Budget Paper No 1 Budget Overview 2004-05 · 2017. 1. 31. · Useful 2004-05 Budget and Government Web sites Copies of all Budget Papers can be found at the Department of Treasury

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

Budget Paper No 1

Budget Overview 2004-05

Presented by the Honourable Paul Lennon MHA, Treasurer, for the information of

Honourable Members, on the occasion of the Budget, 2004-05

Useful 2004-05 Budget and Government Web sites

www.treasury.tas.gov.au Copies of all Budget Papers can be found at the Department of Treasury and Finance's web site. The Department's web site also provides information on major departmental initiatives, activities and publications.

www.media.tas.gov.au This web site contains the Government's Budget related media releases.

www.tas.gov.au The Tasmania On-line web site provides links to the web sites of a wide range of Tasmanian public and private sector organisations.

www.service.tas.gov.au The Service Tasmania web site provides a comprehensive entry point to Government services in Tasmania.

www.tasmaniatogether.tas.gov.au This web site provides detailed information on Tasmania Together, including the current status of this important initiative.

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CONTENTS Page

1 The 2004-05 Budget 1

2 Tasmanian Economy 31

3 Budget Summary, 2004-05 69

4 Revenue and Expense Estimates, 2004-05 79

5 Taxation Revenue 101

6 State Capital Program 117

7 Assets and Liabilities, 2004-05 147

8 Estimated Outcome, 2003-04 169

9 Forward Estimates 183

10 Commonwealth-State Financial Arrangements 197

11 State Government Concessions 223

Appendix 1 Uniform Government Reporting 239

Appendix 2 Consolidated Fund Estimates 257

Conventions and Glossary of Terms 283

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INDEX Page

1 The 2004-05 Budget 1

Foundations of the 2004-05 Budget 2

Tasmania Together and Our People 2

The Government's Fiscal Strategy 6

Tasmania's Improved Financial Position 12

Tasmania's Economy 14

Getting the Balance Right 24

The 2004-05 Budget 'Investing in People' 25

Looking After Our Kids 25

Healthy Living 25

Helping People 26

Building Communities 27

Investing In Skills 28

Protecting People 28

Jobs and the Economy 29

A Positive Future for Tasmania 29

2 Tasmanian Economy 31

Introduction 32

Recent Economic Performance 33

Overview 33

Gross State Product (GSP) 34

State Final Demand 35

Consumer Spending 36

Wages 38

Labour Market 39

iii

Private Sector Investment 45

Public Sector Spending – Consumption and Investment 51

Business and Consumer Confidence 54

Export Activity 55

Demographic Trends 58

Recent Infrastructure Developments 61

Introduction 61

Basslink 61

Wind 61

Natural Gas 62

Other Economic Contributions from the Electricity Entities 62

Forestry Tasmania 63

TT Line Company Pty Ltd 63

Economic Outlook 64

2003-04 Estimates 64

2004-05 Forecasts 66

Summary 68

3 Budget Summary, 2004-05 69

Introduction 70

Operating Statement 70

Fiscal Surplus 71

Balance Sheet 72

Net Worth 73

Net Financial Worth 73

Net Financial Liabilities 74

Net Debt 74

Cash Flow Statement 75

Cash Surplus 75

Consolidated Fund 76

iv

4 Revenue and Expense Estimates, 2004-05 79

Introduction 80

Operating Statement 80

Revenue 81

Grants and Subsidies 82

Recurrent Revenue 83

Capital Revenue 84

Other Payments 85

Taxation Revenue 85

Sales of Goods and Services 88

Interest Income 89

Dividend, Tax and Rate Equivalent Income 90

Other Revenue 91

Expenses 92

Depreciation 92

Employee Expenses 92

Other Operating Expenses 93

Nominal Superannuation Interest Expense 93

Other Interest Expenses 93

Grants and Transfers 93

Net Acquisition of Non-Financial Assets 94

Purchase of New Non-Financial Assets 94

Sale of Non-Financial Assets 94

Depreciation 94

Fiscal Surplus 95

Consolidated Fund Expenditure 96

Explanation of Estimated Major Consolidated Fund Expenditure Variations 98

5 Taxation Revenue 101

Introduction 102

v

Tax Competitiveness 102

Budget Initiatives 102

Estimated Taxation Revenue 103

Estimated Taxation Revenue for 2004-05 106

Payroll Tax 106

Land Tax 107

Motor Tax 108

Light Vehicle Registration Fees 108

Financial Transaction Taxes 109

Gambling Taxes 111

Lottery Tax 112

Other Gaming Tax 113

Casino Tax 113

Guarantee Fees 115

State Fire Commission Revenue 116

Major Legislative and Other Changes 116

6 State Capital Program 117

State Capital Program 118

Government Departments 122

Source of Funds 122

Application of Funds 123

Roads Program 134

Housing Program 138

Economic and Social Infrastructure Fund 140

Economic and Social Infrastructure Fund Projects 142

Social Infrastructure Fund 143

2001-02 Infrastructure Fund 144

2001-02 Infrastructure Fund Projects 144

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7 Assets and Liabilities, 2004-05 147

Introduction 148

Balance Sheet 148

Net Worth 150



Net Debt 151

Interstate Comparison 152

Interest Costs of the Government 153

Assets 155

Cash Assets 155

Other Non-Equity Assets 156

Equity Investments 156

Land and Fixed Assets 157

Other Non-Financial Assets 158

Liabilities 158

Gross Debt 159

Superannuation Liability 160

Other Employee Provisions 161

Other Non-Equity Liabilities 161

Strategies to Reduce Major Liabilities 162

Superannuation 162

Tasmanian Risk Management Fund 166

8 Estimated Outcome, 2003-04 169

Introduction 170

Fiscal Surplus 171

Revenue 173

Explanation of Estimated Major Revenue Variations 173

Expenses 176

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Explanation of Estimated Major Expense Variations 176


Consolidated Fund Surplus 178

Explanation of Estimated Major Expenditure Variations 180

Consolidated Fund Surplus and Fiscal Surplus Reconciliation, 2003-04 182

9 Forward Estimates 183

Forward Estimates 2005-06 to 2007-08 184

The Forward Estimates Concept 184

Impact of Policy Initiatives 184

Forward Estimates Operating Statement 186

Revenue 187

Explanation of Major Revenue Variations 187

Expenses 188

Explanation of Major Expense Variations 188


Forward Estimates Balance Sheet 189

Net Worth 191



Net Debt 192

Forward Estimates Cash Flow Statement 193

10 Commonwealth-State Financial Arrangements 197

Introduction 198

Summary of Commonwealth Sourced Revenue 199

Major Issues in Commonwealth–State Financial Relations 202

Commonwealth Grants Commission 2004 Major Review 202

Impact of the IGA on Commonwealth Sourced Revenue 203

2004 Treasurers' Conference 204

Major Specific Purpose Payment Issues 205

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Commonwealth Sourced Revenue - Detailed Information 208

General Purpose Payments 208

Specific Purpose Payments 211

Total Commonwealth Sourced Revenue 214

Appendix 1 216

Why Commonwealth Revenue is Essential 216

Appendix 2 219

The Commonwealth Grants Commission 219

11 State Government Concessions 223

Introduction 224

Agency Concessions 225

Department of Education 225

Finance-General 226

Department of Health and Human Services 229

Department of Infrastructure, Energy and Resources 233

Department of Primary Industries, Water and Environment 235

Department of Tourism, Parks, Heritage and the Arts 236

Department of Treasury and Finance 236

Appendix 1 Uniform Government Reporting 239

Introduction 240

Government Financial Estimates 241

Loan Council 253

Loan Council Arrangements 253

Loan Council Allocations 253

Consolidation of Transactions 254

Appendix 2 Consolidated Fund Estimates 257

Introduction 258

Estimated Outcome, 2003-04 259

Estimated Consolidated Fund Surplus 259

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Estimated Receipts, 2003-04 260

Estimated Expenditure, 2003-04 262

Budget Estimates, 2004-05 265

Consolidated Fund Surplus, 2004-05 265

Consolidated Fund Receipts, 2004-05 266

Consolidated Fund Expenditure, 2004-05 274

Recurrent Services 274

Works and Services 274

Forward Estimates 278

Conventions and Glossary of Terms 282

Conventions 282

Glossary of Terms 282

Chapter 1: The 2004-05 Budget 1

1 THE 2004-05 BUDGET

Features

• In the 2004-05 Budget, the Government is investing in the people of Tasmania through expanding and developing the range of Government services, stimulating economic development and promoting equity.

• In this context, the 2004-05 Budget continues to be based upon the Government's four key strategies: Tasmania Together, Partnership Agreements, the Industry Development Plan and the Fiscal Strategy.

• The 2004-05 Budget is also framed in the context of getting the balance right - a balance between additional funding for government services, new social initiatives, tax relief for business and the community, duty relief on conveyance duty for first home buyers, recurrent and capital expenditure, short and long-term economic development, strong financial management and many other factors.

• Getting the balance right is highlighted by the fact that this Budget provides for significant additional funding for the key social areas of health, education, justice and public safety while also enabling the elimination of General Government Net Debt a year earlier than provided by the current Fiscal Strategy.

• The 2004-05 Budget has also been prepared in the context of a Tasmanian Economy which has achieved record levels of employment and private investment in recent years, and a return to positive population growth.

• The Forward Estimates show that Tasmania will have eliminated General Government Net Debt by 30 June 2007, a full year earlier than provided for in the 2002 Fiscal Strategy.

• The 2004-05 Budget provides $445.3 million in additional recurrent funding to agencies over the next four years.

• A Fiscal Surplus of $15.2 million is forecast for 2004-05. This result means that the Government's Fiscal Strategy target of continued Budget surpluses is again being met.

• The Government has announced that debits duty will be abolished on 1 July 2005. This will bring the total tax cuts implemented by the Government to over $100.0 million per annum.

• The initiatives in this Budget demonstrate the Government's commitment to consolidate the gains that have been made to date and the importance of investing in Tasmanians to continue to build a positive future for Tasmania.

2 Chapter 1: The 2004-05 Budget

FOUNDATIONS OF THE 2004-05 BUDGET The 2004-05 Budget represents a continuation of the strategic directions that the Government has developed and implemented since first being elected in 1998. In the 2004-05 Budget, the Government has sought to invest in the people of Tasmania – to expand and develop the range of Government services, stimulate economic development and promote equity. This Budget signals the Government's responsiveness to the needs of all Tasmanians, while ensuring economic leadership delivers strong and sustainable economic growth.

These strategic directions have in turn been based on, and informed by, the foundations established by Tasmania Together, the Fiscal Strategy, the Industry Development Plan and Partnership Agreements. The Government remains firmly committed to each of these foundation documents and policies. As such, the 2004-05 Budget has again been developed in the context of these key documents and policies.

While this is the case, the 2004-05 Budget has also been developed within the context of Tasmania as it is in 2004. That is, a Tasmania which has seen a number of positive changes in recent years, a Tasmania which has many significant assets and a Tasmania which continues to display vigorous economic performance.

Detailed below are some of the major factors which have formed the basis for the development of the 2004-05 Budget.

Tasmania Together and Our People Tasmania Together Tasmania Together is the Tasmanian community's long-term social, economic and environmental plan. It is a visionary statement of where Tasmanians want to be by 2020. It was developed following the most extensive community consultation processes in Tasmania's history. Tasmania Together sets out 24 goals and 212 benchmarks aimed at creating a safer, fairer, more prosperous and environmentally sustainable State.

The goals and benchmarks of Tasmania Together provide a framework for both government and non-government action and the targets set in the document provide a basis for measuring progress.

Progress toward achieving Tasmania Together benchmarks is reported regularly to Parliament by the Tasmania Together Progress Board to ensure that all Tasmanians are aware of how well the State is performing against the goals. The Board's Second Progress Report was tabled in Parliament in August 2003.

The State Government remains committed to making a significant contribution towards achieving the goals set out in Tasmania Together. The benchmarks underpin major Government policy initiatives including the Industry Development Plan and the State-Local Government Partnership Agreements and provide a basis for Agency planning and priority setting.

The Government's performance in implementing Tasmania Together is also regularly monitored and new arrangements have been established within government to ensure that all agencies are working together to achieve outcomes.

The Budget process, this year, has been refined to better link policy and fiscal management to the Tasmania Together benchmarks.


To assist in focusing decision-making and resource allocation, the Government has identified a number of priority areas aimed at achieving timely progress against a number of benchmarks. Priority benchmarks identified last year have been retained as the basis for resource allocation decisions in the following priority areas:

• Poverty;

• Community Safety;

• Education – Retention and Participation Rates;

• Meeting National Educational Benchmarks;

• Promoting Healthy Lifestyles;

• Employment;

• Population Growth;

• Promoting Cooperation between levels of Government;

• Promoting Tasmania; and

• The Environment.

The priority benchmarks are used internally by the Government to guide resource allocation decisions (for both existing and new resources) and provide a focus for the Government to identify new actions and build on achievements currently being realised.

The Government has demonstrated a strong commitment to Tasmania Together through its consistent approach to policy development, the development of processes and institutions in government framed around Tasmania Together and, in particular, the strong relationship between the development of the last three Budgets and Tasmania Together goals and benchmarks. Tasmania Together is a 20 year plan and many of the social, environmental and economic issues it seeks to address are difficult and not amenable to short-term solutions. It is essential that the Government has a consistent and clear focus on the priority areas and coordinates its programs across government to ensure maximum progress toward the community's objectives.

Regional Communities Tasmania has a decentralised population with a high percentage of its population living outside major urban centres. From a national perspective, Tasmania is a regional centre. Tasmania Together captured the aspiration of the community to maintain and enhance its rural communities in Goal 7, which reads:

'Foster and value vibrant and diverse rural, regional and remote communities that are connected with each other and the rest of the world.'

This sense of strong regional communities is supported by the Government's commitment to foster and add value to the State's primary industry base, to promote and maintain the natural and historic attractions underpinning the tourism industry, to provide infrastructure to connect regions with cities and the world, to provide regional access to government services and to undertake real engagement with regional communities.

The Government is committed to the development of Partnership Agreements as a key mechanism for strengthening working relations with Local Government. The Government recognises that progressive local


communities and sound local economies are fundamental to the social and economic development of the State. The process for developing Partnership Agreements takes into account consultative mechanisms at the local level, encourages local input to community and economic development decisions and promotes shared responsibilities for improved targeting of service delivery.

The Government's objectives for the Partnership Agreements were outlined in its Framework for Developing State-Local Government Partnership Agreements.

In summary, these objectives are to:

• identify opportunities to work in partnership with Local Government to progress agreed social, economic and environmental outcomes for Local Government areas; and

• ensure effective service delivery arrangements to meet the reasonable needs of all residents including, where appropriate, options to improve coordination and joint service delivery arrangements or address gaps and overlaps in service delivery.

More broadly, the State Government recognises that Partnership Agreements play a key role in facilitating the achievement of agreed social, economic and community development goals. In particular, they provide a vehicle to achieve the following whole-of-government strategic policy objectives:

• economic growth;

• social development; and

• environmental sustainability.

Partnership Agreements also have a role in facilitating the achievement of agreed social, environmental, economic and community development benchmarks identified in Tasmania Together. As far as possible, all schedules in Partnership Agreements are now linked to a specific Tasmania Together benchmark.

Since its inception in 1999, the Program has attracted widespread support from Local Government and interest from other states and overseas. There are four types of Partnership Agreements:

• Bilateral – between the State Government and one council;

• Regional – between the State Government and a group of councils;

• Statewide – between the State Government and the Local Government Association of Tasmania, on behalf of all 29 Tasmanian Councils; and

• Tripartite – between the Commonwealth, State Government and the Local Government Association of Tasmania.

Bilateral Partnership Agreements have been signed with Circular Head, Launceston City, Glenorchy City, Flinders, Hobart City, Kingborough, King Island, George Town, Glamorgan-Spring Bay, West Coast, Central Highlands, Derwent Valley, Break O'Day, Meander Valley, Latrobe, Dorset, Northern Midlands, Tasman, Burnie City and West Tamar Councils.

Regional Partnership Agreements provide the parties with the opportunity to look broadly at issues that extend beyond the boundaries of a single council. Every council in the State is currently involved in one of three regional Partnership Agreements. Eight northern councils are engaged in the region north! Agreement, which was signed in July 2001. Nine North West Councils are involved in the Cradle Coast Authority Partnership Agreement, signed in October 2001. Twelve Southern Councils are involved in the


Southern Tasmanian Councils Partnership Agreement, finalised in December 2003. All these Agreements focus on improved regional planning and cooperation between the two spheres of government.

The Premier's Local Government Council (PLGC) was established in 2000 as a forum for high-level discussions with councils on issues of statewide significance. The Council meets two to three times a year, in both the north and south of the State. The Council is chaired by the Premier and comprises the eight elected council representatives who make up the General Management Committee of the Local Government Association of Tasmania (LGAT). An Officials Committee with a membership of State and Local Government officers supports the Council. Statewide Partnership Agreements are negotiated through the PLGC. These involve representation of all councils and the State Government and are signed by the Premier and the President of the LGAT.

Four statewide Partnership Agreements have been developed. They focus on waste management, simplifying planning schemes, financial relations and communications and consultation between the two spheres of government. Work on these Partnership Agreements has now entered the implementation phase.

In recognition of the importance which the Government places on its relationship with Local Government in Tasmania, the Government is publishing, for the first time with the 2004-05 Budget Papers, a separate document 'State and Local Government Working in Partnership'.

Jobs and Skills The Government's most notable achievement has been to significantly increase the number of employed Tasmanians and significantly reduce the number of unemployed - the economy is robust and more Tasmanians are employed now than ever before.

The jobs growth we are now seeing is the result of over five years of strong economic and fiscal leadership, putting a solid economic foundation in place for sustainable growth.

There has been unprecedented strong growth in Tasmania's employment over the past two years, with record numbers of Tasmanians in jobs. As a result of this increase, the State's unemployment rate is at its lowest level in over twenty years and the gap between the Tasmanian unemployment rate and the national average has narrowed considerably.

The positive developments in the labour market in recent times have contributed significantly to increased levels of confidence about the State's future. The Government is committed to ensuring that the growth is sustainable and that the benefits of a stronger economy are spread across the Tasmanian community. There has been a great deal of progress towards reducing the number of persons classified as being long-term unemployed, and the Government's Partnership to Jobs program is an example whereby the Government is working to provide access and opportunities to the labour market for the long-term unemployed. The program will continue to reduce the number of long-term unemployed Tasmanians.

The speed of the turnaround in the Tasmanian economy has challenged the ability of the labour market to provide adequately skilled workers to fill some of the new job opportunities in a timely manner. While the record level of employment indicates that new opportunities are being filled, it is essential for the State's ongoing economic growth that the labour force is provided with the skills to satisfy the increasing demands of existing and new employers. The Government has recognised the importance of having a skilled workforce through the Investing in Skills initiatives which will deliver programs to ensure ongoing skills development in the Tasmanian workforce.


Population The pessimism evident in Tasmania in much of the 1990s was reflected in the State's declining population. This was primarily driven by Tasmanians leaving the State because of a lack of job opportunities. While Tasmania has long been recognised as an attractive place to live because of its lifestyle advantages, this had not been enough to keep people in the State when they did not have confidence in their employment prospects.

The return to population growth, which began in 2001, is therefore an indication of the turnaround in the State's economy and the positive perception people now have about Tasmania's future prospects, particularly Tasmania's employment prospects. The State's population growth rate has continued to strengthen since 2001, with Tasmania having the fourth highest growth rate of all jurisdictions in the year to September 2003 (the latest available data). The latest figures show that Tasmania has reached a new record of 478 426 people living in the State. Since September 2003, 5 235 more people have moved to Tasmania. Importantly, net interstate migration is now a positive contributor to Tasmania's population. For the fifth consecutive quarter to September 2003, Tasmania was the only state, apart from Queensland, to enjoy net interstate migration. Growing numbers of interstate residents now believe Tasmania offers a better lifestyle and good economic opportunities, which make it a more attractive place to live than other states or territories.

Analysis of the age composition of recent net migration to Tasmania reveals that the State is becoming more attractive to younger persons and families. There has been a strong turnaround in net migration in the under 15 years and 30 to 44 year old age groups, suggesting that in the year to September 2003, Tasmania moved from a net loss of families with children to a net gain.

There has also been an improvement in the net result of movements in the 15 to 29 year old age group, with smaller losses being experienced in the 15 to 19 year and 20 to 24 year old age cohorts. The 25 to 29 year old cohort recorded inward migration in the March and September quarters of 2003 and for the year to September 2003.

One of Tasmania's key advantages has been its relatively affordable housing. While population growth and the economic turnaround have driven significant increases in both housing activity and property prices in the past two years, Tasmania still remains the most affordable state in Australia in which to purchase a home.

The Government's Fiscal Strategy Having achieved all of the targets established in the previous Fiscal Strategy some two years ahead of schedule, the Government developed a new Fiscal Strategy in 2002. The current Fiscal Strategy builds on the significant achievements of the previous Fiscal Strategy and focuses on continuing the Government's record of strong financial management.

The Fiscal Strategy supports the Government's priority initiatives such as Tasmania Together, the Industry Development Plan and Partnership Agreements by delivering quantifiable benefits to the community in the form of improved service provision, tax cuts and infrastructure development. Key elements of the Fiscal Strategy include ongoing Budget surpluses, the elimination of General Government Net Debt and net interest payments, a significant reduction in Total State Sector Net Debt and the elimination of the Government's unfunded superannuation liability within a reasonable timeframe.


The current Fiscal Strategy extends for a period of six years, and commenced in 2002-03. Extending the period of the Fiscal Strategy to six years represented an appropriate medium-term timeframe in which to set Tasmania's fiscal goals.

A credible and achievable medium-term Fiscal Strategy is an essential component of sound contemporary economic management. It represents not only an effective planning tool for the Government, but also provides clear signals to financial markets, the business sector and the community of the Government's direction in financial management. A Fiscal Strategy also provides a framework for the Government to demonstrate to credit rating agencies the financial focus of the Government, any identified issues or problems and how these will be addressed.

The principles and targets, which form the basis of the Fiscal Strategy, are outlined in detail below.

Budget Position Principle − To strengthen the State's financial position, the State Budget will be managed in surplus on a

long-term sustainable basis to achieve the Government's net debt targets.

Target − The annual General Government Sector Budget will be maintained in surplus; and

− The General Government Sector cash surplus will be sufficient to achieve the Government's established net debt targets.

The annual Budget outcome is a vital factor in the long-term management of the State's finances. In the absence of asset sales directed towards debit reduction and additional financial assets, the only means of achieving a significant reduction in net debt is through the achievement of ongoing surpluses. In order for the net debt targets established as part of the Fiscal Strategy to be achieved, it is necessary that the targeted levels of Budget surpluses be achieved.

Debt and Liability Reduction Principle − The debt and liability burden on the Tasmanian community will be further reduced.

Target − General Government Sector Net Debt will be below $450 million by June 2005;

− General Government Sector Net Debt will be eliminated by June 2008;

− General Government Sector Net Interest Costs will be zero by June 2008;

− Total State Sector Net Debt will be below $1 000 million by June 2008;

− The State's unfunded superannuation liability will be extinguished within 14 years (that is, by June 2018); and

− Net Financial Liabilities for the General Government Sector will be eliminated within 13 years (that is, by June 2017).

Achieving a reduction in the level of net debt is a critical factor in the achievement of further improvements in the State's financial position while also reducing the pressure on the annual Budget from increases in interest rates. A reduction in the level of debt is also of great importance due to the strong focus rating agencies place on the liability side of the State's Balance Sheet.

In addition to these significant benefits, the reduced interest costs associated with debt reduction also mean that savings are generated, which can then be applied to major Government initiatives, reduced taxation, improved services to the community and increased spending on public infrastructure. This has been a


significant factor in the increased funding that the Government has been able to apply in recent Budgets to a range of services and initiatives.

Advanced Achievement of Net Debt Target

The latest Forward Estimates illustrate that the target to eliminate General Government Net Debt by 30 June 2008 will be achieved a year ahead of schedule, that is, by 30 June 2007. This is a significant achievement for Tasmania and a product of the Government's sound financial management during the period since it first came to Office in 1998. Importantly, the achievement of this core Fiscal Strategy Target one year ahead of schedule has occurred at the same time as the Government has provided significant additional funding to implement far reaching social initiatives, tax cuts totalling $75.0 million per annum to date and funding to assist with the implementation of infrastructure investment in Tasmania of around $2.5 billion.

Chart 1.1 illustrates the estimated reduction in General Government Sector Net Debt.

Chart 1.1: General Government Sector Net Debt as at 30 June

- 300

0

300

600

900

1 200

1 500

1 800

1999

2000

2001

2002

2003

2004

(est

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2005

(est

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2006

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$ m

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General Government Net Debt

Taxation Competitiveness Principle − Maintain a competitive State tax environment.

Target − Tasmania's tax severity (as measured by the Commonwealth Grants Commission) will remain below the average of all states and territories and below that of Victoria; and

− There will be no new taxes and no increase in the rate of any existing taxes.

The Government is committed to fostering an increasingly competitive business environment in Tasmania and to ensuring that Tasmania is an attractive place for people to live. These are both major factors in increasing the level of employment in Tasmania.

Through its Industry Development Plan and a range of other major strategies and initiatives, the Government has actively sought to achieve these important objectives. Foremost amongst these strategies and initiatives has been the creation of a competitive State tax environment through the implementation of


State tax reform. To date, the Government has provided tax cuts totalling $75.0 million per annum. In addition to the tax cuts already implemented, the Government is also committed to the removal of debits duty from 1 July 2005. This additional tax cut will bring the total tax cuts provided since 1998 to over $100.0 million per annum.

The principles and targets relating to taxation competitiveness established in the Fiscal Strategy will ensure that Tasmania continues to be highly competitive with the other states and territories when it comes to levels of business and other taxation.

Further information on Tasmania's taxation competitiveness and its competitiveness in a range of other key areas, is provided later in this Chapter.

Infrastructure Maintenance Principle − Maintain infrastructure to support the delivery of Government services and to foster economic

and industry development.

Target − The State funded component of the Capital Investment Program will be maintained in real terms.

The proper maintenance of Tasmania's public infrastructure assets and investment in new public assets is essential to the effective delivery of services to the community and to promoting growth within the State. Appropriate levels of ongoing capital expenditure also assist in reducing the likelihood and impact of significant one-off capital expenditure 'hits' on the Budget.

The focus on infrastructure maintenance as part of the Fiscal Strategy will ensure that the significant additional expenditure which has been allocated by the Government to infrastructure maintenance in recent years will be supported by the maintenance, in real terms, of the level of State funding provided in the Capital Investment Program over the next five years.

Risk Management Principle − Ensure that adequate mechanisms and financial provisions are in place to minimise the risks to

the Tasmanian Government.

Target − The Tasmanian Risk Management Fund will operate on a fully funded basis and have reserves that are sufficient to meet estimated outstanding liabilities.

While it is prudent financial management to reduce levels of net debt and unfunded superannuation liabilities and to seek to increase the level of Budget surpluses, it is also prudent financial management to seek to reduce the impact that other risks could have on the Government's overall financial position. Through the establishment of the Tasmanian Risk Management Fund in December 1998, the Government has taken important steps to reduce the potential impact of a range of risks on government agencies.

The inclusion of this principle and target in the Fiscal Strategy emphasises the importance of the Government continuing to take appropriate action in relation to minimising all risks to the Government's financial position.

Progress on the Fiscal Strategy Targets Table 1.1 shows the current Fiscal Strategy Targets and an assessment of the progress to those measurable targets based on Budget estimates.


The table shows that the Government will achieve all elements of the Fiscal Strategy, including the elimination of General Government Net Debt a year ahead of schedule, while also:

• providing significant additional recurrent funding to agencies for social services;

• providing funding to assist with the implementation of infrastructure projects totalling around $2.5 billion;

• addressing the major risks that have impacted on the management and development of the State Budget over previous years arising from past inadequate funding of Health and Human Services and community services and the growth in the State's unfunded superannuation liability;

• abolishing debits duty from 1 July 2005, which will bring the total benefit to the community from tax relief provided by the Government to over $100.0 million per annum;

• fully providing for all of the Government's insurable risks; and

• implementing a range of initiatives to strengthen the Tasmanian economy.

Table 1.1: Fiscal Strategy Targets

Tactical target 2002-03Actual

2003-04Revised

Estimate2004-05

Estimate2005-06

Estimate2006-07

Estimate2007-08

Estimate

Assess-ment of

Progress

General Government Fiscal Balance to be

maintained in surplus 250.0 160.7 15.2 76.9 72.2 154.7 Consolidated Fund to be maintained in

surplus ($ million) 8.7 33.7 39.4 32.9 43.4 54.0 Maintain General Government Cash

Surplus sufficient to achieve the Government's Net Debt Targets ($ million) 306 224 96 151 146 198

General Government Net Debt to be below

$450 million by June 2005 and to be eliminated by June 2008 ($ million) 486 315 230 117 (13) (188)

General Government Net Interest Costs to

be zero by June 2008 ($ million)1 55 43 25 14 7 (2) Total State Sector Net Debt to be below

$1 000 million by June 2008 ($ million) 1 613 1 503 1 448 1 282 1 167 998


Table 1.1: Fiscal Strategy Targets (continued)

Tactical target 2002-03Actual

2003-04Revised

Estimate2004-05

Estimate2005-06

Estimate2006-07

Estimate2007-08

Estimate

Assess-ment of

Progress

State's Net Unfunded Superannuation

Liability to be extinguished by June 2018 ($ million) 1 395 1 373 1 340 1 299 1 251 1 193

General Government Net Financial

Liabilities be eliminated by June 2017 ($ million) 2 494 2 377 2 362 2 318 2 246 2 119

Tasmania's Tax Severity (as measured by

the Commonwealth Grants Commission) be maintained below the average of all states and below that of Victoria (Avg = 100)

Tas 91.87Vic 107.23 n.a. n.a. n.a. n.a. n.a.

State-Funded Component of the Capital

Investment Program (Annual Appropriation) to be maintained in real terms (Nominal Annual Growth %)2 4.7 2.9 3.1 2.9 3.0 3.0

Sources: Department of Treasury and Finance, Commonwealth Grants Commission and the Australian Bureau of

Statistics (ABS). Notes: 1. Net Interest Costs exclude nominal interest on superannuation. 2. The State-Funded component of the Capital Investment Program excludes abnormal funding such as the $5.0 million

expended in 2002-03 for the replacement of the fire damaged Reece High School. Key: On Target/Achieved, n.a. data not available


TASMANIA'S IMPROVED FINANCIAL POSITION Since 1998, there has been significant improvement in the State's Financial Position. This major fiscal turnaround is the result of a sustained and committed approach to driving strong financial management and discipline throughout the Tasmanian Public Sector.

Table 1.2 provides a comparison of the General Government Sector in 1998 compared to the significant gains that have been achieved since that time.

The table shows that there has been a positive turnaround in key financial areas including the annual Budget (from deficits to surpluses), the State's Balance Sheet ($2 billion improvement in net worth) and financial provisions (eg establishment of the Tasmanian Risk Management Fund).

Table 1.2: Improvements in the State's Financial Position

30 June 1998 30 June 20041

Consolidated Fund Surplus ($ million) (33.9) 33.7

Net Interest Costs ($ million) 154.8 43.0

Net Worth ($ million)2 5 339 7 462

Net Financial Worth ($ million)2 (172) 1 573

Net Debt ($ million) 1 610 315

Tasmanian Risk Management Fund Established No Yes

Unfunded Superannuation Liability expected to be funded by (year) 2064 2018

Defined Benefit Schemes closed to new employees No Yes

Standard and Poor's Credit Rating AA- AA

Moody's Investor Services Credit Rating Aa2 Aa1 Notes: 1. The dollar amounts as at 30 June 2004 are estimates. 2. Net Worth and Net Financial Worth are measured as at 30 June 1999 as these are the first numbers available for

accrual-based Uniform Presentation Framework reporting.

Credit Status of the State Public Sector The State's credit rating has a major impact on the perceived strength of the Government's fiscal discipline and on the overall financial condition of Tasmania.

Since the mid 1980s, the two major rating agencies, Moody's Investors Service (Moody's) and Standard & Poor's (S&P), have progressively assigned a credit rating to each State. Tasmania was first rated in 1991. Both of the major rating agencies review the credit ratings of all States on an annual basis.

The credit rating influences the interest rate margin Tasmania must pay over Commonwealth debt, or debt of a State with a AAA credit rating. Ratings, therefore, impact on interest paid on State debt and, therefore, on the State Budget.

A very important influence of the credit rating is its impact on the perception of Tasmania by business investors. Comments made by the rating agencies in their reports and the relative movements of different States' ratings can have a significant effect on business confidence. Reviews by both Moody's and S&P have


commented favourably on the achievements of successive Tasmanian Governments' policies to improve the State's financial position, particularly in relation to reduced levels of debt and debt servicing costs.

The current credit ratings for long-term domestic debt of the States and the Territories are detailed in Table 1.3. All States have a prime rating of P-1/A-1+ on their short-term debt.

Table 1.3: Government Ratings Standard & Moody's Poor's New South Wales Aaa AAA Queensland Aaa AAA Australian Capital Territory Aaa AAA Western Australia Aaa AAA Victoria Aaa AAA South Australia Aa1 AA+ Tasmania Aa1 AA Northern Territory Aa2 n.a.

The ability of a State to manage and service its debt is reflected in the credit rating assigned to the State by the rating agencies. Rating assessments depend particularly on the level of debt and debt servicing costs relative to revenue, Budget net position relative to revenue, and the magnitude of other unfunded liabilities (particularly superannuation). A range of qualitative economic and political factors is also considered, particularly the quality of financial management, commitment to debt containment and outlook for the State's economy. The rating agencies have reinforced the need for all State Governments to maintain prudent financial management policies.

On 17 September 2003, S&P confirmed the State's 'AA' long-term, local and foreign currency credit ratings, following its visit to Tasmania on 18 July 2003. The outlook remains 'positive'.

In arriving at its assessment, S&P noted Tasmania's General Government finances are in excellent shape and the Government is on track to meet its Fiscal Strategy target of eliminating General Government Net Debt by 30 June 2008.

S&P said that 'the State's rating could be raised to 'AA+' (the second highest rating assigned by S&P) within the next one to two years.'

On 23 July 2003, Moody's announced the upgrade of the State's long-term, local and foreign currency credit ratings to 'Aa1' from 'Aa2' following its review of the State's 2003-04 Budget. This followed Moody's revision in Tasmania's rating outlook from stable to positive in November 2002.

The rating outlook is 'stable' and the rating action reflects steady improvements in the State's financial performance and debt profile, and the expectation by Moody's that these trends will continue over the medium-term.

In its assessment, Moody's notes that the level of fiscal surpluses over the past four years has been 'quite healthy' and the consistent application of surpluses to debt reduction and hence interest cost reduction has assisted in the State's increased financial flexibility.


Tasmania's Economy The Industry Development Plan The Government presented the Industry Development Plan (IDP) in November 1998, within three months of the 1998 election. The IDP is the Government's key strategic planning document on industry development. It is a vehicle for an integrated response to the strategic priorities of government, industry and the community and is directed at maximising job creation, investment attraction, net export growth, higher value products and enhanced skills base.

The Plan's four cornerstones were all in place by the time the Government's second Budget was delivered in May 1999. Since that time, the implementation of the IDP has continued with the following major steps being taken:

• the release of the Government's document The Way Forward in August 1999 that responded to the range of industry audits;

• the holding of forums to brief industry and the community on the IDP and the Government's response;

• the establishment of the Centre for Research, Industry and Strategic Planning; and

• the formation of Industry Councils and development of their industry plans.

The IDP has focused on first halting, and then reversing, the relative economic disparity between Tasmania and the rest of Australia experienced throughout most of the 1990s. The development and success of the IDP in achieving this aim is reflected in Tasmania's improved economic performance reported in Chapter 2 of Budget Paper No 1 Budget Overview 2004-05.

Tasmania's community vision for economic development outlined in Tasmania Together and industry sector plans and Partnership agreements form the foundation of the IDP.

The findings from research projects on the State's economic performance and competitiveness and Tasmania's key likely future industries and investment opportunities will also contribute to the further development of the IDP.

A Competitive Business Environment A competitive business environment is a critical driver of economic growth for any jurisdiction. Tasmania's business environment is very competitive compared with the rest of Australia. To create an increasingly competitive business environment, the Government has adopted a strategic approach that has four components:

• measuring and addressing cost aspects impacting on competition;

• promoting business enterprise development;

• reducing regulation and eliminating unnecessary regulation; and

• securing major infrastructure developments.

Competition Index To measure and address cost aspects impacting on competition, the Government introduced the Competition Index in 2000. The Competition Index is prepared each year and objectively compares business


and industry sector costs and constraints in Tasmania with other states and New Zealand. The independent consulting firm, KPMG, has assessed the methodology used in the Competition Index and found it to be objective and appropriate.

The Competition Index provides the essential measurement necessary to focus the Government, business and the community on those competitive areas where the State may be weak and which should be addressed, and those areas where Tasmania is strong and which should be maintained. This type of detailed analysis is unique in Australia.

Amongst the diverse range of costs which impact on businesses in Tasmania, a competitive tax regime plays an important role in creating a competitive business environment. However, for a productive debate to occur about business costs in general, and business taxation specifically, it is important that the debate is broader than merely a discussion of payroll tax. Nonetheless, isolating both payroll tax and overall taxation severity in the business cost debate still highlights the competitiveness of Tasmania's business environment, as shown in the tables below. Table 1.4 clearly shows that the average small to medium sized business in Tasmania has a lower payroll tax liability than its counterparts in all other jurisdictions, with the exception of the Australian Capital Territory, and that the payroll tax liability faced by larger businesses in Tasmania is competitive with other jurisdictions.

Table 1.4: Comparison of 2003-04 Payroll Tax Liabilities by Number of Employees1,2,3

No of Employees Tas Qld WA Vic SA NSW NT ACT

$ $ $ $ $ $ $ $ 50 54 140 66 345 68 853 70 746 79 014 77 853 80 448 44 357 75 112 015 126 433 125 779 120 557 132 809 134 779 139 272 109 348 100 169 890 180 267 182 705 170 367 186 605 191 705 198 096 174 339 200 401 391 360 534 410 411 369 609 401 786 419 411 433 391 434 302 300 632 891 540 800 638 116 568 852 616 968 647 116 668 687 694 266 500 1 095 892 901 334 1 093 527 967 336 1 047 331 1 102 527 1 139 278 1 214 193 Source: Department of Treasury and Finance

Notes: 1. Based on payroll tax rates effective from 1 July 2003. 2. Liability calculated using the national average weekly earnings average for the four quarters to December 2003, as

published by the Australian Bureau of Statistics (ABS). 3. From 1 July 2003, the grossed-up value of fringe benefits and eligible termination payments are included in the tax

base for all jurisdictions.

Overall, Tasmania's payroll tax arrangements compare favourably with most other jurisdictions. When comparing payroll tax rates across jurisdictions, the inter-jurisdictional differences in payroll tax thresholds need to be taken into account to provide an accurate comparison, in the form of an effective rate of payroll tax. Table 1.5 shows effective rates of payroll tax in each jurisdiction for a range of payrolls and employee numbers, based on national average weekly earnings.


Table 1.5: Comparison of Effective Payroll Tax Rates, 2003-041,2,3

Employer Payroll ($)

Approx.No of

Employees Tas Qld WA Vic SA NSW NT ACT

% % % % % % % % 1 000 000 26 0.00 0.95 1.50 2.36 2.81 2.40 2.48 0.00 2 000 000 52 3.02 3.64 3.75 3.81 4.24 4.20 4.34 2.57 5 000 000 131 4.87 4.75 5.10 4.67 5.10 5.28 5.46 5.14 10 000 000 263 5.48 4.75 5.55 4.96 5.38 5.64 5.83 5.99 50 000 000 1 317 5.98 4.75 5.91 5.19 5.61 5.93 6.13 6.68 100 000 000 2 634 6.04 4.75 5.96 5.22 5.64 5.96 6.16 6.76 Source: Department of Treasury and Finance

Notes: 1. Based on payroll tax rates effective from 1 July 2003. 2. Calculated using the national average weekly earnings average for the four quarters to December 2003, as published

by the ABS. 3. From 1 July 2003, the grossed-up value of fringe benefits and eligible termination payments are included in the tax

base for all jurisdictions.

The comparisons in Tables 1.4 and 1.5 do not take into account differences in labour costs between jurisdictions. If labour costs were taken into account, Tasmania's competitive payroll tax position would be further enhanced.

The Government has also pledged to the Tasmanian business community that payroll tax in this State will remain competitive with the nation and, in particular, Victoria. Table 1.6 shows an interstate comparison of payroll tax collections as a percentage of Gross State Product (GSP) to reflect the relative burden of payroll tax on state economies.

