 2013-14 Budget estimate of $30.5 million. Over the Forward Estimates, Guarantee Fee receipts will increase gradually, to $33.7 million in 2016-17 and then decrease to $29.3 million in 2017-18.

Conveyance Duty Conveyance Duty is imposed under the Duties Act 2001 and is payable on most transactions that result in a change of ownership of real property and associated real assets, including vacant land, capital improved land and fixtures to land.

The Budget estimate for Conveyance Duty in 2014-15 is 18.5 per cent ($24.4 million) higher than the 2013-14 Budget. An increase in residential sales volumes coupled with median house price increases (4.5 per cent for the year ending March 2014) has contributed to the recent strong growth in this revenue type.

Chart 6.5 shows the volatility in the annual growth rates of Conveyance Duty. Historically, the volatility has been high with a broad range in outcomes. This contributes to the difficulty in preparing long-term estimates for Conveyance Duty. The 2014-15 Budget assumes that annual growth rates return to the long-term average over time.


Chart 6.5: Annual growth rates in Conveyance Duty, 2004-05 to 2017-18

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Taxes on the Provision of Goods and Services

Gambling Taxes Gambling Tax Revenue in Tasmania covers activities associated with casinos (including table gaming, electronic gaming machines and keno), keno and electronic gaming machines (EGM) in hotels and clubs, lotteries, betting exchanges and an annual wagering levy for the conduct of totalizator wagering.

In 2014-15, Gambling Taxes are estimated to total $95.6 million which is 1.8 per cent less than the 2013-14 Budget. Growth is forecast to average 1.3 per cent across the Forward Estimates.

Chart 6.6 shows that Casino tax makes up 58.1 per cent of Gambling Tax Revenue which includes EGM revenue from casinos and hotels and clubs.


Chart 6.6: Composition of Gambling Tax Revenue, 2014-15

Casino Tax and Licence Fees

$55.5m(58.1%)

Betting Exchange Taxes and Levies

$3.4m(3.6%)

Lottery Tax$29.7m(31.0%)

Totalizator Wagering Levy

$7.0m (7.3%)

In 2014-15, it is estimated that $4.6 million will be distributed from the Community Support Levy (CSL). Four per cent of the gross profits from EGMs in hotels and clubs make up the majority of the CSL contributions. The CSL benefits sport and recreation clubs and charitable organisations and provides for research and health services related to gambling.

Insurance Duty Insurance Duty is imposed under the Duties Act 2001 and is based on the premium paid for contracts of general insurance that are applicable to property in Tasmania or a risk that may occur within Tasmania. Insurance Duty is also imposed on a contract for life insurance where the person or persons insured have their principal place of residence in Tasmania at the time the insurance policy is issued.

Insurance Duty is expected to be 4.2 per cent higher in 2014-15 than the 2013-14 Budget. Revenue growth is estimated to be 4.2 per cent in 2015-16 and 2016-17 before decreasing in 2017-18 in line with the Government's commitment to reduce the duty on compulsory third party motor premiums (Motor Accident Insurance Board) over two years, commencing 1 July 2017. This reduction will bring the duty on MAIB premiums back to pre 1 October 2012 levels (adjusted for inflation).

Taxes on the Use of Goods and Services

Vehicle Registration Fees Vehicle Registration Fees, payable in accordance with the Vehicle and Traffic Act 1999, are collected on the initial and annual ongoing registration and transfer of vehicle ownership.

In 2014-15, Registration Fees are estimated to be 4.2 per cent higher than the 2013-14 Budget, increasing to $36.4 million. Across the Forward Estimates, fees are expected to increase by an average 1.7 per cent per annum, with the fee revenue driven mainly by the number of vehicles in each class, the use of the vehicle and whether the person is eligible for concessional rates.


Motor Vehicle Duty Motor Vehicle Duty is imposed under the Duties Act 2001 and is paid at the time of initial registration and on the application to transfer ownership of a motor vehicle. Motor Vehicle Duty varies depending on the type and dutiable value of the vehicle, being the greater of the amount paid or the market value of the vehicle.

Motor Vehicle Duty is forecast to be $39.1 million in 2014-15, an increase of 9.2 per cent above the 2013-14 Budget. Strong growth in new car sales has contributed to the increase in forecast revenue. However, Motor Vehicle Duty Revenue has been declining in trend terms since 2004-05. Based on this structural decline and the inherent volatility in transactional based taxes, the Forward Estimates assume no growth in revenue.

Motor Tax Motor Tax is imposed under the Vehicle and Traffic Act 1999 when a vehicle (or trailer) is first registered and each year thereafter. The amount of tax depends on the type of vehicle and other factors, such as the number of cylinders, weight, seating capacity and/or the number of axles, and any rebate available. Motor Tax rates are indexed annually.

Motor Tax revenue is estimated to be $80.7 million in 2014-15, an increase of 4.9 per cent above the 2013-14 Budget. Revenue is estimated to increase by 3.5 per cent per annum in 2015-16 and 2016-17. Motor Tax revenue is forecast to reduce in 2017-18 due to the Government's commitment to reduce the tax rate on light vehicles over two years, commencing 1 July 2017, back to pre 1 October 2012 levels (adjusted for inflation).


OTHER REVENUE SOURCES Sales of Goods and Services Revenue from the Sales of Goods and Services is estimated to be $354.1 million in 2014-15, a decrease of $830 000 below the 2013-14 Budget of $354.9 million.

Table 6.6 details the major components of revenue from the Sales of Goods and Services.

Table 6.6: Sales of Goods and Services1 2013-14) 2014-15) 2015-16) 2016-17) 2017-18)


Forward) Estimate)

Forward) Estimate)

$m) $m) $m) $m) $m)

Departmental Fees and Recoveries Education2 37.6 61.1 61.1 61.4 62.3

Finance-General 0.8 0.1 0.1 0.1 0.1

Health and Human Services3 121.7 82.0 77.1 76.8 77.5

Justice 3.9 3.9 4.0 4.1 4.1

Marine and Safety Tasmania 3.8 5.8 4.9 4.2 6.0



Primary Industries, Parks, Water and

Environment 33.6 34.5 35.2 35.8 36.4

State Growth4 .... 8.2 8.3 8.4 8.5

Tasmanian Audit Office 4.9 5.0 5.1 5.3 5.3

TasTAFE4 .... 7.5 7.7 8.4 9.1

Tasmanian Health Organisation5

North 29.8 41.4 45.3 44.4 45.0

North West 14.2 16.6 16.7 16.8 16.8

South 49.7 65.3 65.4 65.6 65.7

State Fire Commission 5.5 5.8 6.0 6.2 6.3

Tourism Tasmania4 .... 0.6 0.6 0.6 0.6

351.8 351.4 351.4 352.1 358.1

Other Sales of Goods and Services 3.0 2.7 2.3 2.3 2.4

TOTAL SALES OF GOODS AND SERVICES 354.9 354.1 353.7 354.5 360.5


Notes: 1. The information provided in this section may differ from the Sales of Goods and Services for each agency in

Government Services Budget Paper No 2 due to the elimination of inter-agency transactions during the consolidation process.

2. The 2013-14 Budget comparative figures presented in this Table have been adjusted to reflect the transfer of Skills Tasmania from the Department of Education to the Department of State Growth from 1 July 2014. Accordingly, the 2013-14 figures for this Department will differ from those published in the 2013-14 Budget papers.

3. The decrease in Health and Human Services in 2014-15 primarily reflects a reduction in rent received due to the transfer of management of properties as part of the Better Housing Futures Program Stage 2. The further decrease over the Forward Estimates primarily reflects the finalisation of payments from the Australian Government for Tasmania eHealth project funds in 2014-15.

4. Due to the agency restructure which took effect from 1 July 2014, the 2013-14 Budget comparative numbers for State Growth, TasTAFE and Tourism Tasmania are not presented in this table.

5. The increase in the Tasmanian Health Organisations primarily reflects the revised accounting treatment of Highly Specialised Drugs revenue, with receipts now recorded against Sales of Goods and Services instead of Other Revenue, as Highly Specialised Drugs revenue is no longer provided as a Commonwealth Own Purpose Expenditure (COPE).


Revenue from Fines and Regulatory Fees is estimated to be $103.3 million in 2014-15, a decrease of 2.9 per cent below the 2013-14 Budget of $106.4 million. Table 6.7 details the major components of Fines and Regulatory Fees.


Table 6.7: Fines and Regulatory Fees1 2013-14) 2014-15) 2015-16) 2016-17) 2017-18)


Forward) Estimate)

Forward) Estimate)

$m) $m) $m) $m) $m)

Fines Commitment to Increase Fines

Revenue2 ....) 1.5) 3.0) 3.0) 3.0)

Making Criminals Pay3 ....) ....) 0.8) 0.8) 0.8)

Other Fines4 26.0) 20.2) 20.2) 20.3) 20.3)

26.0) 21.7) 23.9) 24.0) 24.0) Fees

Abalone Licences 6.1) 4.6) 4.7) 4.7) 4.7)

Water Licence Fees 1.8) 1.9) 1.9) 1.9) 2.0)

Environment Fees 3.9) 4.5) 4.6) 4.7) 4.8)

Certificate of Competency Fees 0.2) 0.2) 0.2) 0.2) 0.2)

Drivers Licences5 5.9) 8.7) 8.4) 8.6) 8.8)

Photo Licence Fees 1.5) 1.5) 1.6) 1.6) 1.7)

Vehicle Inspection Services Fees6 ....) ....) ....) ....) ....)

Quarantine Fees 1.8) 1.8) 1.8) 1.8) 1.9)

Consumer Affairs Office Regulatory Fees 0.6) 0.2) 0.2) 0.2) 0.2)

Magisterial Courts Regulatory Fees 1.3) 1.2) 1.2) 1.2) 1.2)

Registrar-General Regulatory Fees 2.2) 1.9) 1.9) 1.9) 1.9)

Supreme Court Regulatory Fees 0.8) 0.8) 0.8) 0.8) 0.8)

Other Fees7 54.3) 54.3) 54.7) 56.2) 50.2) 80.4) 81.7) 81.9) 83.9) 78.3)

TOTAL FINES AND REGULATORY FEES 106.4) 103.3) 105.8) 107.8) 102.3) Notes: 1. The information provided in this section will differ from the Fines and Regulatory Fees for each agency in

Government Services Budget Paper No 2 due to the elimination of inter-agency transactions during the consolidation process.

2. The Commitment to Increase Fines Revenue imposes a modest increase in fines. This will increase revenue by $1.5 million in 2014-15 and $3 million per annum from 2015-16 onwards.

3. This increase in revenue of $750 000 from 2015-16 reflects the decision to impose an extra fee on those convicted in either the Magistrates Court or Supreme Court of a criminal offence. Convictions in the Magistrates Court will attract a $50 fee and convictions in the Supreme Court will attract a fee of $150.

4. Other Fines is primarily comprised of fines collected by Department of Justice, Inland Fisheries Service and Department of Police and Emergency Management.

5. The movement in Driver Licence Fees primarily reflects the five year licence renewal cycle and the revised estimates for the number of learner drivers progressing to the Provisional Licence level.

6. Vehicle Inspection Services Fees are estimated to be $44 000 in the 2014-15 Budget, increasing to $47 000 in 2017-18. This amount does not appear in the Table due to rounding.

7. Other Fees includes: fees collected by the Asbestos Compensation Fund; the Tasmanian Economic Regulator; the Community Support Levy; and various other fees collected by agencies, such as recreational fishing licence fees.


Interest Income

Interest Income is estimated to be $15.9 million in 2014-15, an increase of 15.2 per cent above the 2013-14 Budget estimate of $13.8 million. This increase reflects an increase in the anticipated level of cash held during the year.

Dividend, Tax and Rate Equivalent Income Dividend, Tax and Rate Equivalent Income is estimated to be $342.9 million in 2014-15, an increase of $12.8 million or 3.9 per cent compared to the 2013-14 Budget estimate of $330.1 million.

In the context of the current Budget situation and the need to increase own-source revenue, the Government has reviewed the current dividend arrangements for all government businesses. As a result, a default dividend policy has been established that will require each government business to pay 90 per cent of net profits after tax as a dividend each year, unless a business can justify a lower payout ratio.

The new dividend policy is being introduced progressively and will mainly result in increased dividends, compared to previous arrangements, from the Motor Accidents Insurance Board, Tasmanian Networks Pty Ltd and Aurora Energy Pty Ltd over the Budget and Forward Estimates period. Hydro Tasmania is also expected to return a greater dividend in 2014-15 due to better than expected profitability. Hydro Tasmania's payout ratio remains unchanged in 2014-15 and increases to 90 per cent thereafter.

In addition to ordinary dividends, the Motor Accidents Insurance Board will remit a Special Dividend of $100 million in 2014-15.

The increase in Dividend, Tax and Rate Equivalent Income in 2014-15 is partly offset by:

• lower tax equivalent payments from Hydro Tasmania in 2014-15, due to significantly reduced profitability in that year from the substantial weakening of electricity prices across the National electricity market; and

• the accounting treatment of dividends from Aurora Energy and the former Transend Networks Pty Ltd. Under the arrangements for the transfer of Aurora Energy's distribution business and Transend Networks into Tasmanian Networks, the dividends from Aurora Energy and Transend Networks in relation to their expected 2013-14 financial results were declared and accrued in 2013-14, whereas the dividends will be paid by Tasmanian Networks in 2014-15. This has required Aurora Energy's and Transend Networks' 2014-15 dividends to be reported in 2013-14, in addition to the ordinary dividends they have already paid in 2013-14.

Over the Forward Estimates period, Dividend, Tax and Rate Equivalent Income is forecast to decrease significantly in 2015-16 to $155 million, increase slightly in 2016-17 to $162.7 million and then increase to $248.4 million in 2017-18.

The decrease in 2015-16 is largely due to the impact of the expected lower wholesale electricity prices reflecting the removal of carbon pricing and the softening of demand in the National Electricity Market. These factors will reduce Hydro Tasmania's revenues and result in lower profitability. However, the Government will work with Hydro Tasmania to develop a strategy and operating model for the business to return it to profitability, with a dividend expected to be paid by Hydro Tasmania in 2017-18.


The decrease in 2015-16 also reflects that the Special Dividend from the Motor Accidents Insurance Board, of $100 million, will only be received in 2014-15.

Table 6.8 provides a breakdown of Dividend, Tax and Rate Equivalent Income.

Table 6.8: Dividend, Tax and Rate Equivalent Income1 2013-14) 2014-15) 2015-16) 2016-17) 2017-18)


Forward) Estimate)

Forward) Estimate)

$m) $m) $m) $m) $m) Dividends

Aurora Energy Pty Ltd2 30.1) ....) 6.9) 4.8) 4.8)

Hydro Tasmania3 109.7) 126.1) ....) ....) 75.0)

Motor Accidents Insurance Board4 18.6) 43.0) 38.1) 35.7) 35.5)

Tasmanian Networks Pty Ltd5 ....) ....) 81.0) 87.0) 78.3)

Tasmanian Ports Corporation ....) ....) ....) ....) 2.3)

Tasmanian Public Finance Corporation6 0.8) 10.2) 3.3) 2.0) 2.7)

Transend Networks Pty Ltd7 26.9) ....) ....) ....) ....)

186.1) 179.2) 129.4) 129.5) 198.5) Special Dividends

Motor Accidents Insurance Board8 ....) 100.0) ....) ....) ....)

....) 100.0) ....) ....) ....) Taxation Equivalents

Aurora Energy Pty Ltd9 25.6) 3.3) 2.3) 2.2) 1.1)

Forestry Tasmania (2.4) (5.2) (4.2) (1.4) 2.2)

Hydro Tasmania3 83.3) 7.0) (14.2) (14.7) (6.0)

Metro Tasmania Pty Ltd10 (0.4) ....) ....) ....) ....)

Motor Accidents Insurance Board11 11.1) 1.3) (2.9) (4.9) (6.3)

Tasmanian Networks Pty Ltd5 ....) 50.2) 38.5) 44.1) 46.9)

Tasmanian Ports Corporation (0.6) (2.2) (1.0) 1.4) 3.2)

Tasmanian Public Finance Corporation 2.2) 1.7) 3.0) 2.3) 2.8)

The Public Trustee 0.1) 0.1) .....) 0.1) 0.1)

Transend Networks Pty Ltd7 18.4) ....) ....) ....) ....)

TT-Line Pty Ltd 3.0) 3.6) 0.1) (0.1) 1.8)

140.3) 59.7) 21.5) 29.0) 45.6) Rates Equivalents

Hydro Tasmania 3.7) 4.0) 4.1) 4.2) 4.3)

3.7) 4.0) 4.1) 4.2) 4.3) TOTAL DIVIDEND TAX AND RATE

EQUIVALENT INCOME 330.1) 342.9) 155.0) 162.7) 248.4)


Notes: 1. All Dividend, Tax and Rate Equivalent Income is reported on an accrual basis for all years. 2. The decrease in Dividends from Aurora Energy in 2014-15 reflects that the dividend payable in respect of profits

earned in 2013-14 was accrued and reported by Aurora Energy in 2013-14 and will be paid by Tasmanian Networks in 2014-15. The increase in dividends from 2015-16 reflects that Aurora Energy is continuing to operate as a retail only business rather than an integrated distribution and retail business.

3. The decrease in Dividends from Hydro Tasmania in 2015-16 and 2016-17, and Income Tax Equivalents from 2014-15 onwards, reflects expected lower profitability due to the removal of carbon pricing and the overall softening of wholesale electricity prices in the National Electricity Market. It is expected that Hydro Tasmania will remit a dividend in 2017-18.

4. The increase in Dividends from the Motor Accidents Insurance Board over the years from 2014-15 to 2017-18 is due to the impact on profits of the above budget investment returns in 2012-13 and 2013-14 on its rolling average dividend policy, as well as an increase in its dividend payout ratio.

5. Tasmanian Networks commenced operations on 1 July 2014 taking over the network operations of Aurora Energy and Transend Networks.

6. The Tasmanian Public Finance Corporation will pay an additional discretionary dividend of $10 million in 2014-15, in accordance with its dividend policy.

