The state is facing a huge fiscal problem and it seems that neither of the major parties is prepared to address it, writes Ruth Forrest
One of the classic strategies from Donald Trump's playbook is to accuse your opponent of having the same vulnerabilities as you have. It helps neutralise the issue.
Treasurer Michael Ferguson has accused Labor of believing in "a magic money tree". Not without reason I might add. But the current government is equally vulnerable on that score. We have no idea how the government plans to overcome the fiscal problems it has helped create.
The 2023/24 Revised Estimates Report (RER) was only released two weeks ago so it wouldn't have been a surprise if a further pre-election update wasn't required. But Treasury deemed a Pre-Election Financial Outlook Report (PEFO) was warranted because there were several issues likely to have a material effect on our future fiscal position that needed to be made known.
To be clear PEFO is not a report from the government of the day, for it is now in caretaker mode. It's a report from Treasury to electors outlining all it knows about impending problems.
From a dire situation in the RER we now have catastrophic situation in the PEFO.
For years Treasury's fiscal sustainability reports have drawn attention to the fact that early action was needed to address fiscal sustainability. Economic growth wasn't going to be enough. At the same time Treasury told us that things were manageable in the short to medium term. That was greeted with a collective sigh of relief from all politicians. Phew, thank goodness for that, we can put it off for a while, despite knowing postponement meant more drastic corrective action would eventually be needed. That was three years ago. Time to act has been ticking away.
We now have sufficient detail of the challenges ahead but as yet no idea how any of the fiscal targets the current government has set for itself will be achieved. Labor and the Greens are yet to unveil their fiscal strategies let alone how to achieve them.
The PEFO hasn't updated current budgets and forward estimates, rather it has drawn attention to the additional factors likely to have material impacts and where possible to estimate the likely costs. It only covers the general government sector. The starting point is the current year 2023/24 which will see the government's chosen measure of budget sustainability, the fiscal balance, exceeding $1bn for the first time.
Lurking in the forward estimates is a $300m Budget Efficiency Dividend which means cost cuts yet to be discovered.
The next challenge will be funding election promises. Treasury has told us both the 2018 and 2021 election promises added another $1.4bn to the budget and forward estimates. Some commitments get embedded in the system and the budget impacts often extend even further. This is not to say we shouldn't spend. It's a reminder of the budget impact.
The cost of an increased House of
Assembly is yet to be included because the election date was brought forward. Then there'll be additional spending pursuant to national agreements on both school reform and NDIS delivery.
Additional money for the Commission of Inquiry Response, to survivors of institutional child sexual abuse and for the Ashley class action are all likely to have a material impact on budgets.
PEFO is anticipating cost overruns for departments and agencies in 2023/24 but because the timing and quantum is uncertain, they haven't been included as yet.
However, they are expected to have a material impact. A huge pile of funding requests will also be sitting in the treasurer's in-tray awaiting the election verdict.
PEFO makes it painstakingly clear the fiscal balance doesn't accurately reflect additional borrowings needed.
Although infrastructure spending is counted, contributions required to fund the increasing array of government business are not. Homes Tasmania, Macquarie Point Development Corporation, Stadiums Tasmania, Irrigation Tasmania, the partially owned TasWater and the yet to be revamped Marinus Link will all be hungry for funds. The impact on the budget will be significant. In the current year 2023/24 contributions into government businesses transforms the fiscal balance of $1bn into an overall cash deficit of $1.35bn.
That's the extra borrowing required just for 2023/24.
As the level of borrowing increases so does future debt servicing costs.
Economic growth won't service the extra debt. Political parties have all conspicuously avoided discussing the subject despite the reality of our situation laid bare by the PEFO.
Doing nothing and saying nothing should not be an option for those seeking our vote. Jibes about magic money trees is all we get. With none of the major players offering a plausible path forward, is it any wonder opinion polls suggest wavering support from voters.
The Mercury, Monday 4 March 2024