Table 1.6: Payroll Tax as a Percentage of GSP, 2002-03

State Payroll Tax

receipts GSP

Payroll tax receipts as a %

of GSP

$m $m % New South Wales 4 124 257 559 1.60 Victoria 2 620 187 013 1.40 Queensland 1 328 125 127 1.06 Western Australia 1 004 81 107 1.24 South Australia 654 47 347 1.38 Tasmania 155 12 339 1.26 Australian Capital Territory 163 14 519 1.12 Northern Territory 100 8 722 1.14 National average 1 269 91 716 1.38


Table 1.6 shows that Tasmania is competitive with other jurisdictions in terms of payroll tax collections as a percentage of GSP, and is well below the national average and Victoria.

In addition, based on 2003-04 data, Tasmania's payroll tax threshold of $1.01 million is the second highest of all jurisdictions. This high tax-free threshold means that over 90 per cent of Tasmanian firms are not required to pay any payroll tax.

Overall taxation severity is assessed annually by the independent Commonwealth Grants Commission (CGC), and takes into consideration, amongst other taxes, payroll tax, land tax, duty on conveyancing, financial transaction taxes, insurance taxation and vehicle registration fees and taxes. Comparisons published by the CGC in February 2004 show that, in line with the Government's Fiscal Strategy, Tasmania's overall tax severity was below the average of all states and territories in 2002-03, the most recent year reviewed by the CGC, and below that of Victoria.

As can be seen from Chart 1.2, Tasmania was assessed by the CGC as having the third lowest taxation severity of all jurisdictions, behind Queensland and the Northern Territory. By way of comparison, in 1996, Tasmania was ranked as having the second highest tax severity.

Chart 1.2: Taxation Severity, 2002-03

80.00

85.00

90.00

95.00

100.00

105.00

110.00

NSW Vic Qld WA SA Tas ACT NT

Taxa

tion

Seve

rity

Source: Report on State Revenue Sharing Relativities 2004 Review, Commonwealth Grants Commission

Although Tasmania is clearly highly competitive in terms of business taxation, there are many other important costs impacting on business that need to be monitored and addressed by the Government. The Competition Index shows that Tasmania performs very well on some business cost components, while on other components it performs less well. The aim of the Government in this regard is to maintain those business cost components where the State performs well, and address those components that can be improved.

For example, in terms of direct labour costs, which include wages, payroll tax, workers' compensation, superannuation and fringe benefits tax, Tasmania performs best of all states. The components of the labour skills index comprise training and formal qualifications. The index shows that Tasmania performs poorly in


qualifications, but has high levels of ongoing training. The low qualifications result has occurred in part due to the State's industry structure, but importantly the result is also due to past unmet demand for university places.

The Government has responded to the need to lift the skills base of the Tasmanian workforce in a number of ways. For example, Tasmania's strategy for Post-Year 10 Education and Training (Tasmania: A State of Learning) contains a range of initiatives aimed at, among other things, improving retention of Tasmania's young people in education and training beyond year 10.

Tasmania's energy market has been isolated and reliant on electricity. These constraints are being addressed through the major infrastructure projects commenced or about to commence, which include the diversification of the energy market to include natural gas to business and households and, through Basslink, to open the energy market to competition through connection to the National Electricity Market. The ability of businesses and households to access natural gas will be of benefit to many businesses. Businesses that already have access to natural gas include Australian Bulk Minerals, Comalco, Bell Bay Power and Ecka Granules.

Table 1.7 summarises the rankings of states against the Competition Index in 2003. The next Competition Index will be released in the later half of 2004.


Table 1.7: Competition Index - Summary of Ranking of States, 2003

NSW Vic Qld SA WA TasTas 2002

Index

Cost-Based Indices Direct Labour Costs 6 5 1 4 3 1 1 Labour Turnover 6 3 4 2 5 1 1 Industrial Disputes 5 6 3 2 4 1 2 Labour Skills 5 2 3 4 1 6 6

Training 6 5 3 4 2 1 1 Qualifications 1 1 5 4 3 6 6

Land and Accommodation 6 4 5 2 3 1 1 Taxation Severity 3 4 1 6 5 2 2 Energy Cost Index 1 1 3 5 4 6 6

Electricity 1 2 4 6 5 3 2 Reliability 4 2 3 5 1 6 6 Fuel 4 2 1 3 5 6 6 Gas 2 1 4 3 5 6 6

Surface Freight Cost 3 5 1 2 4 6 6 Air Freight Cost Index 2 1 4 3 6 5 5 Air Travel Cost Index 1 2 5 3 6 4 5 Access to Ports Index 5 4 6 2 3 1 1 Port Charges Index 3 1 4 n.a. 2 5 n.a. Business Licensing Costs Index 5 2 4 3 6 1 n.a. Planning Index 3 n.a. n.a. n.a. 2 1 1 Proximity to Markets 1 2 3 5 4 6 6 Forestry Endowment 2 4 3 6 5 1 1 Telecommunication Cost Index 1 3 2 n.a. n.a. 4 n.a. Telecommunications Reliability 6 2 1 5 2 2 n.a.

Reducing Regulation and Eliminating Unnecessary Regulation The Government is committed to removing legislation that imposes unnecessary costs on business or restrictions on competition that are not in the public interest. The legislation reform program required under National Competition Policy is close to completion, with 114 Acts repealed and many other Acts amended to remove restrictions on competition. Examples include removing the restrictions on shop trading hours, providing for increased competition in the taxi industry and removing the nine-litre limit for off-licences.

In addition, the Government has a program for the repeal of legislation that is redundant or imposes unnecessary costs on businesses, or the community more generally. Government agencies regularly audit the stock of legislation for which they are responsible and identify Acts and regulations that are no longer needed such as the Liquor and Accommodation Act 1990 which will be amended to remove the accommodation licensing provisions. Several Legislation Repeal Acts have been passed. For example, the Legislation Repeal Act 2003 repealed 136 Acts and 23 pieces of subordinate legislation.


The Impact of Major Infrastructure Projects Investment in private and public infrastructure projects has been at record levels in Tasmania. These include several energy projects, such as the Tasmanian Natural Gas Project, Basslink and Hydro Tasmania's wind energy projects. There are also projects associated with tourism-related developments and telecommunications infrastructure. Many of these projects are providing immediate benefits, such as jobs and investment during construction phases. However, the benefit these projects will provide over the long-term will be much more significant, as they will contribute to higher levels of economic activity through increased output, greater productivity and improvements in Tasmania's competitiveness.

Consequently, the promotion of infrastructure and major project development continue to be a key feature of the Government's strategic approach to the Tasmanian economy.

The realisation of major infrastructure projects is playing an integral role in not only boosting the level of economic activity in the State, but also in contributing to higher levels of business confidence. Businesses have recognised they have significantly improved future prospects arising from these projects, including higher demand, increased production, greater transport capacity, improved access, a competitive energy market, new industries and technology advancements. During the 1990s, many major projects were proposed but did not proceed. This contributed to the pessimistic views of businesses in Tasmania in the last decade, which was reflected in the level of economic activity in the State and the population decline.

The creation of the Economic and Social Infrastructure Fund (ESIF) was announced in the 2003-04 Budget, with funding committed to major, long-term and strategic projects, which will benefit Tasmanians now and into the future. The ESIF provides for the facilitation of direct investment into the project and significant flow-on benefits arising from the infrastructure and major projects. The ESIF will continue to be used in 2004-05 to support major projects in the State, such as the rollout of natural gas, to ensure the maximum possible benefits of the projects are delivered to Tasmanian businesses and the general community.

The ESIF is complemented by specific funding to the Department of Economic Development to manage issues affecting the securing of major projects and promoting enterprise development. In addition, a number of other government agencies and business enterprises involved with energy and infrastructure devote considerable expenditures to infrastructure developments, which have economic as well as social and community consequences.

The Government will continue to consult with businesses and other stakeholders to maximise the opportunities the major infrastructure developments will provide. This is being conducted through the Government's Industry Development Plan, which provides for effective consultative arrangements with businesses and stakeholders, specifically through Industry Councils and Partnership agreements.

Natural Gas – Direct Investment Until recently, Tasmania was the only state or territory without access to natural gas. The Tasmanian Natural Gas Project (TNGP) has diversified the State's energy sector, improved customer choice, introduced a competitive new source of energy and created new opportunities for development, particularly in industries requiring heat and steam or natural gas for direct processing.

Construction of the transmission phase of the TNGP commenced in 2001-02 and was completed in 2002-03. This phase resulted in the construction of around 730 kilometres of pipeline including an undersea connection between Longford in Victoria and Bell Bay in northern Tasmania, and two transmission pipe laterals branching to Port Latta in the State's North-West and to Bridgewater in the South.

The distribution network is being progressed in stages.


Stage 1 (the backbone network) of the project will connect up to 23 large commercial and industrial customers through the rollout of 100 kilometres of pipe in Hobart, Launceston, Bell Bay, Westbury, Devonport, Burnie and Longford. Depending on customer contracts being entered into, Stage 1 may also extend to Ulverstone, Wynyard and Wesley Vale. Construction of this stage commenced in October 2003 and is due to be completed by February 2005.

Stage 2A of the project will see distribution networks radiate from the Stage 1 backbone to make gas available to smaller industrial, commercial and residential customers in Hobart, Launceston, Devonport and Burnie. It is scheduled to be constructed between February 2005 and April 2007 and will make gas available to 38 500 households.

The Government has also taken care to ensure that gas networks can grow separately to the agreed rollout between the Government and Powerco. An example of this is the signing of heads of agreement between Powerco and the Burnie City Council for the installation of gas pipe in a new council sewer trench.

Industrial customers that are already using gas include Australian Bulk Minerals at Port Latta, and Comalco, Bell Bay Power and Ecka Granules at Bell Bay.

Natural Gas – Flow-on Benefits The arrival of natural gas will provide greater surety of energy supply to underpin economic expansion within the State. The roll out of natural gas will deliver flow-on benefits to Tasmanian homes and businesses. The competition natural gas brings to the energy market in Tasmania will deliver lower prices to those currently using bottled gas, and will make gas competitive with electricity.

Tasmania has a well established and diverse manufacturing base. A significant proportion of these businesses, previously constrained by not having reticulated natural gas available, will become more cost competitive and will have the opportunity to diversify their manufacturing base. The benefits of natural gas are already being realised by such companies as Australian Bulk Minerals, Comalco and Bell Bay Power. Natural gas will therefore further boost Tasmania's competitiveness as a place to invest and will also encourage a more diverse manufacturing base in the State.

Optic Fibre – Direct Investment Natural gas reticulation has provided Tasmania with the opportunity to reticulate optic fibre in the gas trenches to the businesses and households being supplied with gas. This opportunity is presented because trenching represents a significant proportion of the costs involved in establishing optic fibre infrastructure.

The State Government has cooperative arrangements over telecommunications infrastructure development through the ownership of assets and agreements it has with Basslink Pty Ltd and Powero to lay and roll out optic fibre cable.

The Government is conducting a Request for Expression of Interest process, seeking innovative proposals from respondents who wish to work in a strategic alliance with the Government to provide new competitive broadband services in Tasmania that are leveraged by access to the Government's telecommunication assets.

The State Government is also working with the University of Tasmania and other research institutions in the State to develop plans to use optic fibre as the foundation of a Tasmanian Research Education Network. This network will link with a national research network.

The Government's overriding objectives are to ensure Tasmania realises the economic and community benefits from new broadband infrastructure by:

• facilitating a more competitive telecommunications industry structure within Tasmania;


• encouraging new investment in broadband telecommunication facilities within Tasmania; and

• creating an environment conducive to content and application providers of innovative and value added services.

The private sector will be integrally involved in bringing all these components together to develop a competitive telecommunications market in Tasmania for the first time ever. The development of this project will create jobs and significant private sector investment in the construction phase and in the management of the asset and delivery of telecommunications services on completion.

Optic Fibre – Flow-on Benefits The roll out of optic fibre will create competition in Tasmania's telecommunications market. In having an independently owned telecommunication infrastructure in competition to the dominant market player, Tasmanian businesses, homes and educational facilities can expect to see:

• competition in the provision of standard telecommunication services;

• access to more innovative telecommunications applications that provide solutions to Tasmanian specific issues such as a disbursed population; and

• advanced research activities looking to exploit the opportunities that will emerge by having a highly connected community.

Wind Energy – Direct Investment Tasmania has a world-class wind resource and has recently begun to harness this resource to generate electricity on a large scale. The combination of wind projects and Basslink will enable Australia to make a greater contribution to reduce global warming by reducing Australia's dependence on fossil fuels.

Certain areas of Tasmania are highly suitable for the generation of wind energy. The use of wind energy is compatible with Tasmania's clean energy reputation, which is based on the generation of hydro electricity. Wind energy also complements Hydro Tasmania's hydro-electric generation system, allowing more effective use of water storages. Wind energy development has progressed over the past year, principally through wind farm developments and a nacelle production facility.

Hydro Tasmania has continued to expand its Woolnorth wind farm, with Stage Two of this project now built and nearing commissioning, representing a further 54.25 MW of capacity in addition to the 10.5 MW Stage One development that commenced in October 2002. Hydro Tasmania has also submitted development applications for two further large-scale developments at Musselroe in Tasmania's north-east and at Heemskirk on the west coast.

Wind Energy – Flow-on Benefits The development of wind generation in Tasmania has enabled the State to capitalise on high value-added manufacturing opportunities with Vestas - Australian Wind Technology Pty Ltd. This wholly owned subsidiary of the Vestas Group has built a nacelle production facility in Wynyard to service the Australasian market. In March 2004, Vestas announced an order for a turnkey contract to be delivered to the Canunda Wind Farm project in South Australia to supply 23 V80-2.0 MW wind turbines.

Basslink – Direct Investment Basslink is an undersea cable that will connect Tasmania with the national electricity grid, via Victoria. Basslink will enable surplus energy generated in Tasmania to be sold interstate, providing Australia with a significant amount of its renewable energy needs.


The project, progressed by Basslink Pty Ltd, a subsidiary of UK-based National Grid Transco, is expected to be completed in November 2005. Basslink will enable Tasmania to join the National Electricity Market (NEM) and offers strategic benefits to Tasmania, Victoria and Australia as a whole.

Pirelli Cables has commenced manufacture of the cable that will link Tasmania into the national energy grid. Stranding of the first of three cables is complete and stranding of the second length has commenced. Civil construction has commenced preparation for the establishment of converter stations at Bell Bay and Loy Lang. Basslink is expected to create a significant number of job opportunities during the construction phase.

Basslink – Flow-on Benefits The availability of competitively priced electricity to attract industry has been a constraint on the Tasmanian economy. Basslink has already facilitated new energy generating industries in Tasmania and it will have the capacity to provide energy to new industries interested in Tasmania's competitive business environment.

Tasmania is rich in resources, including minerals and forestry, but the downstream processing of those resources is often energy intensive. Through Basslink, and complemented by the arrival of natural gas in the State, energy provision is no longer a constraint on industrial opportunities. With greater capacity and competition in Tasmania's energy market, existing and prospective businesses now have increased potential to expand and create new operations.

Bass Strait Ferries – Direct Investment Prior to the introduction of the two Melbourne to Devonport Bass Strait ferries, access to the State had been another long-term constraint on the Tasmanian economy. The ferries have provided a significant improvement in access to the State, both in terms of tourism and freight, and have helped deliver record numbers of tourists through increased capacity.

The TT Line Company Pty Ltd purchased a third vessel, Spirit of Tasmania III, in 2003, which commenced operations on the Sydney to Devonport run on 13 January 2004. The third ferry has provided a further boost to the tourism industry and to the State's freight capacity.

Bass Strait Ferries – Flow-on Benefits The positive economic impact of the Bass Strait ferries is already being felt through increased consumer spending and investment in the State. Higher numbers of tourists to the State have resulted in increased demand for tourism and tourism-related products and services. This has led to new job opportunities for Tasmanians as new and existing businesses meet the increase in demand. Similarly, businesses have invested, or have committed to invest, hundreds of millions of dollars in tourism infrastructure. The increase in activity in the tourism sector has also contributed to increased activity in the overall State economy through the flow-on effects of increased employment and consumption.

Tasmania's economic recovery has facilitated a return to population growth, which in turn has provided opportunities to Tasmanian businesses. The three ferries are directly contributing to higher economic activity through increased tourist access and are indirectly contributing to activity through increasing Tasmania's exposure to potential interstate migrants.

Water Infrastructure Development – Direct Investment The Government established an Infrastructure Fund in the 2001-02 State Budget that included funding for water infrastructure. The Government has carried forward $7.0 million from the 2001-02 Infrastructure Fund for the Meander Dam project.


The Meander Dam and additional water infrastructure developments will not only provide opportunities in the construction phase, but will also generate new industries and greater levels of production through the provision of a reliable source of irrigation water. The development of the Meander Dam will assist in achieving the Government's target of doubling the value of primary production by 2008. Water infrastructure development also has the direct benefit of controlling environmental flows and attracting significant investment funds to Tasmania.

Water Infrastructure Development – Flow-on Benefits Increasing and diversified agricultural production provides many indirect opportunities. For example, the Coal River Valley wine growing area that has been developed as a result of the South East Irrigation Scheme has become a wine route and is now a popular tourist destination. Significant investment has been placed in wineries and restaurants, while local small and medium sized businesses have enjoyed increased demand for their goods and services. The Scheme has therefore promoted the diversification of the primary industry base in the region, in turn limiting the impact of risks to the region which might otherwise be greater with a narrow industry base.

By increasing the volume and reliability of agricultural water supply, economic benefits, such as those arising from the establishment of the South East Irrigation Scheme, can be achieved in other areas of Tasmania.

Getting the Balance Right The previous sections of this Chapter have highlighted many of the key factors that have been taken into account by the Government in its formulation of the 2004-05 Budget. While each of these factors are of considerable importance in their own right, it is equally important that when formulating the Budget the Government seeks to achieve an appropriate balance between these factors. Accordingly, the Government has sought to achieve a balance between additional funding for government services, new social initiatives, tax relief for business and the community, duty relief on conveyance duty for first home buyers, recurrent and capital expenditure, short and long-term economic development, strong financial management and many other factors.

An example of this strong commitment to getting the balance right in recent years is the fact that the Government has been able to provide substantial increases in the funding of government services in real terms; provide significant tax cuts to the business and broader Tasmanian community; and provide millions of dollars in additional funding for key new economic infrastructure; while meeting the targets in the Government's successive and challenging Fiscal Strategies, improving the State's Balance Sheet and improving Tasmania's credit rating.

The 2004-05 Budget continues the theme of seeking to get the balance right. This approach is highlighted by the fact that this Budget provides for significant additional funding for the key social areas of health, education, justice and public safety while also enabling the elimination of General Government Net Debt a full year earlier than provided by the current Fiscal Strategy.

The following section highlights the major social and economic initiatives being introduced by the Government in the 2004-05 Budget.


THE 2004-05 BUDGET 'INVESTING IN PEOPLE' The 2004-05 Budget is all about 'Investing in People'. It provides a comprehensive program of initiatives to make sure that all Tasmanians benefit from the State's economic success. The future of the State depends heavily on providing our young people with skills to meet the demands of the future and to be able to lead productive and rewarding lives. It is also about building strong and resilient communities where people feel safe and can enjoy a decent standard of living.

The following initiatives have been incorporated in the 2004-05 Budget, and highlight the Government's commitment of investing in the future of all Tasmanians.

Looking After Our Kids For Tasmania to continue to prosper, we must invest heavily in our children. In this Budget, the Government has allocated additional funds to ensure that our children get off to a good start in life, including:

• $18.0 million per annum to increase teachers' salaries;

• $15.3 million to encourage young people to continue education and training beyond compulsory schooling;

• $3.0 million to enhance computer systems in schools;

• $610 000 over four years for Support, Advice and Mentoring (SAM), a program aimed at working with young people from low income homes and disadvantaged circumstances;

• $7.8 million over four years to provide better classroom support for students with disabilities and training for staff working with these students;

• $3.0 million over two years to support the Department of Education's Information and Communications Technology (ICT) Strategy; and

• a further $3.6 million extra to upgrade the Springvale Hostel at New Town, Latrobe High and the Port Dalrymple District High School.

Healthy Living Prudent financial management has enabled the Government to reduce debt and redirect money into services. For the first time, the expenditure for Health and Human Services will exceed $1 billion. In other words, one in every three dollars will be spent on health and community services.

Initiatives to maintain and improve health services include:

• increased funding to the State's major hospitals, including additional base funding of $6.1 million to cover the additional costs of medical, surgical and pharmaceutical supplies and increases in demand for hospital and ambulance services; $400 000 to expand cardiology services at the Launceston General Hospital; continued funding of $1.3 million to address elective surgery activity; funding for additional specialists and other medical practitioners through the North West Hospital and Ambulance Services Package; additional ambulances and crew in the North-West of the State; $4.8 million to purchase two


new multi-slice CT scanners; nine replacement ambulances and new Cardio-thoracic Intensive Support Unit equipment;

• increased funding of $3.8 million to assist in meeting additional costs in disability services arising from increasing demand in recent years for emergency accommodation and respite services; to increase long-term supported accommodation places, particularly for high needs clients; and to provide additional day support and professional support for people with challenging behaviours;

• an additional $6.9 million to be invested in mental health services in 2004-05. This includes an additional $1.9 million in base funding to improve existing services and $5.0 million in recurrent funding to support the new Secure Mental Health Unit as part of the Risdon Prison redevelopment;

• funding of $8.5 million over four years to improve oral health services, including continuing funding from the Economic and Social Infrastructure Fund, as well as further funding to recruit and train additional dental practitioners, therapists and assistants;

• increased base funding of $4.0 million for additional child abuse assessment officers and case managers and to meet the increased costs of the child support and protection system, and the full year effect of the new carer payment system, including kinship care and approved children's homes; also an additional $1.0 million funding for the Department of Health and Human Service's contribution to implement the Government's 'Safe at Home' – A Criminal Justice Framework for Responding to Family Violence in Tasmania initiative; and

• an additional $2.6 million for the second year phase in of the new cost indexation arrangements for funded non-government service organisations.

The Government will also invest an extra $7.8 million in 2004-05 to provide new equipment for Tasmania's health system including:

• $1.5 million as part of total expenditure of $6.5 million for the Hospital Information System;

• $2.4 million as part of total expenditure of $3.9 million for the West Coast Multi-Purpose Centre;

• $1.3 million as part of total expenditure of $11.1 million for the Department of Emergency Medicine redevelopment at the Royal Hobart Hospital;

• $1.3 million as part of total expenditure of $2.9 million for the Scottsdale Hospital redevelopment;

• $500 000 as part of total expenditure of $3.8 million for the Smithton District Hospital redevelopment;

• $200 000 as part of total expenditure of $2.3 million for the George Town Hospital redevelopment;

• $568 000 for the May Shaw Health Centre redevelopment; and

• $2.0 million from the Economic and Social Infrastructure Fund to be expended on the replacement of health equipment.

Helping People This year, concessions and subsidies worth over $200.0 million are available for low-income Tasmanians. The 2004-05 Concessions Booklet will be sent to all Housing Tasmania tenants and will be available at all Service Tasmania outlets as well as non-government community service organisations.


There are few better and more fundamental of ways of helping people and investing in people than ensuring that Tasmanian's have access to affordable housing. The Affordable Housing Strategy will receive an additional $45.0 million over four years, to make housing even more affordable for those Tasmanians most in need.

A range of concessions and benefits are available under the Transport Access Scheme to provide assistance to people who have permanent physical or intellectual disabilities, to enable them to use the range of transport facilities available to the general community. The Transport Access Scheme has been extended to increase some rebates, and to ensure the Scheme can provide transport access for more people.

An extra $712 000 will be spent over four years to make sure more pensioners, visually-impaired and unemployed people will have access to regular transport services.

As of 20 May 2004, the Government will be providing duty relief on conveyance duty to first home buyers. This relief will initially be available until 30 June 2005, and will apply to contracts entered into on or after, 20 May 2004. Up to a maximum of $4 000 will be available for home buyers who qualify for the First Home Owner Grant scheme, and who are purchasing property with a value of up to $350 000. This will mean that first home buyers purchasing properties up to the value of $150 000 will pay no conveyance duty.

Building Communities The Government is committed to investing in our communities. Sixty per cent of our people live in regional communities and the Government will continue to nurture and assist our regional communities to ensure that the momentum of Tasmania's strong economic conditions are enjoyed in our regional communities.

To help our communities, the Government will commit:

• to increase safety on regional roads and bridges, $18.0 million extra over three years for roads and bridges maintenance, bringing the 2004-05 State Roads Program to $185.0 million;

• a further $1.2 million to be spent on eradicating foxes in 2004-05. Additional funding of $2.7 million has been earmarked for fox eradication strategies over the next four years;

• $11.0 million over four years for community infrastructure projects, to improve services such as water, sewerage and facilities to meet increased demand for tourism;

• over $4.0 million over the next four years to support nature conservation and diversity programs. The funds will be used to meet the State's obligations under the Regional Forest Agreement with particular focus on the Private Forest Reserve Program, information management mapping tools and threatened species management;

• over $1.0 million dollars in 2004-05, and over $1.5 million in each of the three years after that, to fulfil the State's commitments to natural resource management under the Natural Resource Management Framework and to support the Regional Committees to address issues of strategic importance;

• $1.2 million over four years to the development of a major exhibition at the Tasmanian Museum and Art Gallery showcasing Tasmania's links to the Antarctic and Southern Ocean;

• $1.2 million over four years to make sure Tasmania continues to have a world-class orchestra, in recognition that the Commonwealth Government has recently reduced its funding for the Tasmanian Symphony Orchestra;


• $400 000 for the production of the next Ten Days on the Island festival in April 2005, the State's major cultural festival; and

• $1.2 million additional funding for the Tasmanian Institute of Sport to benefit Tasmania's sports communities.

Investing In Skills With population growing, demand for goods and services is strong. Unemployment is at a record low and, as a consequence, the pool of available skilled workers is shrinking. The Government is already providing programs to address skills shortages but also acknowledges the business community concern that there is much more work to be done to address this result of a strong and thriving economy.

As part of its commitment to investing in skills, the Government will commit:

• further funding of $1.2 million over four years to extend the Start @TAFE Program;

• a further $15.3 million over four years to implement 27 initiatives in the Post Compulsory Education and Training Strategy specifically to lift participation in education and training; and

• $5.3 million to increase training through TAFE to meet the growing demand for skilled labour for the construction, tourism and hospitality industries, community services, and primary industries; to lift training participation for the long-term unemployed; and to improve adult literacy.

Protecting People Tasmania is recognised as the safest state in Australia. Total reported crime has fallen 20.9 per cent over the past four years and crimes against people in Tasmania are now amongst the lowest in the country. However, protecting people in our community is so much more than just reducing crime statistics – it is about changing peoples' patterns of behaviour, funding and training our police force, ensuring that our justice system is adequately funded and making sure that we are able to respond to natural disasters, road accidents and rescue emergencies.

One of the most serious social problems facing the State is family violence. A comprehensive package has been developed by a number of agencies to address this issue.

As part of its commitment to protecting people, the Government will commit:

• additional funding of $17.7 million over four years for 'Safe at Home' - A Criminal Justice Framework for Responding to Family Violence in Tasmania to enhance the Government's response to family violence by creating an integrated criminal justice response;

• $1.5 million to enable the successful U Turn Program to continue. This successful pilot program has a particular emphasis on diversionary strategies which help young people who are involved in, or at risk of becoming involved in, motor vehicle theft;

• additional funding for the salaries of police officers of $78.0 million over four years;

• almost $500 000 to purchase additional state-of-the-art ballistic vests and protective equipment for operational police officers; and

• provide $2.9 million over four years to: provide for substantial upgrades to Road Accident Rescue vehicles and equipment, operated by local State Emergence Service units; the replacement and upgrade


of volunteer unit equipment including uniforms and communications equipment; the provision of storm damage and general rescue equipment; and ensuring our volunteers are the best trained in the nation through the provision of training resources and packages together with computerised training data bases.

Jobs and the Economy There has been unprecedented strong growth in Tasmania's employment over the past two years, with record numbers of Tasmanians in jobs. As a result of this increase, the State's unemployment rate is at its lowest level in over twenty years and the gap between the Tasmanian unemployment rate and the national average has narrowed considerably.

To continue its commitment to jobs and the economy, the Government has committed:

• increased funding for Business Enterprise Centres (BECs) of $1.3 million over four years. As a result of the new opportunities for small business flowing from the Government's commitment to infrastructure projects, the need for extended services by the BECs has increased;

• $4.0 million over the next two financial years to further promote Tasmania as Australia's best destination to further capitalise on the success of the new Bass Strait ferries; and

• a further $1.0 million to be spent over two years to continue the Government's Partnership to Jobs Program.

A POSITIVE FUTURE FOR TASMANIA The Government is committed to building a positive future for Tasmania. This commitment is reflected in the strategic approach which has been taken by the Government to addressing those social, financial and economic issues which have been identified.

As a result of this commitment, together with the essential contributions of the general community, local government and the business community, recent years have seen significant inroads being made into building a positive long-term future. Unemployment has fallen, the State's population is growing, the Government is delivering Budget surpluses, net debt will be eliminated in just over three years and massive capital investment in infrastructure is being undertaken throughout the State. In addition, Tasmanians have articulated their views for the future of Tasmania in Tasmania Together, Partnership agreements between the State and Local Government have been established and are strengthening this important relationship and the Government has provided hundreds of millions of dollars in additional funding for vital social services such as hospitals, schools, housing, our police and other community services.

The 2004-05 Budget continues the strategic directions established by the Government. It gets the balance right by investing a further $445.3 million in government services over the next four years, the implementation of a number of important new social initiatives, signalling additional future tax cuts and introducing duty relief on conveyance duty for first home buyers, investing a further $128.0 million in economic and social infrastructure and making the elimination of General Government Net Debt a reality.

Further information on how the 2004-05 Budget is investing in Tasmania and helping to build a positive future for Tasmania is provided in this and the other key Budget documents.

Chapter 2: Tasmanian Economy 31

2 TASMANIAN ECONOMY

Features

• Tasmania is experiencing its best economic conditions in decades.

• This improvement has been characterised by:

− record jobs growth, including strong growth in full-time employment;

− a substantial reduction in unemployment, currently at the lowest level since January 1982, and in the number of long-term unemployed persons;

− very strong private sector investment;

− substantially increased visitor numbers arising largely from the operations of the Bass Strait ferries and the increased competition in air travel to Tasmania;

− continued growth in consumption, due, in part, to the increase in household wealth arising from the very strong growth in property values;

− business and consumer confidence at high levels; and

− solid population growth as a result of strong growth in interstate arrivals.

• The construction industry has been especially buoyant as a result of very strong growth in dwelling investment and the major infrastructure projects underway.

• Tasmania's international exports have been affected by the relatively high value of the Australian dollar against the currencies of Tasmania's major trading partners but this has, to some extent, been offset by commodity price increases in some industries.

• The Economic Outlook section highlights a number of positive developments that are expected to sustain business confidence and underpin solid economic and employment growth in Tasmania into the future, including several energy-related projects and the Government's additional infrastructure expenditure.

• As an open economy, Tasmania is exposed to factors outside the State's control, including national and global market conditions and exchange rate movements. External market conditions are generally favourable for Tasmania, with the national and global economies expected to perform strongly in 2004-05.

• Monetary conditions also remain favourable for future growth, with low and stable inflation and historically low nominal and real interest rates.

• Continued strong economic and employment growth is expected for 2004-05, driven by investment and consumption spending and a return to growth in the value of exports.

32 Chapter 2: Tasmanian Economy

INTRODUCTION Chapter 2 provides an account of the recent performance of Tasmania's economy and provides Treasury's projections of key economic variables for 2004-05.

The first section provides a comprehensive analysis of the State's recent economic performance and compares Tasmania's performance with that of the Australian economy over the past five years.

The second section contains an overview of the major infrastructure developments within Tasmania, as these have a significant impact on Tasmania's current and future economic performance.

The final section of the Chapter presents an overview of Tasmania's economic outlook for 2004-05.

Notes • All data measured in dollars, unless otherwise indicated, are expressed in real (2001-02) prices.

• This Chapter includes data released up to 4 May 2004.


RECENT ECONOMIC PERFORMANCE Overview Tasmania's economy is small and open, with an industry structure that is broadly similar to that of Australia as a whole. The primary sector, notably forestry, is more important in Tasmania than nationally, and accounts, directly or indirectly, for most of Tasmania's exports. With the centralisation of financial services and corporate management in Sydney and Melbourne over the 1990s, the finance and insurance sector contributes less to Tasmania's economy than is the case nationally.

About one half of Tasmania's total production is distributed to the local market, with around 30 per cent being exported to mainland Australia and the remaining 20 per cent being exported overseas. Demand for about one half of Tasmania's goods and services is therefore vulnerable to changes in global and national economic conditions. Movements in exchange rates and world commodity prices, in particular, can have a significant influence on the value of Tasmania's overseas exports.

The major economic indicators that are discussed in this section are:

• Gross State Product;

• State Final Demand;

• consumer spending;

• wages;

• the labour market;

• private sector investment;

• public sector spending - consumption and investment;

• business and consumer confidence;

• export activity; and

• demographic trends.

There has been a substantial improvement in the Tasmanian economy over the past two years. All major economic indicators, except overseas exports, showed strong growth over this period. The growth in activity has been driven by increases in consumer spending, private sector investment, including some major infrastructure projects and, to a lesser extent public spending, principally public investment. The increase in visitor numbers has been an important contributor to this growth and is due, in large part, to the operation of the Spirit of Tasmania ferries and the increased competition in air travel to Tasmania following the entrance of Virgin Blue. The strength of the national economy has also assisted Tasmania's growth by stimulating demand for Tasmania's exports to mainland states and territories.

During the past 12 months, Tasmania's exports have been adversely affected by the appreciation of the Australian dollar against most major currencies. This has reduced the Australian dollar value of overseas exports and also reduced profit margins for Tasmania's exporters. The recent global recovery and higher world commodity prices have offset, to some extent, the impact of this appreciation.


Tasmania's population growth has recovered after the four year period of population decline that ended in late 2000. Tasmania's population growth for 2003-04 is now approaching the national level, as a result of a significant increase in interstate arrivals and, to a lesser extent, overseas arrivals.

All labour market indicators have shown strong improvement over the past two years, particularly over the past year. Employment is at record levels, and the number of unemployed persons has fallen to the lowest level in 22 years. As a consequence, the gap between the Tasmanian and national unemployment rates has narrowed considerably. Long-term unemployment is at its lowest year average level in 22 years but remains above the national average. The Tasmanian participation rate has shown some improvement but still lags behind the national average.

While all regions of the State have experienced economic growth, it appears that, in terms of jobs growth, the gains in the North-West region have not been as great as in the Northern and Southern regions. The North-West region also has a significantly lower participation rate than the other two regions.

Gross State Product (GSP) Gross State Product (GSP) measures the value of goods and services produced in each state and territory, and is the local equivalent of Australia's Gross Domestic Product (GDP). It is designed to be the principal indicator of economic performance and is the measure used by most economic commentators, ratings agencies and the media.

Treasury urges caution in the use of GSP data for Tasmania issued by the Australian Bureau of Statistics (ABS). State GSP data, especially for a small economy such as Tasmania, tend to be quite volatile and are often subject to substantial revision. One problem the ABS faces in estimating GSP by the expenditure method is a lack of data on interstate trade, which is a very important component of Tasmania's aggregate demand. In recent years, the GSP data have not always been consistent with other economic indicators and the ABS continues to classify this series as 'experimental'.

As an example, in 1999-00, the ABS estimated that Tasmania's GSP declined by 1.8 per cent. However, it also estimated that year average employment in that year grew by 2.0 per cent, total weekly hours worked increased by 5.0 per cent and state final demand increased by 2.6 per cent.

According to the ABS preliminary estimates, the Tasmanian economy, as measured by GSP, grew by 0.5 per cent in 2002-03. Other major economic indicators, such as employment, hours worked and state final demand show more significant growth rates, as detailed elsewhere in this Chapter. Table 2.1 shows the most recent ABS estimates of Tasmania's GSP and Australia's GDP for the past five years.

Table 2.1: Gross State/Domestic Product: Tasmania and Australia (2001-02 prices)

Tas GSP Australia GDP Tas GSP

Year Tasmania

GSPAustralia

GDPvariation fromprevious year

variation fromprevious year

as proportionof Australian GDP

$m $m % % %1998-99 12 132 649 550 1.871999-00 11 909 673 944 (1.8) 3.8 1.772000-01 11 826 687 720 (0.7) 2.0 1.722001-02 12 281 714 370 3.9 3.9 1.722002-03 12 339 734 209 0.5 2.8 1.68

Source: Australian National Accounts: State Accounts, ABS Cat No 5220.0.


State Final Demand State final demand is an alternative indicator of Tasmania's economic performance, and is more transparent in terms of its components than the GSP measure. Treasury considers the state final demand measure to be a more reliable indicator of economic activity in Tasmania.

The components of state and national final demand are consumer spending, private sector investment and public sector expenditure (both investment and consumption). Each of these is discussed in more detail later in this Chapter.

Chart 2.1: Economic Performance: Final Demand: Tasmania and Australia

-1.0

-0.5

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Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03

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Tas Australia

Source: Australian National Accounts: National Income, Expenditure and Product, ABS Cat No 5206.0.

Chart 2.1 shows the percentage changes in Tasmanian and national final demand since the June quarter 1998. The Chart shows the strong growth in Tasmania's final demand from mid-2000 to mid-2002. After a decline in this growth in the September 2002 and December 2002 quarters, there has been a return to higher growth, with Tasmania's growth in the first two quarters of 2003-04 being the strongest over the past five years and also stronger than for Australia as a whole.

The changes in Tasmania's final demand have been largely due to the changes in investment spending, principally dwelling investment and major infrastructure investment, such as the natural gas pipeline. At a national level, the volatility has also been driven by changes in investment, particularly the very significant fluctuations in dwelling investment around the time the GST was introduced.


Table 2.2: Final Demand: Tasmania and Australia (2001-02 prices)1 Tasmania Australia Tasmania's

Final Demand Final Demand Final DemandTasmania Australia variation from variation from as proportion of

Year Final Demand Final Demand previous year previous year Australian Final Demand$m $m % % %

1998-99 12 943 650 462 1.991999-00 13 283 681 765 2.6 4.8 1.952000-01 13 598 684 305 2.4 0.4 1.992001-02 14 500 714 467 6.6 4.4 2.032002-03 15 039 758 826 3.7 6.2 1.98

Source: Australian National Accounts: National Income, Expenditure and Product, ABS Cat No. 5206.0.

Note: 1. The cost of purchasing the Spirit of Tasmania ferries has been deducted from the state final demand figures for

2001-02 and 2002-03.

Table 2.2 provides a comparison of Tasmanian and national final demand. In the period from 1998-99 to 2002-03, Tasmania's average underlying annual growth in state final demand was 3.8 per cent, virtually the same as the average national growth of 3.9 per cent. As a consequence, Tasmania's share of national final demand has been relatively unchanged. This suggests that there has been little difference between the performance of the State economy and the national economy over the past four years, unlike what is implied by the GSP and GDP estimates.

Consumer Spending Consumer spending, also known as household final consumption expenditure (HFCE), represents approximately 61 per cent of final demand and has been one of the stronger performing components of the Tasmanian economy over recent years.

In real terms, growth in consumer spending in Tasmania has risen at an annual average rate of 3.0 per cent since 1998-99. As shown in Chart 2.2, although below the growth rates recorded nationally over this period, consumer spending has been the economic indicator that has most consistently and closely tracked the national average.

In 2002-03, real consumer spending increased by 3.9 per cent in Tasmania, above the increase of 3.5 per cent recorded in 2001-02. National growth in consumer spending also improved over the same period, from 3.3 per cent in 2001-02 to 4.1 per cent in 2002-03. The increased growth in Tasmania in 2002-03 is likely to have resulted from a combination of growth in average earnings, employment and population.

Retail trade accounts for around 38.7 per cent of consumer spending in Tasmania. In the past five years, retail spending has grown by an average of 2.0 per cent annually in real terms, half the average growth rate of 4.0 per cent nationally. This reflects the lower growth in average earnings, employment and population in Tasmania, relative to Australia as a whole. However, in 2002-03, Tasmania experienced much stronger growth of 4.2 per cent, compared with national growth of 4.6 per cent.


Chart 2.2: Consumer Spending: Tasmania and Australia

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Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04

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Tasmania Australia


Growth in consumer spending has consistently exceeded growth in retail spending since the mid-1990s. This implies sustained growth in non-retail spending, such as for health care, recreation and motor vehicle purchases. Data on Tasmania's real consumer spending reveal strong average annual growth over the past five years in expenditure on communications (9.7 per cent); recreation and culture (5.3 per cent); health (4.8 per cent); furnishings and other household equipment (4.6 per cent); and clothing and footwear (4.5 per cent).