7. Transend Networks ceased operation on 30 June 2014. 8. The Motor Accidents Insurance Board has elected to pay an additional Special Dividend in 2014-15. 9. The decrease in Income Tax Equivalents from Aurora Energy from 2014-15 onwards is due to the transformation of

Aurora Energy into a retail only business. 10. Income Tax Equivalents for Metro Tasmania Pty Ltd are forecast to be $14 000 in 2014-15, decreasing to negative

$9 000 in 2017-18. These amounts do not appear in the table due to rounding. 11. The decrease in Income Tax Equivalents from the Motor Accidents Insurance Board over the years from 2014-15 to

2017-18 is due to the tax implications resulting from the restructure of its investment portfolio.

Other Revenue

Other Revenue is anticipated to be $136.8 million in 2014-15, a decrease of 30.2 per cent below the 2013-14 Budget estimate of $195.9 million. The decrease primarily reflects revised estimates in Mineral Royalties due to the Mount Lyell mine (Copper Mines of Tasmania) moving into a care and maintenance period; the winding down of the operations at the Henty gold mine and the decrease in iron ore prices; and revised accounting treatment for Australian Government revenue for the THOs.

Table 6.9 lists the sources of Other Revenue.


Table 6.9: Other Revenue1 2013-14) 2014-15) 2015-16) 2016-17) 2017-18)


Forward) Estimate)

Forward) Estimate)

$m) $m) $m) $m) $m) Mineral Royalties2 49.0 26.7 26.8 26.5 26.5

Regional Water Authority Licence Fees 2.3 2.3 2.3 2.3 2.3

Other Revenue by Agency

Education 22.8 23.4 24.3 24.9 25.5

Finance-General 0.6 3.4 3.4 3.4 3.4


Justice 13.9 15.5 13.5 13.8 14.1




State Fire Commission 1.2 1.2 1.2 1.2 1.3

State Growth 2.2 2.9 2.9 2.2 2.2

Treasury and Finance 1.4 0.8 0.8 0.8 0.8

Tasmanian Health Organisations3

THO - North West 14.2 3.6 3.6 3.7 3.7

THO - South 37.5 18.2 16.9 14.5 13.0

THO - North 24.5 5.9 6.0 5.5 5.6

Other 1.0 1.2 1.2 1.2 1.2

TOTAL OTHER REVENUE 195.9 136.8 134.8 132.4 131.6

Notes: 1. The information provided in this section will differ from Other Revenue estimates for each agency in Government

Services Budget Paper No 2 due to the elimination of inter-agency transactions during the consolidation process. 2. The decrease in Mineral Royalties across the Budget and Forward Estimates primarily reflects Mount Lyell (Copper

Mines of Tasmania) moving to a care and maintenance period and the winding down of the operations at the Henty gold mine and the decrease in iron ore prices.

3. The decrease in the THOs predominantly relates to the reclassification of COPE to Grants and the reclassification of Highly Specialised Drugs revenue to Sales of Goods and Services.


STATEMENT OF RISKS AND SENSITIVITIES To the degree possible, the 2014-15 Budget and Forward Estimates take into account known risk factors in terms of the timing and level of revenue. However, these estimates are subject to uncertainty due to either unforseen events or delays, or the realisation of risks to a greater or lesser extent than have been anticipated. Specific factors that are considered potential risks to the revenue estimates are discussed below.

Grants

Goods and Services Tax Revenue Grants The risks to Tasmania's GST revenue estimate in 2014-15 are linked directly to the State's share of the national population; the size of the GST revenue pool; and Tasmania's relativity factor. GST revenue collections are highly sensitive to changes in national consumer spending. GST revenue collection in 2014-15 and over the Forward Estimates period will be dependent on the rate of growth in the Australian economy.

Tasmania's relativity factor (as recommended by the CGC) has been finalised for 2014-15. Refer to the Federal Financial Relations Issues section of this chapter for a discussion of the 2014 CGC Update Report.

The CGC's 2015 Methodology Review of GST Revenue Sharing Relativities is due to be published by 28 February 2015 and will introduce methodology changes to the way the CGC calculates its per capita relativities. This new methodology will apply from 2015-16 onwards.

To the extent that the Australian Government's estimates of the State's share of the national population; the size of the GST revenue pool; and Tasmania's relativity factor vary from actuals, GST revenue will vary accordingly.

There is a one-to-one relationship between variations in the size of the national pool of GST available for distributions to the states and variations in GST revenue to Tasmania. For example, a one per cent variation in the GST pool would result in a $19.1 million variation in Tasmania's GST revenue in 2014-15, assuming that the State's population share and assessed relativity remained constant.

Other Australian Government Funding

Australian Government-State funding arrangements are linked directly to arrangements under the Intergovernmental Agreement on Federal Financial Relations agreed by Council of Australian Governments in November 2008. The risks associated with Australian Government payments for specific purposes vary depending on the type of payment. The specific impacts of the Australian Government Budget are discussed further in the Federal Financial Relations Issues section of this chapter.

Australian Government funding presents a further risk in that the CGC assesses the level of total funding received by each State in determining their relative financial needs and GST requirements. Where Tasmania receives a level of Australian Government funding above the national average, or where it is the only recipient, the State's GST Revenue share decreases. This is explained further in the Guide to the Budget.


There are also specific risks associated with all Payments for Specific Purposes depending on the type of payment; NPP; SPP; NHR funding; or Students First funding.

National Partnership Payments

National Partnership Payments are provided to each State through time-limited National Partnership Agreements and Project Agreements, with the specifics of each payment generally written into the agreement itself. There are three types of NPPs which an agreement may contain a mix of:

• Facilitation payments - to assist a State to undertake priority reforms and pursue continuous improvement in service delivery. Facilitation payments are paid in advance to facilitate progress and are therefore low risk;

• Project payments - to support the delivery of projects of national importance. Project payments are generally based on the satisfactory attainment of minimum milestones by the State and therefore are medium risk; and

• Reward payments - contingent upon the State meeting ambitious milestones and performance targets. Reward payments are high risk, but only account for a very small proportion of total NPP funding.


There are currently three Specific Purpose Payments in operation: the National Affordable Housing SPP, the National Skills and Workforce Development SPP and the National Disability Services SPP. The reform funding arrangements that replaced the Health and Education SPPs were discussed earlier. Under the IGA, SPPs are indexed so that the level of funding moves broadly in line with changes in the costs of providing services. This provides the States with some certainty as to their future receipts of SPP funding. However, because SPP indexation is based on certain economic and other parameters (such as cost indices), estimates of SPP revenue to Tasmania are sensitive to assumptions underlying these parameters. SPP estimates for the 2014-15 Budget and for the Forward Estimates period are certain to change marginally once the actual parameters are known. Indexation accounts for only a small proportion of total SPP funding and as such, this funding is low risk.

State Taxes State Taxation Revenue estimates are sensitive to changes in a range of economic parameters, such as employment, wages growth and inflation, as well as prevailing economic conditions in Tasmania more generally. These parameters can result in either more or less State Taxation Revenue being collected.

Payroll Tax Payroll Tax receipts are primarily driven by employment outcomes and wages growth within the Tasmanian economy. Estimates of Payroll Tax revenue are, therefore, subject to risk in the form of wages or employment outcomes that exceed, or fall short of, expectations.

It is estimated that a one per cent variation in the number of people employed within the Tasmanian economy would result in a variation of 1.4 per cent change in Tasmania's Payroll Tax revenue in 2014-15. Whereas, a one per cent variation in average weekly earnings in Tasmania would result in an estimated variation of 0.8 per cent change in Payroll Tax receipts in 2014-15.


Conveyance Duty Revenue from Conveyance Duty relies upon the number of dutiable property transfers as well as the value of the property transferred.

It is estimated that a one per cent variation in the number of property sales would lead to a 0.4 per cent variation in Conveyance Duty revenue in 2014-15. A one per cent variation in property prices would lead to a 1.6 per cent variation in Conveyance Duty revenue in 2014-15.

However, Conveyance Duty estimates are also susceptible to significant upside variability, in the form of large, one-off commercial related transactions, which typically involve the transfer of significant business assets or large scale infrastructure. It is not possible to anticipate these transactions when framing the Budget.

Returns from Government Businesses Government businesses are subject to a wide range of influences that can significantly impact their returns to Government. These include market conditions, infrastructure investment requirements and the implementation of major reform programs.

Significant change has occurred in the electricity supply sector over the past couple of years. The restructuring of the State-owned electricity businesses has created a level of uncertainty in terms of estimating the returns from the businesses. It is expected that significant efficiency gains will occur over time from the merger of the network businesses into Tasmanian Networks. As the business has only commenced operating from 1 July 2014, greater clarity on the magnitude of the efficiency savings will become known as the business reviews its operations and maximises the synergies between the distribution and transmission functions. The Government will be very active in working with Tasmanian Networks to ensure that those savings are returned to the Tasmanian community by way of reduced upwards pressure on electricity prices and better returns to Government through dividends and tax equivalent payments.

Likewise, the performance of Aurora Energy will be dependent on how the business can operate within a fully competitive retail environment.

At a national level, the overall softening of demand and therefore prices in the wholesale market is a challenge for all generation businesses including Hydro Tasmania. Given its predominately renewable nature, Hydro Tasmania's profitability is impacted by the removal of carbon pricing to a greater degree than its thermal generator competitors.

The Motor Accidents Insurance Board's operating results are largely driven by the performance of its investment portfolio and its claim expenses each year. Investment revenue is forecast to remain positive in 2014-15 and result in an operating profit in that year. However, the outlook for financial and equity markets remains unclear, which suggests a wide range of possible outcomes for the MAIB in 2014-15 and hence its returns over the Forward Estimates period.

Forestry Tasmania continues to face significant challenges and risks that are impacting on its financial performance, including global market pressures. The Government is committed to rebuilding the Tasmanian forest industry and it is anticipated that this will put Forestry Tasmania in a more sustainable financial position. In addition, a review of Forestry Tasmania will be conducted in 2014-15 with a view to identifying changes to ensure the business is sustainable over the longer-term. Nonetheless, for budgeting purposes, it is not expected that dividends and income tax equivalent payments will be received over the Forward Estimates period.


7 INFRASTRUCTURE INVESTMENT

Features

• Over the 2014-15 Budget and Forward Estimates, the Government will invest $1.6 billion in infrastructure projects.

• In 2014-15, the planned level of infrastructure investment is $391.1 million and will include:

− $30.8 million for schools and education infrastructure;

− $100.3 million for hospitals and health infrastructure;

− $43.9 million for housing;

− $191.6 million for roads infrastructure;

− $8.6 million for prisons; and

− $12.6 million for tourism, recreation and culture.

• In addition to the $391.1 million of planned infrastructure investment, it is estimated that $88.3 million will be spent by agencies on general asset maintenance in 2014-15.

7.2 Infrastructure Investment

OVERVIEW The Government's infrastructure program is designed to drive the economy, create jobs and support efficient and effective Government service delivery, through strategic investment in productive infrastructure. Over the 2014-15 Budget and Forward Estimates, the Government will invest $1.6 billion in infrastructure projects, with $391.1 million to be invested in 2014-15 General Government Sector agency infrastructure projects, including:

• hospitals, health and housing infrastructure;

• road development and maintenance;

• schools and education infrastructure;

• bridges and walking tracks infrastructure;

• building and construction infrastructure; and

• information technology systems and development.

This chapter provides information on infrastructure investment in the General Government Sector. Infrastructure investments made by Government Business Enterprises or State-owned Companies are outside the General Government Sector and are therefore not included in the definition of infrastructure investment for the purpose of this chapter.

The Government's $1.6 billion Infrastructure Investment program includes new State funding for co-funded (Australian and State Government) roads projects, the Government's Roads for Our Future Program and the Government's infrastructure related election commitments.

A long-term view has been adopted in the management of the State's core infrastructure to deliver the Government's vision to attract investment and create jobs. The Government is in the process of establishing Infrastructure Tasmania to provide advice on major infrastructure in Tasmania, including rail, major roads and ports. The Government will ensure that decisions about Tasmania's future infrastructure needs are properly understood and driven in the context of the best interests of the State's long-term future.

The Government's $1.6 billion infrastructure investment is significant and sits well above long-term historical infrastructure investment levels. From a Fiscal Strategy perspective, the Government's level of infrastructure investment continues to exceed depreciation in 2014-15 and across the Forward Estimates.


Chart 7.1 outlines the infrastructure investment from 2003-04 to 2013-14 and the 2014-15 Budget and Forward Estimates.

Chart 7.1: Infrastructure Investment, 2003-04 to 2017-18

0

100

200

300

400

500

600

700

800

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

$ m

illio

n

Actual Infrastructure Investment Provision for Future Infrastructure Investment

Allocated Infrastructure Investment

Structured Infrastructure Investment Review Process The Government will continue the Structured Infrastructure Investment Review Framework that was introduced in 2010-11. The Framework includes the Road Planning Process now managed by the Department of State Growth and the Structured Infrastructure Investment Review Process (SIIRP) managed by the Department of Treasury and Finance. Once established, Infrastructure Tasmania will provide advice on priority projects and programs through the Structured Infrastructure Investment Review Framework.

SIIRP is a staged review and assessment process for General Government Sector infrastructure investment proposals. The process ensures that infrastructure investment proposals, funded from the Budget:

• appropriately meet the needs of the community;

• have been properly scoped and planned; and

• are based on reliable and realistic cost estimates.

Infrastructure investment proposals are subject to a series of decision points prior to being considered for funding and are required to meet reporting requirements during the development and following the completion of each project. At each of the points, an assessment is made as to whether the Project should proceed to the next stage or be required to undertake further work for assessment, or be abandoned.

An allocation of $2 million per annum is provided to agencies through Finance-General to support infrastructure investment proposal identification and planning.

Further information on the SIIRP is provided at www.treasury.tas.gov.au.

http://www.treasury.tas.gov.au/


Infrastructure Tasmania The Government is in the process of establishing a new body, Infrastructure Tasmania, to provide advice on major infrastructure in Tasmania including rail, major roads and ports.

Infrastructure Tasmania will also coordinate infrastructure funding submissions to both the State and Australian Governments.

Infrastructure Investment outside of the General Government Sector Infrastructure investments made by Government Business Enterprises or State-owned Companies are outside the General Government Sector and are therefore not included as infrastructure investment for the purpose of this chapter.

The 2014-15 Budget does, however, include funding to Tasmanian Irrigation Pty Ltd and Tasmanian Railway Pty Ltd to undertake major infrastructure works.

Tasmanian Irrigation Pty Ltd

As part of the 2014-15 Budget, the Government will provide an equity contribution to Tasmanian Irrigation Pty Ltd of $6 million per annum over five years, from 2014-15 to 2018-19, totalling $30 million.

This equity contribution will be allocated towards the development of second tranche irrigation schemes in the State, including proposed schemes in the Circular Head, Evandale, Scottsdale, Swan Valley and Southern Highlands regions. As with other schemes developed by Tasmanian Irrigation Pty Ltd, the development of these schemes is a public-private partnership and depends on financial contributions from the Australian Government and the private sector (irrigators and/or investors).

In addition, $500 000 will be provided to Tasmanian Irrigation Pty Ltd to assess and provide advice on the potential for inter-connectivity between existing schemes within the State, together with proposals for the enhancement and modernisation of existing schemes.

Tasmanian Railway Pty Ltd

The 2014-15 Australian Government Budget announced the allocation of funding of $119.6 million over a five year period for Tasmanian Rail-Freight Revitalisation. Discussions are continuing between the State and Australian Government in relation to the matching requirements and timing of receipt of funding over the Budget and Forward Estimates period.

As part of the 2014-15 Budget, the State will contribute $97 million over a five year period.

In addition, the 2014-15 Budget includes a Rail Funding Provision of $11 million in 2016-17 and $11.6 million in 2017-18.


INFRASTRUCTURE INVESTMENT PROJECTS BY AGENCY Table 7.1 details the infrastructure investment expenditure by agency, including the provision for future infrastructure investment, while Table 7.2 details the estimated cost of individual infrastructure investment projects by agency. Costs will vary as projects proceed to tender and some re-scheduling of individual projects is likely to occur over the life of projects.

Table 7.1: Infrastructure Expenditure by Agency1

2013-14

Budget

2014-15

Budget

2015-16 Forward Estimate



$m $m $m $m $m

Education 22.0 30.8 8.9 16.9 1.5

Finance-General2 4.0 .... .... .... ....


Justice 16.4 8.6 .... .... ....

Police and Emergency Management .... 0.5 4.5 .... ....



State Growth3 .... 191.6 179.9 207.0 154.1

Treasury and Finance .... 1.3 3.2 3.6 1.5

ALLOCATED INFRASTRUCTURE EXPENDITURE4 350.1 391.1 395.3 429.5 235.2

Provision for Future Infrastructure Investment5 .... .... 20.0 20.0 100.0

TOTAL INFRASTRUCTURE EXPENDITURE4 350.1 391.1 415.3 449.5 335.2

Notes: 1. This Table includes expenditure (both Purchase of Non-Financial Assets and associated expenses) for all

infrastructure projects, but does not include minor asset purchases for non-infrastructure projects. For these reasons, the Table is not equivalent to the Net Acquisition of Non-Financial Assets presented in Appendix 1 - Uniform Government Reporting. Table 7.4 provides a reconciliation of Purchase of Non-Financial Assets to Total Infrastructure Expenditure.

2. In accordance with its election commitment, the Government has abolished the ICT Project Fund, effective from 2014-15.

3. As this Agency was established from 1 July 2014, there is no 2013-14 comparative estimate. 4. The 2013-14 totals reflect estimated total infrastructure investment for 2013-14 which includes the former

Department of Economic Development, Tourism and the Arts and the former Department of Infrastructure, Energy and Resources.

5. In addition to the allocated infrastructure investment expenditure, the Government has set aside $140 million of capital provisions over the Forward Estimates period, which will be allocated to future infrastructure investment projects or to provide capacity to meet cost variation and re-scheduling of projects.


Table 7.2 provides infrastructure investment project details by agency, including Existing Projects which are continuing from a previous Budget year, election commitments (works and services projects) and priority infrastructure projects, identified through SIIRP review and agency submissions.

Table 7.2: Infrastructure Investment Project Details by Agency1

Start Complete

Estimated Total Cost

2014-15

Budget




$m $m $m $m $m

DEPARTMENT OF EDUCATION Existing Projects

Bridgewater Child and Family

Centre2 2009 2014 8.0 1.2 .... .... ....

Brooks High School 2013 2015 9.3 9.0 .... .... ....

Devonport High School 2014 2015 0.9 0.2 0.7 .... ....

George Town Child and Family

Centre3 2013 2015 3.3 3.3 .... .... ....