Part of the recent increase in real consumer spending is due to the wealth effect from increased property values. Around two thirds of households hold part of their wealth in property and, for the vast majority, the primary residence is their most valuable non-financial asset. Household wealth in Tasmania has been boosted in the past two years with the strong growth in property prices and this has contributed to the growth in consumer spending.

Banks and other financial institutions have been increasing credit to households, on the basis of increased property values and higher incomes, and at historically low interest rates. The value of personal finance commitments made by Tasmanians increased by 29.7 per cent in the year to February 2004. Of this figure, fixed personal loans rose by 39.4 per cent and revolving personal credit (such as credit cards, and lines of credit) grew by 18.3 per cent. Within the revolving credit component, borrowings secured by a mortgage or another asset increased by 43.4 per cent. Indebtedness of Tasmanian households has, therefore, increased as households have judged that they can service the higher debt levels.

The growth in property values has been associated in Tasmania with a large increase in the number of property sales. The Real Estate Institute of Australia has estimated that the number of dwellings sold in Tasmania increased by 23.5 per cent in the twelve months to June 2003, compared to the previous year. It is likely that a significant component of the increase in real consumer spending on furnishings and related goods, such as white goods, is the result of Tasmanian households and new arrivals to the State furnishing their new homes.


Visitors (tourist and business arrivals) to Tasmania also contribute to consumer spending. Data from Tourism Tasmania suggest that, in 2002-03, visitor expenditure accounted for 10.1 per cent of Tasmanian consumer spending. Tourism Tasmania has estimated that visitor numbers rose by 22.1 per cent in the year to June 2003. Visitor expenditure was estimated by Tourism Tasmania to have risen by 11.7 per cent per annum in nominal terms for the same period.

In 1998-99, visitors to Tasmania stayed an average of 9.5 nights; this declined in subsequent years but increased to 9.9 nights in 2002-03. Visitor arrivals increased strongly in 2002-03 at all ports of arrival. This can be attributed to the introduction of the two Bass Strait ferries in the September quarter 2002, the increased capacity and greater competition in air travel arising from the introduction of the discount airline Virgin Blue, the increased awareness in mainland Australia of the attractions of Tasmania and uncertainty relating to the international tourism environment.

Visitor numbers have shown continued strength into the first half of 2003-04, with numbers in the year to December 2003 growing by 18.4 per cent compared to the previous twelve-month period, comprising an additional 63 600 who arrived by air (an increase of 14.4 per cent) and an additional 54 400 by sea (an increase of 40.6 per cent).

Major determinants of changes in consumer spending also include growth in earnings and employment, and population trends. The increase in consumer spending in 2002-03 was supported by a continuation of the employment growth that had been evident since January 1999 and increased population growth. These factors were aided by consistent growth in average earnings. Trends in each of these components are examined below.

Wages The average level of wages in Tasmania and the rate of wages growth have been below those in Australia as a whole in recent years.

In the five years to 2002-03, average total earnings in Tasmania rose at an average annual rate of 3.3 per cent in nominal terms, below Australia's 3.7 per cent growth rate. While the change in full time average weekly ordinary time earnings (AWOTE) is the benchmark measure for growth in wage rates, changes in total earnings provide a better guide to movements in average income levels as this measure includes overtime and wages paid to juniors and part time workers. It is also particularly relevant in the Tasmanian context, given the relatively high proportion of employed persons in part time work.

The level of average total earnings in Tasmania has been the lowest of all the Australian states and territories since 1993-94 and was 87.6 per cent of the Australian average in 2002-03 ($622.23 per week in Tasmania compared to $710.48 nationally), down from an average of 95 per cent in the early 1990s. This difference is due, in part, to the greater importance of part time labour in Tasmania relative to Australia as a whole. In 2002-03, part time positions accounted for 30.8 per cent of all jobs in Tasmania (28.7 per cent nationally), up from 26.5 per cent a decade earlier (23.7 per cent nationally).

Tasmanian AWOTE has recorded stronger growth than average total earnings since the mid-1990s, as it has not been affected by the growth in part time work, and has risen by an average (nominal) rate of 3.8 per cent in the five years to 2002-03, compared to the national growth rate of 4.6 per cent. However, in 2002-03, Tasmanian AWOTE increased by $43.77 per week (5.6 per cent), which was less, in percentage terms, than the increase in Tasmanian average weekly earnings of $40.22 per week (6.9 per cent) during the same


period. The strong growth in average weekly earnings in that year was due to the increase in average hours worked.

The level of AWOTE in Tasmania remains below the national average at just over 91 per cent of the Australian level in 2002-03 ($822.68 per week compared with $897.60).

Labour Market One area where the recent improvement in Tasmania's economic fortunes has been most apparent is the labour market. There has been significant growth in Tasmania's employment over the past two years to record high levels, which has led to unemployment decreasing to its lowest level since January 1982.

Employment and Hours Worked Employment in Tasmania has experienced significant growth over the past year, with average employment in the year to March 2004 increasing at the highest rate since late 1990. The growth in 2003-04 is a continuation of the recovery in employment that commenced in mid 2001-02. This followed the decline that resulted from a slowdown in the national economy following the introduction of the GST and the deterioration in international economic conditions.

Table 2.3 illustrates the strong employment growth in Tasmania over the past two years. Employment increased in each of the 23 months to March 2004 by a total of 13 900 to a record level of 211 800 persons. Tasmania has not experienced such strong growth in employment numbers over an extended period since the series commenced in 1978. The level of employment in March 2004 was 4.3 per cent (8 800 persons) higher than the level 12 months earlier. Tasmania experienced the strongest growth of all states and territories from March 2003 to March 2004, with national average employment growth of only 1.5 per cent over that period.

Table 2.3: Tasmanian Employment

1998-99 1999-00 2000-01 2001-02 2002-032003-04

estimate2004-05forecast

Total employment (year average, '000s) 195.3 199.3 200.6 198.4 201.4 210.4 215.4Total employment (per cent change) 0.0 2.0 0.7 (1.1) 1.5 4.5 2.4

Source: Actual Data - The Labour Force, Australia, Spreadsheets, ABS Cat. No 6202.0.55.001. Estimates and Forecasts - Department of Treasury and Finance.

In line with the long-term trend, part time employment in Tasmania grew at a faster rate than full time employment through the year to March 2004 and accounted for an increasing share of total employment. Part time employment accounted for 31.5 per cent of jobs in March 2004 compared with 30.9 per cent in March 2003. By contrast, in 1978, when the series commenced, part time employment accounted for 14.5 per cent of total employment in Tasmania. The trend towards part time employment has also occurred nationally but at a somewhat slower rate than in Tasmania. From 15.2 per cent of employment in 1978, national part time employment represented 28.4 per cent of total employment in March 2004.

Despite the continued trend of increasing part time employment in Tasmania, full time employment growth has recovered significantly over the past two years. From the early 1990s through to June 2002, full time employment was generally in decline. From June 2002 to March 2004, however, full time employment increased by 7.2 per cent (or 9 800 persons), accounting for over 70 per cent of employment growth over that period. Recent figures indicate that full time employment has declined marginally, while part time


employment growth has strengthened. From March 2003 to March 2004, full time employment grew by 3.4 per cent while part time employment increased by 6.5 per cent.

Chart 2.3: Employment: Tasmania and Australia

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Source: The Labour Force, Australia, Spreadsheets, ABS Cat. No 6202.0.55.001.

Both male and female employment in Tasmania has grown over the past two years. In March 2004, female employment was estimated at 95 100 persons, near the record level of 95 300 set in November and December 2003, while male employment was 116 700, its highest level since March 1991.

The strong employment growth over the past two years is reflected in very strong growth in the number of hours worked per week. The total number of hours worked per week in Tasmania in the year to March 2004 was estimated to be 6.8 per cent higher than in the year to March 2003, the highest year-on-year growth since the series commenced. Nationally, the number of hours worked increased by 2.4 per cent in the year to March 2004.

The increase in the total number of hours worked in the past year reflects an increase in both the number of persons employed and the average number of hours worked per employee, both of which have rebounded since the downturn in national and international economic activity in 2001-02. In the year to March 2004, the average number of hours worked by full time employees per week was a record 40.8 hours (in year-average terms), well above the average 39.6 hours per week worked by full time employees in the previous year. While the 15.7 hours per part time employee per week in the year to March 2004 was marginally below the year-earlier average of 15.8 hours, it remains at a relatively high level, just below the record number of hours worked per part time employee per week of 16.0 hours reached in mid-2003.

Nationally, the average number of hours worked by full time employees per week in the year to March 2004 was 41.0 hours, above the 40.7 hours worked in the year to March 2003 but below the record level of 41.5 hours in the year to August 2000. Part time employees worked an average 16.0 hours per week in the year to March 2004 compared with 15.9 hours in the year to March 2003 and equal to the record highest level.


Labour Force Participation and Unemployment The participation rate measures the proportion of the population aged 15 years and above that is either working or actively seeking work. As it has no upper age limit, it includes people aged over 65, who are rapidly growing in number and the vast majority of whom have no intention of being in the work force.

Tasmania's participation rate has always been below the national rate, though the difference has increased since the early 1990s. In recent years, Tasmania's participation rate had also been more volatile than the national rate, as illustrated in Chart 2.4. Following a decline in 2001 and early 2002 in line with the decline in employment, Tasmania's participation rate has subsequently shown a modest increase. This reflects the improved jobs market over this period, with individuals who previously were not working or not actively seeking work either finding work or encouraged to seek work. Tasmania's participation rate increased by 0.3 percentage points through the year to March 2004 to 59.2 per cent. Over the same period, there was a fall in the national participation rate of 0.3 percentage points to 63.6 per cent.

One reason for Tasmania's lower participation is the higher proportion of Tasmania's working age population in older age categories. These people have little or no attachment to the labour force. Preliminary work undertaken by Treasury suggests that this accounts for approximately 1.7 percentage points of the difference between the national and Tasmanian participation rates.

Even though the share of Tasmania's population in the older age categories has increased at a faster rate than nationally in recent years, the difference between Tasmania's participation rate and the national rate has decreased from the most recent high of 5.5 percentage points in mid-2002 to 4.3 percentage points in March 2004.

Chart 2.4: Participation Rate: Tasmania and Australia

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The gap remains large, however, and it appears that it is partly due to the relatively larger share of Tasmania's population on disability support pensions. Compared with the national average, Tasmania has a relatively larger proportion of the working age population who are not able to work due to disability. There


is also some evidence that the participation rate in metropolitan areas and remote areas is generally higher than the participation rate in less remote regional areas of Australia. Compared with other states and territories, a relatively high proportion of Tasmania's population is in regional, but not remote, areas. As discussed below, the participation rate is especially low in the North-West region of the State, estimated at 55.7 per cent in March 2004.

The strong growth in employment through the year to March 2004 and the relatively subdued growth in the participation rate has resulted in a significant fall of 2.1 percentage points in the unemployment rate through the year, to 6.8 per cent in March 2004, the lowest level since June 1981. While Tasmania's unemployment rate remains the highest of all states and territories, it was only 1.1 percentage points above the national rate in both February and March 2004, which is the smallest gap since October 1995. Chart 2.5 below shows the sharp decline in the unemployment rate in Tasmania over the past five years.

The number of people participating in the labour force, either employed or actively seeking employment, increased by 4 500 persons (2.0 per cent) through the year to March 2004 to 227 300 persons. This increase was less than the increase in employment through the year of 8 800, indicating that a significant number of new jobs went to people who were previously counted as being unemployed. The number of persons unemployed in Tasmania in March 2004 was 15 500, 4 300 persons (21.7 per cent) fewer than in March 2003 and the lowest number unemployed since January 1982.

Chart 2.5: Unemployment Rate: Tasmania and Australia

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This suggests that a significant number of new vacancies have been for semi-skilled and non-skilled jobs as, relative to the work force as a whole, a disproportionately large share of unemployed persons do not have post-compulsory education or training. This is supported by the industry data provided below, which show that jobs growth has been in the retail, manufacturing and accommodation, cafés and restaurants sectors, where a relatively high proportion of jobs are in these categories. It is likely that the growth in tourism, in particular, has led to growth in semi-skilled and non-skilled jobs.


The improved labour market performance in recent years has resulted in a significant reduction in the number of Tasmanians who are long-term unemployed, defined as those who have been unemployed for more than a year. In the year to March 2004, there were 5 200 long-term unemployed persons in year average terms, 1 400 (21.7 per cent) fewer than in the year to March 2003 and well below the 11 900 long-term unemployed persons when the series peaked in late 1993.

Despite this decline, a relatively high proportion of the unemployed in Tasmania are long-term unemployed, with 31.8 per cent of all people unemployed in the year to March 2004 being unemployed for more than a year, down from 34.5 per cent in the year to March 2003. Nationally, 21.3 per cent of unemployed persons were long-term unemployed in the year to March 2004.

Industry and Regional Developments The structure of the Tasmanian economy is not markedly different from that of Australia as a whole. Sectors that are larger than the national average include: agriculture; forestry and fishing; retail trade; electricity, gas and water; and health and community services. Relatively smaller sectors include: wholesale trade; finance and insurance; communication services; and property and business services.

Chart 2.6 shows the trend in employment by industry over the past two years. In the year to March 2004, the industries that contributed most to employment growth were:

• retail trade (2 925 persons);

• accommodation, cafés and restaurants (2 550 persons);

• personal and other services (975 persons);

• manufacturing (850 persons);

• property and business services (825 persons); and

• construction (500 persons).

Those sectors where employment declined include:

• cultural and recreation services (800 persons);

• finance and insurance (725 persons); and

• wholesale trade (700 persons).

The sectors that have experienced strong employment growth over the past year are service industries that have benefited from the increased visitor numbers, and from the increase in household spending arising from the recent economic growth. The Chart shows that growth in the retail trade and accommodation, cafés and restaurants sectors has been especially strong in the year to March 2004.

The recent growth in employment in the retail sector, following the removal of restrictions on shop trading hours in December 2002, is consistent with the outcome predicted in early 2002 by the review group that investigated the likely employment impacts of removing these restrictions.


Chart 2.6: Employment Changes by Industry Sector: Tasmania

-2 500 - 500 1 500 3 500 5 500 7 500 9 500

Change from previous year (persons)

Agric., forestry & fishingMining

ManufacturingElectricity, gas & water

ConstructionWholesale Trade

Retail TradeAccom, cafes,

Transport & storageCommunication

Finance & insuranceProperty & bus. services

Govt admin. & defenceEducation

Health & comm. servicesCultural & rec. services

Personal & other servicesTotal

Year to March 2003Year to March 2004

Source: Labour Force, Australia, Detailed, ABS Cat. No 6291.0.55.001.

Table 2.4 summarises the State's regional labour market performance in the year to March 2004. ABS data indicate that all three regions experienced employment growth in the year to March 2004, with the Northern and Southern regions experiencing strong employment growth of 5.3 per cent and 5.2 per cent respectively. The North-West region experienced a much slower rate of growth of 0.7 per cent in the year.

Table 2.4: Regional Labour Market Statistics1 South North North-West Total State

Employment

Average in 12 mths to March 2004 ('000) 103.9 60.7 43.8 208.4 % change from year to March 2003 5.2 5.3 0.7 4.3

Participation Rate Average in 12 mths to March 2004 (%) 58.9 61.4 55.7 58.9 %-point change from year to March 2003 0.9 2.0 (1.7) 0.7

Unemployment Rate Average in 12 mths to March 2004 (%) 6.5 8.2 7.8 7.3 %-point change from year to March 2003 (2.0) (0.4) (2.3) (1.6)

Source: Labour Force, Australia, Detailed, ABS Cat. No 6291.0.55.001.

Note: 1. The regional labour force data need to be interpreted with caution due to volatility in the series and unexplained

variations in working age population in the three regions.

Past labour market data for the Northern and North-West regions have generally displayed significant volatility, with increases in one of the regions often offset by decreases in the other. This has previously caused concern about the reliability of the data for these two regions. However, the ABS has changed its


method of measuring the labour force in these two regions and future estimates are expected to be more reliable.

There are large differences in the participation rate across Tasmania's three regions as Table 2.4 shows. The Northern region continues to have the highest labour force participation of the three regions at 61.4 per cent, as has been the case over the past four years, and there has been a further 2.0 percentage point increase from the previous year. The North-West region has the lowest participation rate at 55.7 per cent in the year to March 2004, 1.7 percentage points lower than the previous year. The Southern region's participation rate rose by 0.9 percentage points in the year to March 2004 to be 58.9 per cent.

The Southern region currently has the State's lowest unemployment rate of 6.5 per cent in the year to March 2004, 2.0 percentage points below the rate in the previous year. The North-West region's unemployment rate of 7.8 per cent in the year to March 2004 is 2.3 per cent below that for the previous year and principally reflects a reduction in labour force participation, with the number of unemployed persons decreasing significantly more than the increase in employment. The Northern region's unemployment rate of 8.2 per cent in the year to March 2004 is 0.4 percentage points lower than the rate for the previous year.

Some of the changes in regional labour markets, which have seen relatively better performance in the Northern and Southern regions in recent years, reflect changes in Tasmania's industrial structure. For example, the decline in employment in the mining sector and the processing of primary industry output (notably minerals and forest products) in recent years has impacted more on the North-West region. The Southern and Northern regions have benefited relatively from the increased employment in call centres and a shift in manufacturing to the production of high-value marine vessels and value-added food and beverage production. The economic benefits of increased visitor numbers provide major benefits to all regions as they all have a range of major tourism attractions although there may be some particular benefits to the North-West region from the three Spirit of Tasmania ferries as they arrive into Devonport.

Private Sector Investment A key feature of the Tasmanian economy over the past three years has been the very strong growth in private investment (incorporating business and dwellings investment). Private investment, also known as private gross fixed capital formation (PGFCF), has increased in real terms in every quarter since March 2001 and grew by 3.4 per cent in the December quarter 2003 to $580 million (in 2001-02 prices), its highest level on record. This strong investment growth explains part of the employment growth over the past two years.

After the trough in early 1999, private sector investment levels in Tasmania have recovered significantly, as highlighted in Chart 2.7. The improvement reflects an increase in both business investment and dwelling investment. The only period when investment levels eased was in the second half of 2000, although not to the same extent as nationally, due primarily to the post-GST decline in dwelling investment.

Since the beginning of 2001, private sector investment has grown strongly, closely tracking the national average growth. This improvement reflects the investment associated with the natural gas project and substantial growth in dwelling construction, as well as increased investment more generally by businesses in Tasmania.

Reasons for the recent trend include increased confidence in the Tasmanian economy, the return to population growth since the beginning of 2001 and the low interest rate environment. The First Home Owners Grant Scheme (FHOGS) is likely to have brought forward some dwelling investment, especially during the first two years it has been in place.


Chart 2.7: Private Sector Investment: Tasmania and Australia

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The increase in private investment over the past five years has been from a very low base, relative to Australia as a whole. Despite the strong recent growth, the share of the State's GSP accounted for by private investment remains below the share of Australia's GDP accounted for by national private investment.

Trends in the major components of private investment are discussed in further detail below.

Dwelling Investment and Construction Dwelling investment in Tasmania is estimated at $633 million in the year to December 2003 and accounted for around 28.7 per cent of private sector investment.

The level of dwelling investment has been volatile over the past five years, due to the impact of the GST and, more recently in Tasmania, the housing boom. Investment in new houses grew sharply in 1999-00, both in Tasmania and nationally, as decisions were brought forward to avoid the increase in costs associated with the introduction of the GST on building services. Immediately following the introduction of the GST, dwelling investment slumped, exerting a negative influence on state final demand for three consecutive quarters.

Chart 2.8 shows that a greater decline was experienced nationally. The Chart also shows the subsequent recovery in the level of dwelling investment and, for Tasmania, no evidence of any easing in this growth. The growth in Tasmania's dwelling investment from July 2003 to December 2003 was 17.4 per cent.


Chart 2.8: Dwelling Investment: Tasmania and Australia

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The FHOGS was initially introduced by the Commonwealth Government on 1 July 2000 to compensate first home buyers for the additional GST-related costs of purchasing a dwelling by providing a $7 000 grant. In response to the significant drop in dwelling construction in the second half of 2000, the Commonwealth Government introduced an additional FHOGS payment in March 2001 for those building a new home or substantially renovating an existing dwelling. The additional payment was initially $7 000, but this was reduced to $3 000 from 1 January 2002 and was phased out completely on 30 June 2002. Since 1 July 2003, the FHOGS has been fully funded by the State Government.

The FHOGS has reduced the period over which potential home owners have been required to save for a deposit in order to purchase their first property. It is likely that its impact on dwelling investment is now diminishing, partly as the additional Commonwealth payment is no longer available and also because the Scheme had a pull-forward impact which was subsequently followed by a return to more normal house purchase trends. Furthermore, as a result of the strong overall increase in property prices, $7 000 has become a smaller percentage of the total price. The current share of home purchases by first time buyers is 11.8 per cent, which is below the long-term average.

Other factors that have stimulated dwelling investment include rising real incomes in Tasmania, low and stable interest rates, a return to population growth and increasing confidence in the State's economic prospects. This increased confidence is reflected in the greater demand from interstate buyers for property in Tasmania, notably the more expensive dwellings in Tasmania, either as investment properties or as principal residences.

There are inherent difficulties in estimating changes in house prices due to the varied nature and prices of the housing stock. However, all evidence indicates house prices have risen strongly in Tasmania over the past two years, following a relatively long period of very modest increases. Increased house prices reflect the strength in the housing market in Tasmania at present and this has been coupled with very high occupancy rates in rental housing.


In the December quarter 2003, Hobart's housing affordability index, as measured by the Housing Industry Association, decreased by 40.6 per cent compared to the December quarter 2002 and is now at its lowest level since March 1990. While real weekly earnings have risen and interest rates remain at historically low levels, these factors have been outweighed by the growth in Hobart house prices. According to the ABS, Hobart's house prices increased by 21.4 per cent in the December quarter 2003 compared to the December quarter 2002, following a 9.0 per cent growth in the previous year. The State Government's duty relief on conveyance duty for first home buyers, announced as part of this Budget, is in response to the recent strong growth in Tasmania's house prices.

The increase in demand and the growth in house prices have arisen, to a large extent, from increased investor interest, especially on the part of mainland residents, in Tasmanian homes. It has also been due to many home owners choosing to trade up in prior to anticipation of further price increases. As a consequence, there has been greater interest in renovations as home owners borrow against the increased equity in their homes. There has also been an increase in land purchases to build a home, as an alternative to the more expensive option of purchasing an established dwelling.

The value of new residential building work done has rebounded after a slump in mid-2001 to be 71 per cent higher in the 12 months to December 2003 compared to the 12 months to December 2001. The value of alterations and additions to residential dwellings has also grown strongly in the past year, by 13.8 per cent in the 12 months to December 2003 compared to the previous 12 months.

The number of dwellings approved in Tasmania increased by 39.2 per cent in the 12 months to February 2004, compared with a decline of 0.6 per cent nationally. Approvals declined, in trend terms, in mid-2002, most likely reflecting the phasing out of the additional FHOGS in June 2002. A similar decline occurred at the national level.

Chart 2.9: Number of Secured Housing Finance Commitments: Tasmania and Australia

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Source: Housing Finance for Owner Occupation, Australia, ABS Cat No 5609.0.


As shown in Chart 2.9, the number of secured housing finance commitments rose strongly prior to the introduction of the GST in July 2000 and rebounded from the post-GST slump after the introduction of the additional FHOGS in March 2001. Although the number of housing finance commitments has fallen in Tasmania in recent months after reaching the highest level on record in August 2003, the number of commitments for the construction of new dwellings and the number of existing dwellings refinanced is showing continued strong growth, increasing by 24.6 per cent and 48.2 per cent respectively in the year to February 2004. As discussed above, this renewed growth is most likely due to the increased demand for dwellings, which is also reflected in rising house prices.

Following the intense pre-GST demand on building services and subsequent slump in dwelling unit commencements, the number of commencements rebounded from a trough in March 2001 to reach its highest level for over eight years in December 2003.

Activity in the housing market is expected to remain buoyant over the next year in line with continuing low interest rates, further population growth and continued confidence in the Tasmanian economy. However, the current rate of growth in housing prices is not sustainable and households and other investors will alter their behaviour once they consider that the growth phase has ended. There is already some evidence that the number of property purchases by investors is easing.

It is reported, however, that local builders currently have a backlog of work of around 12 months. Furthermore, the State Government's $45 million Affordable Housing Strategy will provide an additional stimulus to dwelling investment over the next two years, with construction of an additional 420 dwellings, and alterations to 270 existing dwellings planned. For these reasons, it appears likely that dwelling investment will remain around its current high levels.

Business Investment The level of business investment in Tasmania is very important for the Tasmanian economy, both as a component of economic activity and as a source of productivity improvements. Business investment is defined as total private investment excluding private dwelling investment and ownership transfer costs. In the year to December 2003, business investment was $1 385 million (in 2001-02 prices) and accounted for 62.7 per cent of total private investment.

High levels of business investment lead to increased competitiveness, growth in output and employment, and in higher real wages as a consequence of improved productivity. The level of real business investment is at its highest level on record in Tasmania, though the rate of growth has been easing.

Since the early 1990s, growth in private business investment in Tasmania has lagged well behind the national average. As a result, the level of business investment in Tasmania, measured in per capita terms or as a proportion of GSP, has been significantly below the national average. As a result, Tasmania's private capital stock has not grown at the same rate as nationally, and over the past decade growth in employment and real wages has consequently been below national levels.

One reason for the relatively low levels of local business investment in the 1990s was that those industries that expanded in Tasmania in these years tended to be labour intensive rather than capital intensive, including transport and equipment manufacturing (eg Incat Tasmania), cultural and recreational services and property and business services (such as call centres).

The performance of business investment over much of the 1990s may also have reflected the relative decline of the State's more traditional capital-intensive sectors, such as wood and paper product manufacturing. In part, however, the relative weakness in investment reflected a perception among Tasmania's larger


companies – many of which are owned by national or international interests – that there had been a lack of attractive investment opportunities in Tasmania, or insufficient incentives for expansion.

Chart 2.10 shows the trends in private business investment since the June quarter 1998. The strong growth during 2001-02 reflects spending on the State's energy projects, especially the transmission phase of the Tasmanian Natural Gas Project. Subsequent growth has been driven by other infrastructure developments including tourism related developments. The accommodative national monetary policy has also supported the growth in investment over recent years as both nominal and real interest rates have been at historically very low levels.

Chart 2.10: Business Investment: Tasmania and Australia

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The largest component of business investment is expenditure on machinery and equipment ($979 million in 2002-03), which includes expenditure on items such as plant, machinery and office equipment. In percentage terms, the most significant growth in business investment in the year to December 2003 was in machinery and equipment, up 8.6 per cent. Non-dwelling construction fell sharply by 54.4 per cent in the year to December 2003, following completion of the gas transmission pipeline early in that year.

The very strong economic growth that Australia has achieved over the past decade has been due, in large part, to high levels of private investment. Chart 2.11 below shows that over the past five years, private investment in Tasmania, as a percentage of GSP, has been significantly below the national equivalent. The Chart also shows, however, that since 1998-99, the share of Tasmania's GSP accounted for by private investment has increased and has been approaching the national share, although the gap widened marginally in 2002-03.

The higher levels of business investment, together with some of the increases in public sector infrastructure investment, such as the $18 million additional road and bridge spending announced as part of this Budget, indicates a deepening of Tasmania's capital stock, which will lead to improvements in productivity and Tasmania's competitiveness, and to further growth in employment and real wages.


Chart 2.11: Private Investment as a Share of GSP/GDP: Tasmania and Australia

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1998-99 1999-00 2000-01 2001-02 2002-03

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Australia

Source: Australian National Accounts: State Accounts, ABS Cat No 5220.0.

An example of this capital deepening is the recent investment in natural gas infrastructure. While the one-off economic effects to Tasmania of the natural gas pipeline construction are major, of greater long-term importance is the impact of a new source of low cost energy on the competitiveness of Tasmanian businesses, in national and overseas markets and also within Tasmania, against imported goods.

Surveys of business sentiment in Tasmania, such as the Tasmanian Survey of Business Expectations issued jointly by the Tasmanian Chamber of Commerce and Industry and the Commonwealth Bank of Australia, show that Tasmanian businesses are optimistic about their future performance and prospects for the Tasmanian economy. The recent Business Index surveys by Sensis confirm these results. Business confidence has been boosted by the major energy projects in the State, the overall improvement in economic conditions and the growth in tourism numbers that has resulted from the three Spirit of Tasmania ferries and the significantly improved air access to Tasmania.

As detailed in the Economic Outlook section later in this Chapter, there are a number of significant developments on the horizon that are expected to support an increase in business investment over the coming year.

Public Sector Spending – Consumption and Investment The public sector comprises the Commonwealth, State and Local Government sectors and includes government business activities contributed by Government Business Enterprises (GBEs) and State-owned Companies (SOCs). The infrastructure projects of some GBEs and SOCs are outlined in the following section of this Chapter.

The level of total public spending in Tasmania grew marginally through most of the 1990s. However, it has grown by a solid 14.1 per cent over the past five years, driven by an 11.3 per cent rise in 2001-02. The contribution of public spending to GSP in Tasmania has increased only marginally over the past decade,


from an average of around 28 per cent in the early 1990s to 29 per cent over the past five years. By comparison, the contribution of the public sector at the national level to GDP has fallen from 24 per cent to below 22 per cent over the same period.

Chart 2.12: Public Consumption Spending: Tasmania and Australia

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The largest component of public sector spending is government (or public) consumption expenditure, which has recorded significant rates of growth in recent years both nationally and in Tasmania, as Chart 2.12 shows. Over the past decade, government consumption expenditure has risen by an average annual rate of 2.4 per cent in Tasmania in real terms (2.8 per cent nationally), including an average increase of 2.4 per cent over the past five years.

The significant increase in the level of public sector spending in Tasmania in 2001-02 was due to higher levels of public sector investment, particularly the purchase of two Spirit of Tasmania ferries, combined with growth in government consumption expenditure. In 2002-03, public sector spending eased slightly from the previous year, despite the purchase in 2002-03 of the third Spirit of Tasmania ferry and government consumption expenditure growing strongly at 2.7 per cent.

In 2002-03, public sector investment totalled $668 million, equivalent to 5.4 per cent of GSP. Chart 2.13 shows the trend in public sector investment since the June quarter 1998. From the early 1990s, public investment has been trending down, but in Tasmania's case this trend ceased in mid-2001 and since that time there has been an increase in public sector investment in the General Government Sector and also by GBEs and SOCs.

Nationally, there has been a sharp decline in investment by government businesses over the past decade due to a number of significant privatisations, including Qantas, the Commonwealth Bank, the airports and numerous electricity assets (Telstra remains classified as part of the public sector as less than 50 per cent of its shares are privately owned). Capital expenditure by government businesses accounted for 38 per cent of total public sector investment nationally in 2002-03, down from 50 per cent 10 years ago. The corresponding shares for Tasmanian government businesses were 46 per cent and 50 per cent respectively. Excluding the


ferries, the share for 2002-03 would have been below the share in 2001-02, which was 43 per cent of public sector investment. The relatively greater importance of privatisations in other jurisdictions partly explains the larger decline at the national level in the share of total public investment accounted for by government businesses.

Chart 2.13: Public Investment: Tasmania and Australia

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The share of total investment accounted for by public investment in 2002-03 was 23.7 per cent, compared to 15.4 per cent nationally. This result is due, in part, to that fact that Tasmania's electricity entities, which have significant investment programs, are in public ownership, whereas in some mainland states they are privately owned.

The long-term trend towards a smaller public sector is reflected in the decline in public sector employment in Tasmania, which had been on a downward trend in the 11 years to 1999-00. However, since 1999-00, there has been a moderate increase in public sector employment. The reduction of around 12 100 jobs over the 11 year period to 1999-00 was due to fewer jobs in the State and Commonwealth sectors. In absolute terms, over 70 per cent of the job losses occurred at the State level, but in percentage terms the decline in Commonwealth Government employment in Tasmania had been nearly twice as large as the decline at the State level. The decline in State public sector employment in Tasmania reflected a program of redundancies undertaken by previous State Governments through the early to mid-1990s.

In the past three years, however, total public sector employment has risen by 4.3 per cent (or 1 800 persons), comprising a 4.5 per cent increase at the State Government level (about 1 400 persons), a 12.7 per cent increase in Local Government employment (about 500 persons), and a reduction of 2.2 per cent (or 100 persons) of those employed by the Commonwealth Government.

Employment levels in most of Tasmania's GBEs and SOCs have been relatively unchanged in recent years. However, there has been recent growth in the number of Hydro Tasmania employees, from 687 as at 30 June 2001 to 827 as at 30 June 2003. Hydro Tasmania is also likely to have contributed to the growth in


employment in the private sector over the same period as the value of its contracts to Tasmanian-based suppliers grew from $5.4 million in 2001-02 to $24.3 million in 2002-03.

A number of recent initiatives are resulting in strong public sector spending and employment data for the current year. For example, in the 2003-04 Budget, the State Government announced the establishment of a $107 million Economic and Social Infrastructure Fund. Government business expenditure has also been increasing, reflecting increased capital expenditure by Hydro Tasmania on wind generation projects, and expenditure by Transend on onshore Basslink-related infrastructure. Information on the State's Capital Program is provided in Chapter 6 of this Budget Paper.

Business and Consumer Confidence Business confidence is widely considered to be an indicator of future investment trends and consumer confidence is used to help forecast consumer spending.

It has been widely reported that the improved economic performance in Tasmania has boosted business confidence and that Tasmanian businesses are more optimistic about Tasmania's future prospects than they were throughout the 1990s. This strong business confidence augurs well for future investment and employment levels.

While business confidence is difficult to objectively measure and can be volatile, recent surveys confirm anecdotal reports that there has been a significant improvement in business confidence in the past two years.

Chart 2.14: Business Confidence: Tasmania

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Note: 1. A score above 50 indicates stronger growth prospects for the economy and a score below 50 indicates weakening

growth prospects.


Estimates in Tasmania are provided in the Tasmanian Survey of Business Expectations, prepared by the Tasmanian Chamber of Commerce and Industry (TCCI) in conjunction with the Commonwealth Bank (CBA), and Sensis (formerly Yellow Pages).

As Chart 2.14 shows, both measures record that business confidence in Tasmania has been on a rising trend since 2001.

As consumption expenditure represents over 60 per cent of Tasmania's state final demand, consumer confidence is also important in sustaining high levels of demand in Tasmania. Enterprise Marketing and Research Services (EMRS) undertakes surveys of consumer confidence in Tasmania on a regular basis. EMRS constructs a confidence index by combining the results of three questions relating to personal household living standards, regional job opportunities and expectations about the Tasmanian economy for the following 12 months.

Chart 2.15: Consumer Confidence: Tasmania

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Note: 1. EMRS states that a score of 100 is meant to represent an expectation of a continuation of the status quo, while a score

of 200 would indicate that all consumers expect an improvement for all three questions and a score of zero would indicate a universal belief that things will get worse in all three areas.

Chart 2.15 presents the results of the EMRS confidence index since it began in August 1999 and reveals that consumer confidence is currently estimated to be at its highest level since that time.

Export Activity It has been estimated that around half of Tasmania's output is exported, with around 60 per cent of the total value of exports sent interstate and the balance to overseas destinations.

There is some uncertainty associated with these estimates as the ABS does not measure interstate trade. While overseas trade data for Tasmania are available, they underestimate the value of Tasmania's exports as some Tasmanian goods are transported to other states before they are exported. These goods are therefore


included in the exports of those states. The extent that this occurs is not known, although some major exports (such as Cadbury chocolates, Paperlinx paper and Blundstone footwear) are known to be treated in this way.

It is evident, however, that exports to both interstate and overseas markets are a significant contributor to Tasmania's overall economic performance.

National and international economic and financial conditions impact on the competitiveness of Tasmanian exporters and therefore the State's export performance. In general, demand for exports is driven by economic conditions in export destinations. However, demand for some export products, particularly those that are not likely to be considered as discretionary expenditure items, may be relatively insulated from the effects of economic cycles. Other factors, such as exchange rates, economic conditions in the State and the availability of supply (such as in times of drought) also impact on the State's export performance.

Growth in the real value of Tasmania's overseas exports fluctuated during the past decade, with negative growth recorded in the mid-1990s, in the late 1990s and, more recently, since December 2002. Chart 2.16 shows the trends in Tasmanian and national overseas exports over the past five years, and reveals the underlying growth in the value of Tasmania's exports. Part of the volatility of export sales is due to the very high value of each catamaran sold by Incat Tasmania. The Chart also shows that the growth in Tasmania's overseas exports from June 1998 to March 2004 is very similar to the growth in national exports over that period.

Tasmania's overseas exports have shown some resilience to adverse international conditions. For example, during the Asian economic crisis in 1997-98, the real value of Tasmania's exports increased by 19.8 per cent, while national exports increased by only 3.7 per cent. Tasmania recorded positive growth in the real value of overseas exports in each of the three years to 2002-03, the only jurisdiction other than Queensland to achieve this outcome.

Chart 2.16: Real International Merchandise Exports – Tasmania and Australia

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Tasmania's overseas export performance over the past twelve months has been affected by the appreciation of the Australian dollar. While international demand is beginning to recover in line with the global economic recovery, the significant appreciation of the Australian dollar, particularly during 2003 and 2004, has had a negative impact on exports from all jurisdictions. In March 2004, the Australian dollar was buying, on average, around 76 US cents, up from a monthly average of around 60 US cents in March 2003, representing an increase of over 25 per cent over this period. The trade-weighted index, which measures the Australian dollar value against a range of major currencies, has risen over the same period by over 16 per cent.

This appreciation has generally resulted in Australia's exports becoming more expensive relative to the exports of some of Australia's competitors. In many cases, though, the foreign currency price of Australia's exports is unchanged, either because the goods are priced in that currency in world markets or because exporters are prepared to accept a lower Australian dollar price to retain market share. Except in cases where currency hedging occurs, exporters face lower, and sometimes negative, margins. In Tasmania, the aquaculture industry, poppy producers and some vehicle and transport manufacturers are likely to have faced lower margins as a result of the strengthening of the Australian dollar against the US dollar.

In some of Tasmania's export markets, the impact of the appreciation of the Australian dollar has been partly or fully offset by increases in world commodity prices, particularly for metals such as aluminium, zinc, copper and tin. However, the recent decline in the value of Tasmania's exports suggests that the net impact of these price effects has been unfavourable.

In the year to March 2004, the (nominal) value of Tasmanian overseas exports was $2 275 million, down 9.9 per cent from the level in the year to March 2003 (which is the second highest level on record). In comparison, the value of national exports declined by 10.9 per cent over the same period.

In 2002-03, Tasmania's major overseas merchandise export destinations (by country) were, in order of importance: Japan, Hong Kong, South Korea, the United States, Taiwan, Indonesia, India, Thailand and China. Japan remains Tasmania's largest single export market, accounting for 24.0 per cent (or $588 million) of the State's overseas export value in 2002-03. Over the past decade, the importance of Japan has declined, while export shares to Hong Kong and South Korea have increased. While the export share to China is still small, it has also grown over the past decade, in line with the growing importance of the Chinese economy in the region.

In terms of country groupings, in 2002-03 Tasmania exported $2 027 million to Asia Pacific Economic Cooperation countries, $1 392 million to Organisation for Economic Cooperation and Development countries, $303 million to members of the Association of South-East Asian Nations and $216 million to the European Union. Some countries are represented in two or more of these country groupings and therefore the total of these export values sum to more than the total value of Tasmania's exports.

In 2002-03, Tasmania's major overseas export commodities included non-ferrous metals, metallic ores, seafood, vehicles and transport equipment, dairy products and meat. A number of important exports, such as hardwood woodchips, are within the 'other and confidential items' category. 'Other and confidential items' comprised 37.2 per cent of Tasmania's total merchandise exports in 2002-03, which was the largest share of any commodity category. Non-ferrous metals comprised the next largest share with 30.6 per cent, followed by metallic ores with 6.8 per cent and seafood with 6.7 per cent.

While exports to both interstate and overseas markets are still a large contributor to Tasmania's economic performance, the recent increased level of economic activity in the State has partially insulated the Tasmanian economy from the easing in overseas export values. Furthermore, some exporters have


mitigated the impact of the strengthened Australian dollar by redirecting their sales to mainland Australia, and, in some cases such as some seafood, to within Tasmania.

Demographic Trends Tasmania's population had been growing at marginally below the national rate in the early 1990s before the growth rate began to decline, due principally to a sharp increase in interstate departures. In 1996, Tasmania's population declined for the first time since 1941. Over the following four year period when Tasmania's population was falling, Tasmania's economic performance was subdued, with high unemployment rates and little employment growth.

Over the period that Tasmania's population was in decline, Tasmania's population fell by a total of 3 251 persons or 0.69 per cent. Nationally, population growth grew by 4.60 per cent over the same period. This decline therefore led to a significant reduction in Tasmania's share of Australia's population, from 2.58 per cent in September 1996 to 2.45 per cent in September 2000.