Glenorchy Primary School 2015 2017 4.0 .... 0.5 3.5 ....

Kings Meadows High School 2015 2016 2.2 0.1 2.1 .... ....

Lauderdale Primary School 2014 2016 1.6 0.1 1.5 .... ....

LINC Tasmania - Learning and

Information Network Centres4 2009 2014 11.0 1.6 .... .... ....

Montrose Bay High School 2015 2017 5.8 .... 1.2 4.6 ....

New Town High School 2013 2015 2.8 2.8 .... .... ....

North West Special School 2016 2016 0.8 .... 0.3 0.6 ....

Parklands High School 2015 2017 4.1 .... 0.5 3.6 ....

Renewing our Education System 2010 2014 1.2 1.1 .... .... ....

School Science and Technology

Stimulus5 2013 2014 16.0 2.8 .... .... ....

School Transition Fund4 2012 2014 2.9 0.6 .... .... ....

Smithton High School 2013 2015 3.5 3.2 .... .... ....

South Hobart Primary School 2015 2017 3.6 .... 0.5 3.1 ....

Trade Training Centres2,4 2011 2015 13.7 3.0 .... .... ....

29.1 7.1 15.4 .... Election Commitments

Derwent Valley School

Teleconferencing 2014 2015 0.1 0.1 .... .... ....

Farm School Centre of Excellence 2015 2016 0.1 .... 0.1 .... ....

Wynyard High School Trades Room 2014 2016 0.3 0.1 0.2 .... ....

Year 7-12 Implementation Plan 2014 2018 6.0 1.5 1.5 1.5 1.5

1.7 1.8 1.5 1.5

TOTAL 30.8 8.9 16.9 1.5


Table 7.2: Infrastructure Investment Project Details by Agency (continued)1

Start Complete


2014-15

Budget




$m $m $m $m $m DEPARTMENT OF HEALTH AND

HUMAN SERVICES Existing Projects Housing Infrastructure

Church Street Youth

Accommodation and Training

Facility 2013 2015 10.4 7.3 3.1 .... ....

Housing Fund 2008 2023 60.0 3.9 0.9 1.2 1.2

Housing Program6 Ongoing na 28.7 16.5 15.6 15.7

Neighbourhood House Program 2013 2015 4.0 4.0 .... .... ....

43.9 20.5 16.8 16.9

Health Infrastructure

Flinders Island Multi Purpose

Centre Upgrade7 2010 2014 6.0 1.2 .... .... ....

Glenorchy - Tier Three Community

Health Services Facility 2010 2017 21.0 5.0 8.0 6.3 ....

Hospital Equipment Fund 2007 2014 25.0 2.9 .... .... ....

King Island Hospital and Health

Centre Upgrade 2009 2014 5.0 0.1 .... .... ....

Kingston - Tier Three Community

Health Services Facility 2013 2017 6.5 1.5 0.5 4.4 ....

Latrobe Dental Clinic Refurbishment 2013 2014 0.4 0.4 .... .... ....

Launceston General Hospital Acute

Medical and Surgical Unit 2009 2014 40.0 3.5 .... .... ....

Launceston Integrated Care Centre

(ICC)8 2008 2015 22.5 1.6 .... .... ....

Mersey Hospital Upgrade 2013 2015 1.9 1.9 .... .... ....

National Health and Hospitals

Network Reform2 2010 2014 30.7 5.0 .... .... ....

Ravenswood Community Health

Centre 2013 2016 2.4 1.8 0.5 .... ....

Royal Hobart Hospital

Redevelopment Fund9 2005 2014 35.0 0.7 .... .... ....

Rural Breast Screening Clinics 2013 2015 1.3 1.3 .... .... ....

State-wide Cancer Services6,10 2010 2015 63.0 23.5 1.4 .... ....

50.3 10.4 10.7 ....



Start Complete


2014-15

Budget




$m $m $m $m $m

Royal Hobart Hospital Redevelopment Funding

Royal Hobart Hospital (Hospitals

Capital Fund) 2009 2014 100.0 19.1 .... .... ....

Royal Hobart Hospital

Redevelopment6 2011 2017 365.0 .... 136.1 172.0 56.9

Royal Hobart Hospital Women's

and Children's Precinct2 2010 2015 100.0 30.9 21.9 .... ....

50.0 158.0 172.0 56.9 Election Commitment

St Helens Hospital Redevelopment

Project11 2016 2018 3.0 .... .... 0.3 2.8

.... .... 0.3 2.8

TOTAL 144.3 188.9 199.8 76.6

DEPARTMENT OF JUSTICE Existing Projects

Launceston Reception Prison 2013 2014 1.0 0.4 .... .... ....

Medium Security Accommodation 2013 2014 0.5 0.3 .... .... ....

Prison Infrastructure

Redevelopment Program Stage D 2011 2014 20.2 8.0 .... .... ....

TOTAL 8.6 .... .... ....

DEPARTMENT OF POLICE AND

EMERGENCY MANAGEMENT Priority Infrastructure

Large Vessel Replacement 2014 2016 5.0 0.5 4.5 .... ....

TOTAL 0.5 4.5 .... ....



Start Complete


2014-15

Budget




$m $m $m $m $m DEPARTMENT OF PREMIER AND

CABINET

Existing Projects Service Tasmania Shops Capital

Investment 2006 Ongoing na 0.3 0.3 0.3 0.3

Silverdome Upgrade12 2013 2015 0.6 0.4 .... .... ....

0.6 0.3 0.3 0.3 Priority Infrastructure

Integrated Tasmanian Government

Contact Centre (ITGCC) 2014 2017 0.6 0.5 .... .... ....

0.5 .... .... ....

TOTAL 1.2 0.3 0.3 0.3

DEPARTMENT OF PRIMARY

INDUSTRIES, PARKS, WATER AND ENVIRONMENT

Existing Projects

Cockle Creek Bridge 2014 2014 0.6 0.5 .... .... ....

Crown Land Services - Structural

Asset Upgrades Ongoing na 0.6 0.6 0.6 0.6

Three Capes Track6 2010 2015 25.3 10.5 5.0 .... ....

11.6 5.6 0.6 0.6 Election Commitments

Three Capes Track 2015 2018 4.0 0.5 2.0 1.0 0.5

Arthur Pieman Tracks 2015 2017 0.3 .... 0.2 0.2 ....

Dip Falls Bridge 2015 2015 0.1 .... 0.1 .... ....

Georges Bay Walkway 2015 2016 0.5 0.3 0.3 .... ....

Meander Falls 2014 2016 0.5 0.1 0.5 .... ....

South Coast Track 2014 2018 2.0 0.5 1.0 0.3 0.3

1.3 3.9 1.4 0.7

TOTAL 12.8 9.5 2.0 1.3



Start Complete


2014-15

Budget




$m $m $m $m $m DEPARTMENT OF STATE

GROWTH

Roads Program Expenditure (for

details refer to Table 7.3) 191.6 179.9 207.0 154.1

TOTAL 191.6 179.9 207.0 154.1

DEPARTMENT OF TREASURY AND

FINANCE Priority Infrastructure

Budget Information Management

System Project 2014 2017 7.5 0.6 2.5 2.9 1.5

State Revenue System

Replacement - Payroll Tax and

Duties 2014 2017 2.1 0.7 0.7 0.7 ....

TOTAL 1.3 3.2 3.6 1.5 TOTAL ALLOCATED

INFRASTRUCTURE PROJECTS 391.1 395.3 429.5 235.2

Notes: 1. This Table does not include expenditure from the Water Infrastructure Fund, irrigation or rail related expenditure, as

this type of expenditure is in the form of grants or equity injections outside of the General Government sector. 2. This Project is fully funded by the Australian Government. 3. The funding for the George Town Child and Family Centre was previously allocated as part of the Child and Family

Centre (CFC) Project to construct 11 CFCs around Tasmania. The CFC Project ran between 2009-2013 with a final total Project allocation of $31.1 million.

4. The total cost for these projects has been revised since the 2013-14 Budget. 5. The School Science and Technology Stimulus Project was approved during 2013-14. 6. This Project is funded by both the State and Australian Government. More details are provided in the Department

Health and Human Services and Department of Primary Industries, Parks, Water and Environment chapter in Government Services Budget Paper No 2.

7. Total funding for the Flinders Island Multi Purpose Centre Upgrade is $6.2 million and includes a $200 000 contribution from THO-North.

8. Total funding for the Launceston Integrated Care Centre (ICC) is $22.5 million, consisting of $15 million from the Capital Investment Program, $4.5 million from the University of Tasmania and $3 million from the Infrastructure Tasmania Fund.

9. This funding is shown within Health Infrastructure as it relates to an original commitment of funding from the Tasmanian Government to progress upgrades to the Royal Hobart Hospital.

10. Total funding for State-wide Cancer Services is $63 million, consisting of $36.3 million from the Australian Government, $23.9 million from the State Government and donated contributions of $1.6 million from the Elphinstone Group Companies, $600 000 from the Menzies Centre and $600 000 from the Cancer Council.

11. St Helens Hospital Project funding of $3 million will enable planning, a full study of the long-term health infrastructure needs of the Break O'Day area and North East Tasmania and commencement of construction.

12. The Silverdome Upgrade Project has been transferred from the former Department of Economic Development, Tourism and the Arts to the Department of Premier and Cabinet.


MAJOR AREAS OF INFRASTRUCTURE INVESTMENT This section provides details on the key projects in each of the major areas of infrastructure expenditure.

Education In 2014-15, total Education Infrastructure expenditure is budgeted to be $30.8 million. The major infrastructure projects include:

Brooks High School In 2014-15, capital funding of $9 million will be expended on the construction and development of general learning areas at Brooks High School.

George Town Child and Family Centre In 2014-15, $3.3 million will be expended on the establishment of a State funded Child and Family Centre (CFC) in George Town. The commencement of this Project has been delayed whilst a community consultation process was undertaken. This finalises a $31.1 million State Government funded project to establish and construct 11 Child and Family Centres across Tasmania. Centres have already been established and are operating at Beaconsfield, Queenstown, East Devonport, Clarence Plains, Ravenswood, Risdon Cove, Break O'Day, Chigwell, Derwent Valley and Burnie.

This Centre will combine with the Learning and Information Network centre (LINC) to form the George Town Hub.

LINC Tasmania - Learning and Information Network Centres In 2014-15, $1.6 million has been allocated for the finalisation of a $3.3 million project for the construction of a LINC at George Town. This LINC will combine with the George Town CFC to form the George Town LINC. This will be the final LINC to be constructed under funding provided under an $11 million initiative to construct four LINCs in regional centres. LINCs have already been established in Bridgewater, Scottsdale and Queenstown under this initiative.

Trade Training Centres

In 2014-15, $3 million has been allocated to construct Trades Skills Centres under the Trade Training Centres in Schools National Partnership within the Tasman and West Coast regions. The West Coast Project will provide for the refurbishment of skills training facilities at Mountain Heights School, as well as the construction of an industrial kitchen at Hellyer College. This will be the final construction of centres under this National Partnership, with Trade Training Centres already operational at Sorell, Huon Valley, Circular Head, Break O'Day, Dorset, Bridgewater and George Town municipalities.


Year 7-12 Implementation Plan

In 2014-15, $1.5 million has been allocated for the construction of new classrooms required to facilitate the Government's $6 million election commitment to extend 21 rural and regional High Schools to year 11 and 12. A further $1.5 million per annum will be spent over the Forward Estimates period until 2017-18.

Hospitals and Health

In 2014-15, total Health Infrastructure expenditure is budgeted to be $100.3 million. The major infrastructure projects include:

• Glenorchy - Tier Three Community Health Services Facility - total funding from the State Government is $21 million. The Project will expand and replace the existing Glenorchy Community Health Centre on a new greenfield site. The Tier Three Integrated Care Centre is planned to be a standalone facility adjacent to the Glenorchy City Central Business District. It is estimated that $5 million of the $21 million total allocation will be spent in 2014-15. The project is expected to be completed in 2016-17.

• Royal Hobart Hospital (RHH) Redevelopment - total funding of $565 million has been provided for redevelopment of the Royal Hobart Hospital. The majority of this project is currently on hold whilst the Royal Hobart Hospital Rescue Taskforce (Rescue Taskforce) undertakes a high level review. However, there are some aspects of the project for which initial works that had already commenced, are continuing. The Rescue Taskforce will report to the Minister for Health and Cabinet by the end of November 2014. Funding for this project is provided from three different elements:

− Royal Hobart Hospital Redevelopment - funding for a major redevelopment of the Royal Hobart Hospital was secured following an application in late 2010 to the Board of the Health and Hospitals Fund (HHF). The $365 million commitment to redevelop the Royal Hobart Hospital is a combined Australian and State Government project, with $240 million being provided by the Australian Government and $125 million provided by the State Government;

− Royal Hobart Women's and Children's Precinct - $100 million has been provided by the Australian Government to fund the construction of a Women's and Children's Precinct within the broader redevelopment program of the Royal Hobart Hospital. In 2014-15, $30.9 million will be available to commence construction of the new inpatient precinct; and

− Royal Hobart Hospital - in 2014-15, $19.1 million will be allocated from the Government's $100 million Hospitals Capital Fund to complete works that had already commenced prior to the project being placed on hold and to commence construction of the new inpatient precinct.

• State-wide Cancer Services - funding for cancer services at the Royal Hobart Hospital, the Launceston General Hospital, the North West Regional Hospital and for a state-wide IT system has been secured to build specialist Cancer Centres within those hospital precincts. The total commitment is $63 million, with $36.3 million from the Australian Government, $23.9 million from the State Government and donated contributions from the Elphinstone Group Companies ($1.6 million), the Menzies Centre ($600 000) and the Cancer Council ($600 000). In 2014-15, $23.5 million is anticipated to be expended. At the North West Regional Hospital, $22 million will be utilised on infrastructure for medical oncology and radiation therapy services, as well as associated education and support facilities. The development of supporting IT technology for the Cancer Centres will receive $1.5 million in 2014-15.


• St Helens Hospital - funding of $3 million has been provided by the Government to enable planning, a full study of the long-term health infrastructure needs of the Break O'Day area and North East Tasmania and commencement of construction.

Housing

In 2014-15, total Housing Infrastructure funding is $43.9 million. This funding includes $7.3 million for the Church Street Youth Accommodation and Training Facility, $3.9 million from the Housing Fund, $28.7 million from the Housing Program and $4 million for the Neighbourhood House Program.

Church Street Youth Accommodation and Training Facility

The construction of the Church Street Youth Accommodation and Training Facility has a total project budget of $10.4 million provided by the State Government. The project will deliver a mixed accommodation facility that will provide tenants with stable, supported, long-term accommodation, which will enable them to access key services, to reconnect with their family and community and to focus on employment, education and training opportunities. Construction works have commenced and it is anticipated that $7.3 million will be spent on the Church Street Youth Accommodation and Training Facility project in 2014-15, with construction anticipated to be finalised in 2015-16.

Housing Fund

The Housing Fund was established in 2007-08 with an allocation of $60 million for the purpose of increasing the supply of affordable housing. In 2014-15, it is anticipated that $3.9 million will be spent from the Housing Fund.

Major projects to be funded from the Housing Fund in 2014-15 include the:

• continuation of support for the National Rental Affordability Scheme (NRAS), with funding towards the development of up to 1 400 properties under NRAS stage 4 ($3.4 million); and

• acquisition of suitable land for the development of affordable housing sites ($500 000).

Housing Program

In 2014-15, it is anticipated that $28.7 million will be expended from the Housing Program. Major Housing Program projects include:

• the purchase of adaptable dwellings in Devonport and Glenorchy ($3.4 million);

• Government equity purchases under the HomeShare Program ($3 million);

• support towards the development of 181 dwellings under the NRAS Shovel Ready Program ($2.1 million);

• development of Remote Indigenous National Partnership (RINP) Employment Related Accommodation in Launceston ($2 million);

• planned redevelopment of housing unit complexes ($2 million); and

• development of the replacement facility for the Annie Kenney Women's Shelter ($1.1 million).

The Department of Health and Human Services will also make a principal loan repayment of $7.3 million to the Australian Government due under the former Commonwealth-State Housing Agreement (CSHA).


Neighbourhood House Program

In 2014-15, it is anticipated that $4 million will be expended on the Neighbourhood House Program. These funds will provide for both minor and more substantial capital works that will improve the suitability and sustainability of neighbourhood houses to meet current, contemporary community activities and programs.

Law and Order

In 2014-15, the Department of Justice will invest $8.6 million in prison infrastructure and the Department of Police and Emergency Management will invest $500 000 in a vessel replacement project:

• Launceston Reception Prison - Funding is provided to finalise works being undertaken at the complex to address ongoing safety issues for prisoners and security issues for staff;

• Medium Security Accommodation - Funding is provided to finalise works at the Medium Security Units to improve security;

• Prisons Infrastructure Redevelopment Program - Stage D - Construction of the facilities associated with the Prison Infrastructure Redevelopment Program Stage D commenced in 2012-13. Construction is expected to be completed during 2014; and

• Large Vessel Replacement - Funding is provided to procure a second Police vessel capable of deploying out to 200 nautical miles in a range of circumstances and weather conditions.

Roads and Rail

The 2014-15 Budget includes funding for the Government's election commitment of $110.0 million over a five year period to 2018-19 for State roads. This funding will support the Government's Roads for Our Future Program totalling $68.2 million over five years to 2018-19 and co-funded roads projects with the Australian Government totalling $61.8 million over five years to 2018-19.

The significant State funding for roads during this five year period includes funding of:

• $50 million for the Midland Highway;

• $15 million for Rokeby Main Road Stage 2;

• total funding of $13 million for Esk Main Road - Avoca to Fingal and St Mary's Pass;

• $10 million for Bridge strengthening/ Replacement on Esk and Tasman Highways;

• $8 million for the Huon Highway: Glendevie Passing Opportunity; and

• $8 million for the Murchison Highway.

Over the four year period to 2017-18, the Australian Government will contribute funding of $373.5 million for co-funded roads and rail projects. Significant Australian Government funding during this period includes:

• $160 million for the Midland Highway;

• $93.8 million for Rail - Freight Revitalisation;

• $25.6 million for the Brooker Highway - Elwick, Goodwood, Howard Roads; and

• $17.5 million for the Huon Highway.


Further details of the Roads Program are provided in a separate section of this chapter.

Information Communications Technology

The 2014-15 Budget includes funding for three priority ICT Infrastructure projects, with total expenditure across the 2014-15 Budget and Forward Estimates of $10.1 million. This includes expenditure by the Department of Treasury and Finance ($9.6 million) and Department of Premier and Cabinet ($560 000). These projects include:

• Budget Information Management System Project - total funding of $7.5 million is being provided to replace the legacy Budget Management System;

• State Revenue System Replacement - Payroll Tax and Duties - total funding of $2.1 million is being provided to implement Stage 2 of the Client View Project, following the successful completion of Stage 1 in 2014; and

• Integrated Tasmanian Government Contact Centre (ITGCC) - $560 000 will be provided to complete the ITGCC project.

Tourism, Recreation and Culture In 2014-15, total tourism, recreation and cultural infrastructure expenditure is budgeted to be $12.6 million. This includes expenditure by the Department of Primary Industries, Parks, Water and Environment ($12.2 million) and expenditure by the Department of Premier and Cabinet ($374 000). These projects include:

• Three Capes Track - Work on the $12.8 million initiative to establish the Three Capes Track will continue in 2014-15. The State's initial funding has been matched by Australian Government funding of $12.5 million. When complete, the walk will take in dramatic vistas of the Three Capes within the Tasman National Park. The vision for the Three Capes Track is to be Australia's iconic coastal walking experience, complementing other iconic walks in Tasmania such as the Overland Track. The track is designed to provide an easy coastal experience with hut-based accommodation. The walk will support the growth of tourism on the Tasman Peninsula and throughout the State. During 2014-15, construction and on-ground works will continue on Stage Two of the Three Capes Track, the Cape Pillar section. This will include the construction of overnight huts on the Cape Pillar section. Stage Two is due for completion in November 2015. The Government has also committed additional funding of $4 million towards the completion of Stage Three of the Three Capes Track, the Cape Raoul section. Australian Government support will be sought to match the State commitment;

• South Coast Track - The Government has committed $2 million towards upgrading the South Coast Track (from Melaleuca to Cockle Creek) to improve access to this spectacular area. The funding will be used to upgrade existing infrastructure, clear areas where tracks have become difficult to access, and improve access to beach areas; and

• Silverdome Capital Upgrade - The Silverdome is a key sporting and community asset located in the Launceston municipality, responsible for hosting a wide range of events. This project provides funding of $374 000 for vital upgrades to ensure that the Silverdome complex complies with workplace health and safety regulations.


ROADS PROGRAM The Roads Program comprises new works projects and the upgrade and maintenance of established roads. The State and Australian Government will invest a total of $732.6 million in the Roads Program in 2014-15 and across the Forward Estimates. In 2014-15, total roads expenditure is $191.6 million. This includes a State Government allocation of $124.8 million and an Australian Government allocation of $66.8 million.

Table 7.3: Roads Program Expenditure

Start Complete


2014-15

Budget




$m $m $m $m $m STATE FUNDED

Co-contribution Projects

Brooker Highway - Elwick,

Goodwood, Howards Roads1,2 2015 2017 6.4 .... 1.0 4.4 1.0

Domain Highway Planning1,2 2017 2017 1.0 .... .... 1.0 ....

Huon Highway/Summerleas

Road1,2 2016 2018 4.4 .... .... 3.4 1.0

Midland Highway1,2,3 2015 2019 30.0 2.0 4.0 2.0 9.0

Midland Highway - Road Safety

Program4 2015 2018 20.0 .... 1.0 14.0 5.0

2.0 6.0 24.8 16.0 Roads for Our Future Program

Bridge Strengthening on Esk and

Tasman Highways1 2016 2019 10.0 .... 0.5 0.5 4.1

Bruny Island Main Road1 2015 2019 3.7 0.2 0.3 .... 1.7

Colebrook Main Road1 2016 2019 6.5 .... 0.5 1.0 3.5

Esk Main Road1 2015 2019 13.0 0.5 1.0 1.0 2.8

Huon Highway Upgrade -

Glendevie1 2015 2018 8.0 0.2 .... 6.0 1.8

Lakes Secondary Road1 2015 2018 4.0 0.1 .... 2.0 1.9

Murchison Highway1 2015 2018 8.0 1.0 1.0 4.0 2.0

South Arm Highway/Rokeby Main

Road Stage 21 2015 2017 15.0 6.0 7.0 2.0 ....

8.0 10.3 16.5 17.8 Other Roads Infrastructure

Arthur Highway 2011 2015 18.0 4.3 .... .... ....

Asset Management Ongoing na 5.2 5.3 5.4 5.5

Ferry Main Road Kettering

upgrade 2011 2015 8.0 0.3 .... .... ....


Table 7.3: Roads Program Expenditure (continued)

Start Complete


2014-15

Budget




$m $m $m $m $m

Forward Planning 2014 2015 1.1 1.1 .... .... ....

Hadspen Bridge Walkway 2014 2015 0.1 0.1 .... .... ....

Huon Highway Upgrade 2011 2015 8.0 2.5 .... .... ....

Environmental Management Ongoing na 0.5 0.5 0.6 0.6

Infrastructure Development Ongoing na 0.1 0.1 0.1 0.1

Infrastructure Maintenance Ongoing na 58.7 57.9 59.4 61.9

Launceston Northbank 2015 2018 1.4 .... 0.7 0.7 ....

Murchison Highway Upgrade 2011 2015 21.0 4.3 .... .... ....

North East Freight Roads2 2009 2015 8.5 2.2 .... .... ....

Program Management Ongoing na 2.3 2.3 2.4 2.5

Richmond Heavy Vehicle Link

Road 2011 2015 6.0 2.7 .... .... ....

Road Safety and Traffic

Management Ongoing na 5.3 5.5 5.6 5.8

Road Safety

Strategy - Infrastructure4 Ongoing na 2.9 2.9 2.3 ....

Rokeby Main Road 2011 2015 10.0 6.7 .... .... ....

Strategic Planning and Policy Ongoing na 2.7 2.8 2.8 2.9

Tarkine Forest Drive 2012 2015 19.2 6.0 .... .... ....

Tasman Highway Scottsdale to

Launceston 2012 2015 4.0 0.6 .... .... ....

Tasman Highway St Helen's Point

Road 2014 2015 1.4 1.4 .... .... ....

West Coast Roads Strahan 2014 2015 4.9 4.9 .... .... ....

114.8 78.0 79.3 79.3

TOTAL STATE FUNDED ROADS 124.8 94.4 120.6 113.1

AUSTRALIAN GOVERNMENT

FUNDED Investment Program

Brooker Highway - Elwick,

Goodwood, Howards Roads2 2015 2017 25.6 5.9 7.5 12.2 ....

Midland Highway2,4 2014 2019 200.0 30.0 50.0 50.0 30.0

Tasman Ramps 2013 2016 15.0 10.0 3.0 .... ....

Contingency Funding 2014 2016 0.6 0.3 0.3 .... ....

46.2 60.8 62.2 30.0


Table 7.3: Roads Program Expenditure (continued)

Start Complete


2014-15

Budget




$m $m $m $m $m

Off-Network

Domain Highway Planning2 2015 2016 4.0 1.5 2.5 .... ....

Huon Highway/Summerleas Road

Intersection2 2015 2017 17.5 2.0 5.0 10.5 ....

North East Freight Roads2 2009 2015 34.0 5.0 3.4 .... ....

Westbury Road Traffic

Management 2014 2015 0.5 0.5 .... .... ....

9.0 10.9 10.5 ....

Other Roads Infrastructure

Bridge Renewal Ongoing na 1.3 1.3 1.2 1.2

Heavy Vehicle Safety and

Productivity Ongoing na 1.4 0.9 0.9 0.9

Road Safety and Traffic

Management5 Ongoing na 1.6 4.3 4.3 1.6

Road Specific Maintenance Ongoing na 7.3 7.3 7.3 7.3

11.6 13.8 13.7 11.0

TOTAL AUSTRALIAN GOVERNMENT FUNDED ROADS 66.8 85.5 86.4 41.0

TOTAL ROADS PROGRAM

EXPENDITURE 191.6 179.9 207.0 154.1

Notes: 1. Funding for these projects is provided as part of the State Government's election commitment of $110 million for the

roads funding package which includes the co-contribution and Roads for Our Future Projects. 2. These projects include both State and Australian Government funding. 3. The Australian Government commitment for the Midland Highway is $400 million over 10 years. $200 million is

included in the current five-year agreement, with the remainder subject to future agreements. 4. The State's co-contribution to Australian Government roads infrastructure projects includes $20 million sourced from

Road Safety Levy receipts for safety upgrades to the Midland Highway. 5. The Australian Government has provided additional funding for Black Spots in 2015-16 and 2016-17.


RECONCILIATION BETWEEN INFRASTRUCTURE INVESTMENT AND PURCHASE OF NON-FINANCIAL ASSETS Purchase of Non-Financial Assets is an accounting classification under the Australian Accounting Standards. It appears on the Income Statement and Cash Flow Statement and reflects purchases of non-financial assets such as land, buildings, plant and equipment, infrastructure, and intangible assets. Whilst the majority of the Purchase of Non-Financial Assets is comprised of Infrastructure Investment projects, there is a portion of Purchase of Non-Financial Assets expenditure which is not included in this chapter. Such items include Budget allocations for:

• the Government's fleet management services;

• ambulance, surgical and medical equipment;

• computer software; and

• other smaller capital items.

Conversely, Infrastructure Investment projects can include allocations of expenditure which are not classified as a Purchase of Non-Financial Assets under the Australian Accounting Standards but are directly related to infrastructure projects. This expenditure can include items such as employee entitlements, infrastructure maintenance, Australian Government Loan Repayments and other supplies and consumables.

Table 7.4 provides a reconciliation between the two measures.

Table 7.4: Reconciliation between Purchase of Non-Financial Assets and Infrastructure Investment

2013-14

Budget

2014-15

Budget




$m $m $m $m $m Purchases of Non-Financial Assets1 344.8 400.3 415.2 439.0 327.8

Less Purchases of Non-Financial Assets excluded from

Infrastructure Investment 53.0 74.8 61.3 48.6 52.8

Plus Infrastructure Investment not included in

Purchases of Non-Financial Assets 58.4 65.5 61.3 59.2 60.2

Equals TOTAL INFRASTRUCTURE EXPENDITURE 350.1 391.1 415.3 449.5 335.2

Note: 1. Reflects Purchases of Non-Financial Assets within the General Government Cash Flow Statement.

Assets and Liabilities 8.1

8 ASSETS AND LIABILITIES Features

• General Government Net Worth is estimated to be $10 359.7 million as at 30 June 2015, a decrease of $3 430.1 million from the 2013-14 Budget estimate of $13 789.8 million. The reduction in General Government Net Worth primarily reflects the reclassification of TasWater Pty Ltd to the Local Government Sector by the Australian Bureau of Statistics.

• General Government Net Debt is estimated to be negative $188.3 million as at 30 June 2015, an improvement of $414.4 million on the 2013-14 Budget estimate of $226.1 million. General Government Net Debt is estimated to deteriorate across the Forward Estimates period to positive $53.9 million by 30 June 2018.

• The Government continues to meet the cash cost of defined benefit superannuation on an emerging basis. Superannuation liabilities remain particularly sensitive to discount rate movements. A key ongoing Budget risk is that the cost to the Budget will increase significantly in the coming years, with cash payments increasing by 83 per cent over the next 16 years and peaking in 2030-31.

8.2 Assets and Liabilities

BALANCE SHEET The Balance Sheet presented in this chapter provides a financial snapshot of assets and liabilities estimated at the end of the financial year and reports key indicators. By providing information on the nature of assets and liabilities held by the Government, this Statement gives an indication of the State's financial strength.

The key measures presented in the Balance Sheet are Net Worth, Net Financial Worth, Net Financial Liabilities and Net Debt.

Table 8.1 details the estimated General Government Sector Balance Sheet as at 30 June from 2014 to 2018.


Table 8.1: General Government Balance Sheet as at 30 June

2014)

Budget)

2015)

Budget)




$m) $m) $m) $m) $m) Assets

Financial Assets

Cash and Deposits 857.6) 1 041.1) 976.4) 816.0) 750.0)

Investments 42.4) 77.7) 79.5) 81.1) 85.6)

Equity Investment in PNFC and PFC Sectors 6 628.0) 4 331.7) 4 343.0) 4 393.1) 4 410.9)

Other Equity Investments 16.4) 14.7) 17.2) 19.3) 21.3)

Receivables 354.5) 304.3) 306.2) 315.4) 317.0)

Other Financial Assets 1 220.3) 755.2) 735.2) 751.8) 760.3)

9 119.2) 6 524.8) 6 457.6) 6 376.6) 6 345.2)


Land and Buildings 6 948.3) 5 829.6) 6 057.1) 6 333.9) 6 457.8)

Infrastructure 4 390.1) 4 634.4) 4 832.0) 5 044.4) 5 282.2)

Plant and Equipment 240.5) 231.2) 232.4) 221.4) 209.3)

Heritage and Cultural Assets 473.9) 485.0) 497.1) 509.2) 521.3)

Investment Property 12.5) 11.9) 12.2) 12.5) 12.7)

Intangibles 34.6) 35.1) 35.5) 37.4) 37.1)

Assets Held for Sale 11.3) 10.9) 10.0) 9.0) 8.0)

Other Non-Financial Assets 42.8) 36.9) 37.0) 37.3) 38.2)

12 154.0) 11 274.9) 11 713.2) 12 205.0) 12 566.7)

Total Assets 21 273.2) 17 799.7) 18 170.8) 18 581.7) 18 911.9) Liabilities

Borrowings 1 126.1) 930.6) 978.8) 944.0) 889.5)

Superannuation 5 150.2) 5 448.0) 5 588.8) 5 720.4) 5 839.9)

Employee Entitlements 673.6) 561.7) 533.8) 542.2) 553.3)

Payables 115.6) 91.0) 93.7) 95.5) 97.6)

Other Liabilities 417.9) 408.7) 418.0) 428.1) 438.9)

Total Liabilities 7 483.4) 7 439.9) 7 613.1) 7 730.3) 7 819.2)

NET ASSETS 13 789.8) 10 359.7) 10 557.7) 10 851.4) 11 092.6)


Table 8.1: General Government Balance Sheet as at 30 June (continued)

2014)

Budget)

2015)

Budget)




$m) $m) $m) $m) $m) Equity

Accumulated Funds 9 035.3) 5 434.6) 5 304.4) 5 245.8) 5 149.1)

Asset Revaluation Reserve 4 754.5) 4 925.2) 5 253.2) 5 605.6) 5 943.6)

Total Equity 13 789.8) 10 359.7) 10 557.7) 10 851.4) 11 092.6)

NET WORTH1 13 789.8) 10 359.7) 10 557.7) 10 851.4) 11 092.6) NET FINANCIAL WORTH2 1 635.7) (915.1) (1 155.6) (1 353.6) (1 474.1) NET FINANCIAL LIABILITIES3 4 992.3) 5 246.8) 5 498.5) 5 746.7) 5 884.9) NET DEBT4 226.1) (188.3) (77.2) 46.9) 53.9) Notes: 1. Net Worth represents Total Assets less Total Liabilities. 2. Net Financial Worth represents Financial Assets less Total Liabilities. Net Financial Worth is estimated to be

negative $915.1 million as at 30 June 2015, a decrease of $2 550.8 million from the 2013-14 Budget estimate of $1 635.7 million. The reduction in Net Financial Worth primarily reflects the reclassification of TasWater Pty Ltd to the Local Government Sector by the ABS, and a decrease in Income Tax Equivalents Receivable resulting from revised tax estimates for Tasmania's electricity entities.

3. Net Financial Liabilities represents total liabilities less financial assets, excluding equity investments in government businesses.

4. Net Debt represents Borrowings less the sum of Cash and Deposits and Investments.

ASSETS Total Assets are estimated to be $17 799.7 million as at 30 June 2015, a decrease of $3 473.5 million from the 2013-14 Budget estimate of $21 273.2 million. The decrease primarily reflects the reclassification of TasWater Pty Ltd to the Local Government Sector by the ABS. Total assets are estimated to increase across the Forward Estimates period from $17 799.7 million as at 30 June 2015 to $18 911.9 million as at 30 June 2018.

Equity Investment in PNFC and PFC Sectors This item consists of the Government's investment in the net assets of the Public Non‑Financial Corporations (PNFC) and Public Financial Corporations (PFC) sectors.

The Government's equity investment is estimated to be $4 331.7 million as at 30 June 2015, a decrease of $2 296.3 million below the 2013-14 Budget estimate of $6 628.0 million. The decrease reflects the reclassification of TasWater to the Local Government Sector.


Chart 8.1 illustrates the components of the Government's Equity Investment holdings.

Chart 8.1: Equity Investments in PNFC and PFC Sectors as at 30 June 2015

Electricity$3 073.2m

(70.9%)

Ports$165.6m

(3.8%)

Resource Management

$89.6m(2.1%)

Financial$436.4m(10.1%)

Transport$453.5m(10.5%)

Other$113.4m

(2.6%)

Other Financial Assets Other Financial Assets include Income Tax Equivalents Receivable, Prepayments and Other Financial Assets. Other Financial Assets is estimated to be $755.2 million as at 30 June 2015, a decrease of $465.1 million on the 2013-14 Budget estimate of $1 220.3 million. The decrease primarily reflects revised tax estimates for Tasmania's electricity entities.


Table 8.2 provides a summary of Other Financial Assets.

Table 8.2: Other Financial Assets as at 30 June 2014)

Budget)

2015)

Budget)




$m) $m) $m) $m) $m)

Income Tax Equivalents Receivable1 1 201.7) 731.7) 712.0) 728.2) 736.8)

Prepayments 18.1) 21.9) 22.3) 22.7) 23.1)

Other Financial Assets 0.5) 1.7) 0.9) 0.9) 0.5)

Total 1 220.3) 755.2) 735.2) 751.8) 760.3)

Note 1. Income Tax Equivalents Receivable is an asset held by the General Government Sector that mirrors the Income Tax

Liabilities held by Government Business Enterprises and State-owned Companies within the PNFC and PFC sectors. The receivable reflects timing differences in the payment of income tax equivalents in accordance with Australian Accounting Standards. The decrease in Income Tax Equivalents Receivable reflects revised tax estimates for Tasmania’s electricity entities.


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 for the provision of goods and services. Non-Financial Assets also includes Intangibles, Assets Held for Sale and Other Non-Financial Assets.