Since late 2000, the State has returned to population growth, due to stable numbers of interstate departures and a sharp increase in interstate arrivals, together with an increase in net overseas in-migration. For the past five quarters (to September 2003) net interstate in-migration has been positive and increasing, resulting in an increasing population growth rate and the total population now exceeding the level in 1996. This recent period of population growth has occurred over the same period that Tasmania's employment growth has been very strong.

Chart 2.17: Population Growth: Tasmania and Australia

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Chart 2.17 shows Tasmania's population growth since June 1998 and the increase in growth over the past five quarters. Tasmania's population as at 30 September 2003 (the most recent published data available) was 7 142 persons higher than the September 2000 low. The September 2003 population estimate was


1.11 per cent, or 5 235 persons, above the level of one year earlier and resulted in the largest through the year growth since March 1991.

In year-average terms, Tasmania's population in 2002-03 was 0.60 per cent, or 2 849 persons, above the previous year's average. This followed growth of 0.15 per cent in 2001-02 and 0.01 per cent in 2000-01. As noted above, this sustained improvement reflects, in part, the strong underlying performance in the State's labour market that has seen trend employment growth for 23 consecutive months. Further improvements in the performance of the labour market, together with the likely lag between changes in the labour market and changes in net migration, suggest that population growth will continue at a strong rate into 2004-05.

Chart 2.18 below shows the components of Tasmania's growth over the past six years. In the early 1990s, Tasmania's natural population increase (births minus deaths) contributed around 3 000 persons per year to total population. With the decline in fertility rates, Tasmania's natural population increase contributed an average of 2 023 persons per year to total population in the four years to 2002-03. This equates to an increase of around 0.4 per cent of total population and is below the national average increase of 0.6 per cent.

International immigration into Tasmania fell during the 1990s. Net overseas migration has had a positive but relatively small impact on changes in the State's population, averaging 334 persons per year from 1998-99 to 2002-03. However, in the year to September 2003, net overseas migration was 793 persons, around the highest level for the past decade.

Chart 2.18: Components of Population Growth: Tasmania

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Source: Australian Demographic Statistics, ABS Cat No 3101.0.

The increase in population growth over the past two years has largely been driven by a turnaround in net interstate migration. In 2000-01, net interstate out-migration totalled 2 136 persons, or a reduction of 0.5 per cent of the State's population and comprised 14 865 departures and 12 729 arrivals. However, more recently there has been a slight reduction in interstate departures and a sharp increase in interstate arrivals. This has resulted in net interstate in-migration of 1 895 in 2002-03, the second highest yearly contribution to


population growth on record. This comprised 14 111 departures and 16 006 arrivals (the highest level of arrivals on record) and is the first time since 1990-91 that net interstate in-migration has been recorded.

The rise in out-migration through the 1990s included a higher proportion of people in the 5 - 14 year and 35 - 54 year age groups (that is, established families). This suggests that economic factors were the primary reason for the increase in out-migration. However, more recent data show that the slight fall in the number of persons leaving the State has largely been driven by a fall in those departing in the 15 - 29 year age groups, which suggests increased job opportunities in Tasmania for young workers. The increase in arrivals over the past two years has been due to increasing arrivals in all but the 20 - 24 year age group, with particular growth in the 40 - 59 year age groups and also in some younger age groups.

Tasmania was one of only three states to record net interstate in-migration in 2002-03. Queensland received 95.3 per cent of all net interstate migrants, Tasmania 4.6 per cent and Victoria 0.1 per cent. Recent research conducted by Treasury suggests that home affordability is one of the main factors influencing the decision of many people who migrate to Tasmania. While Tasmanian homes are still more affordable than those in mainland capital cities, the gap has narrowed over the past year.

In the medium term, sustained population growth will depend to a large extent on the availability of job opportunities and a continuation of the strong economic performance in the State.

The structure of Tasmania's population is as important, in many ways, as the population level. Due to declining fertility rates and an under-representation of women of childbearing age, Tasmania is expected to soon overtake South Australia as having the oldest population in Australia, in terms of the highest median age. An ageing population will present some challenges, but will also create many employment opportunities arising from the retirement of the baby boom generation.

The age profile of arrivals and departures over the past years suggests that there may now be net in-migration of families into Tasmania. If this trend is sustained, it is likely that this will reduce the rate at which Tasmania's population will age, and will also have many other important consequences, such as on the demand for housing and for government services.

Treasury has recently prepared a more detailed analysis of the State's population trends, titled Tasmania's Population 2003, which can be found on Treasury's website at www.treasury.tas.gov.au.

The impact of Tasmania's population trends on the level of Commonwealth payments to Tasmania is covered in Chapter 9 of this Budget Paper.


RECENT INFRASTRUCTURE DEVELOPMENTS Introduction As noted elsewhere in this Chapter, several major infrastructure projects are currently underway, or have recently been completed, in Tasmania. Two sectors in particular, the energy and tourism sectors, are being transformed as a result.

Some of these projects account for a significant proportion of the recent growth in private investment. Other infrastructure projects are being undertaken by Tasmania's GBEs and SOCs. These government businesses, which provide significant financial returns to the State and over 4 000 jobs, directly provide some of the State's most important economic infrastructure. The strategic directions and investments of these businesses also promote private sector investment and play a fundamental role in the economic development of the State.

Within the energy sector, two nationally significant energy infrastructure projects, namely Basslink and the Tasmanian Natural Gas Project (TNGP), are in the implementation phase. These projects, with a combined value of over $1.25 billion, will diversify the State's energy sector, introduce competition in energy markets and enhance Tasmania's business environment.

The purchase by TT Line Company Pty Ltd of a third vessel, Spirit of Tasmania III, for the Sydney to Devonport service will further develop the State's tourism industry, building on the success of the two Spirit of Tasmania vessels that commenced operation in September 2002 between Melbourne and Devonport. As noted above, the State's tourism industry has benefited from the significant increases in interstate visitors, and this has led to employment growth and substantially increased investment in the industry.

Forestry Tasmania plays a central role in an industry that contributes about $1.0 billion each year to the Tasmanian economy. As custodian and manager of over 40 per cent of the State's forests, Forestry Tasmania is well placed to facilitate the development of world class, value adding activities within the State. Current developments include the Southwood project and the ongoing development of tourism infrastructure with the Tahune Airwalk , the Dismal Swamp Maze and the Forest EcoCentre.

Basslink Basslink will enable Tasmania to join the National Electricity Market (NEM) and offers strategic benefits to Tasmania, Victoria and Australia as a whole. It offers an important commercial opportunity for Hydro Tasmania to realise the full value of its hydro system, delivering renewable and peaking power into the NEM. Independent studies conducted by the Centre for Regional Economic Analysis have estimated that by 2010 Basslink will boost Tasmania's economic performance by $110 million per year, and create 994 additional jobs by providing electricity in a competitive market environment.

Wind Tasmania is capitalising on its world-class wind resources. Hydro Tasmania has continued to expand its Woolnorth wind farm in North-West Tasmania, with Stage 2 of this project now built. Further developments at Woolnorth and other sites will progress subject to planning approvals and commercial


considerations. Once approved, Woolnorth Stage 3 will provide an additional 74MW, costing approximately $125 million.

The development of wind generation in Tasmania has enabled the State to capitalise on high value-added manufacturing opportunities. Vestas - Australian Wind Technology Pty Ltd, a wholly owned subsidiary of the Vestas Group, has built a state of the art nacelle production facility in Wynyard to supply the Australasian market that employs approximately 120 people. In March 2004, Vestas announced an order for a turnkey contract to be delivered to the Canunda Wind Farm project in South Australia, comprising 23 units of Vestas's V80-2.0 MW wind turbines.

Natural Gas The TNGP is progressing with gas now flowing to key customers in the Bell Bay industrial area and to Australian Bulk Minerals at Port Latta. Both generating units at the Bell Bay power station have been converted from oil to natural gas and gas-fired electricity is being produced into the Tasmanian grid as required. This conversion has substantially reduced the cost of electricity generated at the Bell Bay power station.

In December 2002, the Government announced that Powerco Ltd (Powerco) had been selected for the construction of the gas distribution network. The distribution network is progressing in multiple stages. Stage 1 of the project (the backbone), estimated by Powerco to cost $34 million and for which the State Government will provide $8 million in assistance. Stage 1 has commenced and will connect up to 23 commercial and industrial franchise customers with the rollout of around 100 kilometres of pipe to be laid by early 2005.

On 30 September 2003, the Government signed an Agreement with Powerco to deliver gas to 38 500 households in Devonport, Burnie, Hobart and Launceston. Stage 2A of the project will see a distribution network radiate from the Stage 1 backbone and make gas available to smaller industrial, commercial and residential customers. Industrial customers that are already using gas include Australian Bulk Minerals at Port Latta in the State's North-West, Comalco at Bell Bay and Ecka Granules, also at Bell Bay. Natural gas has also been available to a meat rendering plant in Longford.

The arrival of natural gas provides greater surety of energy supply to underpin economic expansion within the State. Natural gas delivers further benefits to Tasmanian industry by providing a more cost effective and environmentally cleaner heat and steam-raising alternative to oil and coal.

Other Economic Contributions from the Electricity Entities Transend Networks Pty Ltd (Transend) is Tasmania's state-owned electricity transmission company. Transend provides the link between power stations and the local distribution system. With the development of Basslink and NEM entry, Transend is investing heavily to upgrade and modernise Tasmania's electricity transmission system. Transend's planned capital expenditure from 1 January 2004 to 30 June 2009 is $307 million. Transend's capital expenditure program represents one of the largest investments in the Tasmanian economy by a business in recent years.

Aurora Energy Pty Ltd is the State's distributor and retailer of electricity, providing the essential infrastructure for the distribution of basic energy needs to 208 795 households and 42 098 commercial and government installations. Aurora Energy's line crews patrol and maintain 15 800 kilometres of high voltage lines and 9 500 kilometres of low voltage lines. Aurora Energy directly employs 762 people, with a further


97 on traineeships through Tas Group Training. Aurora Energy contributed $48.6 million to the Tasmanian economy through its gross payroll in 2002-03.

Forestry Tasmania Forestry Tasmania is one of the largest employers in the State, employing, as at 30 June 2003, 571 persons directly and a further 600 on contract. Forestry Tasmania is continuing to work towards achieving the objectives of the Forestry Growth Plan, a 20 year plan to take Tasmanian forestry and forest based industries to a world competitive level in resources, harvesting, processing and technology.

As part of the Plan, two integrated timber processing centres (Southwood Huon and Southwood Smithton) have received planning approval to commence development. It is intended that the Southwood Huon site in the south of Tasmania will contain the first modern rotary peeled veneer manufacturing facility in the State. Other developments on the Southwood Huon site include a regrowth sawmill, a wood fibre mill and a wood fired power plant. Infrastructure has been developed at the site and a state of the art sawmill, owned and to be operated by Neville Smith Timber Industries, is close to commissioning.

Forestry Tasmania is also contributing to the growth of the State's tourism industry, through the provision of major tourism attractions, notably, the Tahune Airwalk development in the south and the Forest EcoCentre at Scottsdale in the North-East. The construction of the Dismal Swamp Maze in the North-West is nearing completion and is due to commence operations in the near future.

TT Line Company Pty Ltd The TT Line Company Pty Ltd (TT Line) operates the Melbourne to Devonport service with its vessels Spirit of Tasmania I and Spirit of Tasmania II, and the Sydney to Devonport service with Spirit of Tasmania III. The three vessels are expected to carry around 480 000 passengers during the 2004-05 financial year.

TT Line purchased the Spirit of Tasmania III, in 2003, for a total cost, including the fit-out, of $105 million. The vessel was extensively refitted prior to commencing operations on the Sydney to Devonport run.

As discussed above, the increase in visitors to Tasmania by sea was 54 400 in the year to December 2003, an increase of 40.6 per cent. This increase can be attributed entirely to the impact of the first two Spirit of Tasmania vessels. The Spirit of Tasmania III commenced operations on 13 January 2004, with very strong bookings for travel to Tasmania, and therefore will further increase visitors numbers to Tasmania, and thereby assist in the development of Tasmania's tourism industry.


ECONOMIC OUTLOOK Table 2.5 outlines Treasury's estimates for key economic variables for Tasmania for the current financial year and Treasury's forecasts for 2004-05. The forecasts show that economic growth for 2004-05 is expected to remain above trend and to build on the exceptional growth estimated for 2003-04. This performance is expected to be supported by an improving global economy, strong consumer spending and continued growth in employment.

Table 2.5: Tasmanian Economic Aggregates and Forecasts Mid-year

FinancialReport

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Budget2004-05

2002-03 2003-04 2003-04 2004-05 Actual Estimate Estimate Forecast

State Economic Activity (real, % change)1 .…2 6.2 6.0 3.2Employment (year average, % change) 1.5 4.4 4.5 2.4Level of Employment (year average, '000s) 201.4 209.6 210.4 215.4Labour Force Participation Rate (year average, %) 58.5 59.4 59.1 59.5Unemployment Rate (year average, %) 8.8 6.9 7.0 6.7Consumer Price Index (year average, % change) 3.3 2.3 2.4 2.310 year Treasury Bond Rate (as at year end, %) 5.01 6.05 5.60 6.05Population (year average, % change) 0.60 0.69 0.90 0.70 Sources: Actual data - Australian Bureau of Statistics and Reserve Bank of Australia. Estimates and Forecasts – Department of Treasury and Finance. Notes: 1. Treasury's estimates and forecasts of growth in real state economic activity for 2003-04 and 2004-05 focus on the

underlying movements in output and are derived from trend projections based on a variety of indicators. The estimates or forecasts are not designed to be consistent with the experimental GSP series produced by the ABS, nor do they purport to forecast the ABS GSP estimates.

2. Actual unavailable. See note 1. The ABS GSP estimate for that year was 0.5 per cent.

2003-04 Estimates On the basis of the financial year performance to date, Treasury expects that the Tasmanian economy will record very strong economic growth in 2003-04. While economic data around the time of the 2003-04 Budget pointed to an improved economic performance by the State, the record level of employment growth achieved has been above expectations. Consequently, the estimate of growth in state economic activity for 2003-04 has been increased from the forecast of 3.5 per cent in the 2003-04 Budget to the current estimate of 6.0 per cent.

State final demand rose by 3.4 per cent in the year to December 2003 (the latest available data), with the strongest contributions from consumer spending and dwelling investment. The solid trend in dwelling investment has been assisted by low real and nominal interest rates, which have stimulated further spending on consumer goods. As discussed above, rising real household wealth has also led to increased consumer spending, funded, in part, by increased household debt.


Private investment in the first six months of 2003 was 5.0 per cent higher than the corresponding period in the preceding year and is expected to contribute to Tasmania's economic growth in 2003-04.

The increased value of the Australian dollar in trade-weighted terms over the past year has led to an easing in the value of Tasmania's overseas exports, with export growth (nominal) in the year to March 2004 9.9 per cent below the value in the previous 12 months. It is therefore not expected that overseas exports will contribute to economic growth in 2003-04, despite the improving global conditions.

However, public investment and consumption will add to Tasmania's economic growth in 2003-04. Public investment in the six months to December 2003 was around 75 per cent higher than the corresponding period of the previous year, due in large part to the purchase of the Spirit of Tasmania III ferry. Over the same period, public consumption was marginally higher in 2003, an increase of 1.8 per cent.

On current trends, employment is expected to increase by around 4.5 per cent for 2003-04 in annual average terms, following an increase of 1.5 per cent in 2002-03. Consistent with this growth in employment, the participation rate is expected to increase from an average of 58.5 per cent in 2002-03 to an average of 59.1 per cent in 2003-04, as more working age persons enter the job market with the confidence of finding work. While such an increase in the participation rate constrains a reduction in the unemployment rate, the spectacular employment growth over the same period is expected to reduce the unemployment rate from an average of 8.8 per cent in 2002-03 to an average of 7.0 per cent in 2003-04.

The underlying improvement in economic fundamentals and greater labour market opportunities are expected to have led to a strengthening in population growth over 2003-04. According to data at 30 September 2003, which is the latest available, over 5 000 additional people are residing in the State compared with September 2002. This equates to around 1.1 per cent of Tasmania's total population and has directly contributed to increased consumption spending and dwelling investment.

Dwelling investment is expected to be strong over 2003-04, in response to the buoyant housing market and the increased demand for new dwellings from the increased population. Business investment is also expected to remain around the current high levels as business confidence is strong and many major infrastructure projects are underway. Many private sector tourism developments (and upgrades to existing facilities) are contributing to the high investment levels in 2003-04.

The tourism developments have been in response to the increased visitor numbers to the State, due largely to the operation of the Spirit of Tasmania I and Spirit of Tasmania II vessels and the increased competition and capacity in air travel. These factors, together with increased visitor numbers from the operation of the Spirit of Tasmania III vessel from January 2004, are expected to contribute to the continued strength in consumer spending in 2003-04.

Stage One of Powerco's reticulation phase of the Tasmanian Natural Gas Project is estimated by Powerco to cost $34 million to December 2004. This commenced in October 2003 with the reticulation of gas to the Bell Bay and Longford areas. Reticulation work commenced in some Hobart suburbs in February 2004. The benefits of the project are being realised with a number of companies around the State already receiving gas or having signed contracts to use gas once available.

The first 98 kilometre section of the Basslink undersea cable was completed during the year by Pirelli and is in transit to Australia aboard Pirelli's cable laying ship. Associated Hydro Tasmania wind farm construction at Woolnorth and necessary reforms to facilitate National Energy Market entry have progressed during the year.


Treasury expects that the underlying growth rate in the Tasmanian economy for 2003-04 will be 6.0 per cent. Treasury's estimates of real state economic activity are designed to reflect the underlying changes in economic activity and are not directly comparable to the ABS estimates of Gross State Product, which, as noted above, are not considered reliable for a small economy such as Tasmania.

2004-05 Forecasts State Economic Activity The external environment appears to favour continuing growth in the State in the coming year, though there are some downside risks. Positive recent indicators in the United States and Japan suggest a sustainable global recovery may be underway. If this trend is maintained, it will add to demand for Tasmania's exports. This may also result in a depreciation of the Australian dollar against the currencies of key export markets, especially if central bank cash rates increase from the current low levels, which would increase the value of Tasmanian exports. However, if the Australian dollar remains around current levels against other major currencies, this would constrain growth in export values and could restrict investment in some export industries.

One downside risk is a further major terrorist attack, or heightened unrest in the Middle East, that leads to a reduction in global business and consumer confidence and a return to the uncertainty in world markets and financial centres that prevailed in 2002-03.

Expectations for the State's export performance over the coming year are for a return to growth. While some of the State's key overseas markets have experienced economic weakness in recent times, improvement in these markets in line with a recovery in world economic conditions is expected in 2004-05. Furthermore, a major share of the State's overseas exports go to the East Asian region, which is currently the strongest growing economic region in the world.

The general outlook for commodity prices in 2004-05 is higher mineral and energy prices but lower farm commodities prices. The Australian Bureau of Agricultural and Resource Economics (ABARE) forecasts an increase in the price of most of the State's key commodity exports next year. For 2004-05, ABARE expects increases in the $US price of lead (24.5 per cent), silver (17.3 per cent), zinc (16.2 per cent), copper (12.8 per cent), aluminium (5.3 per cent) and tin (3.9 per cent). However, ABARE is also forecasting a 4.1 per cent decrease in the price for beef (in $US terms) and a 7.7 per cent decline in the price of wool.

The Australian economy remains robust and growth estimates for 2004-05 are generally around 3.5 per cent. While the Reserve Bank of Australia expresses concern at the rate of credit growth, it appears highly unlikely that this would lead to a significant increase in cash rates as there are no major inflationary pressures at this time. Therefore any impact on household consumption and investment is not likely to be significant.

The international and national environment therefore appears favourable for Tasmania and it is expected that, unlike in 2003-04, exports will contribute to growth in the Tasmanian economy in 2004-05.

A number of Tasmanian developments are expected to underpin Tasmanian employment and output growth in the coming year. Projects include the continuation of Powerco's reticulation phase of the Tasmanian Natural Gas Project, the Basslink-related investment, the continuation of wind generation projects and additional tourism-related investment. The public sector also will be contributing directly to this growth by several projects, such as the expenditure of $18 million on roads and bridges maintenance,


the $22 million project to upgrade Tasmania's racetracks and the expenditure in 2004-05 on the construction of the new Risdon Prison and on the implementation of the Affordable Housing Strategy.

After three years of exceptional growth, it is expected that dwelling investment in the State will be slightly lower in 2004-05, consistent with the easing of approvals in late 2003-04. However, the construction industry will be boosted by the commencement of the Affordable Housing Strategy, the additional expenditure on roads and bridges maintenance and the other private and public infrastructure projects listed above.

Consumer spending is expected to remain strong, driven principally by increased household incomes from the sustained economic and employment growth and by the growth in population. However, the current very rapid rate of growth in household credit is not sustainable and, as this growth eases, it will constrain the growth in consumer spending in 2004-05. Similarly, there is some evidence that the relatively rapid growth phase in house prices in Tasmania may be coming to an end. If this eventuates, this is also likely to constrain a further expansion of consumer spending, and dwelling investment, in the year ahead. It is expected, however, that this will be offset by increased tourism-related spending, strengthened by the Spirit of Tasmania III service between Devonport and Sydney and the cheaper air travel as a result of the operation of Jetstar in Tasmania.

It is expected that Tasmania's economy will grow by 3.2 per cent (in real terms) in 2004-05, as a result of the factors listed above and forecast population growth of 0.7 per cent in 2004-05.

Labour Market and Prices The Tasmanian labour market will record a second year of employment growth in 2003-04, following growth of 1.5 per cent in 2002-03. Based on current trends, Treasury expects that employment will rise by 4.5 per cent in 2003-04. Treasury expects this momentum to be maintained into 2004-05, but with growth to ease from the very strong rate in 2003-04 to 2.4 per cent. This forecast growth rate is nonetheless well above the long term trend in Tasmania.

There are a number of specific developments that Treasury has taken into account in formulating its employment forecast for 2004-05. These include:

• construction of the natural gas reticulation network;

• Basslink-related investment;

• commencement of construction on the new Risdon Prison;

• the racetrack development program;

• an additional $18 million expenditure on roads and bridges maintenance;

• building activity associated with the Affordable Housing Strategy; and

• a number of tourism infrastructure developments.

Against the backdrop of a further improvement in the labour market in 2004-05, the State's participation rate is forecast to average 59.5 per cent for the year. This is forecast to be the second consecutive annual improvement from an average level of 58.5 per cent in 2002-03 and the estimated average level of 59.1 per cent in 2003-04. Treasury has forecast a further decline in the unemployment rate in 2004-05 to an average level of 6.7 per cent (from an estimated 7.0 per cent in 2003-04).

As a result of further new job opportunities and historically high levels of interstate arrivals, it is expected that net interstate in-migration will again lead to strong population growth in 2004-05. The 0.70 per cent


growth forecast is less than the very strong growth of 0.90 per cent expected in 2003-04, which followed growth of 0.60 per cent in 2002-03.

Chart 2.19: Annual Employment Growth – Actual and Forecast: Tasmania and Australia

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year

Tasmania Australia

Sources: Actual - The Labour Force, Australia, Spreadsheets, ABS Cat. No 6202.0.55.001. Forecasts and Estimates - Department of Treasury and Finance and Commonwealth Government.

In terms of the outlook for prices, Tasmania's CPI is forecast to increase by 2.3 per cent in 2004-05 following an anticipated increase of 2.4 per cent in 2003-04. On the basis of CPI data to date, Hobart's inflation rate will be around the same as that for the rest of Australia in 2003-04. Inflation over the past year has been influenced by the appreciation in the exchange rate, which has made the price of imported products cheaper. The RBA expects this exchange rate effect will help keep inflation relatively low over the coming year.

Summary The forecast economic growth rate of 3.2 per cent for 2004-05, following estimated growth of 6.0 per cent in the current financial year, indicates that the recovery of the Tasmanian economy is expected to be sustained. General business conditions are expected to be supported by strong consumer spending, further tourism-related and energy-related investment and State Government infrastructure projects. A rebound in exports is also expected, which will add to the State's economic performance.

A continuation of improving labour market opportunities is expected to result in a further reduction in the unemployment rate and an increase in the participation rate. Tasmania's population is expected to continue to grow as a result of the strong economic conditions.

As a consequence of the growth in 2003-04 and the encouraging conditions that Tasmania faces in 2004-05 and beyond, it is looking increasingly likely that the State's future economic performance will no longer be significantly below that of the national economy.

Chapter 3: Budget Summary, 2004-05 69

3 BUDGET SUMMARY, 2004-05

Features

• This Chapter includes key fiscal measures presented in accordance with the Uniform Presentation Framework.

• In 2004-05, the Fiscal Surplus is estimated to be $15.2 million.

• Net Worth is estimated to increase by $425.7 million, or 5.9 per cent in nominal terms, from $7 172.4 million to $7 598.1 million between 30 June 2004 and 30 June 2005.

• Net Debt is estimated to decrease by $232.0 million, or 50.3 per cent in nominal terms, from the Budget estimate of $461.7 million at 30 June 2004 to a Budget estimate of $229.7 million at 30 June 2005. The 2004-05 Budget and Forward Estimates indicate that the Fiscal Strategy target to eliminate General Government Net Debt by 30 June 2008 will be achieved by 30 June 2007, a year ahead of schedule.

• In 2004-05, the General Government Cash Surplus is estimated to be $95.9 million.

• In 2004-05, the Consolidated Fund Surplus is estimated to be $39.4 million.

70 Chapter 3: Budget Summary, 2004-05

INTRODUCTION The 2004-05 State Budget has been prepared on an accrual Uniform Presentation Framework (UPF) basis and includes all entities within the General Government Sector. The accrual UPF provides details of the revenues, expenses, receipts, payments, and assets and liabilities of the General Government Sector.

The Budget has been developed to meet the objectives of the Government's Fiscal Strategy. Details of General Government Sector estimates and outcomes are presented in three primary statements: the Operating Statement, Balance Sheet and Cash Flow Statement. The primary statements report a number of fiscal measures and assist in the analysis of the financial performance of the General Government Sector.

The Fiscal Surplus is the Government's headline Budget measure. Other key fiscal measures include Net Worth, Net Financial Worth, Net Financial Liabilities, Net Debt and Cash Surplus. This Chapter provides information on each of these measures, together with a summary of the three primary statements.

A description of the three primary statements and the key fiscal measures is provided in The Tasmanian Government Financial System.

In addition, this Chapter provides information on expenditure from, and receipts to, the Consolidated Fund and the Government's key measure in relation to the Consolidated Fund, the Consolidated Fund Surplus.

OPERATING STATEMENT The primary measure reported in the Operating Statement is the Fiscal Surplus, which is the Government's headline Budget measure.

A high level summary of the 2004-05 Operating Statement is provided in Table 3.1.

Table 3.1: Operating Statement, 2004-05 2003-04) 2004-05)

Budget) Budget)Estimate) Estimate) Variation)

$'000) $'000) %) Revenue 2 951 416) 3 090 462) 4.7)Expenses 2 963 307) 3 135 871) 5.8)Less Net Acquisition of Non-financial Assets ( 18 809) ( 60 564) 222.0) FISCAL SURPLUS 6 918) 15 155) 119.1)


Total revenue is estimated to be $3 090.5 million in 2004-05, an increase of $139.1 million or 4.7 per cent on the 2003-04 Budget estimate of $2 951.4 million. The estimated increase in revenue in 2004-05 is primarily driven by:

• an increase in State taxation revenue from duties and payroll tax. Increased revenue from duties is anticipated as a result of significantly higher than expected growth in activity and prices in the Tasmanian residential real estate market in the first half of 2003-04 and strong commercial property prices throughout most of 2003-04, which will result in a higher than expected base starting point. Higher payroll tax collections are also expected in 2004-05 due to anticipated growth in employment in the payroll tax paying sector and expected growth in wages; and

• a net increase in revenue from the Commonwealth in 2004-05 primarily due to an increase in the size of the GST revenue pool and an estimated increase in the rate of growth of Tasmania's population, and to some extent a decrease in Tasmania's relative need for Commonwealth financial assistance as assessed by the Commonwealth Grants Commission.

Total expenses are estimated to be $3 135.9 million in 2004-05, an increase of $172.6 million or 5.8 per cent over the 2003-04 Budget estimate of $2 963.3 million. The major factors contributing to the increase in expenses include:

• the provision of additional funding for the estimated cost of the new State Service Wage Agreement and the proposed wage agreements for teachers, police officers, nurses and ambulance officers; and

• increased expenditure from the Economic and Social Infrastructure Fund (ESIF) for major social and economic initiatives, including the Affordable Housing Strategy and the Gas Infrastructure Project.

Detailed information on General Government Sector revenue and expense estimates for 2004-05 is provided in Chapter 4 of this Budget Paper.

Fiscal Surplus In 2004-05, the Fiscal Surplus is estimated to be $15.2 million, an increase of $8.2 million on the 2003-04 Budget estimate of $6.9 million.

The Fiscal Surplus outcome for 2003-04 is estimated to be $160.7 million, an increase of $153.8 million on the Budget estimate of $6.9 million in 2003-04. The estimated increase in the Fiscal Surplus for 2003-04 largely reflects increased State taxation and Commonwealth revenue, lower than anticipated capital works and higher housing asset sales. The additional revenue has created a significant surplus of funds in 2003-04. A significant amount of these funds will be transferred into the ESIF, with a significant proportion to be expended in 2004-05. As a result, substantial expenditure is expected to occur in 2004-05 from cash generated in earlier years. This timing difference is the principal cause for the estimated Net Operating Deficit of $45.4 million in 2004-05. For further information on the 2003-04 Fiscal Surplus outcome, refer to Chapter 8 of this Budget Paper.

The achievement of a Fiscal Surplus is consistent with the Government's Fiscal Strategy and indicates that the Government is saving more than enough to finance all of its operations and capital spending. Whilst maintaining a Fiscal Surplus, the 2004-05 Budget supports the Government's commitment to 'Investing in People' and to taking a strategic approach to economic development.


BALANCE SHEET The primary fiscal measures reported in the Balance Sheet, and incorporated as key measurers in the Government's Fiscal Strategy, are as follows:

• Net Worth;

• Net Financial Worth;

• Net Financial Liabilities; and

• Net Debt.

A high level summary of the Balance Sheet as at 30 June 2003 and 30 June 2004 is provided in Table 3.2.

Table 3.2: Summary Balance Sheet, as at 30 June 2004) 2005)

Budget) Budget)Estimate) Estimate) Variation

$'000) $'000) %Assets

Financial Assets 4 863 608) 5 086 522) 4.6)

Non-financial Assets 5 736 015) 5 888 571) 2.7) Total Assets 10 599 623) 10 975 093) 3.5) Total Liabilities 3 427 225) 3 376 997) (1.5) NET WORTH1 7 172 398) 7 598 096) 5.9) NET FINANCIAL WORTH2 1 436 383) 1 709 525) 19.0) NET FINANCIAL LIABILITIES3 2 495 425) 2 362 344) (5.3) NET DEBT4 461 470) 229 654) (50.2) Notes: 1. Net Worth represents Total Assets less Total Liabilities. 2. Net Financial Worth represents Financial Assets less Total Liabilities. 3. Net Financial Liabilities represents Net Debt plus Gross Unfunded Superannuation Liabilities. 4. Net Debt equals the sum of Deposits Held, Advances Received and Borrowings less the sum of Cash and Deposits,

Advances Paid and Investments, Loans and Placements.

Assets Total Assets are estimated to be $10 975.1 million in 2004-05, an increase of $425.7 million or 3.5 per cent on the 2003-04 Budget estimate of $10 599.6 million.

Financial Assets are estimated to increase by $223.1 million primarily as a result of an increase in Cash and Deposits of $42.0 million; a decrease in Advances Paid of $30.9 million; and an increase in equities of


$195.0 million, which principally reflects the Government's investment in the net assets of the Public Non-Financial Corporations and the Public Financial Corporations Sectors.

Non-Financial Assets are estimated to increase by $152.6 million primarily as a result of an increase in land and fixed assets of $200.7 million offset by a decrease in other non-financial assets of $48.1 million.

Liabilities Total Liabilities are estimated to be $3 377.0 million at 30 June 2005, a decrease of $50.2 million or 1.5 per cent on 2003-04 Budget estimate of $3 427.2 million.

The decrease is primarily due to a decrease in borrowings of $198.7 million reflecting the repayment of debt as it matures with surplus cash held within the Public Account partially offset by an increase in the Government's gross unfunded superannuation liability of $98.7 million and an increase in other non-equity liabilities of $42.2 million.

Detailed information on Assets and Liabilities is provided in Chapter 7 of this Budget Paper.

Net Worth Net Worth is estimated to increase by $425.7 million, or 5.9 per cent in nominal terms, from $7 172.4 million to $7 598.1 million between 30 June 2004 and 30 June 2005.

Net Worth is calculated as Total Assets minus Total Liabilities. Net Worth incorporates non-financial assets such as land and other infrastructure assets, which may be sold and used to repay debt. It also incorporates certain financial assets and liabilities not captured by the Net Debt measure, most notably accrued employee superannuation liabilities, ownership of equities, debtors and creditors.

The major factors influencing the improvement in estimated Net Worth are increases of $195.0 million in equity assets, and $152.6 million in non-financial assets (including land and fixed assets), offset by increases in the estimated gross unfunded superannuation liability of $98.7 million and other non-equity liabilities of $42.2 million. Also contributing to the improvement in Net Worth is the estimated fall in Net Debt of $231.8 million between June 2004 and June 2005.

Detailed information on Net Worth and its components is provided in Chapter 7 of this Budget Paper.

Net Financial Worth Net Financial Worth is estimated to increase by $273.1 million or 19.0 per cent in nominal terms, from $1 436.4 million to $1 709.5 million between 30 June 2004 and 30 June 2005.

Net Financial Worth is a measure of net holdings of financial assets and is calculated as Total Financial Assets minus Total Liabilities. Net Financial Worth is a broader measure than Net Debt, in that it incorporates provisions for superannuation and other employee entitlements as well as equity. Net Financial Worth includes all classes of financial assets and liabilities, only some of which are included in Net Debt.

The increase in Net Financial Worth represents the strengthening position of the State's finances as the level of borrowings is reduced by the generation of cash surpluses, which are utilised to build cash reserves, and an increase in equity investments, offset by the increase in unfunded superannuation.


Detailed information on Net Financial Worth and its components is provided in Chapter 7 of this Budget Paper.

Net Financial Liabilities Net Financial Liabilities is estimated to decrease by $133.1 million, or 5.3 per cent in nominal terms, from $2 495.4 million to $2 362.3 million between 30 June 2004 and 30 June 2005.

Net Financial Liabilities represents Net Debt plus gross unfunded superannuation liabilities. This measure is used to provide a broader picture of the State's liabilities. This measure is not included in the UPF. However, it is commonly used by international credit ratings agencies as it targets the significant financial assets and liabilities held by most governments.

The decrease in Net Financial Liabilities relates to a decrease in Net Debt of $231.8 million, as outlined above, partially offset by an increase of $98.7 million in the gross unfunded superannuation liability. The reduction in Net Financial Liabilities is consistent with the Government's Fiscal Strategy to eliminate Net Financial Liabilities by June 2017.

Detailed information on Net Financial Liabilities and its components is provided in Chapter 7 of this Budget Paper.

Net Debt Net Debt is estimated to decrease by $231.8 million or 50.2 per cent in nominal terms, from $461.5 million to $229.7 million between 30 June 2004 and 30 June 2005.

The 2004-05 Budget and Forward Estimates illustrate that the target to eliminate General Government Net Debt by 30 June 2008 will be achieved by 30 June 2007, a year ahead of schedule. This is a significant achievement and illustrates the Government's sound financial management during the period of Tasmania's stronger economic position over recent years. Importantly, the early achievement of this Fiscal Strategy Target has not been to the detriment of progress towards the achievement of the Government's other economic and social development goals.

Net Debt comprises the stock of specified gross financial liabilities less selected financial assets. Targets for the reduction of General Government Net Debt have been a part of the Government's Fiscal Strategy since 1998-99.

Detailed information on Net Debt and its components is provided in Chapter 7 of this Budget Paper.


CASH FLOW STATEMENT The primary fiscal measure reported in the Cash Flow Statement is the Cash Surplus.

A summary of the 2004-05 Cash Flow Statement is provided in Table 3.3.

Table 3.3: Summary Cash Flow Statement, 2003-04 and 2004-05 2003-04) 2004-05)

Budget) Budget) Estimate) Estimate) Variation)

$'000) $'000) %) Cash Receipts from Operating Activities 3 067 732) 3 214 015) 4.8) Cash Payments for Operating Activities (2 849 184) (3 015 594) 5.8)Net Cash Flows from Operating Activities1 (A) 218 548) 198 421) (9.2) Net Cash Flows from Investments in Non-financial Assets (B) ( 135 396) ( 102 551) (24.3) Net Cash Flows from Investments in Financial Assets for

Policy Purposes (C) 19 823) 4 535) (77.1) Net Cash Flows from Investments in Financial Assets for

Liquidity Purposes (D) 5 000) 10 000) 100.0) Net Cash Flows from Financing Activities (E) ( 164 087) ( 216 215) 31.8)Net Increase/(Decrease) in Cash Held2 ( 56 112) ( 105 810) 88.6) CASH SURPLUS/(DEFICIT)3 83 152) 95 870) 15.3)

Notes: 1. Net Cash Flows from Operating Activities primarily reflect transactions in the Operating Statement. 2. Net Increase/(Decrease) in Cash Held is equal to A+B+C+D+E. 3. Cash Surplus is equal to A+B.

Cash Surplus The Cash Surplus is estimated to be $95.9 million in 2004-05, an increase of $12.7 million or 15.3 per cent on the 2003-04 Budget estimate of $83.2 million.

The Cash Surplus measure represents the net cash flows from operating activities plus the net cash flows from investments in non-financial assets. The achievement of a Cash Surplus in 2004-05 is consistent with the Government's Fiscal Strategy and also is consistent with the Government's targets of maintaining Budget surpluses and eliminating Net Debt.

The Cash Surplus in 2003-04 is estimated to be $224.0 million. The reduction in the 2004-05 Cash Surplus reflects increased expenditure from the cash reserves accumulated during 2003-04. A substantial component


of the cash reserves will be spent on projects funded from the Government's Economic and Social Infrastructure Fund.

CONSOLIDATED FUND A Consolidated Fund Surplus (CFS) represents the excess of Consolidated Fund receipts over the expenditure of these funds (net of loan repayments) and is available for the retirement of debt.

Table 3.4 provides details of receipts to, and expenditure from, the Consolidated Fund and the estimated CFS for 2004-05.

Table 3.4: Consolidated Fund Surplus, 2003-04 and 2004-05

2003-04)Budget)

2004-05)Budget) Variation)

$'000) $'000) %)Receipts

Commonwealth Sources 1 716 454) 1 824 245) 6.3)State Sources 864 073) 925 579) 7.1)

Total Receipts 2 580 527) 2 749 824) 6.6)Less Expenditure

Recurrent Expenditure 2 425 731) 2 570 046) 5.9)Capital Expenditure 150 562) 140 475) (6.7)

Total Expenditure 2 576 293) 2 710 521) 5.2)

Gross Consolidated Fund Surplus 4 234) 39 303) 828.3)

Add Loan Repayments 436) 124) (71.6)

Consolidated Fund Surplus 4 670) 39 427) 744.3)

The CFS is estimated to be $39.4 million in 2004-05, an increase of $34.8 million on the 2003-04 Budget estimate of $4.7 million. The increase in the CFS is primarily due to estimated increases in State taxation receipts from duties and payroll tax, and Goods and Services Tax revenue from the Commonwealth, partially offset by the provision of additional recurrent funding for 2004-05 Budget initiatives and funding for the estimated additional cost of the new State Service Wage Agreement and the proposed wage agreements for teachers, police officers, nurses and ambulance officers.

Further information on Consolidated Fund receipts and payments can be found in Chapter 4 and Appendix 2 of this Budget Paper.

Table 3.5 provides a reconciliation of the Consolidated Fund Surplus to the Fiscal Surplus for 2003-04 and 2004-05.


Table 3.5: Reconciliation of Consolidated Fund Surplus to Fiscal Surplus, 2003-04 and 2004-05

2003-04 2004-05

Budget Budget

$'000 $'000

CONSOLIDATED FUND SURPLUS 4 670 39 427

Add Special Deposits and Trust Fund Movements

Transfers from the Consolidated Fund1 183 000 227 542

Statutory Authorities Movements 1 000 2 819

Other Agency Movements2 (105 518) (173 918)

CASH SURPLUS 83 152 95 870

Less Accrual Items

Nominal Interest on Superannuation3 115 935 121 070

Superannuation4 (30 392) (70 050)

Other Movements5 (9 309) 29 695

NET ACCRUAL ADJUSTMENTS 76 234 80 715

FISCAL SURPLUS 6 918 15 155

Notes: 1. Transfers from the Consolidated Fund primarily relate to the contributions to the Superannuation Provision Account

and the Economic and Social Infrastructure Fund. 2. Other Agency Movements consists of payments from the 2001-02 Infrastructure Fund, the Social Infrastructure Fund

and the Economic and Social Infrastructure Fund. 3. Nominal Interest on Superannuation represents the notional interest expense on the State's unfunded

superannuation liability. 4. The accrual superannuation adjustment reflects the timing difference between the recognition of the superannuation

expense and its actual cash payment. 5. Other Movements primarily reflects changes in the level of creditors and debtors, and movements in accrued

revenue and expenses and assets and liabilities.