Land and Buildings is estimated to be $5 829.6 million as at 30 June 2015, a decrease of $1 118.7 million on the 2013-14 Budget estimate of $6 948.3 million. The decrease in Land and Buildings includes the transfer of assets from the Department of Health and Human Services to non-government sector entities as part of the Better Housing Futures program.

Infrastructure is estimated to be $4 634.4 million as at 30 June 2015, an increase of $244.3 million on the 2013-14 Budget estimate of $4 390.1 million. Further information regarding Infrastructure Investment is provided in chapter 7 of this Budget Paper.

LIABILITIES Total Liabilities is estimated to be $7 439.9 million as at 30 June 2015 and remains relatively stable across the Forward Estimates period with estimated Total Liabilities of $7 819.2 million as at 30 June 2018.

The estimated Borrowings of $930.6 million as at 30 June 2015 includes an estimated end of year borrowing of $670.2 million to be undertaken on 30 June 2015. The end of year borrowing has no impact on the Government's Net Debt as the same amount will be borrowed and invested overnight on 30 June with the Tasmanian Public Finance Corporation, grossing up the amount of cash held and borrowings.


Employee Entitlements includes provisions for accrued salaries, annual leave and long service leave and is estimated to be $561.7 million as at 30 June 2015, a decrease of $111.9 million on 2013-14 Budget estimate of $673.6 million. The decrease in Employee Entitlements primarily reflects a revised estimate based on actual balances as at 30 June 2013 for the Department of Health and Human Services.

General Government Superannuation Liability

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, all of which are now closed to new membership.

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 at any point in time.

The superannuation liability has arisen over many decades because benefits have been 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 Retirement Benefits Act 1993, the former Parliamentary Superannuation Act 1973, the former Parliamentary Retiring Benefits Act 1985 and the Judges' Contributory Pensions Act 1968.

These schemes, which are now closed to new entrants, provide superannuation arrangements for public sector employees generally, Members of Parliament, the judiciary and statutory legal officers.

While all of these schemes have been closed, because of the long-term nature of superannuation benefits, the Superannuation Liability continues to grow as members accrue additional years of service as they approach retirement age. The liability is projected to grow until 2022-23 then decrease as the "baby boomer" generation reaches retirement age (the current average age is 53) and then gradually decline over the following five or six decades.

The estimated General Government Superannuation Liability as at 30 June 2015 is $5 448 million, which is comprised of the estimated present value of the liability of $7 008 million less the estimated fair value of plan assets of $1 560 million.

Table 8.3: General Government Superannuation Liability as at 30 June

2015)

) Budget)




$m) $m) $m) $m)

Present Value of Superannuation Liability 7 008.0 7 147.4 7 269.6 7 376.2

Fair Value of Plan Assets (1 560.0) (1 558.6) (1 549.2) (1 536.3)

Total 5 448.0 5 588.8 5 720.4 5 839.9


Chart 8.2 projects the General Government Superannuation Liability (net of plan assets) over the total life of the defined benefit schemes.

Chart 8.2: General Government Superannuation Liability Projection, 30 June 2015 to 30 June 2082

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

Jun-

2015

Jun-

2020

Jun-

2025

Jun-

2030

Jun-

2035

Jun-

2040

Jun-

2045

Jun-

2050

Jun-

2055

Jun-

2060

Jun-

2065

Jun-

2070

Jun-

2075

Jun-

2080

$ m

illio

n

Superannuation Liability

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 liabilities of Government Business Enterprises, State-owned Companies and other statutory authorities are excluded from the General Government Superannuation Liability, as these entities carry their own provisions for superannuation and separately report liabilities in their financial statements. The liabilities of these entities are consolidated and reported in the Total State Sector Balance Sheet.

Actuarial assumptions are the State Actuary's best estimates of 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.

Key assumptions used by the State Actuary in preparing the most recent actuarial estimate of the General Government Superannuation Liability are:

• Discount Rate - 5.5 per cent;

• Salary Increase Rate - 3.0 per cent;

• Pension Increase Rate - 2.5 per cent; and

• Investment Earnings - 5.5 per cent.


It is important to recognise that the actuarial estimate prepared by the State Actuary is a snapshot of a scheme's estimated financial condition at a particular point in time, and that the actuarial results do not predict a scheme's future financial condition 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, scheme expenses and the amount earned on any assets invested to pay the benefits. These amounts and others are uncertain at the valuation date, but are predicted by the State Actuary to fall within a reasonable range of possibilities.

The Superannuation Liability is particularly sensitive to discount rate movements. The Global Financial Crisis further heightened this sensitivity because bond markets were extremely volatile.

Since 2009-10, due to the volatility of the bond market and the long-term nature of the liability, the Budget projections of the Superannuation Liability do not use the current Australian Government long-term bond rate. The 2014-15 Budget projections are based on an average discount rate of 5.5 per cent. Treasury has determined this rate after an analysis of Reserve Bank of Australia historical data and considers that it appropriately reflects the average bond rate over the life of the Superannuation Liability.

There is a strong inverse relationship between the discount rate and the valuation of the liability. Chart 8.3 shows the impact of an increase or decrease of one per cent 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 5.5 per cent.

Chart 8.3: Sensitivity Analysis of the General Government Superannuation Liability as at 30 June

5 500

6 000

6 500

7 000

7 500

8 000

8 500

2015 2016 2017 2018

$ m

illio

n

Base Rate plus 1% Base Rate 5.5% Base Rate minus 1%

Prior to the 2012-13 Budget, Governments since 1994 had a policy of making provision in the Special Deposits and Trust Fund for the purpose of fully funding the unfunded superannuation liability over time. However, due to pressures on revenues as a result of the GFC, the State recorded cash deficits from 2009-10 onwards and, as a consequence, the Government’s superannuation provisions were not


cash-backed. As part of the process of developing the 2012-13 Budget, due to the deteriorating cash position of the State, the Government decided to reprioritise its approach and fund the emerging cash cost of the defined benefits superannuation liability directly from the Consolidated Fund rather than from funds notionally set aside in a provision in the Special Deposits and Trust Fund.

Currently, the emerging cash cost of defined benefit superannuation payments is met from the Consolidated Fund, funded partly by agency contributions and by a Reserved by Law contribution, which comprises the balance of the Government's share of pension and lump sum benefit costs.

Chart 8.4 shows the estimated employer contribution payments, made up of both pension and lump sum benefit costs, over the total life of the defined benefit schemes.

Chart 8.4: Defined Benefit Superannuation Costs, 2014-15 to 2081-82

0

50

100

150

200

250

300

350

400

450

500

2014

-15

2019

-20

2024

-25

2029

-30

2034

-35

2039

-40

2044

-45

2049

-50

2054

-55

2059

-60

2064

-65

2069

-70

2074

-75

2079

-80

Supe

rann

uatio

n C

ash

Flow

s ($

mill

ion)

Lump Sum and Pension Payments

A key budget risk is that the cost to the Budget will increase significantly in coming years (increasing by 83 per cent over the next 16 years and peaking in 2030-31). In 2014-15, defined benefit superannuation costs are estimated to be 4.6 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 increase to 5.4 per cent within five years (by 2019-20) and 5.7 per cent in 10 years (2024-25). Defined benefit superannuation costs as a percentage of General Government cash receipts is estimated to peak at 5.73 per cent in 2023-24, and then is estimated to decrease to 4.9 per cent in 15 years (2029-30) and to 3.9 per cent in 20 years (2034-35).

While movements in discount rates have a significant impact on the valuation of the Superannuation Liability at any point of time, those discount rate movements do not impact on the nominal cash flows required to meet the emerging cost of benefits paid to members.

Table 8.4 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 scheme assets.


Table 8.4: Undiscounted General Government Defined Benefit Obligations

2014-15 Estimate

$m Estimated total benefit payments to be made in the period

No later than 1 year 353

Later than 1 year and no later than 2 years 374

Later than 2 years and no later than 5 years 1 220









Later than 45 years and no later than 50 years 687

Undiscounted defined benefit obligation 20 421

After 50 years there is expected to be a reducing level of cash for a further 25 years totalling

approximately:

470

Total State Superannuation Liability The estimated Total State Superannuation Liability as at 30 June 2015 is $6 016.1 million, which is comprised of the estimated present value of the liability of $7 733.2 million less the estimated fair value of plan assets of $1 717.1 million. Total State includes Government Business Enterprises and State-owned Companies.

Table 8.5: Total State Superannuation Liability as at 30 June

2015)

) Budget)




$m) $m) $m) $m)

Present Value of Superannuation Liability 7 733.2 7 887.4 8 022.8 8 140.9

Fair Value of Plan Assets (1 717.1) (1 715.5) (1 705.3) (1 691.2)

Total 6 016.1 6 171.9 6 317.5 6 449.7


Chart 8.5 shows the impact of an increase or decrease of one per cent 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 5.5 per cent.

Chart 8.5: Sensitivity Analysis of the Total State Superannuation Liability as at 30 June

5 500

6 000

6 500

7 000

7 500

8 000

8 500

9 000

9 500

2015 2016 2017 2018

$ m

illio

n

Base Rate plus 1% Base Rate 5.5% Base Rate minus 1%


Table 8.6 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 scheme assets.

Table 8.6: Undiscounted Total State Defined Benefit Obligations 2014-15

Estimate

$m Estimated total benefit payments to be made in the period

No later than 1 year 389

Later than 1 year and no later than 2 years 413










Later than 45 years and no later than 50 years 760

Undiscounted defined benefit obligation 22 543

After 50 years there is expected to be a reducing level of cash for a further 25 years

totalling approximately:

519


TASMANIAN RISK MANAGEMENT FUND Purpose of the Fund The Tasmanian Risk Management Fund was established on 1 January 1999 to provide a whole-of-government approach to funding and managing the 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 except for marine hull and travel, which remain insured through the private sector, as this is more cost-effective than self-insurance for these two categories of risk.

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.

For 2014-15, there has been moderate to significant movement in agency contributions for the major risk categories. A significant increase in medical liability contributions reflects the continuing increase in the number of large claims in the medical risk portfolio over the past decade. An increase in the average workers' compensation claim size, although partially offset by a decrease in the number of claims, has resulted in a moderate increase in workers' compensation contributions. The trend of increasing general property contributions over recent years ceased, with a substantial reduction in contributions for 2014-15, due to lower than expected claims experience. Contributions for the other risk categories remained relatively consistent with the previous year's contributions. Overall, total agency contributions have increased from $51.4 million in 2013-14 to $55 million in 2014-15.

The Fund's Actuary takes into account the level of assets and liabilities in each risk category when determining annual contributions. As the aim is to match assets and liabilities over time, any surpluses will continue to be taken into account by the Fund's actuary at the time agency contributions are determined.


Table 8.7: Financial Position of the Tasmanian Risk Management Fund as at 30 June

2015 2016 2017 2018


Forward Estimate

Forward Estimate

$m) $m) $m) $m) Current Assets

Carried Forward Cash Equivalent Balance1 214.3) 222.8) 232.6) 241.8)

Receivables 0.6) 0.6) 0.6) 0.6)

214.9) 223.4) 233.2) 242.4) Liabilities2

Personal Injury 89.3) 93.7) 98.3) 103.0)

Property 2.9) 3.1) 3.2) 3.3)

Motor Vehicle 0.3) 0.3) 0.3) 0.4)

Liability 8.9) 9.2) 9.6) 9.9)

Medical 108.8) 113.7) 119.0) 124.6)

Payables 0.7) 0.7) 0.7) 0.7)

210.9) 220.7) 231.1) 241.9)

Net Assets 4.0) 2.7) 2.1) 0.5)

Notes: 1. Includes the estimated balance from the previous year with adjustments for expected return on investments, with

return rates set to ensure the long-term matching of increases in liabilities as provided by the Fund's Actuary. 2. Liabilities are calculated by the Fund's Actuary as at 31 December 2013.

Uniform Government Reporting A1.1

APPENDIX 1 UNIFORM GOVERNMENT REPORTING

Features

• The estimated Net Operating Balance for 2014-15 is a deficit of $7.6 million for the PNFC Sector, a deficit of $132.6 million for the PFC Sector and a deficit of $425.8 million for the Total State Sector.

• The estimated Fiscal Balance for 2014-15 is a deficit of $130.7 million for the PNFC Sector, a deficit of $132.8 million for the PFC Sector and a deficit of $630.3 million for the Total State Sector.

• As at 30 June 2015, PNFC Net Debt is forecast to be $2 476.4 million, PFC Net Debt is forecast to be negative $1 332.1 million and Total State Sector Net Debt is forecast to be $956 million.

A1.2 Uniform Government Reporting

INTRODUCTION The financial information in this appendix has been prepared in accordance with the Uniform Presentation Framework (UPF). This appendix provides Income Statement, Balance Sheet and Cash Flow Statement estimates for the:

• Public Non-Financial Corporations (PNFC) Sector;

• Total Non-Financial Public (TNFP) Sector;

• Public Financial Corporations (PFC) Sector; and

• Total State Sector.

Details for the General Government Sector are provided in chapter 5 of The Budget Budget Paper No 1.

The statements present the 2014-15 Budget Estimates and Forward Estimates for the period 2015-16 to 2017-18. For taxation information required under the UPF, refer to chapter 6 of The Budget Budget Paper No 1.

In accordance with the UPF, the final end of year results for 2013-14 will be released in the Treasurer's Annual Financial Report 2013-14. The Report will be publicly released by no later than 31 October 2014.

Loan Council Allocation Under Loan Council arrangements, every year the Australian Government and each state and territory nominate a Loan Council Allocation (LCA). A jurisdiction's LCA incorporates:

• the estimated Cash Deficit/(Surplus) of the General Government and PNFC Sectors;

• Net Cash Flows from Investments in Financial Assets for Policy Purposes; and

• Memorandum Items, which are other financing transactions that are treated as borrowing equivalents for Loan Council purposes.

The Loan Council evaluates LCA nominations by referring to each jurisdiction's fiscal position and the macro-economic implications of the aggregate figure.


Table A1.1 compares Tasmania's 2014-15 LCA approved by the Loan Council in March 2014, with the revised LCA based on 2014-15 Budget estimates.

Table A1.1 Loan Council Allocation 2014-15 2014-15) 2014-15) ) Budget) Nomination) Estimate)

$m) $m) General Government Cash Deficit/(Surplus) 49.7 (21.0)

Public Non-Financial Corporations Sector Cash Deficit/(Surplus) 103.3 300.3

Non-Financial Public Sector Cash Deficit/(Surplus) 153.0 279.3 Less Non-Financial Public Sector Net Cash Flows from Investments in Financial Assets for

Policy Purposes (6.2) (24.3)

Plus Memorandum Items1 62.0 54.0

Loan Council Allocation Deficit/(Surplus) 221.2 357.6

2014-15 Tolerance Limit2 168.4 163.7

Notes: 1. Memorandum items include borrowings by local government, including TasWater and the University of Tasmania. 2. The Tolerance Limit is equal to two per cent of Total Non-Financial Public Sector Cash Receipts from Operating

Activities and applies from the time that the LCA is approved by the Loan Council until the budgeted LCA is released. The Tolerance Limit will change with each revision to the Budget. The Tolerance Band recognises that LCAs are nominated at early stages of the Budget process and that estimates are likely to change as a result.

The 2014-15 revised Budget estimate is a deficit of $357.6 million, an increase of $136.4 million which is within the Tolerance Limit of $168.4 million estimated for Tasmania in March 2014. If a jurisdiction is likely to exceed its Tolerance Limit, it must provide an explanation to Loan Council and make that explanation public.

The LCA Outcome for 2013-14 will be presented in the Treasurer's Annual Financial Report 2013-14.


GOVERNMENT FINANCIAL ESTIMATES Tables A1.2 to A1.13 provide details of the Income Statements, Balance Sheets and Cash Flow Statements for the PNFC Sector, TNFP Sector, PFC Sector and Total State Sector respectively.