Chapter 4: Revenue and Expense Estimates, 2004-05 79

4 REVENUE AND EXPENSE ESTIMATES, 2004-05

Features

• The Fiscal Surplus is estimated to be $15.2 million in 2004-05.

• Total revenue is estimated to be $3 090.5 million in 2004-05, an increase of $139.1 million or 4.7 per cent on 2003-04 budgeted revenue of $2 951.4 million.

• Total expenses are expected to be $3 135.9 million in 2004-05, an increase of $172.6 million or 5.8 per cent over 2003-04 budgeted expenses of $2 963.3 million.

80 Chapter 4: Revenue and Expense Estimates, 2004-05

INTRODUCTION This Chapter provides detailed information on the major categories of revenues and expenses within the General Government Sector. Details of the components of the net acquisition of non-financial assets and the impact on the Government's headline Budget measure, the Fiscal Surplus, is also provided.

OPERATING STATEMENT The Operating Statement is designed to capture the composition of revenues and expenses and the net cost of the General Government Sector's activities within a fiscal year.

Table 4.1 details the General Government Sector Operating Statement for 2004-05.

Table 4.1: Operating Statement, 2003-04 and 2004-05 2003-04) 2004-05)


$'000) $'000) %)Revenue

Grants and Subsidies 1 859 187) 1 961 343) 5.5)Taxation Revenue 533 051) 606 587) 13.8)Sales of Goods and Services 240 302) 258 044) 7.4)Interest Income 19 981) 31 177) 56.0)Dividend, Tax and Rate Equivalent Income 139 018) 154 785) 11.3)Other Revenue 159 877) 78 526) (50.9)

Total Revenue 2 951 416) 3 090 462) 4.7)Expenses

Depreciation 154 205) 163 115) 5.8)Employee Expenses 1 297 911) 1 409 895) 8.6)Other Operating Expenses 675 309) 712 933) 5.6)Nominal Superannuation Interest Expense 115 935) 121 070) 4.4)Other Interest Expense 68 891) 56 530) (17.9)Grants and Transfers 651 056) 672 328) 3.3)

Total Expenses 2 963 307) 3 135 871) 5.8) NET OPERATING RESULT ( 11 891) ( 45 409) 281.8)Less Net acquisition of Non-financial Assets

Purchase of New Non-financial Assets 181 695) 144 179) (20.6)less Sale of Non-financial Assets 46 299) 41 628) (10.1)less Depreciation 154 205) 163 115) 5.8)

Total ( 18 809) ( 60 564) 222.0)FISCAL SURPLUS 6 918) 15 155) 119.1)


REVENUE Total revenue is estimated to be $3 090.5 million in 2004-05, an increase of $139.1 million or 4.7 per cent on the 2003-04 Budget estimate of $2 951.4 million.

Chart 4.1 shows the estimated total revenue in 2004-05 and a percentage breakdown of the revenue categories.

Chart 4.1: Total Revenue, 2004-05

Grants and Subsidies

$1 961.3m (63.5%)

Interest Income$31.2m (1.0%)

Sales of Goods and Services

$258.0m (8.3%)

Taxation Revenue$606.6m (19.6%)

Dividend, Tax and Rate Equivalent

Income$154.8m (5.0%)

Other Revenue$78.5m (2.5%)

The single most important source of revenue for the State is Grants and Subsidies. Grants and Subsidies consists primarily of revenues from the Commonwealth, through a range of General and Specific Purpose Payments, and these account for 63.5 per cent of the State's revenue in 2004-05. The remainder of the State's revenue comes from own sources, the major elements being Taxation Revenue (19.6 per cent), Sales of Goods and Services (8.3 per cent), Dividend, Tax and Rate Equivalent Income (5.0 per cent), Interest Income (1.0 per cent) and Other Revenue (2.5 per cent).


Grants and Subsidies Grants and Subsidies for 2004-05 is estimated to be $1 961.3 million, an increase of $102.1 million or 5.5 per cent on the 2003-04 Budget estimate of $1 859.2 million. Detailed information on Grants and Subsidies is provided in Table 4.2.

Table 4.2: Grants and Subsidies, 2003-04 and 2004-05 2003-04) 2004-05)

Budget) Budget) $'000) $'000)Recurrent Revenue

General Purpose Payments GST Revenue1 1 299 700) 1 379 000)Budget Balancing Assistance2 9 300) ....)Competition Payments3 17 600) 16 000)

Total General Purpose Payments 1 326 600) 1 395 000)

Specific Purpose Payments Health and Human Services

Commonwealth-State Housing Agreement 22 259) 22 259)Disability Services Grant 19 084) 19 083)Health Care Grant4 159 700) 175 402)High Cost Drugs 5 950) 7 350)Home and Community Care Program 17 303) 18 743)National Child Care Strategy 217) 217)Public Health Outcomes Funding Agreement 3 931) 3 931)Supported Accommodation Assistance Program 7 016) 7 179)

Education Primary and Secondary Education 45 593) 49 681)Technical and Further Education 22 790) 23 989)

Primary Industries, Water and Environment World Heritage Area5 4 300) 3 400)

Police and Public Safety Natural Disasters Organisations 212) 217)

Finance-General Assistance for Concessions 5 853) 6 124)Grant to the State for Local Government 49 031) 51 255)

Total Specific Purpose Payments 363 239) 388 830) Total Recurrent Revenue 1 689 839) 1 783 830)


Table 4.2: Grants and Subsidies, 2003-04 and 2004-05 (continued) 2003-04) 2004-05)

Budget) Budget) $'000) $'000)Capital Revenue


Housing 2 224) 2 111)Education

Primary and Secondary Education 6 411) 6 567)Technical and Further Education 3 284) 3 901)

Infrastructure, Energy and Resources National Highway System6 14 696) 27 836)

Total Capital Revenue 26 615) 40 415) Other Payments7 142 733) 137 098) TOTAL GRANTS AND SUBSIDIES 1 859 187) 1 961 343)

Notes: 1. The increase in GST Revenue in 2004-05 is primarily due to an increase in the size of the GST revenue pool and an

estimated increase in the rate of growth of Tasmania's population, partially offset by a decrease in Tasmania's relative need for Commonwealth financial assistance as assessed by the Commonwealth Grants Commission.

2. As Tasmania's allocation of GST Revenue is anticipated to exceed its Guaranteed Minimum Amount in 2004-05, General Purpose Payments from the Commonwealth will not include a Budget Balancing Assistance component.

3. While Tasmania's maximum level of National Competition Payments (NCP) in 2004-05 is currently set at $18.8 million, NCP payments to the State are budgeted at $16.0 million, in recognition of the uncertainties surrounding the National Competition Council's (NCC) assessment of Tasmania's progress toward NCP reform. This reflects a provision on the part of the State, rather than an acknowledgement by Tasmania that the NCC would be justified in recommending penalties for the State.

4. As the Australian Health Care Agreement (AHCA) was under active negotiation and uncertain at the time of preparing the 2003-04 Budget estimate for the Health Care Grant (HGC) to the State, the most conservative potential outcome was used as a basis for the estimate. The HGC to the State is anticipated to be higher under the current AHCA, which commenced on 1 July 2003.

5. The decrease in funding in 2004-05 reflects a decision by the Commonwealth to reduce the level of funding for the Tasmanian Wilderness World Heritage Area.

6. The increase in receipts for the National Highway System reflects funding in relation to a number of roads projects including the Bass Highway-Penguin to Ulverstone and the Bridgewater Bridge.

7. Other Payments includes Specific Purpose Payments that are paid to the State for on-passing to other bodies including non-government organisations.

Recurrent Revenue Revenue from Commonwealth sources for recurrent purposes is estimated to total $1 783.8 million, an increase of $94.0 million or 5.6 per cent over the 2003-04 Budget estimate of $1 689.8 million. This revenue is paid directly into the Consolidated Fund and consists of GST Revenue, Budget Balancing Assistance, National Competition Payments, and Specific Purpose Payments (which are tied to specific activities).


General Purpose Payments GST Revenue GST Revenue is estimated to be $1 379.0 million in 2004-05, an increase of $79.3 million or 6.1 per cent over the 2003-04 Budget estimate of $1 299.7 million. This increase is primarily due to an increase in the size of the GST revenue pool and an estimated increase in the rate of growth of Tasmania's population, offset by a decrease in Tasmania's relative need for Commonwealth financial assistance as assessed by the Commonwealth Grants Commission.

Budget Balancing Assistance Under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA) agreed by the states and territories and the Commonwealth in June 1999, the Commonwealth guaranteed that the budgetary position of each individual state or territory would be no worse off under the new arrangements than it would have been had the reforms not been implemented. To meet this guarantee, the Commonwealth agreed to make Budget Balancing Assistance (BBA) payments to each state or territory as necessary. As Tasmania's allocation of GST Revenue is anticipated to exceed its Guaranteed Minimum Amount in 2004-05, General Purpose Payments from the Commonwealth will not include a BBA component.

National Competition Payments to the State The Agreement to Implement the National Competition Policy and Related Reforms provides for the states and territories to receive general revenue grants, which reflect a share of the expected revenue gains to the Commonwealth arising from the implementation of National Competition Policy by the states. It is estimated that, in 2004-05, Tasmania will receive $16.0 million for this purpose, a decrease of $1.6 million on the 2003-04 Budget estimate of $17.6 million. While Tasmania's maximum level of National Competition Payments (NCP) in 2004-05 is currently set at $18.8 million, NCP payments to the State are budgeted at $16.0 million, in recognition of the uncertainties surrounding the National Competition Council's (NCC) assessment of Tasmania's progress toward NCP reform. This reflects a provision on the part of the State, rather than an acknowledgement by Tasmania that the NCC would be justified in recommending penalties for the State.

Specific Purpose Payments The Health Care Grant to the State is anticipated to be $175.4 million in 2004-05 under the current Australian Health Care Agreement, which commenced on 1 July 2003. This estimate is $15.7 million or 9.8 per cent greater than the budgeted amount of $159.7 million for 2003-04. The remainder of the recurrent Specific Purpose Payments from the Commonwealth will total $213.4 million (excluding the Health Care Grant) in 2004-05, an increase of $9.9 million or 4.9 per cent on the budgeted amount for 2003-04 of $203.5 million.

Capital Revenue In 2004-05, capital revenue is estimated to be $40.4 million, an increase of $13.8 million or 51.9 per cent on the budgeted capital revenue of $26.6 million for 2003-04. The increase primarily relates to increased funding for the National Highway System for a number of roads projects in the 2004-05 Roads Program, including the Bass Highway-Penguin to Ulverstone and the Bridgewater Bridge.


Other Payments In 2004-05, Other Payments is estimated to be $137.1 million, a decrease of $5.6 million or 3.9 per cent on the 2003-04 Budget estimate of $142.7 million. The majority of this revenue from the Commonwealth is paid directly to Government agencies and not paid into the Consolidated Fund. The Departments of Education and Health and Human Services (DHHS) are the primary recipients of such Commonwealth monies. Education receives approximately $104.9 million of funding directly from the Commonwealth, of which $97.3 million relates to grants for non-government schools. DHHS receives approximately $15.4 million of funding directly from the Commonwealth, which mainly relates to subsidies for nursing home clients and radiation oncology services. These payments are reported as Specific Purpose Payments 'through' the State.

Detailed information in relation to Commonwealth revenues is provided in Chapter 10 of this Budget Paper.

Taxation Revenue Total Taxation Revenue for 2004-05 is estimated to be $606.6 million, an increase of $73.5 million or 13.8 per cent on the 2003-04 Budget estimate of $533.1 million. Details of the categories of Taxation Revenue are provided in Table 4.3.

Table 4.3: Taxation Revenue, 2003-04 and 2004-05 2003-04) 2004-05)

Budget) Budget) $'000) $'000) Land Tax 25 547) 33 673)Motor Taxation 45 910) 49 046)Payroll Tax 162 248) 173 512)Light Vehicle Registration Fees 22 917) 23 090)Financial Transaction Taxes

Debits Duties 22 769) 24 281)Duties 138 409) 180 806)

Gambling Taxes Casino Tax and Licence Fees 50 853) 53 208)Lottery Tax 22 344) 22 826)Racing and Gaming Taxes 279) ....)

Receipts from GBEs, SOCs and State Authorities Guarantee Fees 5 425) 6 905)

State Fire Commission Revenue 36 350) 39 240) TOTAL TAXATION REVENUE 533 051) 606 587)

A summary of the expected revenue from major tax sources in 2004-05 is as follows:

• Land Tax revenue in 2004-05 is estimated to be $33.7 million, an increase of $8.2 million or 32.2 per cent on the 2003-04 Budget estimate of $25.5 million. The estimated increase in 2004-05 is primarily a result of reciprocal taxation introduced under the State and Local Government Financial Reform Act 2003. Generally, under the State and Local Government financial reforms, Local Government will be subject to the full


application of State Government taxes (including land tax) and the State Government will be required to pay council rates on certain land;

• Motor Tax revenue in 2004-05 is estimated to be $49.0 million, an increase of $3.1 million or 6.8 per cent on the 2003-04 Budget estimate of $45.9 million;

• Payroll Tax revenue in 2004-05 is estimated to be $173.5 million, an increase of $11.3 million or 6.9 per cent on the 2003-04 Budget estimate of $162.2 million. The estimated increase in collections in 2004-05 is the result of anticipated growth in employment in the payroll tax paying sector and expected growth in wages;

• Light Vehicle Registration Fees in 2004-05 is estimated to be $23.1 million, an increase of $173 000 or 0.8 per cent on the 2003-04 Budget estimate of $22.9 million;

• Debits Duty revenue in 2004-05 is estimated to be $24.3 million, an increase of $1.5 million or 6.6 per cent on the 2003-04 Budget estimate of $22.8 million;

• Duties revenue in 2004-05 is estimated to be $180.8 million, an increase of $42.4 million or 30.6 per cent on the 2003-04 Budget estimate of $138.4 million. The estimated increase in 2004-05 is primarily a result of much higher than expected growth in activity and prices in the Tasmanian residential real estate market in the first half of 2003-04 and strong commercial property prices throughout most of 2003-04;

• Gambling Tax revenue in 2004-05 is estimated to be $76.0 million, an increase of $2.5 million or 3.4 per cent on the 2003-04 Budget estimate of $73.5 million. The expected increase is primarily due to increases in Casino Tax and Licence Fees of $2.4 million and Lottery Tax of $482 000. The increase is offset by a decrease in Racing and Gaming taxes of $279 000, as minor gaming taxes will be abolished with effect from 1 July 2004;

• Returns from Government Business Enterprises, State-owned Companies and State Authorities from Guarantee Fees is estimated to be $6.9 million, an increase of $1.5 million or 27.3 per cent on the 2003-04 Budget estimate of $5.4 million. The increase primarily relates to an estimated increase in guarantee fees from Aurora Energy Pty Ltd and Hydro Tasmania in 2004-05 as a result of an increase in the guarantee fee rate and additional borrowings by TT-Line Company Pty Ltd associated with the Spirit of Tasmania III; and

• State Fire Commission Revenue represents revenue raised by the State Fire Commission under the Fire Service Act 1979. In 2004-05, revenue raised by the State Fire Commission is estimated to be $39.2 million, an increase of $2.8 million or 7.7 per cent on the 2003-04 Budget estimate of $36.4 million.


Chart 4.2: Taxation Revenue, 2004-05

Debits Duty$24.3m (4.0%)

Land Tax$33.7m (5.6%)

Guarantee Fees$6.9m (1.1%)

Light Vehicle Registration Fees

$23.1m (3.8%)

Payroll Tax$173.5m (28.6%)

Duties$180.8m (29.8%)

Motor Tax$49.0m (8.1%)

Gambling Taxes$76.0m (12.5%)

State Fire Commission$39.2m (6.5%)

More detailed information in relation to State taxation revenue is provided in Chapter 5 of this Budget Paper.


Sales of Goods and Services Revenue from Sales of Goods and Services is estimated to be $258.0 million in 2004-05, an increase of $17.7 million or 7.4 per cent on the 2003-04 Budget estimate of $240.3 million. Table 4.4 provides a breakdown of Revenue from Sales of Goods and Services.

Table 4.4: Revenue from Sales of Goods and Services, 2003-04 and 2004-05

2003-04) 2004-05)Budget) Budget)

$'000) $'000)Departmental Fees and Recoveries

Economic Development 1 100) 1 100)Education 8 556) 2 016)Health and Human Services 16) 16)Infrastructure, Energy and Resources 9 501) 8 760)Justice 8 105) 9 652)Police and Public Safety 294) 300)Premier and Cabinet 2) 2)Primary Industries, Water and Environment 25 138) 25 596)Tourism, Parks, Heritage and the Arts 385) 385)Treasury and Finance 339) 512)

Total Departmental Fees and Recoveries 53 436) 48 339) Other Sales of Goods and Services 186 866) 209 705) TOTAL SALES OF GOODS AND SERVICES 240 302) 258 044)

Departmental Fees and Recoveries Revenue from fees and other charges levied for services provided by agencies in 2004-05 is estimated to be $48.3 million, a decrease of $5.1 million, or 9.5 per cent, on budgeted revenue of $53.4 million in 2003-04. The decrease in revenue from these sources is largely attributable to a decrease of $6.7 million for the Department of Education as a result of the abolition of the Municipal Library Levy from 1 July 2004 as part of the State and Local Government financial reforms. This decrease is partially offset by an increase in revenue from the Department of Justice of $1.5 million from the Magistrates Court and Births, Deaths and Marriages and increased recoveries from the regulation of the Poppy Industry; and an increase in revenue from the Department of Treasury and Finance of $173 000 primarily from the part-year effect additional Liquor licence fees to better reflect the cost of providing services.

Other Sales of Goods and Services Revenue from Other Sales of Goods and Services in 2004-05 is estimated to be $209.7 million, an increase of $22.8 million or 12.2 per cent on the 2003-04 Budget estimate of $186.9 million.

This category represents revenue raised by government departments, statutory authorities and other bodies through a range of fees, charges and recoveries, including revenue raised by the Department of Health and


Human Services from inpatient fees, outpatient fees and private patient fees; net tourism wholesale and retail sales revenue and park entry fees raised by the Department of Tourism, Parks, Heritage and the Arts; and revenue raised by other General Government Sector entities including TAFE Tasmania, Marine and Safety Tasmania and the State Fire Commission.

The increase in revenue from Other Sales of Goods and Services primarily relates to various changes in the Departments of Health and Human Services; Primary Industries, Water and Environment; Tourism, Parks, Heritage and the Arts; and Justice.

Interest Income Revenue from Interest Income is estimated to be $31.2 million in 2004-05, an increase of $11.2 million or 56.0 per cent on the 2003-04 Budget estimate of $20.0 million. Table 4.5 provides a breakdown of Interest Income.

Table 4.5: Interest Income, 2003-04 and 2004-05 2003-04) 2004-05)

Budget) Budget) $'000) $'000) Recoveries of State Debt Charges - Interest 2 755) 1 612)Other Interest Income 17 226) 29 565) TOTAL INTEREST INCOME 19 981) 31 177)

Recoveries of State Debt Charges - Interest Interest is estimated to be $1.6 million in 2004-05, a decline of $1.1 million or 39.2 per cent from the Budget estimate of $2.8 million for 2003-04. The reduction in interest receipts in 2004-05 is primarily due to the early redemption of public bodies loans.

Other Interest Income Other Interest Income is estimated to be $29.6 million in 2004-05, an increase of $12.4 million or 72.1 per cent from the Budget estimate of $17.2 million for 2003-04. The increase is primarily due to the following:

• an increase of $6.2 million in Interest Income for the Department of Health and Human Services is largely due to the inclusion of funds generated by the Home Ownership Assistance Program that are in excess of administration costs and lending, and to changed accounting practice in relation to borrowing activity; and

• an increase of $7.2 million in interest on investments for Finance-General, mainly as a result of a higher level of surplus cash available in the Public Account for investment purposes.


Dividend, Tax and Rate Equivalent Income Dividend, Tax and Rate Equivalent Income is estimated to be $154.8 million in 2004-05, an increase of $15.8 million or 11.3 per cent from the Budget estimate of $139.0 million in 2003-04. This is attributable to higher returns from Government Business Enterprises, State-owned Companies and State Authorities in the form of Dividends, Special Dividends, Tax Equivalents and Rate Equivalents. Table 4.6 provides a breakdown of Dividend, Tax and Rate Equivalent Income.

Table 4.6: Dividend, Tax and Rate Equivalent Income, 2003-04 and 2004-05

2003-04) 2004-05)Budget) Budget)

$'000) $'000) Dividends 52 290) 62 596)Special Dividends 26 500) 17 400)Tax Equivalents 60 228) 71 789)Rates Equivalents ....) 3 000) TOTAL DIVIDEND AND TAX EQUIVALENT INCOME 139 018) 154 785)

Dividends In 2004-05, Dividends are estimated to be $62.6 million, an increase of $10.3 million or 19.7 per cent above the 2003-04 Budget estimate of $52.3 million. The expected increase in estimated Dividends in 2004-05 is primarily the result of:

• an increase in Dividends from Aurora Energy Pty Ltd of $2.8 million due to an anticipated further improvement in profitability from rising electricity sales;

• an increase in ordinary Dividends from Hydro Tasmania of $9.1 million as a result of the structure adopted for the phasing out of the Hydro Tasmania Special Dividend; and

• an increase in Dividends from the Motor Accidents Insurance Board of $4.3 million due to increased investment revenue forecasts as a result of the improvement in world equity markets.

The increase in Dividends is offset by a decline in Dividends from Forestry Tasmania of $4.3 million due to the 2003-04 forecast being overstated due to an under estimate of income tax expense in 2002-03.

Special Dividends In 2004-05, Special Dividends from Hydro Tasmania are estimated to be $17.4 million, a decrease of $9.1 million or 34.3 per cent above the 2003-04 Budget estimate of $26.5 million. The reduction in Special Dividends reflects a budgeted phasing out of this form of return to the Government.


Tax Equivalents In 2004-05, Tax Equivalents are estimated to be $71.8 million, an increase of $11.6 million or 19.3 per cent above the 2003-04 Budget estimate of $60.2 million. The increase in estimated Tax Equivalent payments in 2004-05 primarily relates to:

• higher tax receipts from Forestry Tasmania of $7.8 million due to the cessation of past tax losses; and

• higher tax receipts from Transend Networks Pty Ltd of $3.9 million as a result of lower deductible expenditures and higher income related to the Australian Competition and Consumer Commission pricing decision.

Rate Equivalents In 2004-05, Rate Equivalents are estimated to be $3.0 million. As part of the State and Local Government Financial Reform package, it was agreed that Crown Land occupied by Hydro Tasmania for its hydro electricity generation system would continue to be exempt from Local Government rates. However, to ensure competitive neutrality, the Government agreed to impose a Rate Equivalent regime on Hydro Tasmania. The revenue from this Rates Equivalent regime is to retained by the Government. While details of the regime are yet to be finalised, it is estimated that revenue of approximately $3 million per annum will be received from Hydro Tasmania.

Further information on returns from Government Business Enterprises, State-owned Companies and State Authorities is provided in Appendix 2 of this Budget Paper.

Other Revenue Total Other Revenue is estimated to be $78.5 million in 2004-05, a decrease of $81.4 million or 50.9 per cent on the 2003-04 Budget of $159.9 million. Table 4.7 provides a breakdown of Other Revenue.

Table 4.7: Other Revenue, 2003-04 and 2004-05 2003-04) 2004-05)

Budget) Budget) $'000) $'000) Mineral Royalties 8 000) 8 000)Regional Water Authority Licence Fees 1 911) 1 908)Fines, Fees and Charges 11 404) 8 676)Stamp Duties - Instalment Payments 3 250) 2 500)Miscellaneous 135 312) 57 442) TOTAL OTHER REVENUE 159 877) 78 526)

The primary reasons for the decrease in total Other Revenue are:

• a decrease in revenue from Fines, Fees and Charges due to a reduction in revenue from the Department of Primary Industries, Water and Environment of $2.8 million following the abolition of the Planning and Local Government Levy from 1 July 2004 as part of the State and Local Government financial reforms; and


• a decrease in Miscellaneous revenue of $77.9 million, which primarily relates to revised accounting treatment of an intra-sectoral superannuation revenue, eliminated as part of the consolidation process in developing the original 2003-04 Budget.

EXPENSES Total expenses are expected to be $3 135.9 million in 2004-05, an increase of $172.6 million or 5.8 per cent over 2003-04 budgeted expenses of $2 963.3 million.

Depreciation Depreciation in 2004-05 is expected to be $163.1 million, an increase of $8.9 million or 5.8 per cent over the Budget estimate of $154.2 million in 2003-04. This is primarily attributable to an increase in depreciation expense of:

• $7.2 million for the Department of Infrastructure, Energy and Resources following a revaluation of its road and bridge infrastructure; and

• $1.6 million for the Department of Tourism, Parks, Heritage and the Arts due to increased depreciable infrastructure assets in National Parks.

Employee Expenses Employee Expenses in 2004-05 is expected to be $1 409.9 million, an increase of $112.0 million or 8.6 per cent over the Budget estimate of $1 297.9 million in 2003-04.

The significant factors contributing to the increase in Employee Expenses include:

• $61.1 million in relation to the provision of additional funding for the estimated additional cost of the new State Services Wages Agreement and the proposed wage agreements for teachers ($18.0 million), police officers ($8.9 million), nurses ($11.0 million) and ambulance officers ($800 000). The total additional cost of these increases in excess of the original 2004-05 Forward Estimate is $14.5 million;

• $10.0 million in relation to the provision of additional funding for the Department of Health and Human Services to meet costs associated with unavoidable demand and cost pressures;

• $2.7 million in relation to the provision of additional funding for the Departments of Health and Human Services, Justice, and Police and Public Safety for the 2004-05 whole-of-Government Budget initiative 'Safe at Home';

• $3.3 million associated with funds carried forward from 2003-04 to 2004-05 for the Department of Education under section 8A(2) of the Public Account Act; and

• $1.3 million in relation to the provision of additional funding for the Department of Justice to meet additional prison service costs.


Other Operating Expenses Other Operating Expenses in 2004-05 is expected to be $712.9 million, an increase of $37.6 million or 5.6 per cent over the Budget estimate of $675.3 million in 2003-04. The significant items contributing to the increase include:

• increased operating expenses for the Department of Education of $12.7 million. The majority of the increase in expenses relates to additional Specific Purpose Payment funding from the Commonwealth for Primary and Secondary Education, Technical and Further Education, and other Commonwealth funded projects;

• increased operating expenses for the Department of Infrastructure, Energy and Resources of $6.3 million, which primarily reflects increased Commonwealth funding for the Roads Program;

• increased maintenance and property services expense of $5.8 million to reflect funding provided to General Government agencies to meet the costs associated with the payment of rates to Local Government in accordance with the State and Local Government financial reforms; and

• $6.8 million of expenses associated with funds carried forward under section 8A(2) of the Public Account Act for the Departments of Health and Human Services, and Justice.

Nominal Superannuation Interest Expense The Nominal Superannuation Interest Expense is calculated by applying an interest rate, based on the 10-year Commonwealth Bond Rate, to the balance of the General Government unfunded superannuation liability. The Nominal Superannuation Interest Expense in 2004-05 is expected to be $121.1 million, an increase of $5.2 million or 4.4 per cent over the Budget estimate of $115.9 million in 2003-04. The increase in this item reflects the increasing unfunded superannuation liability and an increase in the interest rate applied to the balance of the liability. Further information on the General Government unfunded superannuation liability is provided in Chapter 7 of this Budget Paper.

Other Interest Expenses Other Interest Expenses in 2004-05 is expected to be $56.5 million, a decrease of $12.4 million or 18.0 per cent on the Budget estimate of $68.9 million in 2003-04. The decrease is primarily a result of a reduction in the level of Net Debt.

Grants and Transfers Grants and Transfers in 2004-05 is expected to be $672.3 million, an increase of $21.2 million or 3.3 per cent on the Budget estimate of $651.1 million in 2003-04.

The increase in Grants and Transfers is primarily due to:

• an estimated increase in expenditure of $38.6 million from the Economic and Social Infrastructure Fund, primarily for the Affordable Housing Strategy ($14.0 million) and the Gas Infrastructure Project - Stage 2A ($20.3 million);

• a decrease in expenses of approximately $40.0 million in relation to a change in classification, based on advice from the Australian Bureau of Statistics, of the Government's annual contribution to TT-Line


Company Pty Ltd to meet the interest costs and extinguish half of the debt associated with the purchase by TT-Line during 2002-03 of Spirits of Tasmania I and II;

• increased expenses of $8.8 million for the Department of Education primarily in relation to additional funding received from the Commonwealth for non-government schools. This funding is administered on behalf of the Commonwealth Department of Education, Science and Training and, upon receipt, is forwarded to non-government schools; and

• other minor movements in a range of administered payments made by General Government agencies.

NET ACQUISITION OF NON-FINANCIAL ASSETS Non-financial assets comprise land and fixed assets such as buildings, plant and equipment, and roads, which are used to facilitate the provision of services by the General Government Sector. The Net Acquisition of Non-financial Assets reflects net capital expenditure (the purchase of new non-financial assets less the sale of non-financial assets) less depreciation expense.

Purchase of New Non-Financial Assets The Purchase of New Non-Financial Assets is estimated to be $144.2 million in 2004-05, a decrease of $37.5 million or 20.6 per cent on the 2003-04 Budget estimate of $181.7 million. The decrease in this item primarily relates to:

• a decrease of $22.9 million for the Department of Health and Human Services as a result of a more conservative approach by the Department in assessing actual payments in relation to its capital program. It is anticipated that actual capital commitments entered into during the year will be significantly higher than the budgeted payments; and

• a reassessment of the nature of expenditure from the Economic and Social Infrastructure Fund in 2004-05 from capital to Grants and Transfers.

Sale of Non-Financial Assets The Sale of Non-Financial Assets is estimated to be $41.6 million in 2004-05, a decrease of $4.7 million or 10.1 per cent on the 2003-04 Budget estimate of $46.3 million. The decrease primarily relates to decreased revenue for the Department of Health and Human Services as a result of a reduction in the level of the Housing asset sales program.

Depreciation Depreciation in 2004-05, as noted above, is expected to be $163.1 million, an increase of $8.9 million or 5.8 per cent over the Budget estimate of $154.2 million in 2003-04. This is primarily attributable to an increase in depreciation expense of:

• $7.2 million for the Department of Infrastructure, Energy and Resources following a revaluation of its road and bridge infrastructure; and

• $1.6 million for the Department of Tourism, Parks, Heritage and the Arts due to increased depreciable infrastructure assets in National Parks.


FISCAL SURPLUS In 2004-05, the Fiscal Surplus is estimated to be $15.2 million. A Fiscal Surplus indicates that the Government is saving more than enough to finance all of its operations and capital spending. The estimated Fiscal Surplus outcome for 2003-04 is $160.7 million (for further information on the 2003-04 Fiscal Surplus outcome, refer to Chapter 8 of this Budget Paper). A significant proportion of funds are to be appropriated into the Economic and Social Infrastructure Fund, with a substantial amount to be expended in 2004-05. As a result, substantial expenditure is expected to occur in 2004-05 from cash generated in earlier years. This timing difference is the principal reason for the estimated Net Operating deficit of $45.4 million in 2004-05.


CONSOLIDATED FUND EXPENDITURE Table 4.8 provides information on Consolidated Fund Expenditure by agency.

Table 4.8: Total Consolidated Fund Expenditure, 2003-04 and 2004-05 2004-05 Budget

Agency

2003-04)Budget)

Recurrent)Services)

Reserved)by Law)

Works and)Services) Total) Variation)

$'000) $'000) $'000) $'000) $'000) %) Economic Development 43 302) 42 385) ....) ....) 42 385) (2.1)Education 669 280) 675 492) ....) 17 616) 693 108) 3.6)Finance-General 498 397) 338 748) 166 863) 9 274) 514 885) 3.3)Health and Human Services 771 393) 809 998) ....) 13 760) 823 758) 6.8)House of Assembly 4 871) 1 834) 3 166) ....) 5 000) 2.6)Infrastructure, Energy and Resources 168 363) 103 668) 52) 82 155) 185 875) 10.4)Justice 76 662) 62 030) 6 125) 13 365) 81 520) 6.3)Legislative Council 3 774) 1 974) 1 902) ....) 3 876) 2.7)Legislature-General 3 762) 3 848) ....) ....) 3 848) 2.3)Ministerial and Parliamentary

Support 13 819) 13 401) 587) ....) 13 988) 1.2)Office of the Governor 2 060) 2 227) 490) 8) 2 725) 32.3)Police and Public Safety 127 123) 134 341) ....) 1 016) 135 357) 6.5)Premier and Cabinet 23 859) 25 952) ....) ....) 25 952) 8.8)Primary Industries, Water and

Environment 76 274) 79 371) ....) 1 180) 80 551) 5.6)Tasmanian Audit Office 254) ....) 263) ....) 263) 3.5)Tourism, Parks, Heritage and the Arts 60 989) 62 525) ....) 2 101) 64 626) 6.0)Treasury and Finance 32 111) 32 804) ....) ....) 32 804) 2.2)

TOTAL EXPENDITURE 2 576 293) 2 390 598) 179 448) 140 475) 2 710 521) 5.2)

Table 4.9 provides a reconciliation of total Consolidated Fund expenditure to total expenses from 2003-04 to 2004-05.


Table 4.9: Reconciliation of Total Consolidated Fund Expenditure to Total Expenses, 2003-04 and 2004-05

2003-04 Budget

2004-05 Budget

$'000) $'000) TOTAL CONSOLIDATED FUND EXPENDITURE 2 576 293) 2 710 521)

Add Expenditure from the Special Deposits and Trust Fund1 358 676) 441 363)Less Capital Expenditure from the Consolidated Fund2 (85 785) (136 290)

Total Cash Payments for Operating Activities3 2 849 184) 3 015 594

Add Depreciation4 154 205) 163 115)Add Nominal Interest on Superannuation5 115 935) 121 070)Less GST Payments6 (113 189) (114 086)Add Other Accrual Items7 (42 828) (49 822)

TOTAL EXPENSES8 2 963 307) 3 135 871

Notes: 1. This amount represents expenditure from the Special Deposits and Trust Fund that is not funded by a transfer of

funds from the Consolidated Fund. 2. This amount primarily includes Capital Investment Program expenditure and other asset purchases funded from

recurrent appropriations. 3. This amount equates to the Cash Payments for Operating Activities shown in the Cash Flow Statement in Chapter 3,

Table 3.3, of this Budget Paper. 4. This amount equates to the Depreciation expense shown in the Operating Statement in Table 4.1 of this Chapter. 5. This amount equates to the Nominal Interest on Superannuation expense shown in the Operating Statement in

Table 4.1 of this Chapter. 6. GST Payments are a component of Cash Payments for Operating Activities shown in the Cash Flow Statement in

Chapter 3, Table 3.3, of this Budget Paper. GST Payments are not reflected in the Operating Statement as they relate to the payment of a liability.

7. This amount represents the movements in debtors, creditors and other accrual items as at 30 June. 8. This amount equates to Total Expenses shown in the Operating Statement in Table 4.1 of this Chapter.


Explanation of Estimated Major Consolidated Fund Expenditure Variations Expenditure Expenditure, including Reserved by Law and Works and Services expenditure for 2004-05, is estimated to be $2 710.5 million, $134.2 million or 5.2 per cent above the 2003-04 Budget estimate of $2 576.3 million.

The primary reasons for this expected increase are detailed below on an agency basis.

Education Expenditure for the Department of Education is expected to be $693.1 million in 2004-05, an increase of $23.8 million, 3.6 per cent above the 2003-04 Budget of $669.3 million. The increase in expenditure in 2004-05 is primarily due to the provision of additional funding for the cost of the new State Service Wage Agreement and wage indexation in accordance with the Teacher's Nexus, additional funding of $1.1 million for non-government schools, additional Commonwealth funding of $5.3 million for Technical and Further Education and Primary and Secondary Schools and additional funding of $3.6 million for Capital Investment Program projects including the Latrobe High School and the Port Dalrymple District High School.

Finance-General Expenditure for Finance-General is expected to be $514.9 million in 2004-05, an increase of $16.5 million, 3.3 per cent above the 2003-04 Budget estimate of $498.4 million. The expected increase in expenditure in 2004-05 is primarily due to the following:

• an additional contribution of $8.0 million to the Structural and Performance Initiatives Program (SPIP) account held within the Special Deposits and Trust Fund. Funds from the SPIP are allocated to agencies to fund specific major projects including, the redevelopment of the Motor Registry System, the Monetary Penalties Enforcement Project and other major projects related to information systems development; and

• an additional contribution of $37.0 million to the Economic and Social Infrastructure Fund account held within the Special Deposits and Trust Fund. Of this funding $25.0 million relates to the estimated proceeds to be realised in 2004-05 from the sale of non-core assets of the Hobart Ports Corporation Pty Ltd.

Health and Human Services Expenditure for the Department of Health and Human Services is expected to be $823.8 million in 2004-05, an increase of $52.4 million, 6.8 per cent above the 2003-04 Budget estimate of $771.4 million. The increase in expenditure in 2004-05 is primarily due to the provision of additional recurrent funding for 2004-05 Budget initiatives, the maintenance of current services and costs associated with the new State Service Wage Agreement (SSWA) and the proposed nurses and ambulance officers wage agreements. The increase includes funding of $22.3 million for hospital and ambulance services, $7.0 million for children and families and $25.2 million for community, population and rural health services.


Infrastructure, Energy and Resources Expenditure for the Department of Infrastructure, Energy and Resources is expected to be $185.9 million in 2004-05, an increase of $17.5 million, 10.4 per cent above the 2003-04 Budget estimate of $168.4 million. The increase in expenditure in 2004-05 is primarily to meet State Service Wage Agreement costs and for increased Works and Services expenditure of $15.0 million for a number of National Highway System roads projects including the Bass Highway-Penguin to Ulverstone and the Bridgewater Bridge. Additional funding has also been provided for the Transport Access Scheme, pensioner, aged and unemployed concessions, and the legislative review of core passenger services.

Justice Expenditure for the Department of Justice is expected to be $81.5 million in 2004-05, an increase of $4.8 million, 6.3 per cent above the 2003-04 Budget estimate of $76.7 million. The increase in expenditure in 2004-05 is primarily due to the provision of additional funding to meet costs associated with the new State Service Wage Agreement, $2.0 million for prison services to reflect additional prisoner numbers and a further $1.0 million for the whole-of-government initiative, 'Safe at Home'.

Police and Public Safety Expenditure for the Department of Police and Public Safety is expected to be $135.4 million in 2004-05, an increase of $8.3 million, 6.5 per cent above the 2003-04 Budget estimate of $127.1 million. The increase in expenditure in 2004-05 is primarily due the provision of additional funding to meet costs associated with the new State Service Wage Agreement and the new police officers wage agreement and an additional $3.4 million for the whole-of-government initiative, 'Safe at Home', the State Executive Service – In Partnership into the 21st Century initiative and the purchase of ballistic vest and protection equipment.

Premier and Cabinet Expenditure for the Department of Premier and Cabinet is expected to be $26.0 million in 2004-05, an increase of $2.1 million, 8.8 per cent above the 2003-04 Budget estimate of $23.9 million. The increase in expenditure in 2004-05 is primarily due the provision of additional funding to meet costs associated with the new State Service Wage Agreement and an additional $1.3 million for Budget initiatives.

Primary Industries, Water and Environment Expenditure for the Department of Primary Industries, Water and Environment is expected to be $80.6 million in 2004-05, an increase of $4.3 million, 5.6 per cent above the 2003-04 Budget estimate of $76.3 million. The increase in expenditure in 2004-05 is primarily due the provision of additional funding to meet costs associated with the new State Service Wage Agreement and additional funding of $1.2 million for the Fox Free Program, and $1.3 million for the Regional Forest Agreement Review Response.

Tourism, Parks Heritage and the Arts Expenditure for the Department of Tourism, Parks, Heritage and the Arts is expected to be $64.6 million in 2004-05, an increase of $3.6 million, 6.0 per cent above the 2003-04 Budget estimate of $61.0 million. The increase in expenditure in 2004-05 is primarily due the provision of additional funding to meet costs associated with the new State Service Wage Agreement and additional funding of $2.4 million for Budget initiatives including the Tasmanian Symphony Orchestra, the 10 Days on the Island festival, the Tasmanian Museum and Art Gallery and the Antarctic Southern Oceans Exhibition.