Table A1.2: Public Non-Financial Corporations Sector Income Statement

2014-15 2015-16 2016-17 2017-18

Forward Forward Forward

Budget Estimate Estimate Estimate

$m $m $m $m

Revenue from Transactions

Grants 155.3 145.7 140.8 134.3

Sales of Goods and Services 3 124.6 3 083.4 3 182.2 3 300.6

Interest Income 6.7 6.7 6.4 6.4

Other Revenue 67.4 68.5 71.4 73.4

3 354.0 3 304.3 3 400.8 3 514.6

Less Expenses from Transactions Employee Expenses 384.4 395.6 404.0 418.8

Superannuation 53.4 53.1 53.0 53.3

Depreciation 312.4 320.1 312.2 318.7

Supplies and Consumables 2 081.8 2 110.3 2 174.1 2 212.5

Nominal Superannuation Interest Expense 29.5 30.4 31.2 32.0

Borrowing Costs 178.6 191.7 198.2 200.5

Dividend and Income Tax Equivalent Expenses 186.8 113.5 127.5 213.8

Grant Expenses 30.0 27.5 25.8 24.1

Other Expenses 104.7 105.5 103.8 104.7

3 361.7 3 347.6 3 429.8 3 578.3

Equals NET OPERATING BALANCE (7.6) (43.3) (29.0) (63.7)

Plus Other Economic Flows - Included in Operating Result

Gain/(Loss) on Sale of Non-Financial Assets 0.1 0.1 0.1 0.1

Other Gains/(Losses) (39.7) (49.1) (3.9) 8.7

(39.6) (49.0) (3.8) 8.8

Equals Operating Result (47.2) (92.3) (32.8) (54.9)


Table A1.2: Public Non-Financial Corporations Sector Income Statement (continued)

2014-15 2015-16 2016-17 2017-18



$m $m $m $m


Revaluations of Non-Financial Assets (202.1) 44.0 46.2 48.3

Other Non-Owner Movements in Equity (8.5) (2.6) (3.1) (1.3)

(210.6) 41.4 43.1 46.9

Equals Comprehensive Result (257.8) (50.9) 10.3 (8.0)


NET OPERATING BALANCE (7.6) (43.3) (29.0) (63.7) Less Net Acquisition of Non-Financial Assets

Purchase of Non-Financial Assets 445.1 426.0 384.1 368.2

Less Sale of Non-Financial Assets 9.6 0.9 0.6 0.6

Less Depreciation 312.4 320.1 312.2 318.7

123.1 105.1 71.4 48.9

Equals FISCAL BALANCE (130.7) (148.3) (100.4) (112.6)


Table A1.3 Public Non-Financial Corporations Sector Balance Sheet as at 30 June

2015 2016 2017 2018



$m $m $m $m

Assets Financial Assets

Cash and Deposits 167.9 174.4 166.5 187.0

Investments 3.5 2.8 2.2 1.6

Other Equity Investments 76.5 74.7 72.8 71.5

Receivables 632.2 604.7 601.0 597.8

Other Financial Assets 637.4 656.7 667.5 669.5

1 517.5 1 513.4 1 509.9 1 527.5

Non-Financial Assets Land and Buildings 209.1 210.4 210.8 211.3

Infrastructure 7 475.5 7 533.8 7 614.9 7 699.5

Plant and Equipment 364.9 370.5 379.2 379.5

Biological Assets 108.8 108.8 108.8 108.8

Investment Property 0.6 0.6 0.6 0.6

Intangible Assets 76.4 87.2 85.4 75.3

Other Non-Financial Assets 146.3 151.0 154.8 158.7

8 381.6 8 462.2 8 554.4 8 633.8

Total Assets 9 899.0 9 975.6 10 064.3 10 161.3

Liabilities

Borrowings 2 647.8 2 743.8 2 784.8 2 845.9

Superannuation 563.2 577.8 591.5 603.9

Employee Entitlements 106.6 106.7 108.2 110.0

Payables 365.7 357.1 342.9 339.5

Other Liabilities 2 320.4 2 287.6 2 287.2 2 289.6

Total liabilities 6 003.7 6 073.1 6 114.5 6 188.8

NET ASSETS 3 895.3 3 902.5 3 949.8 3 972.4

Equity

Accumulated Funds 1 393.8 1 293.3 1 255.4 1 198.0

Asset Revaluation Reserve 650.2 694.2 740.4 788.6

Other Equity 1 851.3 1 915.1 1 954.0 1 985.8

Total Equity 3 895.3 3 902.5 3 949.8 3 972.4


Table A1.3: Public Non-Financial Corporations Sector Balance Sheet as at 30 June (continued)

2015 2016 2017 2018



$m $m $m $m


NET WORTH1 3 895.3 3 902.5 3 949.8 3 972.4 NET FINANCIAL WORTH2 (4 486.3) (4 559.7) (4 604.6) (4 661.3) NET FINANCIAL LIABILITIES3 4 486.3 4 559.7 4 604.6 4 661.3 NET DEBT4 2 476.4 2 566.5 2 616.1 2 657.2

Notes:

1. Net Worth represents Total Assets (both Financial and Non-Financial) less Total Liabilities. 2. Net Financial Worth represents Total Financial Assets less Total Liabilities. 3. Net Financial Liabilities represents Total Liabilities less Financial Assets. For the PNFC Sector this is equivalent to

negative Net Financial Worth. 4. Net Debt represents Borrowings less the sum of Cash and Deposits and Investments.


Table A1.4: Public Non-Financial Corporations Sector Cash Flow Statement

2014-15 2015-16 2016-17 2017-18



$m $m $m $m

Cash Flows from Operating Activities

Cash Received from Operating Activities

Grants Received 149.0 141.0 140.7 134.3


Interest Received 7.5 7.4 7.2 7.2

Other Receipts 156.3 165.7 166.1 165.8

3 399.2 3 391.8 3 475.5 3 586.9

Cash Payments for Operating Activities

Employee Entitlements (400.1) (411.5) (420.6) (435.9)

Superannuation (46.9) (47.4) (48.2) (49.2)

Supplies and Consumables (2 101.1) (2 133.7) (2 210.1) (2 232.1)

Borrowing Costs (157.5) (177.8) (180.7) (179.3)

Grants and Subsidies Paid (31.3) (28.9) (27.2) (25.6)

Other Payments (148.0) (146.3) (142.4) (136.8)

(2 884.8) (2 945.6) (3 029.2) (3 058.9)

Net Cash Flows from Operating Activities 514.4 446.2 446.3 527.9

Cash Flows from Investing Activities Net Cash Flows from Non-Financial Assets Purchase of Non-Financial Assets (445.1) (426.0) (384.1) (368.2)

Sales of Non-Financial Assets 9.6 0.9 0.6 0.6

(435.5) (425.2) (383.5) (367.6)

Net Cash Flows from Financial Assets (Policy Purposes) Equity Injections 39.1 58.1 37.0 30.6

39.1 58.1 37.0 30.6

Net Cash Flows from Investing Activities (396.4) (367.0) (346.5) (337.0)


Table A1.4: Public Non-Financial Corporations Sector Cash Flow Statement (continued)

2014-15 2015-16 2016-17 2017-18



$m $m $m $m

Cash Flows from Financing Activities

Net Borrowing 217.2 96.6 41.5 61.6

Dividends and Tax Equivalents Paid (379.2) (169.2) (149.2) (232.0)

Net Cash Flows from Financing Activities (162.0) (72.6) (107.7) (170.4)

Net Increase/(Decrease) in Cash Held (44.0) 6.5 (8.0) 20.5

Cash at Beginning of the Year 211.9 167.9 174.4 166.5 Cash at End of the Year 167.9 174.4 166.5 187.0

KEY FISCAL AGGREGATES Net Cash Flows from Operating Activities 514.4 446.2 446.3 527.9

Plus Net Cash Flows from Non-Financial Assets (435.5) (425.2) (383.5) (367.6)

Plus Dividends and Tax Equivalents Paid (379.2) (169.2) (149.2) (232.0)

Equals CASH SURPLUS/(DEFICIT) (300.3) (148.2) (86.4) (71.6)


Table A1.5: Total Non-Financial Public Sector Income Statement 2014-15) 2015-16) 2016-17) 2017-18) ) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate)

$m) $m) $m) $m) Revenue from Transactions

Grants 3 035.4 3 307.1 3 304.3 3 329.5

Taxation 938.7 968.9 999.2 1 020.1


Fines and Regulatory Fees 103.3 105.8 107.8 102.3

Interest Income 22.6 23.1 21.7 20.7

Dividend, Tax and Rate Equivalent Income 156.1 41.5 35.2 34.6

Other Revenue 204.2 203.3 203.8 205.0

7 927.3 8 075.5 8 197.9 8 362.7 Less Expenses from Transactions

Employee Expenses 2 521.4 2 537.6 2 573.6 2 641.0

Superannuation 321.7 319.2 323.2 337.7

Depreciation 599.5 615.6 607.9 616.9



Borrowing Costs 164.7 171.9 174.8 181.3

Grant Expenses 1 030.9 992.1 1 014.4 1 056.2

Other Expenses 115.7 114.8 108.4 108.0

8 220.5 8 243.9 8 352.2 8 544.4




Movement in Investments in GBEs and SOCs (90.0) 4.0 2.8 (4.8)

Other Gains/(Losses) (216.4) (22.1) 35.1 40.5

(295.0) (6.9) 48.7 46.5



Table A1.5: Total Non-Financial Public Sector Income Statement (continued)

2014-15) 2015-16) 2016-17) 2017-18) ) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate)

$m) $m) $m) $m) Plus Other Economic Flows - Other Movements in Equity

Revaluations of Non-Financial Assets 138.6 372.1 398.5 386.2

Other Flows (4.7) 1.2 0.7 (9.7)

133.9 373.3 399.3 376.5

Equals Comprehensive Result (454.3) 197.9 293.7 241.3

KEY FISCAL AGGREGATES NET OPERATING BALANCE (293.2) (168.4) (154.3) (181.7) Less Net Acquisition of Non-Financial Assets




204.2 194.2 192.5 54.6



Table A1.6: Total Non-Financial Public Sector Balance Sheet as at 30 June

2015) 2016) 2017) 2018)

Forward) Forward) Forward)

Budget) Estimate) Estimate) Estimate)

$m) $m) $m) $m)

Assets

Financial Assets

Cash and Deposits 1 209.1 1 150.9 982.5 937.1

Investments 81.2 82.4 83.3 87.2

Equity Investment in PFC Sector 436.4 440.4 443.3 438.4


Receivables 936.4 910.9 916.4 914.8


3 321.5 3 254.0 3 109.1 3 069.1


Land and Buildings 6 038.7 6 267.5 6 544.7 6 669.1

Infrastructure 12 109.8 12 365.7 12 659.2 12 981.7


Heritage and Cultural Assets 485.0 497.1 509.2 521.3



Intangibles 111.4 122.7 122.8 112.4

Assets Held for Sale 10.9 10.0 9.0 8.0


19 656.4 20 175.4 20 759.4 21 200.5

Total Assets 22 977.9 23 429.5 23 868.5 24 269.5

Liabilities

Borrowings 3 578.4 3 722.6 3 728.8 3 735.4

Superannuation 6 011.2 6 166.7 6 311.9 6 443.8


Payables 456.7 450.9 438.4 437.1


Total Liabilities 12 618.2 12 871.8 13 017.1 13 176.9

NET ASSETS 10 359.7 10 557.7 10 851.4 11 092.6


Table A1.6: Total Non-Financial Public Sector Balance Sheet as at 30 June (continued)

2015) 2016) 2017) 2018)



$m) $m) $m) $m)

Equity


Asset Revaluation Reserve 5 575.3 5 947.4 6 346.0 6 732.2

Total Equity 10 359.7 10 557.7 10 851.4 11 092.6


NET WORTH1 10 359.7 10 557.7 10 851.4 11 092.6

NET FINANCIAL WORTH2 (9 296.7) (9 617.8) (9 908.0) (10 107.8)

NET FINANCIAL LIABILITIES3 9 733.1 10 058.2 10 351.3 10 546.3

NET DEBT4 2 288.1 2 489.3 2 663.0 2 711.1

Notes: 1. Net Worth represents Total Assets (both Financial and Non-Financial) less Total Liabilities. 2. Net Financial Worth represents Total Financial Assets less Total Liabilities. 3. Net Financial Liabilities represents Total Liabilities less Financial Assets, excluding Equity Investment in the PFC

Sector. 4. Net Debt represents Borrowings less the sum of Cash and Deposits and Investments.


Table A1.7: Total Non-Financial Public Sector Cash Flow Statement 2014-15) 2015-16) 2016-17) 2017-18) ) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate)

$m) $m) $m) $m) Cash Flows from Operating Activities

Cash Receipts from Operating Activities Grants Received 3 029.1 3 302.4 3 304.2 3 329.3

Taxation 938.9 968.4 999.1 1 020.0




Dividend, Tax and Rate Equivalents 197.4 44.6 40.7 40.5

Other Receipts 462.3 471.3 471.5 472.5

8 183.1 8 334.4 8 449.8 8 613.6

Cash Payments for Operating Activities Employee Entitlements (2 528.7) (2 574.7) (2 579.6) (2 644.7)

Superannuation (444.2) (467.8) (485.0) (519.5)


Borrowing Costs (143.3) (157.9) (157.2) (159.9)

Grants and Subsidies Paid (1 032.3) (993.1) (1 015.2) (1 057.0)

Other Payments (328.2) (326.8) (320.2) (315.5)

(7 663.3) (7 725.0) (7 826.3) (7 994.8)

Net Cash Flows from Operating Activities 519.8 609.4 623.5 618.9 Cash flows from Investing Activities

Net Cash Flows from Non-Financial Assets Purchase of Non-Financial Assets (845.4) (841.3) (823.1) (696.1)

Sale of Non-Financial Assets 46.4 34.5 28.2 31.1

(799.0) (806.8) (794.9) (665.0)

Net Cash Flows from Financial Assets (Policy Purposes) Equity Injections (3.7) (2.5) (2.0) (2.0)

Net Advances Paid (20.6) (1.5) (1.6) (4.4)

(24.3) (4.0) (3.6) (6.4) Net Cash Flows from Financial Assets (Liquidity Purposes)

Net Purchase of Investments 0.7 0.7 .... ....

0.7 0.7 .... ....

Net Cash Flows from Investing Activities (822.6) (810.1) (798.6) (671.4)


Table A1.7: Total Non-Financial Public Sector Cash Flow Statement (continued)


$m) $m) $m) $m) Cash Flows from Financing Activities

Net Borrowings (12.3) 142.5 6.7 7.1

Net Cash Flows from Financing Activities (12.3) 142.5 6.7 7.1 Net Increase/(Decrease) in Cash Held (315.2) (58.2) (168.4) (45.4) Cash at Beginning of the Year 1 524.2 1 209.1 1 150.9 982.5 Cash at End of the Year 1 209.1 1 150.9 982.5 937.1 KEY FISCAL AGGREGATES



Equals CASH SURPLUS/(DEFICIT) (279.3) (197.4) (171.4) (46.1)


Table A1.8: Public Financial Corporations Sector Income Statement 2014-15) 2015-16) 2016-17) 2017-18) ) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate)


Sales of Goods and Services 134.9 140.7 147.9 155.3

Interest Income 351.2 352.0 367.0 349.4


Other Revenue 2.0 3.7 2.0 2.0

526.5 537.2 560.1 552.5 Less Expenses from Transactions

Employee Expenses 5.2 5.3 5.5 5.6


Depreciation 0.2 0.2 0.3 0.3

Supplies and Consumables 165.5 189.5 204.5 219.9

Borrowing Costs 326.4 322.4 338.5 318.3

Dividend and Income Tax Equivalent Expenses 156.1 41.5 35.2 34.6

Grant Expenses 4.6 4.8 5.0 5.2

Other Expenses 0.2 0.2 0.3 0.3

659.1 564.9 590.0 585.0



Gain/(Loss) on Sale of Non-Financial Assets (0.1) (0.1) (0.1) (0.1)

Other Gains/(Losses) (57.3) (59.4) (63.0) (66.8)

(57.4) (59.5) (63.1) (66.9)



Other Flows 99.9 91.2 95.8 94.7

99.9 91.2 95.8 94.7

Equals Comprehensive Result (90.0) 4.0 2.8 (4.8)


Table A1.8: Public Financial Corporations Sector Income Statement (continued)


$m) $m) $m) $m) KEY FISCAL AGGREGATES NET OPERATING BALANCE (132.6) (27.7) (29.9) (32.5) Less Net Acquisition of Non-Financial Assets




0.2 0.5 0.1 0.1



Table A1.9: Public Financial Corporations Sector Balance Sheet as at 30 June

2015) 2016) 2017) 2018) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate)

$m) $m) $m) $m) Assets

Financial Assets Cash and Deposits 27.6 32.2 37.2 42.2

Investments 7 951.0 7 957.3 8 374.9 8 065.2

Receivables 31.6 32.6 31.9 31.1


8 159.5 8 171.4 8 593.3 8 287.8

Non-Financial Assets Plant and Equipment 0.9 0.9 0.9 0.9


Intangible Assets 0.4 0.3 0.3 0.3

16.0 16.0 15.9 15.9

Total Assets 8 175.6 8 187.4 8 609.2 8 303.7 Liabilities

Borrowings 6 646.5 6 565.5 6 888.1 6 484.6



Payables 2.6 2.6 2.6 2.6



NET ASSETS 436.4 440.4 443.3 438.4

Equity

Accumulated Funds 426.4 430.4 433.3 428.4

Other Equity 10.0 10.0 10.0 10.0

Total Equity 436.4 440.4 443.3 438.4


Table A1.9: Public Financial Corporations Sector Balance Sheet as at 30 June (continued)

2015) 2016) 2017) 2018) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate)

$m) $m) $m) $m) KEY FISCAL AGGREGATES NET WORTH1 436.4 440.4 443.3 438.4 NET FINANCIAL WORTH2 420.4 424.5 427.4 422.5 NET FINANCIAL LIABILITIES3 (420.4) (424.5) (427.4) (422.5) NET DEBT4 (1 332.1) (1 424.0) (1 524.1) (1 622.8) Notes: 1. Net Worth represents Total Assets (both Financial and Non-Financial) less Total Liabilities. 2. Net Financial Worth represents Total Financial Assets less Total Liabilities. 3. Net Financial Liabilities represents Total Liabilities less Financial Assets. For the PFC Sector this is equivalent to

negative Net Financial Worth. 4. Net Debt represents Borrowings less the sum of Cash and Deposits and Investments.