Chapter 5: Taxation Revenue 101

5 TAXATION REVENUE

Features

• Total taxation revenue is expected to be $613.2 million for 2003-04.

• For 2004-05, estimated taxation revenue is $606.6 million, which is $6.6 million or 1.1 per cent below the estimated outcome for 2003-04.

• Duty relief on conveyance duty of up to a maximum of $4 000 will be provided to eligible first home buyers from 20 May 2004.

• A range of minor gaming taxes will be abolished from 1 July 2004.

• The concessional rate of duty will be removed from a range of transactions from 1 July 2004.

• Under State and Local Government financial reforms, Local Government will be required to pay state taxes from 1 July 2004. In return, the State Government will pay council rates and the Library and Local Government Planning levies will be abolished.

• The Government has agreed to abolish debits duty from 1 July 2005.

• Following the abolition of debits duty, tax relief provided by the Government since 1998 will exceed $100 million per annum.

• Based on Commonwealth Grants Commission calculations, Tasmania has the second lowest level of taxation severity of all states.

102 Chapter 5: Taxation Revenue

INTRODUCTION The State is limited in the range of taxes that it is able to levy compared to the Commonwealth Government. Government tax policy must, however, balance the need to raise revenue with the need to foster a competitive business environment.

The purpose of this Chapter is to provide information on historical taxation collections, estimated aggregate taxation receipts for 2003-04, and projected revenue estimates for 2004-05 for these items. Detailed information on the relative competitiveness of Tasmania's business environment in relation to tax severity is contained in Chapter 1 of this Budget Paper.

For each of the major tax areas, a description of the tax base and its operation is provided, including any concessions which may be available, along with an estimate of receipts for each head of tax for 2004-05. A summary of major legislative changes which occurred in 2003-04 is also included.

The charts and tables in this Chapter generally refer to actual tax collections for 2002-03 (and earlier where applicable), while estimates for 2004-05 are compared with Budget estimates for 2003-04. A current estimate for the projected aggregate receipt of taxes in 2003-04 is also provided.

Year-on-year changes in taxation revenue are reported in nominal terms.

TAX COMPETITIVENESS Tax competitiveness plays a key role in creating a competitive business environment. This is recognised by the Government's Fiscal Strategy, as outlined in Chapter 1 of this Budget Paper.

Overall taxation severity is assessed annually by the independent Commonwealth Grants Commission (CGC). Comparisons published by the CGC in February 2004 show that, in line with the Fiscal Strategy, Tasmania's tax severity was below the average of all states and territories in 2002-03, the most recent year reviewed by the CGC, and below that of Victoria. Tasmania was also assessed by the CGC as having the second lowest taxation severity of all states, behind Queensland.

Over a number of Budgets, a series of complimentary tax relief measures introduced by the Tasmanian Government have combined to deliver $75.0 million per annum in tax relief to Tasmanian businesses and households, the vast majority of which relates to businesses. In addition the Government's decision to abolish debits duty from 1 July 2005 will bring the total benefit to the community from tax relief provided by the Government to over $100.0 million per annum.

Further information on the relative competitiveness of Tasmania's business environment in relation to tax severity is contained in Chapter 1 of this Budget Paper.

BUDGET INITIATIVES As from 20 May 2004, the Government will be providing duty relief on conveyance duty to first home buyers for contracts entered into on or after that day. Duty relief on conveyance duty will be available up to a maximum of $4 000 for home buyers who qualify for the First Home Owner Grant Scheme (FHOGS) and are purchasing a property up to the value of $350 000. This assistance is in addition to the $7 000 grant available under the FHOGS.


The estimated full year cost of this initiative in 2004-05 is $8.0 million.

This relief will initially be available until 30 June 2005. As part of the development of the 2005-06 Budget, the initiative will be reviewed to assess its effectiveness in assisting first home buyers to enter the housing market.

Minor gaming taxes currently levied under the Gaming Control Act 1993 will be abolished with effect from 1 July 2004. These taxes relate to minor gaming activities including:

• lucky envelopes;

• bingo;

• instant draw bingo;

• sweepstakes;

• raffles; and

• gratuitous gaming.

This Budget initiative will result in savings of approximately $265 000 in 2004-05 to minor gaming operators, including hotels, clubs, sporting clubs and community organisations.

Additionally, from 1 July 2004, the concessional rate of duty of $20 will be removed from a range of transactions. It is estimated that the revenue foregone from this change will be in the order of $80 000 per annum. The main benefit of this measure will, however, be the simplification of these transactions without the need for a duty assessment.

ESTIMATED TAXATION REVENUE The capacity of Tasmania and the other states and territories to raise tax revenues is constrained by the Constitution and by Australia's Commonwealth-State financial arrangements. This results in the states being restricted in the range of taxes they can impose.


Chart 5.1: Total Taxation Revenue 1999-00 to 2004-05

0

100

200

300

400

500

600

700

800

900

1999-00 2000-01 2001-02 2002-03 2003-04(expected)

2004-05(Budget)

$ m

illio

n

Nominal Dollars Real (2003-04) Dollars

Chart 5.1 shows a significant decrease in taxation revenue in 2000-01 due to the introduction of the Commonwealth's GST and the associated changes to various State taxes required under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA). From 1 July 2000, Safety Net Revenue payments from the Commonwealth ceased and a number of gambling taxes were reduced to accommodate the introduction of the GST. The slight decrease in revenue for 2001-02 reflects further changes resulting from the IGA, namely the abolition of financial institutions duty (FID) and duty on the transfer of quoted marketable securities effective from 1 July 2001. In addition, the tax reductions introduced in the 2001-02 Budget in relation to payroll tax and the electricity entities levy also had a negative impact on tax revenue for 2001-02. Taxation revenue has increased in nominal and real terms from 2001-02 to 2003-04 due to favourable economic conditions, together with some carry over of the historically high levels of activity in the property market experienced in the past three years. This was offset in part by the impact of the 2002-03 Budget initiatives of a reduction in land tax and the abolition of several duties. Furthermore, taxation revenue in 2004-05 is expected to decline marginally in nominal terms relative to 2003-04, although there is little change in real terms. This is due to an expected continuation into 2004-05 of the decline in property market activity experienced in the second half of 2003-04. The market is expected to stabilise towards the end of the 2004 calendar year at activity levels well below those experienced in the first half of 2003-04.

Table 5.1 sets out by head of tax actuals for 2002-03, budgeted and expected 2003-04 outcomes, and the Budget estimates for 2004-05. Chart 5.2 illustrates the contribution of each tax to total State taxation revenue in 2002-03.


Table 5.1: Taxation Revenue Collection Actual Budget Expected8 Budget

2002-03 2003-04 2003-04 2004-05$'000 $'000 $'000 $'000

Payroll Tax1 156 530 162 248 167 257 173 512Land Tax 25 502 25 547 27 347 33 673Motor Tax 45 775 45 910 48 910 49 046Light Vehicle Registration Fees 20 771 22 917 22 360 23 090Financial Transaction Taxes Duties2 169 193 138 409 202 609 180 806 Debits Duty3 21 764 22 769 23 169 24 281 Financial Institutions Duty4 663 .... .... ....Electricity Entities Levy5 104 .... .... ....Gambling Taxes Lottery Tax 22 109 22 344 22 344 22 826 Other Gaming Taxes6 819 279 143 .... Casino Tax and Licence Fees 50 396 50 853 56 553 53 208Guarantee Fees7 5 897 5 425 6 175 6 905State Fire Commission Receipts 38 745 36 350 36 350 39 240

Total 558 268 533 051 613 217 606 587

Notes: 1. The budgeted increase in Payroll Tax receipts from 2003-04 to 2004-05 is due to an expected increase in employment

in the payroll tax paying sector, together with forecast wage increases. 2. The 2004-05 Budget estimate for Duties factors in an expected decline in real estate market activity, relative to

2003-04 levels, and a reduction in conveyance duty revenue as a result of the provision of duty relief on conveyance duty for first home buyers.

3. The reduction in Debits Duty receipts after 2004-05 reflects the Government's decision to abolish Debits Duty from 30 June 2005.

4. FID was abolished from 1 July 2001. Receipts in 2002-03 relate to FID levied on bank accounts prior to 1 July 2001. 5. The Electricity Entities Levy was abolished from 1 July 2001. Receipts in 2002-03 relate to electricity consumed prior

to 1 July 2001, but billed after that date. 6. Minor gaming taxation will be abolished from 1 July 2004. 7. The increase in budgeted Guarantee Fees in 2002-03 reflects the introduction of the TT-Line into the Guarantee Fee

framework during 2002-03. 8. The expected 2003-04 outcome is based on receipts to the end of March 2004. There may be some variance between

the expected outcome and the actual outcome depending on the level of receipts in the final three months of the financial year relative to the preceding nine months.


Chart 5.2: Taxation Revenue Collections, Actual Collections for 2002-03; Dollar Amounts and Percentage of Total



State Fire Commission

Receipts$38.7m (6.9%)

Electricity Entities Levy

$0.1m (0.02%)


$20.8m (3.7%) Payroll Tax$156.5m (28.0%)

Financial Institutions Duty

$0.7m (0.1%)

Land Tax$25.5m (4.6%)



Duties$169.2m (30.3%)

Based on current estimates, taxation revenue for 2003-04 is expected to total $613.2 million. This represents a nominal increase of $55.0 million, or 9.8 per cent over revenue for 2002-03.

The increase in the expected 2003-04 estimate over the 2003-04 Budget estimate is primarily the result of higher than expected duty receipts due to sustained activity in the property market in the first half of 2003-04, with some large unanticipated one-off transactions compounding this result. Payroll tax receipts are also above the 2003-04 Budget estimate due to strong employment growth and rising wages.

ESTIMATED TAXATION REVENUE FOR 2004-05 Total taxation revenue for 2004-05 is estimated to be $606.6 million, an increase of $73.5 million or 13.8 per cent on the 2003-04 Budget estimate and a decrease of $6.6 million or 1.1 per cent on the estimated outcome for 2003-04. Continued economic growth, is expected to sustain revenue in 2004-05. However, an expected decline in real estate and vehicle market activity, relative to the record high levels in 2003-04, is expected to lead to a small reduction in overall revenue in 2004-05, relative to the expected revenue outcome for 2003-04.

Payroll Tax Description Payroll tax is imposed under the Pay-roll Tax Act 1971 and is levied on employee wages and salaries, commissions, bonuses, fringe benefits and allowances, directors' remuneration and employer superannuation contributions. The tax also applies to contract payments (where an employer-employee relationship is deemed to exist) and to employment agencies.


The Government provides targeted payroll tax assistance. Assistance up to the full value of payroll tax liability is provided to Tasmanian businesses engaged in specified Information Technology activities. Payroll tax assistance is also available in respect of increased employment levels, on a case-by-case basis, to selected and significant new industries and activities which exhibit all of the following characteristics:

• contribute significantly to the Tasmanian economy on a long-term sustainable basis;

• have substantial employment growth potential;

• are involved in either exporting or import competing activities; and

• provide services or manufactured goods which do not otherwise currently exist in Tasmania.

Estimated Receipts for 2004-05 Receipts from payroll tax in 2004-05 are estimated to be $173.5 million, representing an increase of $11.3 million or 6.9 per cent over the 2003-04 Budget estimate and an increase of $6.3 million or 3.7 per cent on the estimated outcome. Increased collections will result from anticipated growth in employment in the payroll tax paying sector and expected growth in wages.

Land Tax Description Land tax is imposed under the Land Tax Act 2000. It is levied on the basis of three land categories: general; primary production; and principal residence land. However, since 1 July 1996, the rate of tax on principal residence and primary production land has been set at zero, thereby effectively exempting such land from land tax. The land tax scales are currently fixed by the Land Tax Rating Act 2000.

The principal residence category applies to land on which there is a dwelling or stratum unit that is occupied as the principal residence of the owner, or a related person as defined by the Act. This category also includes retirement village units occupied as principal residences.

The primary production land category applies to land which is used substantially for the business of primary production. It includes land that has been declared a private timber reserve under the Forest Practices Act 1985.

General land relates to any land which is not classified as principal residence or primary production land. It includes commercial and industrial land, land used for the rental of residential housing and vacant land.

Land tax is calculated on the assessed land value and is payable by the owner of the land as at 1 July each year. The assessed land value is the land value adjusted by a valuation adjustment factor, as determined by the Valuer-General as at 31 March each year, to bring all properties in the State to a common valuation date each year. The valuation adjustment factor for a given municipality is determined for each land category within that municipality and represents an estimate of the general movement in land values since the last full revaluation was undertaken for that municipality.

Certain non-profit sporting organisations and bodies that control or promote horse racing, dog racing, athletic sports or motor racing, are eligible for a concessional rate of land tax equal to 0.4 per cent of the assessed land value. All land owned by persons who hold a Commonwealth Pensioner Concession Card and who have a 50 per cent or greater ownership stake in the property is exempt from land tax.


Table 5.2: Land Tax Scale Assessed Land Value Tax Rate

$ below 15 000 Nil 15 000 - 100 000 $25 plus 0.55 cents per $1 above $15 000

100 001 - 200 000 $492.50 plus 1.25 cents per $1 above $100 000 200 001 - 500 000 $1 742.50 plus 2.25 cents per $1 above $200 000 500 001 and above $8 492.50 plus 2.5 cents per $1 above $500 000

A rebate is available to home owners in transitional circumstances who incur a land tax liability when they are moving from one residence to another. The rebate is paid to those home owners who have paid the land tax liability and have sold their former residence, provided no income is earned from the property during the transitional period.

Estimated Receipts for 2004-05 It is expected that land tax collections in 2004-05 will be $33.7 million, which is $8.1 million or 31.8 per cent higher than the 2003-04 Budget estimate and $6.3 million or 23.1 per cent higher than the estimated 2003-04 outcome. This increase will primarily result from State-Local Government financial reforms whereby Local Government will be required to pay land tax from 1 July 2004.

Motor Tax Description Motor tax is imposed under the Vehicle and Traffic Act 1999 on the owners of motor vehicles or trailers, at the time of initial registration or annual renewal. Depending on the type of vehicle, the tax is determined by the number of cylinders and/or weight, seating capacity, or the number of axles and mass of each vehicle. The legislation specifies six classes of vehicles, each attracting its own scale of rates. A rebate of 40 per cent is available in certain cases to eligible pensioners owning commercial goods vehicles, provided they are not engaged in any trade or business, and commercial vehicles used predominantly for farming or horticultural purposes.

Estimated Receipts for 2004-05 Motor tax collections are estimated to be $49.0 million in 2004-05, an increase of $3.1 million or 6.8 per cent over the 2003-04 Budget estimate and $136 000 or 0.3 per cent higher than the estimated outcome for 2003-04. Motor tax rates, including those that apply to heavy vehicles are determined by the National Road Transport Commission and indexed annually. The relatively small growth between the 2004-05 Budget estimate and the estimated outcome for 2003-04 is due to record levels of market activity in 2003-04.

Light Vehicle Registration Fees Description Light vehicle registration fees, payable in accordance with the Vehicle and Traffic Act 1999, are revenue collected for the registration and the transfer of vehicle ownership.


Estimated Receipts for 2004-05 Light vehicle registration fees receipts are estimated to be $23.1 million in 2004-05, representing an increase of $173 000 or 0.8 per cent over the 2003-04 Budget estimate and $730 000 or 3.3 per cent higher than the estimated outcome for 2003-04.

Financial Transaction Taxes Duties (including debits duty) are classed as financial transaction taxes. Chart 5.3 shows the actual collections of financial transaction taxes for 2002-03.

Chart 5.3: Financial Transaction Taxes, Actual Collections for 2002-03; Dollar Amounts and Percentage of Total

Duties$169.2m (30.3%)



Land Tax$25.5m (4.6%)

Financial Institutions Duty

$0.7m (0.1%)

Payroll Tax$156.5m (28.0%)


$20.8m (3.7%)

Electricity Entities Levy

$0.1m (0.02%)

State Fire Commission

Receipts$38.7m (6.9%)



Duties Description Duties (previously referred to as Stamp Duties) are imposed under the Duties Act 2001. The Act imposes duty on a range of instruments, transactions and arrangements, which are generally of a commercial character. The Duties Act was the result of an inter-jurisdictional rewrite of stamp duties legislation, which significantly reduced inter-jurisdictional differences in principles, definitions and structure of the legislation, resulting in decreased compliance costs for business, particularly as they related to businesses with transactions across several jurisdictions.

The Commissioner of State Revenue collects all duties except for duties on motor vehicle registrations and transfers, and third party insurance. The Department of Infrastructure, Energy and Resources collects these on behalf of the Commissioner.

The Duties Act provides for payments from the Consolidated Fund to eligible first home buyers to meet the cost of duty on the purchase of their first home. The payments are in the form of an interest-free loan,


repayable over two years. Since 1995-96, the scheme has been available to first home buyers purchasing properties to a maximum value of $120 000.

From 20 May 2004 to 30 June 2005, the Government will be providing relief for first home buyers. Duty relief on conveyance duty will be available up to a maximum of $4 000 for home buyers who qualify for the First Home Owner Grant Scheme (FHOGS) and are purchasing a property up to the value of $350 000.

These arrangements will be reviewed as part of the development of the 2005-06 Budget.

From 1 July 2004, the concessional rate of duty of $20 will be removed from a range of transactions.

The 2004-05 Budget estimates for duty receipts are reported by category in Table 5.3.

Table 5.3: Duties Actual Budget Expected5 Budget

2002-03 2003-04 2003-04 2004-05

$'000 $'000 $'000 $'000 Conveyances1 93 694 63 988 118 488 98 708 Motor Vehicles 32 892 31 651 38 451 35 892 Insurances 32 054 33 593 33 593 34 994 Hire of Goods2,3 316 .... .... .... Mortgages 10 241 8 152 12 152 10 649 Sundry Legal Documents4 (191) 1 025 (75) 563 Marketable Securities3 87 .... .... .... Leases3 101 .... .... ....

Total 169 194 138 409 202 609 180 806

Notes: 1. The 2004-05 Budget estimate for conveyance duty factors in an expected decline in real estate market activity,

relative to 2003-04 levels, and a reduction in revenue as a result of the provision of duty relief for first home buyers. 2. Duty on hire purchase and related agreements are included in hire of goods duty. 3. Receipts for lease duty, marketable securities duty and hire of goods duty for 2002-03 relate to transactions made

prior to 1 July 2002 (the date of abolition for these duties), but not receipted until after this date. 4. The expected decline in duty on sundry legal documents for 2003-04 will result from the estimate being rebased to

more accurately reflect expected receipts. Negative revenue is the result of refunds on sundry legal documents. 5. The expected 2003-04 outcome is based on receipts as at end of March 2004. There may be some variance between

the expected outcome and the actual outcome depending on receipts in the final three months of the financial year relative to the preceding nine months.

Estimated Receipts for 2004-05 Duty receipts for 2004-05 are estimated to be $180.8 million, an increase of $42.4 million or 30.6 per cent over the Budget estimate for 2003-04 and $21.8 million or 10.8 per cent below the estimated outcome for 2003-04.

The increase from the 2003-04 Budget estimate to the 2004-05 Budget estimate is primarily a result of much higher than expected growth in activity and prices in the Tasmanian residential real estate market in the first half of 2003-04 and strong commercial property prices throughout most of 2003-04.

The anticipated decrease in revenue in 2004-05, relative to the 2003-04 estimated outcome, is based on a forecast decline in real estate market activity.


Debits Duty Description Debits duty is imposed on debits to taxable accounts kept in Tasmania. Debits duty also includes credit card duty, which applies to the number of debits made to an account kept with a credit card provider during the billing period of the preceding month. The rate of duty is 15 cents per taxable debit, except in the case of accounts with cheque access where a sliding scale also applies according to the amount of the taxable debit. Holders of a Commonwealth Pensioner Concession or Health Care Card are eligible for exemptions from debits duty. Only accounts to which at least a portion of the Commonwealth payment is credited can be exempted.

All States and Territories have agreed to abolish debits duty from 1 July 2005.

Estimated Receipts for 2004-05 Debits duty receipts for 2004-05 are estimated to be $24.3 million, an increase of $1.5 million or 6.6 per cent over the Budget estimate for 2003-04 and $1.1 million or 4.8 per cent above the estimated outcome for 2003-04.

Gambling Taxes Sources of gambling revenue in Tasmania cover activities associated with lotteries, casinos, keno and video gaming machines in hotels and clubs, bookmakers, sports betting and minor gaming. There is no taxation of parimutuel wagering conducted by TOTE Tasmania.

The Tasmanian Gaming Commission, with the resources of the Revenue, Gaming and Licensing Division of the Department of Treasury and Finance, is responsible for the supervision of gambling activities at Tasmanian casinos, gambling on board Spirits of Tasmania I and II, Keno and gaming machine operations in hotels and clubs, and minor gaming activities such as raffles and bingo. Regulation of racing is the responsibility of the Director of Racing.

The Gaming Control Act 1993 provides the legislative framework within which Tasmanian casinos operate. It also covers the operation of keno and video gaming machines, and the regulation of fixed odds wagering, sports betting, major lotteries, Internet gaming and other gaming activities, which may be prescribed. The TT-Line Gaming Act 1993 governs gaming operations aboard Spirits of Tasmania I and II.

Chart 5.4 provides details of actual gambling receipts for 2002-03.


Chart 5.4: Gambling Tax Revenue, Actual Collections for 2002-03; Dollar Amounts and Percentage of Total1

Other Gaming Taxes

$0.8m (1.1%)

Lottery Tax$22.1m (30.2%)

Casino and Licence Fees

$50.4m (68.7%)1

Note: 1. Casino and licence fees include taxation receipts from video gaming machine operations in hotels and clubs.

Lottery Tax Description Since 1960, there have been in place successive agreements between the Governments of Tasmania and Victoria regarding the sale of lottery tickets in Tasmania and the sharing of duty attributable to Tasmanian subscriptions. The arrangements under the agreement between Victoria and Tasmania have varied from time to time. The current agreement was renewed in September 2001 to conform to the requirements of the Public Lotteries Act 2000 (Victoria). The new agreement retains the same terms and conditions as the previous agreement.

Under the agreement, Victoria remits to Tasmania 100 per cent of the duty paid on all Tattersall's products sold in Tasmania, together with a proportionate share of unclaimed prizes. The agreement is not time limited although, under the Gaming Control Act, Tattersall's is authorised to sell lottery tickets in Tasmania until 30 June 2010. All lottery tax is collected by the Victorian Government, which remits the required payment to Tasmania each month.

Tattersall's is the sole provider of lottery products in Tasmania. Tattersall's also has a major interest in Footy Consortium Pty Ltd, which sells Tipstar products under the Tattersall's banner at all Tattersall's outlets. Tipstar is an Australian Rules Football tipping competition, which is classified as a lottery under the Gaming Control Act. Tipstar began operating in Tasmania at the start of the 2001 AFL season. Tattersall's also has permission to sell tickets to a soccer football pools competition.


Estimated Receipts for 2004-05 It is estimated that taxation revenue in relation to Tasmanian lottery products will be $22.8 million in 2004-05, representing an increase of $482 000 or 2.2 per cent on the Budget estimate for 2003-04 and the estimated outcome for 2003-04.

Other Gaming Tax Description Other Gaming Tax consists of minor gaming activities and bookmakers tax. In previous years, other Gaming Tax included Internet gaming activities conducted by Tattersall's separately from its lottery activities. However, in January 2003, Tattersall's ceased its Internet gaming operations. The Authorisations to conduct minor gaming activities are issued under the provisions of the Gaming Control Act 1993. Minor gaming activities include:

• bingo;

• lucky envelopes;

• raffles;

• calcutta sweepstakes; and

• gratuitous gaming.

With respect to bookmakers tax, prior to the introduction of the GST, revenue received by the Racing Commission was distributed between race clubs and the Consolidated Fund. However, since the advent of the GST, any GST that is paid by bookmakers in relation to fixed odds wagering is credited against a state turnover tax liability, and no revenue has been paid into the Consolidated Fund since that time.

Estimated Receipts for 2004-05 The estimated revenue from minor gaming activities for 2004-05 is nil, as minor gaming taxes will be abolished with effect from 1 July 2004. The estimated revenue from bookmakers tax for 2004-05 is nil.

Casino Tax Description The Gaming Control Act 1993 provides for the payment of licence fees by Tasmania's two casinos and a tax on the gross profit from casino operations. For 2003-04 the tax rates for keno and table gaming were 5.88 per cent and 0.88 per cent respectively, and, for gaming machines, a sliding scale as follows:

• 20.88 per cent for the first $35.0 million of gross profit per annum; and

• 25.88 per cent for gross profit in excess of $35.0 million per annum.

From 1 July 2013, a single flat tax rate of 25.88 per cent will apply to all gross profit on gaming machines.

The licence fee payable by the casino operator in respect of each casino is indexed by movements in the Consumer Price Index. In 2003-04, it is expected that the fees paid by the two casinos will total $2.7 million.


The Act also provides for the payment of a community support levy. It is estimated that the levy will raise $4.4 million in 2003-04, which is available for disbursement as follows:

• 25 per cent for the benefit of sport and recreation clubs;

• 25 per cent for the benefit of charitable organisations; and

• 50 per cent for the provision of:

− research into gambling;

− services for the prevention of compulsive gambling;

− the treatment or rehabilitation of compulsive gamblers;

− community education concerning gambling; and

− other health services.

From 1 July 2003, the contribution rate to the Community Support Levy by the gaming operator, Federal Hotels, increased from two to four per cent of gross profits from licensed clubs.

Under the Gaming Control Act, the Tasmanian Gaming Commission can issue Tasmanian Gaming Licences (TGLs) for approved gaming activities conducted via any electronic means, such as the Internet or telephone.

Two TGLs were granted under pre-existing arrangements to existing operators, with an additional four licences issued to new operators. However, because of the Commonwealth Government's 12 month moratorium on simulated gaming which ended on 18 May 2001, and the subsequent Commonwealth Interactive Gambling Act 2001, a number of TGL holders did not commence operations in Tasmania. Only one operator has actively used its TGL, although it ceased operations in January 2003.

The TT-Line Gaming Act 1993 provides for the payment of licence fees and tax on gross profits from gaming operations on board Spirits of Tasmania I and II. The Act also provides for the Treasurer to enter into a revenue sharing agreement with the Victorian Government in respect of the tax on gaming operations aboard Spirits of Tasmania I and II. Under the agreement, 25 per cent of the tax received is paid to the Victorian Government in recognition of gaming operations which occur when the ships are in Victorian waters. There are no gaming operations on board Spirit of Tasmania III.

Chart 5.5 details the components of total casino revenue for 2002-03.


Chart 5.5: Casino Tax and Licence Fees Revenue, Actual Collections for 2002-03; Dollar Amounts and Percentage of Total

Keno$1.06m (2.1)%

Table Gaming$0.4m (0.8%)

Spirit of Tasmania$0.3m (0.7%)

Unclaimed Prizes + Other

$0.20m (0.5%)

Other$0.04m (0.1%)

Licence Fees$2m (3.9%)

Video Gaming Machines

$44.7m (88.2%)

Internet Gaming and TGL fees$1.9m (3.8%)

Estimated Receipts for 2004-05 Taxation revenue from casino operations for 2004-05 is estimated to be $53.2 million, representing an increase of $2.4 million or 4.6 per cent above the 2003-04 Budget estimate and $3.3 million or 5.9 per cent below the estimated outcome for 2003-04. The decrease in casino tax receipts is expected to be the result of a smoking ban in gaming machine areas which becomes effective from 1 January 2005.

Guarantee Fees Description Guarantee fees are applied to Government Business Enterprises (GBEs) and State-owned Companies (SOCs) to offset the lower financing costs that GBEs and SOCs achieve by borrowing with the benefit of a Government guarantee. Guarantee fees effectively increase the borrowing rate that GBEs and SOCs receive up to the market borrowing rate which would apply if no Government guarantee applied. In line with the principle of competitive neutrality required under National Competition Policy, guarantee fees remove any competitive advantage that a GBE or SOC may receive in terms of reduced debt costs through Government ownership.

Estimated Receipts for 2004-05 It is expected that revenue from guarantee fees will be $6.9 million in 2004-05, representing an increase of $1.5 million or 27.3 per cent on the Budget estimate for 2003-04 and $730 000 or 11.8 per cent higher than the estimated outcome for 2003-04. Guarantee fees are expected to increase primarily as a result of higher guarantee fee rates and additional borrowings by TT-Line associated with the Spirit of Tasmania III.


State Fire Commission Revenue Description The major source of revenue for meeting operational costs and capital needs of the State Fire Commission is provided via a number of levies in accordance with the Fire Service Act 1979. The levies are collected from: a fire service contribution on property (levied on assessed annual values) and collected by councils; a motor vehicle fire levy on all vehicle registration (excluding motor cycles); and a fire levy on prescribed classes of insurance.

Estimated Receipts for 2004-05 It is expected that revenue generated by fire service levies will be $39.2 million in 2004-05, representing an increase of $2.9 million or 8.0 per cent on the Budget estimate for 2003-04 and the estimated outcome for 2003-04.

MAJOR LEGISLATIVE AND OTHER CHANGES A summary of legislative and other changes made during 2003-04 is provided in this section.

Pay-roll Tax Amendment Act 2003 The purpose of the Pay-roll Tax Amendment Act 2003 was to amend the Pay-roll Tax Act 1971 to clarify the exemption arrangements relating to employment agency provisions under the Act.

The amendment clarified the original policy intent, which was that for the purposes of the Pay-roll Tax Act employment agencies are to be treated as the taxable entity in relation to the workers that they on-hire, and that the status of employment agency clients, in terms of whether they are above or below the payroll threshold, is not relevant when determining an employment agency's payroll tax liability.

The amendment, which came into effect from 15 December 2003, makes it clear that the only grounds for exemption from the employment agency provisions of the Pay-roll Tax Act are where employment agency workers are on-hired to organisations that would be otherwise be exempt from the payment of payroll tax under section 10 of the Pay-roll Tax Act.

State and Local Government Financial Reform Act 2003 The State and Local Government Financial Reform Act 2003 introduced reciprocal taxation, which means that Local Government will be subject to the full application of State Government taxes (including payroll tax, land tax, motor vehicle tax and duty) from 1 July 2004. Parks and gardens held by Local Government will, however, remain exempt from land tax.

In return, the State Government will be required to pay council rates on land with the exception that national parks, forest reserves, conservation areas, public parks and roads, bridges and associated infrastructure will be exempt from rates.

To give effect to these reforms amendments were made to the Duties Act 2001, the Land Tax Act 2000, the Pay-roll Tax Act 1971, and the Vehicle and Traffic (Driver Licensing and Vehicle Registration) Regulations 2000.

Chapter 6: State Capital Program 117

6 STATE CAPITAL PROGRAM

Features

• The planned level of the 2004-05 State Capital Program is $269.8 million, an increase of $11.3 million on 2003-04.

• The 2004-05 State Capital Program includes $28.4 million expenditure on capital projects from the Economic and Social Infrastructure Fund (ESIF).

• A total of $45.0 million will be provided over four years from the ESIF for the Government's Affordable Housing Strategy (AHS). It is estimated that of the $20.0 million committed in 2004-05, $10.0 million will be expended on works and services projects.

• Capital Investment Program (CIP) of agencies for 2004-05 is $157.9 million, including a $17.4 million Housing Program and an $84.1 million Roads Program.

• State Government funding for the CIP (Departments) has been maintained in real terms in accordance with the Government's Fiscal Strategy targets for infrastructure maintenance.

• The 2004-05 CIP continues the emphasis on the maintenance and improvement of the State's existing asset stock through projects intended to sustain and enhance operational efficiencies and service delivery.

• The three year rolling CIP provides greater certainty for agencies and the construction industry.

• In 2004-05, $8.5 million has been provided to fund Essential Maintenance projects for public assets through the Essential Maintenance and Property Services Office Works allocations.

• CIP funded projects addressing Social Infrastructure include schools and libraries projects in 2004-05 totalling $13.8 million; TAFE projects totalling $5.3 million; and health projects that total $7.9 million.

118 Chapter 6: State Capital Program

STATE CAPITAL PROGRAM The State Capital Program comprises the Capital Investment Program (CIP), expenditure from the 2001-02 Infrastructure Fund (IF) and the 2002-03 Social Infrastructure Fund (SIF), and a component of the new Economic and Social Infrastructure Fund (ESIF). The CIP includes major capital works of agencies, the Roads Program, expenditure for public housing and major maintenance projects. The 2004-05 State Capital Program for 2004-05 totals $269.8 million.

Funding is provided to meet the construction costs or purchase, and maintenance of, major capital assets such as roads, public housing, schools and hospitals. The CIP provides a link between investment by Government in capital and maintenance projects and the strategic asset management plans of agencies.

This chapter first provides an overview of the State Capital Program funding, then provides details of expenditure on the CIP including the works of agencies (Table 6.5), the Roads Program (Tables 6.6 and 6.7), and the Housing Program (Table 6.8). Expenditure from the ESIF is detailed in Table 6.9, from the SIF in Table 6.10, and from the IF in Table 6.11. The 2004-05 State Capital Program includes $28.4 million from the ESIF, $0.7 million from the 2002-03 Social Infrastructure Fund, and $7.0 million from the 2001-02 Infrastructure Fund. Funding provided under these Infrastructure Funds is additional to projects funded by the current CIP.

The emphasis of the CIP in 2004-05 will continue to be on maintaining and improving the State's asset stock, including schools and hospitals and on infrastructure projects. This will sustain and enhance operational efficiencies and service delivery. In addition, $8.5 million will be provided for Essential Maintenance projects for public assets through the Essential Maintenance and Property Services Office Works allocations.

The 1999-00 Budget was the first year of publication of a rolling three-year CIP. The three-year rolling CIP provides greater certainty and a sound planning framework for agencies and the construction industry. Table 6.5 shows the funding commitments to specific projects over the next three years.

An increase in Commonwealth funding for the CIP from 2003-04 to 2004-05 is primarily due to the provision of $10.9 million for the Bass Highway-Penguin to Ulverstone project. State Government funding for the CIP has been maintained in real terms.

Two new major education projects approved for commencement in 2004-05 are: the redevelopment of the Latrobe High School and the Port Dalrymple District High School.

Funding has been provided for the redevelopment of the Smithton District and Scottsdale Hospitals, which will commence in 2004-05.

Major projects in the CIP for agencies that were completed or progressed during 2003-04 include provision of new facilities at Mowbray Heights Primary School; the redevelopment of the TAFE Clarence Campus; essential conservation works at the Port Arthur Historic Site; construction of a Community Health Centre in Queenstown; upgrading sections of the Royal Hobart Hospital; and continuation of the works on the Prison Infrastructure Redevelopment Program.

Funding for individual agencies and projects varies from year to year due to the size and construction timetable of the projects involved. This should be kept in mind when making inter-year comparisons.

In framing the overall Capital Investment Program, priority has been given to those projects which:

• meet essential community needs;


• are consistent with the Government's priorities, including Tasmania Together;

• provide economic benefit to the State; or

• lead to savings in operating costs.

Table 6.1 and Table 6.2 provide a summary of the source and application, respectively, of funds under the State Capital Program.


Table 6.1: State Capital Program – Source of Funds 2003-04 2004-05 Budget Budget

$'000 $'000Capital Investment Program

Consolidated Fund Appropriation State Funding 97 092 100 060Commonwealth Funding

Education 9 695 10 468Housing Program 2 224 2 111Roads Program 14 696 27 836

Total Consolidated Fund Appropriation1 123 707 140 475

Other Funding Balance Brought Forward 42 940 42 355Proceeds from Asset Sales 14 900 9 700Other 1 840 1 710

Total Other Funding 59 680 53 765

Total Capital Investment Program Funding 183 387 194 240

Economic and Social Infrastructure Fund

Balance brought forward 58 284 67 830Consolidated Fund Appropriation 26 855 ....)

Social Infrastructure Fund

Balance Brought Forward 5 600 737 2001-02 Infrastructure Fund

Balance Brought Forward 7 000 7 000

TOTAL SOURCE OF FUNDS 281 126 269 807

Note: 1. The significant increase in the Works and Services appropriation within the Consolidated Fund Appropriation

Bill 2004 is primarily due to an additional $10.9 million received from the Commonwealth to address the cost of the Bass Highway, Penguin to Ulverstone roads project.


Table 6.2: State Capital Program – Application of Funds 2003-04 2004-05 Budget Budget

$'000 $'000Capital Investment Program1

Departments2 62 206 56 365Roads3 71 185 84 100Housing4 30 296 17 399

Total Capital Investment Program 163 687 157 864 Economic and Social Infrastructure Fund5 36 300 28 390 Social Infrastructure Fund6 5 600 737 2001-02 Infrastructure Fund7 7 000 7 000

Total Expenditure 212 587 193 991 Funds to be Carried Forward 68 539 75 816

TOTAL APPLICATION OF FUNDS 281 126 269 807

Notes: 1. Table 6.3 provides details of the Capital Investment Program, including the division of Commonwealth and State

funding. 2. Table 6.5 provides details of the CIP (Departments) allocation by agency. 3. Table 6.6 provides a summary of the CIP Roads Program. 4. Table 6.8 provides a summary of the CIP Housing Program. 5. Table 6.9 provides a summary of projects funded from the Economic and Social Infrastructure Fund. 6. Table 6.10 provides a summary of projects funded from the Social Infrastructure Fund. 7. Table 6.11 provides a summary of projects funded from the 2001-02 Infrastructure Fund.


GOVERNMENT DEPARTMENTS Source of Funds The capital programs of government departments are funded from a combination of:

• Consolidated Fund appropriations;

• funds carried forward in accordance with section 8A(2) of the Public Account Act 1986;

• proceeds from asset sales;

• Commonwealth funding in relation to certain projects and programs. These funds are paid into the Consolidated Fund and are subsequently appropriated to the relevant departments; and

• direct financial assistance from the Commonwealth. These funds are paid into the Operating Accounts of the relevant departments.

Table 6.3 provides a comparison of prior year and 2004-05 funding sources for departmental capital programs.

Table 6.3: Summary of Funding Sources of Departmental Capital Programs (including Housing and Roads)

2003-04 Budget 2004-05 Budget

Department

Common-wealth) State) Total)

Common-)wealth) State) Total)

$'000) $'000) $'000) $'000) $'000) $'000) Education 9 695) 7 975) 17 670) 10 468) 8 598) 19 066)Finance-General ....) 8 609) 8 609) ....) 9 274) 9 274)Health and Human Services 2 224) 42 519) 44 743) 2 111) 23 175) 25 286)Infrastructure, Energy and Resources 14 696) 56 489) 71 185) 29 836) 54 729) 84 565)Justice ....) 16 766) 16 766) ....) 15 368) 15 368)Office of the Governor ....) 8) 8) ....) 8) 8)Police and Public Safety ....) 1 921) 1 921) ....) 1 016) 1 016)Primary Industries, Water and

Environment ....) 154) 154) ....) 1 180) 1 180)Tourism, Parks, Heritage and the Arts ....) 2 631) 2 631) ....) 2 101) 2 101)

TOTAL 26 615) 137 072) 163 687) 42 415) 115 449) 157 864)


Application of Funds Capital expenditure by departments provides for the development and maintenance of public facilities for the community and public infrastructure to facilitate economic and social activity.

A Project Initiation Process (PIP) is used to facilitate the evaluation of proposals for capital investment by departments. All proposed CIP projects must have a PIP completed to assess the viability of the proposed project. The PIP includes a review of:

• service delivery;

• alternative asset solutions; and

• capital budgeting and risk.

The inherent benefits of the PIP are:

• that the Government receives the best value from its capital expenditure by requiring an analysis of needs, risk and cost of more than one development option before an investment is approved;

• the promotion of efficient and effective planning of service delivery strategies and resource allocation by departments;

• the clear definition and documentation of the criteria which are applied to determine project viability and to support project justification;

• the encouragement of innovative service delivery options; and

• the provision of an audit trail of the processes followed to arrive at the option proposed.

Before projects can be placed on the CIP, a number of criteria must be addressed by departments in the PIP. Departments must ensure that:

• non-build alternatives, which produce the same service delivery outcome, are considered;

• projects are specifically related to approved Outputs and show the extent and nature of the service that will be delivered as a result of developing the project;

• the project complements the Strategic Asset Management Plan of the relevant department;

• the relationship of the project to the Corporate Plan of the relevant department is identified;

• the relevant Local Government Council is consulted on major projects;

• the total project cost, including the life cycle costs such as maintenance and upgrade, is identified; and

• the project timetable is clearly established.

The total estimated expenditure for the CIP by departments in 2004-05, as summarised in Table 6.3, is $157.9 million.