Table A1.10: Public Financial Corporations Sector Cash Flow Statement


$m) $m $m $m Cash Flows from Operating Activities

Cash Received from Operating Activities Sales of Goods and Services 152.8 160.3 168.4 176.8



Other Receipts 0.5 0.5 0.5 0.5

542.9 553.5 579.1 572.4 Cash Payments for Operating Activities

Employee Entitlements (5.4) (5.5) (5.6) (5.7)

Superannuation (0.5) (0.5) (0.5) (0.6)

Supplies and Consumables (112.6) (121.0) (129.0) (138.1)

Borrowing Costs (321.0) (319.1) (336.3) (322.8)

Grants and Subsidies Paid (4.9) (5.1) (5.4) (5.6)

Other Payments (6.1) (6.6) (7.0) (7.4)

(450.4) (457.8) (483.8) (480.1)

Net Cash Flows from Operating Activities 92.5 95.8 95.3 92.3 Cash Flows from Investing Activities

Net Cash Flows from Non-Financial Assets

Purchase of Non-Financial Assets (0.5) (0.8) (0.4) (0.4)



Net Purchase of Investments 6.8 35.2 (371.8) 357.0

6.8 35.2 (371.8) 357.0

Net Cash Flows from Investing Activities 6.3 34.4 (372.1) 356.7


Table A1.10: Public Financial Corporations Sector Cash Flow Statement (continued)


$m) $m) $m) $m) Cash Flows from Financing Activities

Net Borrowing 51.1 (81.0) 322.5 (403.5)

Dividends and Tax Equivalents Paid (197.4) (44.6) (40.7) (40.5)

Net Cash Flows from Financing Activities (146.3) (125.6) 281.8 (444.0) Net Increase/(Decrease) in Cash Held (47.6) 4.6 5.0 4.9 Cash at Beginning of the Year 75.2 27.6 32.2 37.2 Cash at End of the Year 27.6 32.2 37.2 42.2 KEY FISCAL AGGREGATES Net Cash Flows from Operating Activities 92.5 95.8 95.3 92.3


Plus Dividends and Tax Equivalents Paid (197.4) (44.6) (40.7) (40.5)

Equals CASH SURPLUS/(DEFICIT) (105.5) 50.5 54.3 51.4


Table A1.11: Total State Sector Income Statement 2014-15) 2015-16) 2016-17) 2017-18) ) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate)


Grants 3 035.4 3 307.1 3 304.3 3 329.5

Taxation 938.5 968.6 999.0 1 019.8



Interest Income 211.5 205.1 217.2 193.1


Other Revenue 206.1 207.0 205.8 207.0

8 135.1 8 400.9 8 551.0 8 703.3 Less Expenses from Transactions

Employee Expenses 2 526.7 2 542.9 2 579.1 2 646.6

Superannuation 322.5 320.1 324.1 338.7

Depreciation 599.7 615.8 608.2 617.2



Borrowing Costs 328.8 324.3 341.8 322.6

Grant Expenses 1 035.5 996.9 1 019.4 1 061.4

Other Expenses 115.7 114.8 108.4 108.0

8 560.9 8 597.1 8 735.2 8 917.6




Other Gains/(Losses) (286.9) (95.3) (42.5) (41.8)

(275.6) (84.2) (31.7) (31.1)



Revaluations of Non-Financial Assets 138.6 372.1 398.5 386.2

Other Flows 108.5 106.2 111.1 100.4

247.0 478.2 509.6 486.6

Equals Comprehensive Result (454.3) 197.9 293.7 241.3


Table A1.11: Total State Sector Income Statement (continued) 2014-15) 2015-16) 2016-17) 2017-18) ) Forward) Forward) Forward) Budget) Estimate) Estimate) Estimate)

$m) $m) $m) $m) KEY FISCAL AGGREGATES NET OPERATING BALANCE (425.8) (196.1) (184.2) (214.3) Less Net Acquisition of Non-Financial Assets




204.5 194.7 192.6 54.6



Table A1.12: Total State Sector Balance Sheet as at 30 June 2015) 2016) 2017) 2018)



$m) $m) $m) $m)

Assets

Financial Assets

Cash and Deposits 109.3 111.7 112.5 115.4

Investments 4 529.3 4 386.1 4 794.1 4 472.0


Receivables 968.0 943.5 948.3 946.0


6 396.7 6 233.1 6 651.2 6 328.5


Land and Buildings 6 038.7 6 267.5 6 544.7 6 669.1

Infrastructure 12 109.8 12 365.7 12 659.2 12 981.7


Heritage and Cultural Assets 485.0 497.1 509.2 521.3



Intangibles 111.8 123.0 123.1 112.7

Assets Held for Sale 10.9 10.0 9.0 8.0


19 672.5 20 191.4 20 775.3 21 216.4

Total Assets 26 069.1 26 424.5 27 426.5 27 544.9

Liabilities

Borrowings 5 594.6 5 563.2 6 045.5 5 675.8

Superannuation 6 016.1 6 171.9 6 317.5 6 449.7


Payables 459.3 453.5 441.0 439.6



NET ASSETS 10 359.7 10 557.7 10 851.4 11 092.6


Table A1.12: Total State Sector Balance Sheet as at 30 June (continued)

2015) 2016) 2017) 2018)


Budget) Estimate Estimate) Estimate)

$m) $m) $m) $m)

Equity


Asset Revaluation Reserve 5 575.3 5 947.4 6 346.0 6 732.2

Total Equity 10 359.7 10 557.7 10 851.4 11 092.6


NET WORTH1 10 359.7 10 557.7 10 851.4 11 092.6

NET FINANCIAL WORTH2 (9 312.7) (9 633.7) (9 923.9) (10 123.7)

NET FINANCIAL LIABILITIES3 9 312.7 9 633.7 9 923.9 10 123.7

NET DEBT4 956.0 1 065.4 1 138.9 1 088.3

Notes: 1. Net Worth represents Total Assets (both Financial and Non-Financial) less Total Liabilities. 2. Net Financial Worth represents Total Financial Assets less Total Liabilities. 3. Net Financial Liabilities represents Total Liabilities less Financial Assets. For the Total State Sector this is equivalent

to negative Net Financial Worth. 4. Net Debt represents Borrowings less the sum of Cash and Deposits and Investments.


Table A1.13: Total State Sector Cash Flow Statement 2014-15 2015-16 2016-17 2017-18 Forward Forward Forward Budget Estimate Estimate Estimate

$m $m $m $m Cash Flows from Operating Activities

Cash Receipts from Operating Activities

Grants Received 3 029.1 3 302.4 3 304.2 3 329.3

Taxation 938.7 968.2 998.9 1 019.8




Dividend, Tax and Rate Equivalents 38.5 40.7 43.2 45.7

Other Receipts 462.7 471.8 472.0 473.0

8 362.9 8 670.0 8 813.2 8 965.1

Cash Payments for Operating Activities

Employee Entitlements (2 534.1) (2 580.2) (2 585.2) (2 650.4)

Superannuation (444.6) (468.3) (485.5) (520.0)


Borrowing Costs (302.0) (307.0) (322.0) (305.7)

Grants and Subsidies Paid (1 037.2) (998.2) (1 020.6) (1 062.6)

Other Payments (334.1) (333.2) (327.0) (322.6)

(7 948.1) (8 009.4) (8 135.2) (8 294.4)

Net Cash Flows from Operating Activities 414.8 660.6 678.1 670.6 Cash Flows from Investing Activities

Net Cash Flows from Non-Financial Assets

Purchase of Non-Financial Assets (846.0) (842.1) (823.5) (696.4)


(799.5) (807.5) (795.2) (665.3)

Net Cash Flows from Financial Assets (Policy Purposes)

Equity Injections (3.7) (2.5) (2.0) (2.0)

Net Advances Paid (20.6) (1.5) (1.6) (4.4)


Net Purchase of Investments 75.4 184.4 (361.3) 373.3

75.4 184.4 (361.3) 373.3

Net Cash Flows from Investing Activities (748.4) (627.2) (1 160.1) (298.5)


Table A1.13: Total State Sector Cash Flow Statement (continued) 2014-15 2015-16 2016-17 2017-18 Forward Forward Forward Budget Estimate Estimate Estimate

$m $m $m $m Cash Flows from Financing Activities

Net Borrowings 337.8 (31.0) 482.9 (369.3)

Net Cash Flows from Financing Activities 337.8 (31.0) 482.9 (369.3) Net Increase/(Decrease) in Cash Held 4.2 2.4 0.8 2.9 Cash at Beginning of the Year 105.1 109.3 111.7 112.5 Cash at End of the Year 109.3 111.7 112.5 115.4 KEY FISCAL AGGREGATES



Equals CASH SURPLUS/(DEFICIT) (384.7) (146.9) (117.2) 5.3


Table A1.14: General Government Expenses from Transactions by Purpose


$m) $m) $m) $m) General Public Services 199.3 224.8 198.1 205.2

Public Order and Safety 459.5 469.7 480.7 492.3

Education 1 418.8 1 421.7 1 479.3 1 519.8

Health 1 465.1 1 447.2 1 434.0 1 454.7

Social Security and Welfare 431.6 441.6 464.4 509.5

Housing and Community Amenities 180.6 161.0 161.4 163.2

Recreation and Culture 195.1 181.9 180.7 182.9

Fuel and Energy 2.8 2.3 1.3 1.3

Agriculture, Forestry, Fishing and Hunting 106.2 82.6 79.0 76.8

Mining and Mineral Resources other than Fuels, Manufacturing and

Construction 5.5 5.5 5.6 5.7

Transport and Communications 271.3 264.5 274.5 259.4

Other Economic Affairs 129.2 118.0 99.2 98.6

Nominal Interest on Superannuation 283.1 291.6 299.1 306.1

Other Purposes 101.2 99.1 97.9 100.0

5 249.3 5 211.4 5 255.3 5 375.4

Table A1.14 presents General Government Expenses from Transactions classified by purpose. This is presented in accordance with the Government Purpose Classification (GPC), which is based on the ABS classifications used as part of the Government Finance Statistics reporting framework. The GPC provides a standard framework to allocate Government expenditure according to functions. Disclosure of this information can assist users in identifying the resources committed to particular functions and the costs of service delivery that are attributable to those functions.

Consolidated Fund Estimates A2.1

APPENDIX 2 CONSOLIDATED FUND ESTIMATES

Features

• In 2014-15, it is estimated that the Consolidated Fund Outcome will be a surplus of $255.4 million.

• Total Consolidated Fund receipts are estimated to be $4 136 million in 2014-15, an increase of $409.8 million on 2013-14 budgeted receipts of $3 726.2 million. Over the Forward Estimates period, Consolidated Fund receipts will be $4 054.8 million in 2015-16, $4 111.3 million in 2016-17 and $4 287.8 million in 2017-18.

• Consolidated Fund expenditure is estimated to be $3 880.6 million in 2014-15, an increase of $96.9 million on 2013-14 budgeted expenditure of $3 783.7 million. Over the Forward Estimates period, Consolidated Fund expenditure will be $4 102.9 million in 2015-16, $4 079.7 million in 2016-17 and $4 236.6 million in 2017-18.

• Consolidated Fund Outcome projections for 2015-16 to 2017-18 on a same policy basis are:

− 2015-16: $48.2 million deficit;

− 2016-17: $31.6 million surplus; and

− 2017-18: $51.2 million surplus.

A2.2 Consolidated Fund Estimates

INTRODUCTION This appendix provides information on the 2014-15 Consolidated Fund Budget Estimates and the Consolidated Fund Forward Estimates for the years 2015-16 to 2017-18. The information in this appendix has been prepared on a cash basis, representing receipts into, and payments from, the Consolidated Fund.


CONSOLIDATED FUND 2014-15 BUDGET AND FORWARD ESTIMATES Table A2.1 provides a summary of the Consolidated Fund Budget for 2014-15 and the Forward Estimates period.

Table A2.1: Consolidated Fund Forward Estimates

2013-14) )

Budget)

2014-15) )

Budget)




$m) $m) $m) $m) $m) Receipts1,2

Recurrent Receipts Australian Government Sources

General Purpose Payments 1 800.5) 1 911.4) 2 095.2) 2 149.6) 2 202.9)

Specific Purpose Payments 358.9) 423.4) 453.5) 484.5) 508.2)

National Partnership Payments 82.3) 72.1) 71.6) 71.1) 73.6)

Other Grants and Subsidies 0.1) 0.1) 0.1) 0.1) 0.1)

2 241.8) 2 407.0) 2 620.4) 2 705.3) 2 784.8)

State Sources

Taxation 817.9) 862.4) 889.9) 918.2) 937.1)

Receipts from Government Businesses3 383.6) 601.8) 243.7) 223.5) 301.7) Departmental Fees and Recoveries 87.4) 90.1) 91.2) 92.7) 94.5) Recoveries of State Debt Charges 0.1) 0.1) 0.1) 0.1) 0.1) Sale and Rent of Government Property 6.5) 5.0) 5.0) 5.0) 5.0) Resource Rents and Royalties 52.9) 31.3) 31.5) 31.2) 31.2) Other Recurrent Receipts 135.4) 135.0) 169.8) 132.1) 130.2)

1 483.8) 1 725.7) 1 431.1) 1 402.7) 1 499.7)

Total Recurrent Receipts 3 725.5) 4 132.7) 4 051.5) 4 108.0) 4 284.5)

Capital Receipts

State Sources 0.7) 3.3) 3.3) 3.3) 3.3)

0.7) 3.3) 3.3) 3.3) 3.3)

Total Receipts 3 726.2) 4 136.0) 4 054.8) 4 111.3) 4 287.8)


Table A2.1: Consolidated Fund Forward Estimates (continued)

2013-14) )

Budget)

2014-15) )

Budget)




$m) $m) $m) $m) $m) Less Expenditure

Recurrent Services

Appropriation Act 3 323.7) 3 423.5) 3 546.4) 3 577.4) 3 674.4)

Reserved by Law 290.6) 297.9) 317.2) 330.1) 346.9)

3 614.2) 3 721.3) 3 863.6) 3 907.5) 4 021.3)

Works and Services

Capital Investment Program 169.5) 159.2) 239.3) 172.2) 215.3)

169.5) 159.2) 239.3) 172.2) 215.3)

Total Expenditure4 3 783.7) 3 880.6) 4 102.9) 4 079.7) 4 236.6)

Consolidated Fund Surplus (57.5) 255.4) (48.2) 31.6) 51.2)

Notes: 1. Refer to chapter 6 of The Budget Budget Paper No 1 for more information on General Government Revenue. 2. Classification of Revenue for the purposes of the Consolidated Fund is not consistent with classifications shown in

the Statement of Comprehensive Income prepared in accordance with the Uniform Presentation Framework. 3. The increase in Receipts from Government Businesses primarily reflects increased returns from the Motor Accidents

Insurance Board of $159.4 million which includes a one-off Special Dividend of $100 million, and additional receipts from the electricity entities totalling $48.4 million. The decrease from 2015-16 primarily reflects decreased returns from Hydro Tasmania due to the removal of carbon pricing and softening of demand in the national electricity market.

4. Total Expenditure for 2013-14 includes expenditure by the former Department of Economic Development, Tourism and the Arts and the former Department of Infrastructure, Energy and Resources and is consistent with the 2013-14 Budget Papers, but differs from Table A2.2 because the 2013-14 comparative estimates for the new agencies are not included in Table A2.2.


EXPENDITURE Table A2.2 details Consolidated Fund Expenditure by Agency for the 2014-15 Budget. Table A2.3 details Consolidated Fund Expenditure by Agency over the Forward Estimates period.

Table A2.2: Consolidated Fund Expenditure by Agency, 2014-151 2014-15 Budget

Agency

2013-14] Budget)

Recurrent) Services)

Reserved) by Law)

Works and) Services)

Total)

$m) $m) $m) $m) $m)

Education2 1 019.1) 1 093.7) ....) 16.5) 1 110.1)

Finance-General 496.2) 227.1) 267.4) ....) 494.5)

Health and Human Services 1 147.0) 1 108.7) ....) 7.9) 1 116.6)

House of Assembly 7.6) 2.2) 5.4) ....) 7.6)

Integrity Commission 2.9) 2.4) ....) ....) 2.4)

Justice 145.5) 118.8) 13.2) 6.0) 138.0)

Legislative Council 6.4) 3.4) 3.0) ....) 6.4)

Legislature-General 5.8) 5.8) ....) ....) 5.8)

Ministerial and Parliamentary Support 19.1) 16.8) 0.8) ....) 17.6)

Office of the Director of Public Prosecutions 7.4) 6.5) 0.6) ....) 7.1)

Office of the Governor 3.4) 2.8) 0.6) ....) 3.4)

Office of the Ombudsman 2.1) 2.1) ....) ....) 2.1)

Police and Emergency Management 182.2) 183.8) ....) 0.5) 184.3)

Premier and Cabinet2 65.0) 73.1) 6.2) 1.1) 80.4)

Primary Industries, Parks, Water and

Environment 133.2) 128.6) ....) 8.5) 137.2)

State Growth3 ....) 383.9) 0.1) 117.5) 501.5)

Tasmanian Audit Office 2.3) 1.7) 0.5) ....) 2.2)

Tourism Tasmania3 ....) 24.6) ....) ....) 24.6)

Treasury and Finance 38.0) 37.5) ....) 1.3) 38.8)

TOTAL EXPENDITURE4 3 283.2) 3 423.5) 297.9) 159.2) 3 880.6)

Notes: 1. For more information relating to agency expenditure, refer to the relevant agency chapter in Government Services

Budget Paper No 2. 2. As a result of the agency restructure which took effect from 1 July 2014, 2013-14 Budget estimates have been recast

to align with the current agency structure. Therefore, the 2013-14 Budget estimates presented in this Table do not match those printed in the 2013-14 Budget.

3. As these Agencies were established from 1 July 2014, there are no 2013-14 comparative estimates. 4. Table A2.2 differs from Table A2.1 because the comparative figures for the new entities are not included in Table

A2.2.


Table A2.3: Consolidated Fund Expenditure by Agency - Forward Estimates1

2013-14) )

Budget)

2014-15) )

Budget)




$m) $m) $m) $m) $m)

Recurrent Services

Education2 1 009.4) 1 093.7) 1 166.1) 1 195.6) 1 244.4)

Finance-General 492.1) 494.5) 547.9) 523.3) 523.6)

Health and Human Services 1 135.0) 1 108.7) 1 131.9) 1 174.5) 1 233.0)

House of Assembly 7.6) 7.6) 7.7) 7.7) 7.9)

Integrity Commission 2.9) 2.4) 2.2) 2.2) 2.3)

Justice 129.2) 132.0) 136.5) 135.9) 141.4)

Legislative Council 6.4) 6.4) 6.5) 6.5) 6.6)

Legislature-General 5.8) 5.8) 5.9) 5.9) 6.0)

Ministerial and Parliamentary Support 19.1) 17.6) 18.2) 18.2) 18.6)

Office of the Director of Public Prosecutions 7.4) 7.1) 7.4) 7.4) 7.5)

Office of the Governor 3.4) 3.4) 3.5) 3.6) 3.7)

Office of the Ombudsman 2.1) 2.1) 2.0) 2.0) 2.0)

Police and Emergency Management 182.2) 183.8) 194.4) 197.1) 204.9)


Primary Industries, Parks, Water and Environment 132.1) 128.6) 134.5) 134.1) 136.0)

State Growth3 ....) 384.0) 371.9) 369.9) 356.9)

Tasmanian Audit Office 2.3) 2.2) 2.3) 2.3) 2.3)

Tourism Tasmania3 ....) 24.6) 24.9) 25.2) 25.7)

Treasury and Finance 38.0) 37.5) 38.7) 39.2) 40.3)

3 239.4) 3 721.3) 3 863.6) 3 907.5) 4 021.3) Works and Services

Education2 9.7) 16.5) 8.9) 16.9) 1.5)

Finance-General 4.0) ....) ....) ....) ....)

Health and Human Services 12.0) 7.9) 103.6) 25.3) 2.8)

Justice 16.4) 6.0) ....) ....) ....)

Police and Emergency Management ....) 0.5) 4.5) ....) ....)


Primary Industries, Parks, Water and Environment 1.2) 8.5) 8.4) 2.0) 1.3)

State Growth3 ....) 117.5) 90.4) 104.2) 108.0)

Treasury and Finance ....) 1.3) 3.2) 3.6) 1.5)

Provision for Future Infrastructure Investment ....) ....) 20.0) 20.0) 100.0)

43.7) 159.2) 239.3) 172.2) 215.3)

3 283.2) 3 880.6) 4 102.9) 4 079.7) 4 236.6)


Notes: 1. For more information relating to agency expenditure, refer to the relevant agency chapter in Government Services

Budget Paper No 2 . 2. As a result of the agency restructure which took effect from 1 July 2014, 2013-14 Budget estimates have been recast

to align with the current agency structure. Therefore, the 2013-14 Budget estimates presented in this Table do not match those printed in the 2013-14 Budget.

3. As these Agencies were established from 1 July 2014, there are no 2013-14 comparative estimates.

RESERVED BY LAW ITEMS Reserved by Law items are not included in the annual Appropriation Acts. The authority to spend from these items is provided by the legislation under which the particular items are established.

Table A2.4 details Expenditure on Reserved by Law items by agency.

Table A2.4: Expenditure on Reserved by Law Items

2013-14) )

Budget)

2014-15) )

Budget)




$m) $m) $m) $m) $m) Finance-General Appropriation to the Treasurer's Reserve (Public

Account Act 1986) 10.0) 10.0) 10.0) 10.0) 10.0) Payments to Municipalities under the Local

Government (Rates and Charges Remissions)

Act 1991 15.7) 16.1) 16.7) 17.3) 18.0) Payments under the Retirement Benefits

(Parliamentary Superannuation) Regulations 2012 1.9) 1.4) 1.3) 1.2) 1.4)

Superannuation Benefits Payable under the Governor of Tasmania Act 1982 0.1) 0.1) 0.1) 0.1) 0.1)

Superannuation Benefits Payable under the Judges'

Contributory Pensions Act 1968 2.3) 2.3) 2.4) 2.4) 2.4)

Superannuation Benefits Payable under the Retirements Benefits Act 1993 228.5) 237.1) 254.9) 266.6) 278.9)

Superannuation Benefits Payable under the Solicitor-General Act 1983 0.3) 0.3) 0.3) 0.3) 0.3)

258.8) 267.4) 285.6) 297.9) 311.2) House of Assembly

Members' Committee Fees and Allowances (Parliamentary Salaries, Superannuation and

Allowances Act 2012)1 ....) ....) ....) ....) ....)

Parliamentary Salaries and Allowances (Parliamentary Salaries, Superannuation and

Allowances Act 2012) 4.6) 4.7) 4.7) 4.8) 4.9) Travelling Allowances (Parliamentary Salaries,

Superannuation and Allowances Act 2012) 0.7) 0.7) 0.7) 0.7) 0.7)

5.3) 5.4) 5.4) 5.5) 5.6)


Table A2.4: Expenditure on Reserved by Law Items (continued)

2013-14) )

Budget)

2014-15) )

Budget)




$m) $m) $m) $m) $m) Justice

Expenses of Aboriginal Land Council of Tasmania Elections (Aboriginal Lands Act 1995,

Section 17)2 ....) ....) ....) ....) ....)

Expenses of Parliamentary Elections and Referendums (Electoral Act 2004 and

Referendum Procedures Act 2004) 3.4) 1.2) 1.2) 1.2) 4.3) Expenses under the Legislative Council Electoral

Boundaries Act 19953 ....) ....) ....) 0.2) ....) Salaries of Judges (Supreme Court Act 1887) 3.3) 3.5) 3.8) 3.7) 3.8) Salaries of Magistrates (Magistrates Court Act 1987) 5.6) 5.9) 6.4) 6.4) 6.5)

Salary and Travel Allowances, Solicitor-General (Solicitor-General Act 1983) 0.6) 0.6) 0.6) 0.6) 0.7)

Salary and Travelling Allowance, Associate Judge of the Supreme Court (Supreme Court Act 1959) 0.5) 0.5) 0.5) 0.5) 0.5)

Victims of Crime Assistance Act 1976 1.5) 1.5) 1.5) 1.5) 1.5)

14.9) 13.2) 14.0) 14.2) 17.3) Legislative Council

Members' Committee Fees and Allowances (Parliamentary Salaries, Superannuation and

Allowances Act 2012)4 ....) ....) ....) ....) ....)

Parliamentary Salaries and Allowances (Parliamentary Salaries, Superannuation and

Allowances Act 2012) 2.7) 2.7) 2.7) 2.8) 2.9) Travelling Allowances (Parliamentary Salaries,


3.0) 3.0) 3.1) 3.1) 3.2) Ministerial and Parliamentary Support Allowances of Ministers (Parliamentary Salaries,


Office of the Director of Public Prosecutions

Salary, Travel and Other Allowances, Director of Public Prosecutions (Director of Public

Prosecutions Act 1973) 0.6) 0.6) 0.6) 0.6) 0.6)


Table A2.4: Expenditure on Reserved by Law Items (continued)

2013-14) )

Budget)

2014-15) )

Budget)




$m) $m) $m) $m) $m) Office of the Governor Salary, His Excellency the Governor (Governor of

Tasmania Act 1982) 0.5) 0.6) 0.6) 0.6) 0.7) Salary, The Administrator (Governor of Tasmania

Act 1982, Section 5(1))5 ....) ....) ....) ....) ....)

0.5) 0.6) 0.6) 0.7) 0.7) Premier and Cabinet Tasmanian Community Fund (Tasmanian

Community Fund Act 2005) 6.0) 6.2) 6.4) 6.6) 6.8)

State Growth

Contribution towards Construction of Streets in Towns by Municipal Councils (Local Government

Act 1993) 6 ....)) 0.1) 0.1) 0.1) 0.1)

Tasmanian Audit Office

Salary and Travelling Allowance, Auditor-General (Audit Act 2008) 0.5) 0.5) 0.6) 0.6) 0.6)

Treasury and Finance

Contribution to the Community Support Levy

Account from Betting Exchange Revenues (Gaming Control Act 1993, Section 151)7 ....) ....) ....) ....) ....)

TOTAL 290.6) 297.9) 317.2) 330.1) 346.9)

Notes: 1. An amount of $31 000 per annum is provided to the House of Assembly under Members' Committee Fees and

Allowances (Parliamentary Salaries, Superannuation and Allowances Act 2012). 2. The Department of Justice is provided with $26 000 in 2014-15, decreasing to $5 000 per annum from 2015-16

onwards under the Expenses of Aboriginal Land Council of Tasmania Elections (Aboriginal Lands Act 1995, section 17).

3. The Department of Justice is provided with $5 000 per annum under the Legislative Council Electoral Boundaries Act 1995 with a one-off increase to $184 000 in 2016-17 reflecting the timing of the next major review.

4. An amount of $40 000 per annum is provided to the Legislative Council under Members' Committee Fees and Allowances (Parliamentary Salaries, Superannuation and Allowances Act 2012).

5. Under the Salary, The Administrator (Governor of Tasmania Act 1982, section 5(1)) an amount of $10 000 is provided to the Office of the Governor in 2014-15, and 2015-16 increasing to $15 000 in 2016-17 and 2017-18.

6. As this Agency was established from 1 July 2014 there is no 2013-14 comparative estimate. 7. An amount of $28 000 per annum is provided to the Department of Treasury and Finance under the Contribution to

the Community Support Levy Account from Betting Exchange Revenues (Gaming Control Act 1993, section 151).

Budget Presentation and Accounting Issues A3.1

APPENDIX 3 BUDGET PRESENTATION AND ACCOUNTING ISSUES This appendix provides a summary of presentation and accounting issues that have been taken into account in the preparation of the 2014-15 Budget Papers. These are:

• agency restructures;

• changes in the structure of The Budget Budget Paper No 1;

• the timing of the availability of 2013-14 estimated outcome information;

• Superannuation Guarantee Charge changes; and

• the 27th pay in 2015-16.

This appendix also provides information on Budget Paper assumptions, conventions and the structure of the Tasmanian public sector.

2014-15 BUDGET PAPER PRESENTATION AND ACCOUNTING ISSUES Agency Restructures The 2014-15 Budget presents information for new and restructured agencies. The following changes have taken effect from 1 July 2014:

• the Department of State Growth has been created primarily through the amalgamation of the former Department of Infrastructure, Energy and Resources and the former Department of Economic Development, Tourism and the Arts;

• Tourism Tasmania has been transferred from the former Department of Economic Development, Tourism and the Arts and established as a separate entity;

• Skills Tasmania has been transferred from the Department of Education to the Department of State Growth;

• Sport and Recreation Tasmania has been transferred from the former Department of Economic Development, Tourism and the Arts to the Department of Premier and Cabinet;

• the Department of Premier and Cabinet has transferred the former Output 1.3 - Social Inclusion to Output 1.1 - Strategic Policy and Advice;

A3.2 Budget Presentation and Accounting Issues

• the Department of Justice has reviewed and updated its output reporting structure to better align with the Department's underlying functional areas; and

• the Department of Primary Industries, Parks, Water and Environment has transferred funding for the Invasive Species Branch from Output 3.2 - Conversation of Tasmania's Flora and Fauna to Output 6.1 - Biosecurity, as part of the creation of Biosecurity Tasmania.

Consistent with the practice that has been adopted in prior years, the comparative financial information for restructured agencies for 2013-14 is provided on the basis of the new agency structure. No comparative figures have been provided for the Department of State Growth and Tourism Tasmania, as these entities did not exist as separate entities until 1 July 2014.

More information on individual agency restructures is available in the relevant agency chapter of Government Services Budget Paper No 2.

Changes in the Structure of The Budget Budget Paper No 1

A review of the information provided in Budget Paper No 1 is undertaken each year as part of a process of continual improvement in the content and presentation of Budget information and to ensure the document reflects the Government's priorities. Major changes implemented in 2014-15 are:

• the inclusion of an additional chapter which provides information on the Budget Savings Strategies being implemented in the 2014-15 Budget (chapter 4);

• the presentation of a new chapter titled 2014-15 Budget and Forward Estimates (chapter 5). This new chapter replaces the chapter previously titled General Government Expenses. The chapter brings together the General Government Sector Financial Statements (previously included in an appendix to this Budget Paper), the Policy and Parameter Statement (previously included as an appendix to this Budget Paper) and includes a detailed discussion of major changes in General Government Revenue, Expenses and the Net Purchase of Non-Financial Assets (previously included in chapters 4 and 5 of this Budget Paper); and

• the provision of significant additional information relating to the Government's Superannuation Liability which is included in chapter 8 of this Budget Paper.

2013-14 Estimated Outcome In recent years, the State Budget has been presented in May or June of the current Budget year. In these circumstances, as the current Budget year has yet to conclude, information on the Estimated Outcome for the current Budget year has been included as a separate chapter in The Budget Budget Paper No 1. This Estimated Outcome has reflected an update of information included in the Revised Estimates Report previously published for the Budget year. Following the presentation of an Estimated Outcome in the Budget Papers, a Preliminary Outcomes Report may be published in August, with the final audited outcome being published, before the end of October in the Treasurer's Annual Financial Report.


Given the late handing down of the 2014-15 Budget, resulting from the timing of the 2014 State Election, the 2014-15 Budget will be tabled in Parliament following the conclusion of the 2013-14 Budget year and shortly after the release of the Preliminary Outcomes Report 2013-14 on 12 August 2014. Due to the parallel timing of the finalisation of the preliminary outcomes financial information, it has not been possible to include this information in the 2014-15 Budget Papers. Furthermore, given the release of the Preliminary Outcomes Report 2013-14, it was also not appropriate that separate 2013-14 Estimated Outcome information be included in the 2014-15 Budget Papers. All comparative information in this Budget Paper is therefore presented between the 2013-14 original Budget Estimate and the 2014-15 Budget Estimate.

This is a one-off situation, due to the timing of the 2014-15 Budget. It is anticipated that the 2015-16 Budget will return to the previous publication timeframe, which will enable the inclusion of Estimated Outcome information.

Superannuation Guarantee Charge Changes

The former Australian Government introduced a phased increase in the rate of the superannuation guarantee charge (SGC) from nine per cent to 12 per cent ending on 1 July 2019. Increments of 0.5 percentage points were to apply annually from 1 July 2015, until the SGC becomes 12 per cent on and from 1 July 2019.

As part of its 2014-15 Budget, the Australian Government announced that the rate of SGC would be paused, if passed by parliament, at 9.5 per cent until 30 June 2018, with increments of 0.5 percentage points to achieve a 12 per cent SGC from 1 July 2022.

This increase will only apply to members of accumulation schemes, as the employer contributions for members of the closed Retirement Benefits Fund defined benefit scheme already exceed the SGC rate. It has previously been determined that the funding requirements associated with the phased increase in the SGC rate will be met from within each agency's existing budget allocation.

27th Pay in 2015-16 Salary payments to employees in the General Government Sector are made fortnightly. This usually means that there are 26 pay days in each year. However, approximately once every 11 years, there are 27 fortnightly pay days in a financial year. The next year with 27 pay days for agencies (other than the Department of Health and Human Services) will be 2015-16. The Department of Health and Human Services makes its salary payments on a different day each fortnight to the rest of the General Government Sector and will make a 27th pay in a different year.

Additional funding is provided to agencies for this additional cost from the Consolidated Fund. On a cash basis, this can be seen in the level of appropriation to agencies and in Employee Benefits on the agency Statement of Cash Flows. However, on an accrual basis, there is no impact on the agency Statement of Comprehensive Income as the additional cash payment is offset by a downwards adjustment to accrued Employee Benefits expense. This adjustment to accrued Employee Benefits expense can also be seen as a reduction in the liability for Employee Benefits on the agency Statement of Financial Position.


ASSUMPTIONS UNDERLYING THE 2014-15 BUDGET AND FORWARD ESTIMATES Revenue Revenue estimates are prepared on the basis of a number of assumptions and use information provided to the Department of Treasury and Finance (Treasury) by various entities, including government agencies, Government Business Enterprises (GBEs) and State-owned Companies (SOCs). The 2014-15 Budget and Forward Estimates for revenue are prepared on the following basis:

• Grants are based on agreements with the Australian Government. It is assumed that, unless otherwise stated, Specific Purpose Payments will be indexed as advised by the Australian Government;

• all General Purpose Payments, including GST revenue, received from the Australian Government can be used at the State's discretion;

• Taxation revenue for the Forward Estimates utilises economic forecasts prepared by Treasury. Taxation estimates reflect changes in tax policy up to and including any changes announced in the Budget;

• Interest Income is estimated by Treasury and reflects anticipated cash holdings within the Public Account and forecast interest rates; and

• Sales of Goods and Services; Fines, Fees and Charges; and Other Revenue are based on the best estimates of those agencies which provide the goods or services, or which actively manage the particular revenue item.

Expenses

The 2014-15 Budget and Forward Estimates for expenses are prepared on the following basis:

• projections over the Forward Estimates reflect the level and timing of expenditure anticipated by agencies;

• borrowing costs are estimated by Treasury and reflect anticipated borrowings within the Public Account and forecast interest rates;

• wage indexation applied in 2014-15 and 2015-16 reflects the implementation of the Government's 12-month pay pause. The Forward Estimates are based on the future wage increases being limited to two per cent per annum once the 12-month pay pause is lifted. As part of the annual Budget process, the Government will review the State’s economic and financial conditions and consider whether higher wage increases can be supported. Salary progression increments will be resumed at the end of the pay pause period;

• indexation of general operating expenses is provided at 2.5 per cent over the Forward Estimates period;

• funding provided to the Department of Health and Human Services for medical and pharmaceutical supplies is indexed at a rate of 4.0 per cent per annum; and

• agencies are fully funded for expected changes in Administered Items.


BUDGET PAPER CONVENTIONS The information provided in the Budget Papers has been prepared taking into account the following conventions.

• Figures in tables and in the text have been rounded. Discrepancies in tables between totals and sums of component items reflect rounding. Percentage changes in all tables are based on the underlying unrounded amounts.

• The notation used in the Budget Papers is as follows:

na not available, or not applicable

…. zero, or rounded to zero

$'000 $ thousand

$m $ million

CLASSIFICATION OF THE TASMANIAN PUBLIC SECTOR The Tasmanian Public Sector comprises several different types of entities. These are classified according to the sectors comprising the Uniform Presentation Framework, namely General Government, Public Non-Financial Corporations or Public Financial Corporations Sectors.

The General Government Sector (GGS) comprises those agencies of government, where the primary function is to provide public services. These services are mainly non-market in nature, for the collective consumption of the community, or involve the transfer or redistribution of income. GGS services are financed mainly through taxes and other compulsory levies. This Sector includes government departments and a number of entities that act outside the Public Account including the Inland Fisheries Service, Marine and Safety Tasmania, the Royal Tasmanian Botanical Gardens and the State Fire Commission.

The PNFC Sector comprises entities that cover the majority of their expenses from revenue by the sales of goods and services and which are mainly market, non-regulatory and non-financial in nature. This Sector includes the State-owned Companies and Government Business Enterprises. These entities have a variety of functions and responsibilities, are established in varying ways and also have different relationships with the Budget.

The PFC Sector comprises two organisations in Tasmania, the Tasmanian Public Finance Corporation and the Motor Accidents Insurance Board. These entities perform central bank functions or have the authority to incur financial liabilities and acquire financial assets in the market on their own account.


The following provides a breakdown of the Tasmanian Public Sector entities by sector.

General Government Sector Department of Education

Department of Health and Human Services

Department of Justice

Department of Police and Emergency Management

Department of Premier and Cabinet

Department of Primary Industries, Parks, Water and Environment

Department of State Growth

Department of Treasury and Finance (including Finance-General)

House of Assembly

Inland Fisheries Service

Integrity Commission

Legislative Council

Legislature-General

Marine and Safety Tasmania

Office of the Director of Public Prosecutions

Office of the Governor

Office of the Ombudsman

Royal Tasmanian Botanical Gardens

State Fire Commission

Tasmanian Audit Office

Tasmanian Health Organisation - North

Tasmanian Health Organisation - North West

Tasmanian Health Organisation - South

TasTAFE

Tourism Tasmania


Public Non-Financial Corporations Sector Aurora Energy Pty Ltd

Forestry Tasmania

Hydro Tasmania

Macquarie Point Development Corporation

Metro Tasmania Pty Ltd

Port Arthur Historic Site Management Authority

Private Forests Tasmania

Public Trustee

Tasmanian Irrigation Pty Ltd

Tasmanian Ports Corporation Pty Ltd

Tasmanian Railway Pty Ltd

Tasmanian Networks Pty Ltd

Tasracing Pty Ltd

TT-Line Company Pty Ltd

Public Financial Corporations Sector Motor Accidents Insurance Board

Tasmanian Public Finance Corporation