Table 6.4 provides a comparison of the estimated expenditure for 2003-04 and estimated expenditure for 2004-05 by department. This table does not include details in relation to capital investment in roads and housing, the Social Infrastructure Fund, the 2001-02 Infrastructure Fund, or the Economic and Social Infrastructure Fund, which are detailed later in this Chapter.

Table 6.4: Capital Investment Program (Departments) - Summary Department

2003-04)Budget)

2004-05)Budget)

$'000) $'000) Education 17 670) 19 066)Finance-General 8 609) 9 274)Health and Human Services 14 447) 7 887)Infrastructure, Energy and Resources ....) 465)Justice 16 766) 15 368)Office of the Governor 8) 8)Police and Public Safety 1 921) 1 016)Primary Industries, Water and Environment 154) 1 180)Tourism, Parks, Heritage and the Arts 2 631) 2 101)

TOTAL 62 206) 56 365)

Details of departmental projects that are included in the CIP are presented in Table 6.5, which lists individual projects for each department and includes information on individual projects with respect to the estimated total cost and estimated expenditure for 2004-05, 2005-06 and 2006-07.

Table 6.5 reflects details of the estimated cost of projects at the time of the 2004-05 Budget. Costs will vary as projects proceed to tender and some re-scheduling of individual projects is likely to occur during the year. This may allow some expenditure to occur against projects which are programmed to go to tender late in the financial year and for which funds are not currently provided in 2004-05.


Table 6.5: Capital Investment Program (Departments) – Project Details

Estimated)Total Cost)

2004-05)Estimate)

2005-06)Estimate)

2006-07)Estimate)

$'000) $'000) $'000) $'000)DEPARTMENT OF EDUCATION Building Services Maintenance - Education Ongoing funding is provided to meet maintenance

requirements including occupational health and safety issues and heritage requirements.

ongoing) 1 624) 1 624) 1 624)

Building Services Maintenance – Institute of TAFE Tasmania Ongoing funding provided to TAFE to meet maintenance


ongoing) 492) 492) 492)

Bowen Road Primary School Completion Date: November 2005 Funding is provided for the redevelopment of classroom

accommodation.

744) 380) 364) ....)

Devonport Primary School Completion Date: August 2005 Funding is provided for the redevelopment of classroom

accommodation and specialist facilities.

429) 220) 209) ....)

Latrobe High School Completion Date: June 2005 Redevelopment of outdated general learning areas

and community related arts centre.

1 950) 1 950) ....) ....)

Library - Multisites Completion Date: June 2005 Funding is provided for Library Capital Initiatives.

350) 350) ....) ....)

Mountain Heights School Completion Date: May 2005 Funding is provided for the redevelopment of the

administration area.

350) 350) ....) ....)

Mowbray Heights Primary School Completion Date: December 2004 Funding is provided for the provision of new infant classroom

accommodation and administration.

1 441) 750) ....) ....)


Table 6.5: Capital Investment Program (Departments) – Project Details (continued)


2004-05)Estimate)

2005-06)Estimate)

2006-07)Estimate)

$'000) $'000) $'000) $'000)DEPARTMENT OF EDUCATION (continued)

New Norfolk High School Completion Date: September 2005 Funding is provided for the redevelopment of the

administration and metalwork areas.

655) 330) 325) ....)

Ogilvie High School Completion Date: December 2005 Funding is provided for the redevelopment of music, speech

and drama facilities.

3 120) 1 569) 1 251) ....)

Oatlands District High School Completion Date: September 2004 Funding is provided for the redevelopment of library,

technology centre and classroom accommodation.

800) 200) ....) ....)

Port Dalrymple District High School Completion Date: June 2005 Redevelopment of outdated general learning areas and

community related arts centre.

1 151) 1 151) ....) ....)

Rose Bay High School Completion Date: December 2004 Funding is provided for the redevelopment of classroom

accommodation.

1 318) 1 009) ....) ....)

Rosetta High School (Classrooms, Canteen and Specialists Areas)

Completion Date: November 2005 Funding is provided for the redevelopment of classroom

accommodation, canteen and specialist learning areas.

1 554) 500) 754) ....)

Scottsdale High School Completion Date: October 2004 Funding is provided to upgrade the multi purpose hall to

facilitate speech and drama, and performing arts.

694) 350) ....) ....)




2004-05)Estimate)

2005-06)Estimate)

2006-07)Estimate)

$'000) $'000) $'000) $'000)DEPARTMENT OF EDUCATION (continued) Smithton High School Completion Date: February 2006 Funding is provided for the redevelopment of classrooms and

specialist areas.

1 943) 1 000) 943) ....)

Springvale Hostel Student Accommodation Completion Date: June 2005 Redevelopment of the Springvale Hostel.

500) 500) ....) ....)

Institute of TAFE Tasmania - Clarence Campus Completion Date: June 2006 This project funds the redevelopment of Clarence Campus to

provide a modern learning environment.

9 050) 1 916) 800) ....)

Institute of TAFE Tasmania - Clarence Campus (Building Trades B)

Completion Date: June 2005 This project funds the relocation of Building Trades B.

900) 900) ....) ....)

Institute of TAFE Tasmania - Flexible IT Delivery Completion Date: December 2005 Funding is provided for the flexible delivery of Information

Technology.

900) 450) 450) ....)

Institute of TAFE Tasmania – Infrastructure Support Ongoing funding is provided for general infrastructure

support and delivery of vocational education and training.

ongoing 850) 850) 850)

Institute of TAFE Tasmania – Infrastructure Upgrades Completion Date: December 2006 Funding is provided to undertake upgrading of essential

infrastructure.

1 130) 685) 445) ....)

Ulverstone Primary School Completion Date: May 2005 Funding is provided for the redevelopment of classroom

accommodation in the northern building.

800) 800) ....) ....)




2004-05)Estimate)

2005-06)Estimate)

2006-07)Estimate)

$'000) $'000) $'000) $'000)DEPARTMENT OF EDUCATION (continued) Warrane Primary School Completion Date: October 2005 Funding is provided for the redevelopment of classroom

accommodation.

794) 400) 394) ....)

Youngtown Primary School Completion Date: October 2005 This project funds the redevelopment of classroom

accommodation and provides a multi purpose room.

676) 340) 336) ....)

Campbell Town District High School Completion Date: June 2006 Funding is provided for the redevelopment of specialist

facilities.

676) ....) 476) 200)

East Launceston Primary School Completion Date: June 2006 Funding is provided for the redevelopment of classroom

accommodation.

2 150) ....) 2 150) ....)

Illawarra Primary School Completion Date: June 2006 Funding is provided for the development of new classroom

accommodation.

1 831) ....) 1 831) ....)

Institute of TAFE Tasmania - Claremont Campus Redevelopment

Completion Date: June 2006 Infrastructure and service upgrade to meet OH&S

requirements.

400) ....) 400) ....)

Institute of TAFE Tasmania - Hobart Laboratory Training Facility

Completion Date: June 2006 Relocation of laboratory and

testing facilities to Hobart Campus

380) ....) 380) ....)




2004-05)Estimate)

2005-06)Estimate)

2006-07)Estimate)

$'000) $'000) $'000) $'000)DEPARTMENT OF EDUCATION (continued) Institute of TAFE Tasmania - Multisite Infrastructure Upgrades Completion Date: June 2006 To undertake major building

maintenance of infrastructure facilities on various sites statewide.

640) ....) 640) ....)

Institute of TAFE Tasmania - Valley Road Redevelopment Completion Date: June 2006 To provide upgraded library and staff

delivery facilities to enhance flexible delivery requirements.

730) ....) 730) ....)

Yolla District High School Completion Date: June 2006 This project is to provide for the refurbishment of specialised

areas within the school to current standards.

990) ....) 990) ....)

TOTAL 19 066) 16 834) 3 166)

FINANCE-GENERAL Building Services Maintenance Ongoing funding is provided to agencies to meet maintenance


ongoing) 816) 816) 816)

Essential Maintenance This funding is provided to enable agencies to source urgent

maintenance funding for projects that arise outside the annual process of applying for funding from the Capital Investment Program.

ongoing) 7 320) 8 052) 8 857)

Property Services Office Works This sub-program provides for building consultancies and

landlord works for Government owned and leased buildings.

ongoing) 1 138) 1 138) 1 138)

TOTAL 9 274) 10 006) 10 811)




2004-05)Estimate)

2005-06)Estimate)

2006-07)Estimate)

$'000) $'000) $'000) $'000)DEPARTMENT OF HEALTH AND HUMAN SERVICES Building Services Maintenance Ongoing funding is provided to agencies to meet maintenance


ongoing) 104) 78) 78)

George Town District Hospital Completion Date: June 2007 This redevelopment project includes the provision of 15 single

room in-patient facilities, the development of a general use treatment room and office accommodation for community nurses.

2 300) 200) 800) 1 300)

Hospital Information System Completion Date: June 2007 A project to replace the existing computer systems in the Royal

Hobart Hospital, Launceston General Hospital and North-West Regional Hospital with a new single, statewide system providing patient information.

6 500) 1 500) 800) 4 200)

May Shaw Health Centre Completion Date: June 2005 This project will redevelop May Shaw Health Centre, general

practice and acute care area located at Swansea.

568) 568) ....) ....)

RHH Redevelopment Stage 3 Completion Date: September 2005 This project provides for an upgrade to the structure of the

Department of Emergency Medicine and the internal layout of the Department of Medical Imaging at the Royal Hobart Hospital.

11 095) 1 345) 2 324) ....)

Scottsdale District Hospital Completion Date: June 2007 This project involves the redevelopment of the Hospital to

provide a combined hospital/community health services site for the North-East District.

2 900) 1 300) 800) 800)




2004-05)Estimate)

2005-06)Estimate)

2006-07)Estimate)

$'000) $'000) $'000) $'000)DEPARTMENT OF HEALTH AND HUMAN SERVICES

(continued) Smithton District Hospital Completion Date: June 2007 This redevelopment will respond to the need to upgrade the

Smithton District Hospital to contemporary standards and allow community health services, which are currently being delivered from various facilities in the Circular Head area, to be collocated to meet the growing community need.

3 800) 500) 1 800) 1 500)

West Coast Multi Purpose Service Development Completion Date: December 2005 This project is for the construction of a Community Health

Centre in Queenstown, including residential aged and in-patient care services.

3 900) 2 370) 780) ....)

TOTAL 7 887) 7 382) 7 878)

DEPARTMENT OF INFRASTRUCTURE, ENERGY AND

RESOURCES Mineral Core Store Extension Completion Date: November 2004 This project provides for the extension of the Core Library in

Hobart to provide additional and more efficient storage space.

465) 465) ....) ....)

TOTAL 465) ....) ....)

DEPARTMENT OF JUSTICE Building Services Maintenance Ongoing funding to meet maintenance requirements including

occupational health and safety issues and heritage requirements.

ongoing) 94) 94) 94)

Prisons Infrastructure Redevelopment Program Completion Date: 2008 This project provides for construction of new correctional

facilities.

68 600) 15 274) 11 096) 14 794)

TOTAL 15 368) 11 190) 14 888)




2004-05)Estimate)

2005-06)Estimate)

2006-07)Estimate)

$'000) $'000) $'000) $'000)OFFICE OF THE GOVERNOR Building Services Maintenance Ongoing funding to meet maintenance requirements including


ongoing) 8) 8) 8)

TOTAL 8) 8) 8)

DEPARTMENT OF POLICE AND PUBLIC SAFETY Building Services Maintenance Ongoing funding to meet maintenance requirements including


ongoing) 376) 376) 376)

Breathalyser Replacement Program Completion Date: June 2005 This funding provides for the replacement of breathalyser

units.

750) 150) ....) ....)

Protective Equipment Completion Date: June 2005 Replacement of ballistic vests and protective equipment.

490) 490) ....) ....)

Launceston Police Station Completion Date: June 2007 Refurbishment of Launceston Police Headquarters.

2 200) ....) 1 000) 700)

TOTAL 1 016) 1 376) 1 076)

DEPARTMENT OF PRIMARY INDUSTRIES, WATER AND

ENVIRONMENT Building Services Maintenance Ongoing funding to meet maintenance requirements including


ongoing) 154) 154) 154)




2004-05)Estimate)

2005-06)Estimate)

2006-07)Estimate)

$'000) $'000) $'000) $'000)DEPARTMENT OF PRIMARY INDUSTRIES, WATER AND

ENVIRONMENT (continued) Air Monitoring Equipment Completion Date: June 2007 Upgrade and maintain air monitoring equipment at Ti Tree

Bend (Invermay), Prince of Wales Bay (Hobart) and Devonport in accordance with Tasmanian Air Monitoring Plan.

306) 226 40) 40)

Theatre Royal Extensions Completion Date: June 2006 This project provides for Theatre Royal extensions.

1 600) 800) 800) ....)

TOTAL 1 180) 994) 194)

DEPARTMENT OF TOURISM, PARKS, HERITAGE AND THE ARTS

Building Services Maintenance Ongoing funding to meet maintenance requirements including


ongoing) 101) 101) 101)

Port Arthur Historic Site - Conservation Program Completion Date: June 2005 This project provides for essential conservation works at the

Port Arthur Historic Site.

10 000) 2 000) ....) ....)

TOTAL 2 101) 101) 101)

TOTAL CAPITAL INVESTMENT PROGRAM

(DEPARTMENTS) 56 365) 47 891) 38 122)


ROADS PROGRAM Both the Commonweath and State Governments fund the Roads Program. Forming part of the CIP, the Roads Program comprises new works projects and the upgrade and maintenance of already established roads.

A summary of allocated funds is shown in Table 6.6, and a detailed allocation is presented in Table 6.7.

Table 6.6: Roads Program - Summary Category of Project

2003-04)Budget)

2004-05)Budget)

$'000) $'000)Commonwealth Funds

Infrastructure Development 8440) 20 260)Infrastructure Maintenance 4 890) 5 280)Road Safety and Traffic Management 2 436) 2 016)Environmental Management 150) 150)Program Management 1 430) 1 430)Asset Management 850) 700)Strategic Planning and Policy 200) ....)

18 396 29 836 State Funds

Infrastructure Development 13 039) 13 950)Infrastructure Maintenance 26 539) 28 958)Road Safety and Traffic Management 1 724) 902)Environmental Management 1 359) 704)Program Management 3 008) 2 570)Asset Management 4 477) 5 090)Strategic Planning and Policy 2 643) 2 090)

52 789 54 264

TOTAL 71 185) 84 100)


Table 6.7 Roads Program – Project Details Estimated 2004-05

Project Total Cost Estimate

$'000 $'000

NATIONAL HIGHWAY SYSTEM

INFRASTRUCTURE DEVELOPMENT

Road Upgrading

Bass Hwy - Penguin to Ulverstone 28 500 12 260

Westbury/ Hagley Litigation .… 2 000

Bridge Upgrading

Bridgewater Bridge Replacement 150 000 2 340

Roads of National Importance

North East Tasmania Access (NETAS) 20 000 3 660

20 260

INFRASTRUCTURE MAINTENANCE

Road Routine Maintenance 2 960 2 960

Road Specific Maintenance 914 914

Miscellaneous Fees/Charges 140 140

Road Reinstatement 360 360

Bridge Maintenance 906 906

5 280

ROAD SAFETY AND TRAFFIC MANAGEMENT

Safety Works 500 500

Traffic Management Works 280 280

Tourism Infrastructure 120 120

Blackspot Contribution 1 116 1 116

2 016

ENVIRONMENTAL MANAGEMENT

Roadside and Quarry Rehabilitation, Flora and Fauna Protection 150 150

PROGRAM MANAGEMENT

Corporate Management 1 100 1 100

Management Systems 330 330

1 430

TRANSPORT INFRASTRUCTURE 700 700

TOTAL NATIONAL HIGHWAY 29 836


Table 6.7 Roads Program – Project Details (continued) Estimated 2004-05


$'000 $'000

STATE FUNDED PROJECTS

INFRASTRUCTURE DEVELOPMENT

Road Upgrading

West Tamar Hwy Cormiston Creek to Legana Park Drive 8 000 2 911

Kingston Interchange 1 800 1 499

Glen Huon Main Road 6 200 4 310

Tasman Hwy - Gordons Hill Ramp 250 50

Bridge Upgrading 155 155

Roads of National Importance

North East Tasmania Access (NETAS) 20 000 4 700

Arthur Hwy 7 200 150

Rail Infrastructure 100 175

13 950

INFRASTRUCTURE MAINTENANCE

Emergency and Flood Repairs 300 715

Road Routine Maintenance 17 382 16 780

Road Specific Maintenance 4 810 4 970

Miscellaneous Fees/Charges 500 500

Road Reinstatement 400 400

Mudwalls Rd 1 650 …

Bridge Maintenance 4 240 4 040

Bridge Reinstatement

Lollara Secondary Road - Mountain River Bridge 1 108 1 208

Assistance to Local Government 275 220

Maintenance of Other Infrastructure 75 75

Vehicle Mass and Dimension Management 50 50

28 958

ROAD SAFETY AND TRAFFIC MANAGEMENT

Safer Roads 400 400

Traffic Management Works 50 82


Bicycle and Pedestrian Facilities 120 120

902


Table 6.7 Roads Program – Project Details (continued) Estimated 2004-05


$'000 $'000

ENVIRONMENTAL MANAGEMENT

Roadside Rehabilitation 60 60

Highland Lakes Rd - Barren Tier to Tods Corner 500 239

Quarry Rehabilitation, Environmental Hazard Management, Flora and Fauna Protection 405 405

704

PROGRAM MANAGEMENT

Corporate Management 2 210 2 210

Provision for Third Party Claims 140 .…

Management Systems 390 360

2 570

TRANSPORT INFRASTRUCTURE 4 950 5 090

INFRASTRUCTURE POLICY AND PLANNING 2 190 2 090

TOTAL STATE PROGRAM 54 264

TOTAL ROADS PROGRAM 84 100


HOUSING PROGRAM The Housing Program aims to provide all Tasmanians in need with access to sustainable, affordable, appropriate and secure housing options. The Program is aimed at delivering a range of housing options that meet community needs and offer a range of opportunities that contribute to the capacity of families and individuals to participate in society and improve their quality of life.

Housing Tasmania has made a strong commitment to align its capital works program in support of the Government's Affordable Housing Strategy (AHS). This commitment will ensure that the Government will be in a position to achieve the broad outcomes sought from the AHS and increase the supply of affordable housing for those most in need. Due to approval and planning processes associated with the AHS, and more specifically the delivery of the construction program, a large percentage of the expenditure associated with Stage 1 of the AHS will likely occur in the 2004-05 and 2005-06 financial years. This was recognised in the Government's announcement of the AHS, with Stage 1 covering the period up to 31 December 2005.

The Commonwealth and State Governments jointly fund the 2004-05 Housing Program under the terms of the Commonwealth-State Housing Agreement (CSHA).

Total funding for the Housing Program in 2004-05 is $53.8 million, which is higher than 2003-04 due primarily to the carry forward of unexpended sales proceeds from previous years into 2004-05. It is anticipated that during 2004-05 over $30.0 million of economic activity will be generated through the housing capital program through the letting of a number of significant redevelopment and construction contracts. In recognition of the long-term nature of these projects, and the current construction climate, a conservative approach has been taken in estimating actual payments in 2004-05. All funds carried forward will be fully committed against either existing or future projects and initiatives under the AHS.

In addition to the above funding, further economic activity is expected to be generated through the commitment of over $20.0 million in 2004-05 from the Economic and Social Infrastructure Fund (ESIF) against projects and initiatives under the AHS.

Stage 1 of the AHS, which extends to December 2005, is expected to achieve the acquisition of up to 420 new public housing dwellings, including the replacement of six disability group homes, and the upgrading of up to 270 existing public housing dwellings.

Of this, the 2004-05 capital program commitments will include the following specific works:

• commencement of major works at the Windsor Court site in Hobart, which will result in the construction of 53 units;

• redevelopment of the Dover Street site in Mowbray, which will result in the construction of 32 units;

• construction of three new Disability Services' homes;

• upgrading of five major unit complexes within the existing housing portfolio;

• upgrading of more than 100 public homes;

• replacement of emergency housing for people in crisis;

• excess of 50 strategic purchases throughout the State; and


• provision of a number of locally developed community housing solutions for clients with a diverse range of needs, including those with mental health issues and those requiring supported housing options.

Details of the source and allocation of funds for the Housing Program are shown in Table 6.8.

Table 6.8: Housing Program - Source and Application of Funds 2003-04 2004-05 Budget Budget

$'000 $'000Source of Funds

Balance Brought Forward1 28 000 36 376Commonwealth-State Housing Agreement Commonwealth Grant 2 224 2 111Commonwealth-State Housing Agreement State Matching Grant 4 172 4 288Sale of Assets and Other Capital Receipts2 14 900 9 700Operating Revenue 700 1 300

TOTAL SOURCE OF FUNDS 49 996 53 775

Application of Funds

Housing Redevelopment/Upgrading 11 700 1 382Capital Acquisitions 13 531 10 733CSHA Loan Repayments 5 065 5 284

Total Expenditure 30 296 17 399Funds to be Carried Forward3 19 700 36 376

TOTAL APPLICATION OF FUNDS 49 996 53 775

Notes: 1. The increase in brought forward funds from $28.0 million to $36.4 million reflects unexpended capital sale proceeds

carried forward to 2004-05. Brought forward funds are fully committed to projects under the Affordable Housing Strategy that have commenced, or will commence late in the 2003-04 financial year, and projects due to commence during 2004-05.

2. The reduced level of capital sale proceeds reflects the decision under the Affordable Housing Strategy to reduce sale of surplus, inappropriate Housing stock to a total of 600 units over the four years to 2007-08. The sale of 150 units of stock has been budgeted for 2004-05.

3. Consistent with the Affordable Housing Strategy, it is anticipated that over $30.0 million of projects will commence in 2004-05. However, due to timing of payments, $36.4 million will be carried forward to 2005-06. These funds will be fully committed against either existing or future projects and government priorities under the Affordable Housing Strategy, and will be fully expended during 2005-06.


ECONOMIC AND SOCIAL INFRASTRUCTURE FUND One of the Government's key initiatives in 2003-04 was the establishment of the Economic and Social Infrastructure Fund (ESIF). The ESIF will continue to be a significant mechanism for advancing Government's key initiatives in 2004-05 and over the Forward Estimates period.

The major thrust of the ESIF is projects assisting economic development and social infrastructure. Social infrastructure projects involve education, parks, heritage, health and housing throughout the State. Economic development projects relate to a range of infrastructure and developments including tourism related projects, the maintenance of the State's roads and bridges, and water infrastructure.

The capital projects funded from the ESIF are additional to projects funded from the Capital Investment Program.

A summary of ESIF funding and expenditure for capital projects in 2004-05 is provided in Table 6.9. It should be noted that estimated capital expenditure from the ESIF in 2004-05 is $28.4 million and that $39.4 million of capital funding will be carried forward to 2005-06. It should also be noted that further ESIF expenditure of a non-works and services nature is detailed in Chapter 4 of Budget Paper No 2 Operations of Government Departments.


Table 6.9: Economic and Social Infrastructure Fund, Works and Services 2004-05

2004-05

Budget

$'000

Source of Funds

Balance Brought Forward 67 830

TOTAL SOURCE OF FUNDS 67 830

Less Estimated Expenditure

Department of Education

Increasing Child Care Provision in Schools 2 000

Library Resources 500

2 500

Department of Health and Human Services

Affordable Housing Strategy 10 000

Hospital Infrastructure Projects 800

Health Equipment 2 000

12 800

Department of Infrastructure, Energy and Resources

Roads and Bridge Maintenance 6 000

Department of Primary Industries, Water and Environment

Water Infrastructure 1 000

Department of Tourism, Parks, Heritage and the Arts

Parks and Heritage 4 090


6 090

TOTAL ESTIMATED EXPENDITURE 28 390

Balance Carried Forward 39 440


Economic and Social Infrastructure Fund Projects In 2004-05, $10.0 million will be allocated for works and services associated with the Government's Affordable Housing Strategy. A total of $45.0 million, including $30.0 million for works and services, will be provided over four years from the ESIF for this Government initiative.

The Department of Health and Human Services will be provided with $2.0 million in 2004-05 for the purchase of essential health equipment. This allocation is in addition to $5.0 million provided to the Department for health equipment in 2003-04.

An additional $18.0 million will be allocated from the ESIF over three years to supplement the existing Roads Program. Of this amount $6.0 million has been allocated towards the maintenance of the State's roads and bridges in 2004-05. This allocation is in addition to the $54.3 million allocated through the Roads Program for roads and bridge maintenance in 2004-05.

A further $2.0 million will be provided in 2004-05 to increase the provision of childcare in schools and $500 000 to acquire library books for schools. These allocations build on the funds provided for these purposes in 2003-04.

Tourism, parks and heritage projects will be funded with $4.1 million allocated to infrastructure improvement in National Parks to enhance visitor services, while a further $2.0 million will be provided for tourism works and services.

Water infrastructure developments will be funded with an allocation of $1.0 million.

For details on all expenditures from the ESIF, refer to Chapter 4 of Budget Paper No 2 Operations of Government Departments 2004-05.


SOCIAL INFRASTRUCTURE FUND The Social Infrastructure Fund (SIF) was established in 2002-03 to improve services to the community and address social infrastructure needs. That portion of the SIF allocated for capital works was announced in the 2002-03 Budget as $14.2 million, but was increased by $2.0 million through an additional allocation. Of the capital works funding, $737 000 will be carried forward into 2004-05.

Table 6.10 illustrates that the capital projects component of the SIF will conclude in 2004-05 following the funding of the final community renewal projects.

Table 6.10: Social Infrastructure Fund

2004-05 Budget

$'000

Source of Funds

Balance Brought Forward 737

TOTAL SOURCE OF FUNDS 737


Community Renewal Program 737

TOTAL ESTIMATED EXPENDITURE 737


2001-02 INFRASTRUCTURE FUND The Infrastructure Fund (IF) was introduced in the 2001-02 Budget as a major Government initiative to provide one-off funding for Tasmanian economic and social infrastructure. Of the funding allocated for economic infrastructure in 2001-02, $7.0 million remains to be expended in the 2004-05 Budget.

The community has derived, and will continue to derive, significant benefits from the application of additional funding to infrastructure projects. The projects completed since 2001-02 have:

• provided infrastructure that supports private sector investment in development opportunities;

• addressed the rundown of infrastructure assets that are needed to support future expansion of existing service delivery;

• assisted in managing the backlog of maintenance of public infrastructure assets; and

• stimulated related economic activity in the State.

The funding for the project to be completed in 2004-05 is summarised in Table 6.11.

Table 6.11: 2001-02 Infrastructure Fund 2004-05

Budget

$'000 Source of Funds

Balance Brought Forward 7 000

TOTAL SOURCE OF FUNDS 7 000


Meander Dam 7 000

TOTAL ESTIMATED EXPENDITURE 7 000

2001-02 Infrastructure Fund Projects Meander Dam $7.0 million has been brought forward from the 2001-02 Infrastructure Fund for the Meander Dam project. The Meander Dam project forms part of the Government's 2000-01 Water Development Plan and aims to help achieve the Government's target of doubling the value of primary production by 2008. The State objectives for the project include, but are not limited to, facilitating the construction and operation of the Dam and improving agricultural production in the Meander Valley by providing farmers with a reliable source of irrigation water.

Relevant approvals for construction of the dam have been issued by the Assessment Committee for Dam Construction and the Environmental Management and Pollution Control Board. The Parliamentary Standing Committee for Public Works approved the allocation of funding for the project in December 2002. A permit to construct the dam was refused in January 2003 by the Resource Management and Planning


Appeal Tribunal. Subsequently, the Meander Dam Approvals Act 2003 was passed by both Houses of Parliament to effectively reinstate the approvals previously given to the project.

The Commonwealth Government approved the construction of the Meander Dam in September 2003. However, the project has been delayed due to an appeal being lodged in November 2003 in the Federal Court of Australia by the Tasmanian Conservation Trust. The appeal is challenging the Commonwealth's decision-making process. The process to select the successful proponent to design, finance, construct and operate the Meander Dam will, subject to the Federal Court decision, commence as soon as possible following a final decision on the appeal.

Chapter 7: Assets and Liabilities, 2004-05 147

7 ASSETS AND LIABILITIES, 2004-05

Features

• The General Government Sector assets and liabilities in this Chapter are presented in a Balance Sheet developed in accordance with the Uniform Presentation Framework.

• The major highlight is the estimated 50.2 per cent reduction in General Government Sector Net Debt at 30 June 2005 from a budgeted $461.5 million at 30 June 2004 to $229.7 million, consistent with the achievement of the Government's Fiscal Strategy target of eliminating General Government Net Debt in 2007-08.

• The estimated Net Worth of the General Government Sector is expected to increase by $425.7 million to $7 598.1 million from the estimate at 30 June 2004 of $7 172.4 million.

• The estimated Net Financial Worth of the General Government Sector is expected to increase by $273.1 million to $1 709.5 million from the estimate at 30 June 2004 of $1 436.4 million.

• Estimated General Government Sector Net Financial Liabilities is expected to decrease by $133.1 million to $2 362.3 million from the estimate at 30 June 2004 of $2 495.4 million.

• The estimated General Government Sector net interest cost ratio at 30 June 2005 is expected to reduce to 0.8 per cent from a peak of 10.8 per cent in 1993-94.

• The Government will make a contribution to the Superannuation Provision Account of $130.4 million in 2004-05, increasing the estimated balance of that account to $793.1 million at 30 June 2005.

148 Chapter 7: Assets and Liabilities, 2004-05

INTRODUCTION This Chapter provides detailed information on the major categories of assets and liabilities for the General Government Sector. The information presented in this Chapter is in accordance with the Uniform Presentation Framework (UPF) concepts agreed by the Australian Loan Council in March 2000.

BALANCE SHEET The Balance Sheet presented in this Chapter represents the estimated financial position of the Tasmanian General Government Sector as at 30 June 2005. By providing information on the nature of assets and liabilities held by a government, this statement gives an indication of the government's financial strength. The key measures presented in the Balance Sheet are Net Worth, Net Financial Worth, Net Financial Liabilities and Net Debt.

Table 7.1 details the estimated General Government Sector Balance Sheets as at 30 June 2004 and 2005.


Table 7.1: General Government Balance Sheet as at 30 June 2004) 2005)


$'000) $'000) %)Assets Financial Assets

Cash and Deposits 331 297) 373 317) 12.7)Advances Paid 111 549) 80 593) (27.8)Investments, Loans and Placements 20 240) 29 620) 46.3)Other Non-equity Assets 335 163) 342 664) 2.2)Equity 4 065 359) 4 260 328) 4.7)

Total 4 863 608) 5 086 522) 4.6)

Non-financial Assets Land and fixed Assets 5 672 232) 5 872 856) 3.5)Other Non-financial Assets 63 783) 15 715) (75.4)

Total 5 736 015) 5 888 571) 2.7)

Total Assets 10 599 623) 10 975 093) 3.5)

Liabilities Advances Received 273 201) 260 562) (4.7)Borrowings 651 355) 452 622) (30.6)Superannuation Liability 2 033 955) 2 132 690) 4.8)Other Employee Provisions 300 583) 320 769) 6.7)Other Non-equity Liabilities 168 131) 210 354) 25.1)

Total Liabilities 3 427 225) 3 376 997) (1.5)

NET WORTH 1 7 172 398) 7 598 096) 5.9)

NET FINANCIAL WORTH2 1 436 383) 1 709 525) 19.0)

NET FINANCIAL LIABILITIES3 2 495 425) 2 362 344) (5.3)

NET DEBT4 461 470) 229 654) (50.2) Notes: 1. Net Worth represents Total Assets less Total Liabilities. 2. Net Financial Worth represents Financial Assets less Total Liabilities. 3. Net Financial Liabilities represents Net Debt plus gross unfunded superannuation liability. 4. Net Debt equals the sum of Advances Received and Borrowings less the sum of Cash and Deposits, Advances Paid

and Investments, Loans and Placements.


Net Worth Net Worth provides a comprehensive picture of a government's overall financial position. It is calculated as total assets (both financial and non-financial) minus total liabilities.

Net Worth is estimated to be $7 598.1 million as at 30 June 2005, an increase of $425.7 million, 5.9 per cent above the 2003-04 Budget estimate of $7 172.4 million. The increase primarily reflects an increase in equity investments of $195.0 million, an increase in land and fixed assets of $200.7 million and a decrease in borrowings of $198.7 million, partially offset by an increase in the superannuation liability of $98.7 million and a decrease in advances paid of $30.1 million.

Net Financial Worth Net Financial Worth measures net holdings of financial assets. Net Financial Worth incorporates financial assets such as cash and deposits and equity investments and all liabilities, including superannuation.

Net Financial Worth is estimated to be $1 709.5 million as at 30 June 2005, an increase of $273.1 million or 19 per cent above the 2003-04 Budget estimate of $1 436.4. The increase primarily reflects additional equity holdings of $195.0 million and a decrease in borrowings of $198.7 million, partially offset by an increase in the superannuation liability of $98.7 million.

Net Financial Liabilities Net Financial Liabilities represents gross debt plus gross unfunded superannuation liability, less selected financial assets. Net Financial Liabilities provides important information for gauging the strength of a government's fiscal position. This measure is not included in the UPF. However, it is commonly used by international credit ratings agencies as it targets the significant financial assets and liabilities held by most governments.

Net Financial Liabilities is estimated to be $2 362.3 million as at 30 June 2005, a favourable movement of $133.1 million or 5.3 per cent on the 2003-04 Budget estimate of $2 495.4 million. The favourable movement in Net Financial Liabilities primarily reflects the reduction in borrowings of $198.7 million, partially offset by the increase in the value of the superannuation liability of $98.7 million.

The current Fiscal Strategy, which was announced in the 2002-03 Budget Papers, includes a target for the elimination of Net Financial Liabilities by 30 June 2017. The achievement of this target will result in the Government being in a position to fully fund all gross debt and superannuation liabilities.

Chart 7.1 shows projected General Government Sector Net Financial Liabilities to 2017-18. The chart shows that, on a same policy basis, the Government will achieve its target of eliminating Net Financial Liabilities by 30 June 2017.


Chart 7.1: General Government Sector Net Financial Liabilities

- 3 000

- 2 000

- 1 000

0

1 000

2 000

3 000

1999

-00

2000

-01

2001

-02

2002

-03

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

Net Debt Gross Unfunded Superannuation Liability Net Financial Liabilities

Sources: Government Financial Statistics 2002-03; Department of Treasury and Finance.

Net Debt Net Debt represents the stock of selected financial liabilities (advances received and borrowings) less selected financial assets (cash and deposits, advances paid and investments, loans and placements). Net Debt is the standard measure to assess a government's level of indebtedness. It is used to analyse the overall strength of a government's fiscal position, and also provides an indicator of its financial management performance over time. High levels of Net Debt impose a call on future revenue flows to service that debt and can therefore limit a government's flexibility to adjust expenditure. Net Debt is also an important indicator used in rating agencies' assessments.

Net Debt is estimated to be $229.7 million as at 30 June 2005, a favourable movement of $231.8 million, or 50.2 per cent compared to the 2003-04 Budget estimate of $461.5 million. The favourable movement is primarily due to a reduction in borrowings of $198.7 million. This result is consistent with the current Fiscal Strategy target to reduce Net Debt to below $450 million by 30 June 2005 and eliminate Net Debt by 30 June 2008.

In order to reduce borrowings, it is important to achieve sufficient cash surpluses to retire debt. The Government's strong financial management principles have ensured that sufficient cash surpluses have been achieved since 1998-99, as evidenced by the anticipated achievement of the June 2005 target in 2004-05. The achievement of sufficient cash surpluses to achieve the established Net Debt targets is an integral part of the Government's current Fiscal Strategy.

Targets for the reduction of the General Government Net Debt have been part of the Government's Fiscal Strategy since 1998-99. A credible medium-term Fiscal Strategy is an essential component of prudent contemporary public sector financial management practices. Financial strategies pursued by successive Governments from 1990-91 to 1997-98 had the effect of stabilising the emerging debt problem. Fiscal strategies pursued from 1998-99 have had a dramatic effect on reducing the level of State debt. The current


Fiscal Strategy focuses on continuing the Government's record of strong financial management and achieving specific debt targets.

Chart 7.2 shows the reduction in Net Debt as a percentage of Gross State Product since 1991 and clearly illustrates the impact of the Government's first Fiscal Strategy, which was introduced in 1998-99, and the current Fiscal Strategy introduced as part of the 2002-03 Budget. The Chart also indicates that, on a same policy basis, the Government will eliminate Net Debt by 30 June 2007, one year ahead of the 30 June 2008 target.

Chart 7.2: General Governement Sector Net Debt as a Percentage of Gross State Product (GSP)

- 5

0

5

10

15

20

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

(est

)

2005

(est

)

2006

(est

)

2007

(est

)

2008

(est

)

Per c

ent

Net Debt as percentage of GSP

Sources: Australian Bureau of Statistics; Department of Treasury and Finance; Australian National Accounts: State

Accounts, 2002-03, ABS Cat. No. 5220.0.

Interstate Comparison Chart 7.3 provides an interstate comparison of General Government Sector Net Debt as a proportion of GSP from 1998-99 to 2002-03. The Chart illustrates that Tasmania's General Government Sector Net Debt as a proportion of GSP has been in steady decline since 1998-99 and at an annual average rate greater than that of any other state.

The Chart reflects a significant decrease in Net Debt as a proportion of GSP for South Australia in 1999-00 as a result of the long-term lease of its electricity assets. There has also been a decrease in Net Debt levels as a proportion of GSP over the five years to 2002–03 for most other states and territories, with the exception of Queensland, which shows a decrease in its Net Asset position, and the Northern Territory. The ACT shows an increase in its Net Asset position.


Chart 7.3: General Government Sector Net Debt as a percentage of GSP

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

NSW Vic Qld SA WA Tas ACT NT

Per C

ent (

%)

1998-99 1999-00 2000-01 2001-02 2002-03

Sources: Government Financial Statistics, Australia 2002-03, ABS Cat No 5512.0; Australian National Accounts: State

Accounts, 2002-03, ABS Cat No 5220.0.

Interest Costs of the Government Reduced interest costs are a significant benefit of debt reduction, providing expenditure savings which can be applied to reduce taxation or fund other spending priorities. The interest costs of the Government are influenced by both average interest rates and variations in the level of Net Debt. Net Interest Cost is one of the indicators that has been included in the current Fiscal Strategy. The Fiscal Strategy target is to have zero Net Interest Cost by June 2008.

Net Interest Cost is estimated to be $25.4 million in 2004-05, a decrease of $23.5 million, or 48.0 per cent below the 2003-04 Budget estimate of $48.9 million.

Table 7.2 details the Net Interest Cost paid by the General Government Sector and the Net Interest Cost Ratio from 1998-99 following the introduction of the Government's first Fiscal Strategy. The Net Interest Cost Ratio is a measure that represents the proportion of the revenue base that is required to meet the Government's net interest cost burden. The ratio provides an indication of the Government's flexibility and ability to react to unexpected events.


Table 7.2: Net Interest Cost and Net Interest Cost Ratio

2003-04 2004-05

1998-99Actual

1999-00Actual

2000-01Actual

2001-02Actual

2002-03Actual

RevisedEstimate

Budget Estimate

$m $m $m $m $m $m $m Interest Expense 189 157 122 89 79 71 57 less Interest Income 36 38 30 23 24 29 31

Net Interest Cost 153 119 92 66 55 42 26

Total Revenue less Interest Income 2 385 2 566 2 656 2 844 2 982 3 086 3 059

Net Interest Cost Ratio 6.4 4.6 3.5 2.3 1.8 1.4 0.8

Net Interest Cost as a proportion of General Government revenue has reduced significantly since 1998, reflecting that successive Fiscal Strategies to reduce the level of debt and reduce the share of revenue required to service that debt have been successful.

Chart 7.4 shows Net Interest Cost from 1998-99 to 2007-08. The Chart indicates that Net Interest Cost will be negative, that is interest revenue will exceed interest costs, in 2007-08. This reflects the anticipated elimination of Net Debt by 30 June 2007.

Chart 7.4: Net Interest Cost

- 20

0

20

40

60

80

100

120

140

160

180

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

(est

)

2004

-05

(est

)

2005

-06

(est

)

2006

-07

(est

)

2007

-08

(est

)

$ m

illio

n

Net Interest Cost

Sources: Australian Bureau of Statistics; Department of Treasury and Finance.


ASSETS Total assets are estimated to be $10 975.1 million as at 30 June 2005, an increase of $375.5 million or 3.5 per cent above the 2003-04 Budget estimate of $10 599.6 million.

Chart 7.5 shows the estimated total assets as at 30 June 2005 and a percentage breakdown of the asset categories.

Chart 7.5: Assets by Category as at 30 June 2005

Equity$4 260.3m (39%)

Land and fixed assets$5 872.9m (54%)

Cash and Deposits$373.3m (3%)

Advances Paid, Investments, Loans and

Placements$110.2m (1%)

Other Non-equity and Non-financial Assets

$358.4m (3%)

Cash Assets Cash assets include Cash and Deposits, Advances Paid and Investments, Loans and Placements. Advances Paid consists of loans advanced to the private sector and government businesses, such as industry assistance, and Home Ownership Assistance Program loans.

Cash and Deposits Cash and Deposits is estimated to be $373.3 million as at 30 June 2005, an increase of $42 million, or 12.7 per cent above the 2003-04 Budget estimate of $331.3 million. The increase in Cash and Deposits primarily reflects an increase in the cash held by the Department of Health and Human Services of $15.8 million due to a carry forward of funding by Housing Tasmania and an increase in the Department of Primary Industries, Water and Environment of $12.4 million due to increased cash held within the Crown Lands Administration Fund and other operational accounts for projects managed by that Department.

Surplus cash held within the Public Account is used to repay maturing debt, thus reducing borrowing costs by delaying the need to refinance (or borrow). Such temporary debt payments are effectively an internal borrowing and are managed through a Temporary Debt Repayment Account within the Special Deposits and Trust Fund.


Advances Paid Advances Paid is estimated to be $80.6 million as at 30 June 2005, a decrease of $30.9 million, or 27.8 per cent below the 2003-04 Budget estimate of $111.5 million. The decrease primarily reflects the repayment of loans to Government Business Enterprises (on-lent Financial Agreement Debt) and early redemption of loans advanced under the Public Bodies Assistance Act 1971.

Investments, Loans and Placements Investments, Loans and Placements is estimated to be $29.6 million as at 30 June 2005, an increase of $9.4 million, or 46.5 per cent above the 2003-04 Budget estimate of $20.2 million. The increase primarily reflects a review conducted by the Department of Economic Development into the classification of its investments and the subsequent reclassification of a number of these investments. This increase is partially offset by a reduction in advances paid.

Other Non-Equity Assets This category is primarily made up of accounts receivable, income tax equivalents and dividends receivable, prepayments, accrued revenue and GST receivables.

Other Non-Equity Assets is estimated to be $342.7 million as at 30 June 2005, an increase of $7.5 million, or 2.2 per cent above the 2003-04 Budget estimate of $335.2 million. Table 7.3 provides a breakdown of the major elements included within this category.

Table 7.3 Other Non-Equity Assets as at 30 June 2004

Budget2005

Budget

$'000 $'000 Accounts Receivable 127 641 94 603Income Tax Equivalents and Dividends Receivable 192 959 192 959Prepayments 3 796 4 664Accrued Revenue 3 651 2 552GST Receivable 5 883 9 378Other Receivables 1 233 38 508

TOTAL OTHER NON-EQUITY ASSETS 335 163 342 664

The decrease in Accounts Receivable is primarily due to the reclassification of the Australian Bulk Mineral guarantee receivable held by the Department of Primary Industries, Water and Environment and the Insurance Levy receivable by The Nominal Insurer to Other Receivables.

Equity Investments This item consists of holdings in equity investments in private sector businesses ($6.9 million held by the Department of Economic Development), and the Government's investment in the net assets of the Public Non-Financial Corporations and the Public Financial Corporations Sectors.


Equity is estimated to be $4 260.3 million, an increase of $195.0 million, or 4.7 per cent, above the 2003-04 Budget estimate of $4 065.4 million. The increase reflects the anticipated increase in the net asset position of Aurora Energy Pty Ltd, Forestry Tasmania, Hydro Tasmania, Transend Networks Pty Ltd and TT-Line Company Pty Ltd.

Chart 7.6 illustrates the break up of the Government's holdings by category.

Chart 7.6: Equity Investments as at 30 June 2005 Transport

(3%)Other(1%)

Financial(2%)

Environmental(18%)

Ports(4%)

Electricity(72%)

Land and Fixed Assets This category includes the value of Crown Land and other land holdings, including national parks and conservation areas, schools, hospitals and other buildings held by the Government, infrastructure assets such as roads and bridges, and plant and equipment held by the Government for the provision of goods and services.

Land and Fixed Assets is estimated to be $5 872.9 million, an increase of $200.7 million, or 3.5 per cent above the 2003-04 Budget estimate of $5 672.2 million. The increase is partially due to a revaluation of road infrastructure by the Department of Infrastructure, Energy and Resources. The remainder of the increase reflects the Government's expenditure through the Capital Investment Program. This is consistent with the Government's Fiscal Strategy principle of maintaining the infrastructure to support the delivery of Government services and to foster economic and industry development. For further information on the Capital Investment Program, refer to Chapter 6 of this Budget Paper.

Chart 7.7 provides a breakdown of the categories of Land and Fixed Assets as at 30 June 2005.


Chart 7.7: Land and Fixed Assets by Category as at 30 June 2005

Infrastructure$3 119.5m (53%)

Buildings$2 127.1m (36%)

Land$333.8m (6%)

Plant and Equipment

$292.4m (5%)

Other Non-Financial Assets This category includes other assets used in the provision of goods and services. These include items such as farm livestock, library books, and pharmaceutical, catering and linen supplies.

Other Non-Financial Assets are estimated to be $15.7 million, a decrease of $48.1 million, or 75.4 per cent below the 2003-04 Budget estimate of $63.8 million. The decrease primarily reflects a review of the items classified in this category and subsequent reclassifications to Land and Fixed Assets.

LIABILITIES Total liabilities are estimated to be $3 377.0 million as at 30 June 2005, an increase of $50.2 million or 1.5 per cent above the 2003-04 Budget estimate of $3 427.2 million.

Chart 7.8 shows the estimated total liabilities as at 30 June 2005 and a percentage breakdown of the liabilities categories.


Chart 7.8: Liabilities by Category as at 30 June 2005

Other Employee Provisions

$320.8m (9%)

Advances Received$260.6m (8%)

Superannuation Liability

$2 132.7m (63%)

Borrowings$452.6m (13%)

Other Non-equity Liabilities

$210.4m (6%)

Gross Debt Gross Debt consists of Advances Received and Borrowings. Advances Received consist of borrowings from the Commonwealth Government. Borrowings include debt owing to the Tasmanian Public Finance Corporation (Tascorp).

Advances Received Advances Received is estimated to be $260.6 million as at 30 June 2005, a decrease of $12.6 million or 4.7 per cent below the 2003-04 Budget estimate of $273.2 million. The decrease reflects repayment of Commonwealth loans held by Finance-General.

Borrowings Borrowings is estimated to be $452.6 million as at 30 June 2005, a decrease of $198.8 million, or 30.6 per cent below the 2003-04 Budget estimate of $651.4 million. The decrease reflects the repayment of debt as it matures with surplus cash held within the Public Account.


Table 7.4: General Government Sector Gross Debt as at 30 June 2005 by Maturity

TascorpDebt

Commonwealth1

DebtOther Gross

DebtTotal Gross

Debt

$m $m $m $m Within one year 257 12 96 365 One to five years 40 23 15 78 More than five years 34 228 8 270

TOTAL GROSS DEBT 331 263 119 713

Note: 1. The Commonwealth debt maturing beyond 2014 relates to Commonwealth-State Housing Loans that will be repaid

over the next 40 years.

Superannuation Liability The Tasmanian Government's gross unfunded superannuation liability is an estimate of the obligations of the State with respect to past service liabilities arising from the current and former members of unfunded or partially funded Public Sector superannuation schemes.

The General Government Sector gross unfunded superannuation liability is estimated to be $2 132.7 million as at 30 June 2005, an increase of $98.7 million, or 4.8 per cent above the 2003-04 Budget estimate of $2 034.0 million. The increase in the projected value of the liability reflects the most recent actuarial assessment of the gross unfunded superannuation liability. Further information on the General Government Sector superannuation liability and the Government's strategies to manage the liability is included later in this Chapter.


Table 7.5: Gross Unfunded Superannuation Liability – General Government Sector as at 30 June

2004

All Schemes - Past Service Unfunded Liabilities Revised

Estimate2005

Estimate

Variation

$'000 $'000 % Retirement Benefits Fund

Defined Benefit Scheme 2 025 674 2 096 253 3.5 1973 Parliamentary Superannuation Scheme1 13 181 13 084 (0.7))1985 Parliamentary Retiring Benefits Scheme1 1 510 831 (45)

1968 Judges' Scheme 22 162 22 522 1.6

Total 2 062 528 2 132 690 3.4

Note: 1. With the repeal of the Parliamentary Superannuation Act 1973 and the Parliamentary Retiring Benefits Act 1985, the

Parliamentary Superannuation Fund and the Parliamentary Retiring Benefits Fund became sub-funds of the Retirement Benefits Fund with effect from 1 January 2003.

Other Employee Provisions This category includes provisions for accrued salaries, long service leave, annual leave and sick leave.

Other Employee Provisions are estimated to be $320.8 million as at 30 June 2005, an increase of $20.2 million, or 6.7 per cent above the 2003-04 Budget estimate of $300.6 million. The increase primarily reflects the increased salary costs for agencies.

Other Non-Equity Liabilities This category is primarily made up of accounts payable, accrued expenses, and the liabilities related to the Tasmanian Risk Management Fund.

Other Non-Equity Liabilities is estimated to be $210.4 million as at 30 June 2005, an increase of $42.2 million, or 25.1 per cent above the 2003-04 Budget estimate of $168.1 million. Table 7.6 provides a breakdown of the major elements included within this category.


Table 7.6 Other Non-Equity Liabilities as at 30 June 2004

Budget2005

Budget

$'000 $'000 Accounts Payable 42 381 47 357 Accrued Expenses 50 363 48 643 Other Liabilities 75 387 114 354

TOTAL OTHER NON-EQUITY LIABILITIES 168 131 210 354

The increase in Accounts Payable is primarily due to a review of the items held within the Accrued Expenses category and the subsequent reclassification of a number of items in the Accrued Expenses category to Accounts Payable. In addition, the reduction in Accrued Expenses also reflects a reduction in Interest Costs due to the reduction in the levels of Borrowings.

The increase in other liabilities is primarily due to an increase in the estimated liabilities for the Tasmanian Risk Management Fund. Further information on the Tasmanian Risk Management Fund is included later in this Chapter.

STRATEGIES TO REDUCE MAJOR LIABILITIES The following section provides further information on the State's unfunded superannuation liability and the management of the State's self insured risks through the Tasmanian Risk Management Fund.

Superannuation Introduction This section deals with the State's unfunded superannuation liabilities of the General Government Sector. Information contained in previous Budget Papers about the nature and features of the relevant Public Sector superannuation arrangements is now available on the Treasury website, at www.treasury.tas.gov.au/superannuation.

The Superannuation Provision Account (SPA) was established to fund the superannuation liabilities of the General Government Sector. Unless otherwise stated, the relevant tables in this section take account of the balance, or estimated balance, of that account. In order to distinguish the superannuation liability discussed in this section from the gross liability shown in the Balance Sheet, the superannuation liability that takes the SPA into account is referred to as the Net Unfunded Superannuation Liability.

Unfunded Superannuation Liability – General Government Sector The State Actuary undertakes a review of the sufficiency of the General Government Sector's defined benefit superannuation schemes each year as well as estimating each scheme's superannuation liability.

Actuarial estimates of the superannuation liability are based on a wide range of economic, financial and demographic assumptions. Over time, actual outcomes in relation to salary growth, investment returns, the


number of resignations and retirements, mortality, morbidity, inflation and the preference for lump sum benefits over pensions will vary from those assumed by the State Actuary. To the extent that these variations occur, there will be changes in both the cash flow profile for the Government and the period of time over which the unfunded superannuation liability will be eliminated.

For this reason, the State Actuary is requested to annually review both cash flow and unfunded liability estimates. These updates of the overall funding position, together with the revised outlay estimates and the Fiscal Strategy target of eliminating the State's net unfunded superannuation liability by 30 June 2018, form the basis on which the Government determines future inflows into the SPA.

To determine the total unfunded superannuation liability of the General Government Sector, the State Actuary reviewed the RBF Defined Benefit scheme, the two parliamentary schemes and the Judges' scheme in March 2004. The result of these reviews, as well as the State Actuary's estimates for the Forward Estimates period, are shown in Table 7.7.

The net unfunded superannuation liability for the General Government Sector as at 30 June 2003 was $1 394.9 million and is forecast to be $1 372.9 million as at 30 June 2004.

Table 7.7: Estimates of Net Unfunded Superannuation Liability - General Government Sector as at 30 June1

2004 All schemes - Unfunded Past Service

Liabilities (including SPA) 2003

ActualRevised

Estimate2005

Budget2006

Estimate2007

Estimate2008

Estimate

$'000 $'000 $'000 $'000 $'000 $'000 RBF

Defined Benefit Scheme 1 949 339 2 025 674 2 096 253 2 164 630 2 222 592 2 271 620 1973 Parliamentary Superannuation

Scheme 13 272 13 181 13 084 12 966 12 843 12 717 1985 Parliamentary Retiring Benefits

Scheme 774 1 510 831 465 288 118 1968 Judges' Scheme 21 869 22 162 22 522 22 874 22 891 22 920

Total Unfunded Superannuation Liability 1 985 254 2 062 528 2 132 690 2 200 935 2 258 614 2 307 375 Less SPA (590 390) (689 588) (793 079) (901 543) (1 007 561) (1 113 943)

Net Unfunded Superannuation Liability 1 394 864 1 372 940 1 339 611 1 299 392 1 251 053 1 193 432

Estimated Percentage Change (1.6) (2.6) (3.0) (3.7) (4.6) Note: 1. The total unfunded superannuation liability for 30 June 2003 differs from the liability published in the Treasurer's

Financial Statements as at 30 June 2003 ($2.008 billion). This is because the above figures are based on the audited financial accounts for the respective schemes and the Treasurer's Financial Statements were based on draft accounts for the respective schemes.


Future Unfunded Liabilities The most recent estimates of the State's future net unfunded superannuation liability for the Forward Estimate period are shown in Table 7.7. As can been seen from the table, notwithstanding that the schemes have now been closed, the unfunded past service liability for the RBF Defined Benefit Scheme and the Judges' scheme are projected to increase. This is due to factors such as the accrual of an additional year of service by scheme members and salary increases for scheme members.

The net unfunded past service liability for the General Government Sector, taking into account the SPA balance, is estimated to decrease in nominal terms from 2004. This is in part influenced by the increase in the SPA balance and a slight decline in the rate of increase in the RBF Defined Benefit scheme entitlements.

In nominal terms, the State's net unfunded RBF superannuation liability is on track to be eliminated by the Fiscal Strategy target date of 30 June 2018. That is, at that date, the balance in the SPA is forecast to fully offset the RBF unfunded superannuation liabilities. Had the decision not been taken to close the unfunded RBF Defined Benefit scheme and other defined benefit schemes in mid-1999 and increase provisions to meet the emerging costs of the liabilities, the State would be facing a crippling superannuation liability over future decades, which would have put increasing and unsustainable pressure on the Budget.

Chart 7.9 demonstrates graphically the decline in the net unfunded RBF superannuation liability and the Fiscal Strategy target date of 30 June 2018. The 1997 Joint Select Committee into Public Sector Superannuation in Tasmania (JSC) original estimate of the State's unfunded superannuation liability is also included in Chart 7.9 for comparative purposes.

Chart 7.9: Projected RBF Unfunded Liability (Nominal)

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

2003

-04

2010

-11

2017

-18

2024

-25

2031

-32

2038

-39

2045

-46

2052

-53

2059

-60

$ m

illio

ns

1996-97 JSC projections 2003-04 projections


The State Actuary is required to undertake a comprehensive review of all the assumptions used for calculating the unfunded superannuation liability every three years. The next triennial review is currently underway and is required to be completed by 30 June 2004.

Employer Funding The defined benefits schemes are generally unfunded superannuation schemes in terms of employer contributions, with benefits being paid on an emerging basis. A Superannuation Provision Account (SPA) was established within the Special Deposits and Trust Fund in July 1994 to provide for the superannuation benefits of defined benefit scheme members employed in agencies and by some Statutory Authorities. These departments and authorities are currently required to pay into the SPA at an employer contribution rate determined by the Minister for Finance, on the advice of the State Actuary. For most departments and authorities, the current employer contribution rate is 11 per cent of salary. In addition, departments are also required to pay into the SPA a 'gap' payment equivalent to two per cent of salary in respect of each permanent employee appointed after 15 May 1999, notwithstanding that these employees are not members of the RBF Defined Benefit scheme.

The employer share of pensions and lump sum payments payable to retiring RBF Defined Benefit scheme members in these departments and authorities are reimbursed to the RBF Board from the SPA. These payments are made notwithstanding that they may relate to periods of employment prior to the establishment of the SPA in 1994.

Table 7.8: Superannuation Provision Account (SPA) as at 30 June 2004

2003Actual

RevisedEstimate

2005Budget

2006Estimate

2007Estimate

2008 Estimate

$m $m $m $m $m $m Opening Balance 465.2 590.4 689.6 793.1 901.5 1 007.6 Receipts

Agency contributions 73.6 71.1 68.6 66.1 63.8 61.3 Interest 23.7 33.0 39.9 45.3 50.8 56.2 Finance-General (R069) 125.3 123.2 130.4 137.9 145.5 153.5

Total Receipts 222.6 227.3 238.9 249.3 260.1 271.0 Expenditure

Pensions 64.6 65.9 67.1 69.0 71.0 73.2 Lump Sums 32.8 62.2 68.3 71.8 83.0 91.5

Total Expenditure 97.4 128.1 135.4 140.9 154.0 164.7

Closing Balance 590.4 689.6 793.1 901.5 1 007.6 1 113.9

Given the projected increase in the unfunded past service superannuation liability, the Government has made an increased funding effort in order to prevent the net unfunded past service liability increasing in real terms. This effort is reflected in the level of contributions to the SPA from Finance-General, as shown in Table 7.8. In order to ensure that the Government's strategy of eliminating the net unfunded


superannuation liability by June 2018 is met, additional contributions were made to the SPA during 2002-03 and 2003-04. Based on the funding effort forecasts, the Government is on track to achieve the Fiscal Strategy target of eliminating the net unfunded superannuation liability by June 2018.

Tasmanian Risk Management Fund Purpose of the Fund The Tasmanian Risk Management Fund (the Fund) was established from 1 January 1999 to provide the basis for the progressive implementation of a whole-of-government approach to the treatment of all risks to which agencies are exposed, including ensuring that adequate financial provision is made for the cost of risk.

All identified risks to which departments are exposed are covered by the Fund including:

• workers' compensation;

• personal accident and travel;

• property (including motor vehicles, marine hull, transit, fidelity/fraud, building and contents and business interruption);

• liability (including public, products and professional liability); and

• medical malpractice.

All classes are self-insured by the Fund except for marine hull and travel, which remain insured through the private sector as the cost of private insurance is cheaper than self-insurance for these two categories of risk.

Performance of the Fund The Fund operates on a fully funded basis with all agencies making regular, stable contributions each year in order to build up sufficient reserves to meet all current and emerging costs. Contributions are adjusted over time according to the claims experience.

The Fund has proved very successful in avoiding the high levels of volatility experienced in the insurance market in recent years. Minimal increases and, in some risk areas, reductions in contributions were achieved in 2002-03 and 2003-04, in contrast to the substantial premium increases experienced in the private sector and problems associated with the availability of cover for some classes of risk.

On the basis of actual claims experience, reductions in contributions for some property and liability classes of risk are expected to continue in 2004-05. However, it is estimated that these will be offset by modest increases in contributions for workers' compensation and motor vehicle cover. Total agency contributions for 2004-05 are estimated to be $29.3 million, an increase of $2.1 million or 7.7 per cent from the estimated total contributions for 2003-04 of $27.2 million.

In terms of the financial position of the Fund, it is estimated that as at 30 June 2005, the Fund will have assets of $102.6 million and liabilities of $92.8 million, resulting in the Fund being in a net asset position of $9.8 million, as shown below in Table 7.9. This is an improvement compared to the estimated position at 30 June 2004, where the Fund is estimated to show net liabilities of $1.5 million.

The estimated 2003-04 outcome is the result of a $15.6 million increase in the estimated value of known outstanding claims, particularly in relation to medical malpractice claims. The value of all outstanding


medical malpractice claims was first estimated in 2002-03 as being $13.5 million, which resulted in a large increase in the estimated liabilities for 2002-03, as shown in Table 7.9.

The increase in liabilities in 2003-04 is largely the result of a revised estimate by the Fund's Actuary of outstanding medical malpractice claims to $25.9 million, an increase of $12.4 million. A more detailed review of the outstanding liabilities for medical malpractice claims is currently underway and may result in the estimate being further refined in the coming months.

The outstanding liabilities for medical negligence will be offset by an additional contribution to the Fund through Finance-General of $3 million in 2003-04 and $5 million from 2004-05 onwards until the liabilities are fully funded.

Table 7.9: Financial Position of the Tasmanian Risk Management Fund as at 30 June

2002

Actual2003

Actual

2004Revised

Estimate2005

Budget

$'000 $'000 $'000 $'000

Current Assets

Account in the Special Deposits and Trust Fund 73 603 76 052 86 725 101 531 Receivables 493 1 082 1 082 1 082

Total Assets 74 096 77 134 87 807 102 613 Liabilities

Workers' Compensation 47 775 53 165 57 344 60 785 Property 2 024 1 473 232 232 Motor Vehicle 153 392 330 330 Liability 801 2 834 3 424 3 424 Medical n.a. 13 470 25 875 25 875 Miscellaneous …. 291 …. …. Payables and Provisions 1 627 2 167 2 129 2 129

Total Liabilities 52 380 73 792 89 334 92 775

Net Assets 21 716 3 342 (1 527) 9 838

Risk Management Initiatives Treasury has undertaken a number of initiatives to improve the management of potential risks to which departments are exposed, including:

• undertaking an enterprise-wide risk assessment in order to establish a register of risks of a magnitude which either alone, or in credible combination, could financially jeopardise the Fund, together with an evaluation of the existing controls and a list of strategies to improve controls of particularly high consequence risks;

• developing guidelines to assist departments in the management of volunteers;


• developing Motor Vehicle Fleet Purchase and Use Guidelines, designed to encourage and assist departments in implementing policies for selecting safe fleet vehicles and educating employees in safe driving practices. These Guidelines include a revised accident notification form which will assist the Fund in claims management and improve reporting; and

• hosting regular workshops and seminars for officers of participating departments to assist in raising awareness of risk management and to promote the sharing of information/strategies across departments for the better management of risk.

Chapter 8: Estimated Outcome, 2003-04 169

8 ESTIMATED OUTCOME, 2003-04

Features

• The Fiscal Surplus for 2003-04 is estimated to be $160.7 million, an increase of $153.8 million on the Budget estimate of $6.9 million.

• Total revenue for 2003-04 is estimated to be $3 152.0 million, $163.6 million or 5.5 per cent above the Budget estimate of $2 988.4 million.

• Total expenses for 2003-04 are estimated to be $3 056.3 million, $52.0 million or 1.7 per cent above the Budget estimate of $3 004.3 million.

• The Consolidated Fund Surplus for 2003-04 is estimated to be $33.7 million, $29.0 million above the Budget estimate of $4.7 million.

170 Chapter 8: Estimated Outcome, 2003-04

INTRODUCTION The Estimated Outcome and the original Budget for 2003-04 have been presented in accordance with the Uniform Presentation Framework (UPF). The focus of the Estimated Outcome is the Fiscal Surplus. The Fiscal Surplus represents the difference between General Government Sector revenues and expenses (excluding depreciation), and capital expenditure. The Fiscal Surplus is a useful indicator of the funds available for application to either increase assets or reduce liabilities. A Fiscal Surplus indicates that the Government is saving more than enough to finance all of its spending, both recurrent and capital.

Under the UPF, the 2003-04 Estimated Outcome:

• is presented for the Public Account, that is, transactions for both the Consolidated Fund and the Special Deposits and Trust Fund;

• is on an accrual basis and includes accrual revenues and expenses; and

• includes all entities in the General Government Sector.

For further information, refer to The Tasmanian Government Financial System.

The 2003-04 Estimated Outcome has been determined from agency assessments of their indicative additional funding requirements or potential savings and revised revenue estimates, based on the latest available information prior to the finalisation of the 2004-05 Budget Papers. Estimates are determined using information from a number of sources including the latest advice from the Commonwealth, Government Business Enterprises, State-owned Companies and agencies.

Detailed information on the final Outcome, including the Consolidated Fund Outcome for 2003-04, will be published in:

• the Preliminary Outcomes Report, which will be published by 15 August 2004;

• the Treasurer's Annual Financial Report, which will be tabled in Parliament on 31 October 2004; and

• Agency Annual Reports, which will be tabled in Parliament by 31 October 2004.


Fiscal Surplus The budgeted Fiscal Surplus for 2003-04 was $6.9 million. The estimated Fiscal Surplus Outcome for 2003-04 is $160.7 million, $153.8 million above the 2003-04 Budget estimate. While there have been increases in some areas of expenditure the estimated increase in the Fiscal Surplus largely reflects increased State taxation revenue and General Purpose Payments, and a variation in the Net Acquisition of Non-Financial Assets.

As a result of the estimated improved fiscal surplus result for 2003-04, an additional $128.5 million will be appropriated to the Economic and Social Infrastructure Fund (ESIF) in 2003-04 from the Consolidated Fund. The ESIF was established in the 2003-04 Budget to provide funding for major economic projects and the implementation of social initiatives. It represents a prudent approach to expenditure of what are primarily one-off additional receipts. The Government has already announced that $45 million of this amount will be expended on the Government's $90.0 million Affordable Housing Strategy. Further details on the ESIF are provided in Chapter 4 of Budget Paper 2 Operations of Government Departments 2004-05.

The variation in the Net Acquisition of Non-Financial Assets is largely due to a decrease in the Purchases of New Non-Financial Assets ($22.3 million) and an increase in the Sale of New Non-Financial Assets ($10.9 million). The decrease in Purchases of New Non-Financial Assets primarily reflects below Budget expenditure on some agency capital investment projects. The increase in the Sale of New Non-Financial Assets reflects additional revenues received by Housing Tasmania from the sale of surplus housing.

Table 8.1 provides details of the estimated Budget Outcome for 2003-04, expected variances from 2003-04 Budget estimates and the March year-to-date actuals.


Table 8.1: Estimated Fiscal Surplus, 2003-04 2003-04 2003-04) 2003-04)

March YTD Budget) Estimated) Actual Estimate

(a))Outcome

(b)(Variation (a)-(b)/(a)

$'000) $'000) % Revenue

Grants and Subsidies General Purpose Payments 1 022 588 1 326 600) 1 384 062) 4.3 Specific Purpose Recurrent Payments 280 471 363 239) 378 616) 4.2 Specific Purpose Capital Payments 17 412 26 615) 29 195) 9.8 Other Grants and Subsidies 121 008 144 243) 150 383) 4.3)

Total Grants and Subsidies 1 441 479 1 860 697) 1 942 256) 4.3 Taxation Revenue

Taxation 464 931 527 626) 607 042) 15.0 Government Business Enterprises, State-owned Companies

and State Authorities - Guarantee Fees 3 221 5 425) 6 175) 13.8 Total Taxation Revenue 468 152 533 051) 613 217) 15.0)Sales of Goods and Services 240 109 296 872) 310 309) 4.5 Interest Income 19 254 17 587) 26 474) 50.6 Dividend Income

Receipts from Government Business Enterprises, State-owned Companies and State Authorities 46 009 52 290) 55 562) 6.2

Other Dividends, Special Dividends, Tax and Rate Equivalents 61 770 86 728) 98 079) 13.0 Total Dividend Income 107 779 139 018) 153 641) 10.5 Other Revenue 68 299 141 217) 106 137) (24.9)

Total Revenue 2 345 072 2 988 442) 3 152 034) 5.5 Expenses

Depreciation 113 235 154 205) 163 305) 5.9)Employee Expenses 956 058 1 293 234) 1 301 590) 0.6)Other Operating Expenses 571 843 809 004) 868 354) 7.3)Nominal Superannuation Interest Expense 84 046 115 935) 117 886) 1.6)Other Interest Expense 54 761 68 891) 71 949) 4.4)Grants and Transfers 400 074 562 983) 533 170) (5.3)

Total Expenses 2 180 018 3 004 252) 3 056 254) 1.7)NET OPERATING RESULT 165 054 ( 15 810) 95 780) ....) Less Net Acquisition of Non-Financial Assets

Purchase of New Non-Financial Assets 71 221 181 020) 158 740) (12.4)less Sale of Non-Financial Assets 53 560 49 543) 60 359) 21.8)less Depreciation 113 235 154 205) 163 305) 5.9)

Total (95 574) ( 22 728) ( 64 924) 185.6)FISCAL SURPLUS1 260 628 6 918 160 704) ....)


Note: 1. As at 31 March 2004, the Fiscal Surplus was $260.6 million, $99.9 million above the 2003-04 Estimated Outcome of

$160.7 million. The difference between the year-to-date outcome and estimated full year outcome primarily reflects the timing of planning, implementation and payments for major capital projects by General Government Sector agencies, the majority of expenditure of which is incurred in the last quarter of the financial year. A significant component of this expenditure relates to payments from the Economic and Social Infrastructure Fund. An additional pay period in the final quarter will also impact on the full year outcome.

REVENUE Total revenue for 2003-04 is estimated to be $3 152.0 million, which is an increase of $163.6 million or 5.5 per cent on the budgeted revenue of $2 988.4 million.

Explanation of Estimated Major Revenue Variations The major revenue variations summarised in Table 8.1 are explained below.

Grants and Subsidies General Purpose Payments General Purpose Payments revenue for 2003-04 is anticipated to be $1 384.1 million, an increase of $57.5 million or 4.3 per cent above the Budget estimate of $1 326.6 million. The increase is primarily due to above Budget GST Revenue of $67.2 million largely due to an increase in the total GST revenue pool, but also including a population growth effect for Tasmania that is greater than budgeted.

This increase in revenue is partially offset by a decrease in GST Budget Balancing Assistance of $9.3 million. The 2003-04 Budget year will be the first year in which Tasmania has actually benefited from the new Intergovernmental Agreement based financial arrangements.

Specific Purpose Recurrent Payments Specific Purpose Recurrent Payments revenue for 2003-04 is anticipated to be $378.6 million, an increase of $15.4 million or 4.2 per cent on the Budget estimate of $363.2 million. The increase is due to above Budget Specific Purpose Recurrent Payments largely for:

• Primary and Secondary Education and Technical and Further Education ($4.7 million); and

• the Health Care Grant ($8.0 million) and High Cost Drugs ($1.5 million).

Specific Purpose Capital Payments Specific Purpose Capital Payments revenue for 2003-04 is anticipated to be $29.2 million, an increase of $2.6 million or 9.8 per cent on the Budget estimate of $26.6 million. The increase largely reflects additional funding of $3.1 million for Primary and Secondary Education. However, this increase is partly offset by a decrease of $555 000 for Technical and Further Education.

Other Grants and Subsidies Other Grants and Subsidies revenue for 2003-04 is anticipated to be $150.4 million, an increase of $6.2 million or 4.3 per cent above the Budget estimate of $144.2 million. The increase reflects additional funding of $2.2 million for the Department of Health and Human Services for Health Connect and an increase of $7.0 million for the Department of Premier and Cabinet for the Regional Forest Agreement.


Taxation Revenue Taxation Taxation revenue for 2003-04 is anticipated to be $607.0 million, an increase of $79.4 million or 15.0 per cent on the Budget estimate of $527.6 million. The increase is primarily due to additional:

• revenue from Duties of $64.2 million, primarily reflecting sustained activity and rising prices in the property market in the first half of 2003-04;

• Payroll Tax revenue of $5.0 million as a result of higher than anticipated growth in employment in the payroll tax paying sector, together with wage increases;

• Casino and Tax and Licence Fees of $5.7 million; and

• Motor Tax of $3.0 million.

Government Business Enterprises, State-owned Companies and State Authorities – Guarantee Fees Government Business Enterprises, State-owned Companies and State Authorities Guarantee Fees revenue for 2003-04 is anticipated to be $6.2 million, an increase of $750 000 or 13.8 per cent on the Budget estimate of $5.4 million.

Sales of Goods and Services Sales of Goods and Services revenue for 2003-04 is anticipated to be $310.3 million, an increase of $13.4 million or 4.5 per cent on the Budget estimate of $296.9 million. The increase is primarily due to:

• additional revenue for the Department of Police and Public Safety of $2.1 million for the Commonwealth Handgun Law Reform Project;

• additional revenue for the Department of Primary Industries, Water and Environment for Duke energy land acquisition settlements, increases in estimated revenue to the Crown Land Administration Fund and additional Commonwealth National Heritage Trust and National Action Plan project funds; and

• additional revenue of $2.4 million for the Lands Titles Office Dealings.

Interest Income Interest Income for 2003-04 is anticipated to be $26.5 million, an increase of $8.9 million or 50.6 per cent above the Budget estimate of $17.6 million. The increase reflects a revision of interest rate forecasts and the availability of more recent cash flow data, incorporating the revised estimates of Grants and Subsidies revenue and Taxation revenue, and providing more up to date estimates of the balance of surplus funds available for investment.

Dividend and Tax Equivalent Income Dividend and Tax Equivalent Income for 2003-04 is anticipated to be $153.6 million, an increase of $14.6 million or 10.5 per cent on the Budget estimate of $139.0 million. The increase in Dividend Income is primarily due to:

• additional dividends from Aurora Energy of $3.2 million reflecting improved profitability from a higher than expected level of sales during 2002-03; and

• additional dividends from Hydro Tasmania of $3.6 million.


This is partially offset by an expected decrease in dividends of $4.5 million from Forestry Tasmania due to the underestimation of tax expenses at the time of the 2003-04 Budget.

The increase in Tax Equivalent Income is primarily due to:

• additional Tax Equivalents of $3.2 million from Forestry Tasmania following the full redemption of previous year tax losses; and

• additional Tax Equivalents from Aurora of $6.4 million reflecting increased customer generated demand due to colder than anticipated weather conditions.

Other Revenue The anticipated increases in the Revenue items noted above are partially offset by a decrease in Other Revenue of $35.1 million, which primarily relates to the revised accounting treatment of intra-sectoral superannuation revenue, eliminated as part of the consolidation process in developing the original 2003-04 Budget. The decrease relating to the revised accounting treatment is partially offset by additional revenues from the Department of Primary Industries Water and Environment largely due to increases in estimated revenue to the Crown Lands Administration Fund from the rental of Crown properties.


EXPENSES Total expenses for 2003-04 are estimated to be $3 056.3 million, an increase of $52.0 million or 1.7 per cent above the Budget estimate of $3 004.3 million.

Explanation of Estimated Major Expense Variations The major expenditure variations summarised in Table 8.1 are explained below.

Depreciation Depreciation for 2003-04 is anticipated to be $163.3 million, an increase of $9.1 million or 5.9 per cent on the Budget estimate of $154.2 million in 2003-04. The additional expense is primarily attributable to an increase in the level of depreciation expense for the Department of Infrastructure, Energy and Resources following a revaluation of its road and bridge infrastructure.

Employee Expenses Employee Expenses for 2003-04 is anticipated to be $1 301.6 million, an increase of $8.4 million or 0.6 per cent on the Budget estimate of $1 293.2 million. The increase in Employee Expenses is primarily due to:

• increased expenses for the Department of Health and Human Services for the Hospitals and the Ambulance Service, Community, Population and Rural Health and Health Connect; and

• $1.3 million for the Department of Justice to meet costs associated with additional prisoners in the prison system.

Other Operating Expenses Other Operating Expenses for 2003-04 is anticipated to be $868.4 million, an increase of $59.4 million or 7.3 per cent on the Budget estimate of $809.0 million. The increase is primarily due to:

• additional expenditure for High Cost Drugs of $1.5 million;

• additional expenditure for the Commonwealth Handgun Law Reform Project of $2.1 million;

• additional expenditure for the Department of Premier and Cabinet for the Private Forest Program of $6.0 million;

• additional expenditure across agencies for Maintenance and Property Services totalling $4.2 million;

• additional expenditure across agencies for Information Technology totalling $3.8 million;

• additional expenditure for Primary and Secondary Education, and Technical and Further Education of $3.8 million; and

• better identification and estimation of General Government Other Operating Expense items following detailed reviews required as part of the implementation of accrual budgeting.

Grants and Transfers Grants and Transfers expenses for 2003-04 are anticipated to be $533.2 million, a decrease of $29.8 million or 5.3 per cent on the Budget estimate of $563.0 million. The variation is primarily due to a change in the


accounting treatment classification of the $40.0 million payment to the TT-Line Company Pty Ltd made to meet the interest costs and extinguish half of the debt associated with the purchase by TT-Line during 2002-03 of Spirits of Tasmania I and II. This payment was reclassified from a Grants and Transfers operating expense to a balance sheet equity contribution consistent with the accounting treatment required by the Australian Bureaus of Statistics for the reporting of the Government Financial Statistics

The decrease in Grants and Transfers due to the reclassification of the TT-Line equity contribution is partially offset by an increase in expenses for:

• the Metro Tasmania Community Service Obligation and payments to School Bus Operators; and

• the Fire Ants Eradication Plan and the Fisheries Research Development Corporation.

NET ACQUISITION OF NON-FINANCIAL ASSETS Net Acquisition of Non-Financial Assets for 2003-04 reflects an anticipated net favourable impact of $64.9 million, an increase of $42.2 million above the Budget estimate of $22.7 million. The variation reflects a decrease in the Purchases of New Non-Financial Assets and an increase in the Sale of Non-Financial Assets.

The decrease in Purchases of New Non-Financial Assets of $22.3 million is primarily due to below budget expenditure on some agency capital investment projects.


CONSOLIDATED FUND SURPLUS The Consolidated Fund Surplus (CFS) is the excess of Consolidated Fund receipts over the expenditure of these funds (net of loan repayments). A CFS represents funds that are available for the retirement of debt. Table 8.2 provides details of the estimated CFS Outcome for 2003-04 and expected variances from 2003-04 Budget estimates by major expenditure and receipt categories.

Table 8.2: Estimated Consolidated Fund Surplus, 2003-04

2003-04 March YTD

Actual 2003-04) Budget)

2003-04)Estimated)Outcome) Variation)

$'000 $'000) $'000) %)Receipts

Commonwealth Sources Recurrent Receipts 1 279 228 1 689 839) 1 762 678) 4.3)Capital Receipts 17 412 26 615) 29 195) 9.7)

Total Commonwealth Sources 1 296 640 1 716 454) 1 791 873) 4.4)

State Sources Recurrent Receipts 677 759 835 153) 939 861) 12.5)Capital Receipts 11 024 28 920) 11 145) (61.5)

Total State Sources 688 783 864 073) 951 006) 10.1)

Total Receipts 1 985 423 2 580 527) 2 742 879) 6.3)

Less Expenditure

Recurrent Services Appropriation Act 1 654 548 2 253 541) 2 320 796) 3.0)Reserved By Law 125 223 172 190) 171 232) (0.6)

Total Recurrent Services 1 779 771 2 425 731) 2 492 028) 2.7)

Works and Services Capital Investment Program 61 037 123 707) 113 777) (8.0)Economic and Social Infrastructure Fund 10 700 26 855) 103 855) 286.7)

Total Works and Services 71 737 150 562) 217 632) 44.5)

Total Expenditure1 1 851 508 2 576 293) 2 709 660) 5.2)

Gross Consolidated Fund Surplus/(Deficit) 133 915 4 234) 33 219) 684.6)Add Loan Repayments2 435 436) 436) ....)

Consolidated Fund Surplus/(Deficit) 134 350 4 670) 33 655) 620.7)

Notes: 1. Estimated Outcome Total Expenditure in 2003-04 includes an appropriation to the Economic and Social

Infrastructure Fund of $128.5 million ($51.5 million for Recurrent Services and $77.0 million for Works and Services). 2. Recurrent Expenditure in the 2003-04 Budget and the 2003-04 Estimated Outcome includes a contribution of

$436 000 payable to the Debt Retirement Reserve Trust Account. This figure (Loan Repayments) is then added back to show the Consolidated Fund Surplus.


The budgeted CFS was $4.7 million. The estimated CFS Outcome for 2003-04 is $33.7 million.

Total Consolidated Fund receipts for 2003-04 are estimated to be $2 742.9 million, which is $162.4 million or 6.3 per cent above the Budget estimate of $2 580.5 million. Total Consolidated Fund expenditure for 2003-04, including Reserved by Law and Works and Services, is estimated to be $2 709.7 million, an increase of $133.4 million or 5.2 per cent on the Budget estimate of $2 576.3 million. The explanation of the major variations in receipts is provided earlier in this Chapter, under major revenue variations. The reasons for major variations in expenditure, on an agency basis, are detailed below.

Further information relating to variations in Consolidated Fund receipts and expenditure is provided in Appendix 2 of this Budget Paper.

Table 8.3: Total Consolidated Fund Expenditure, 2003-04 2003-04 Estimated Outcome

Agency

2003-04) March

YTD Actual

2003-04) Budget

(a)

Recurrent)Services)

Reserved)By Law)

Works and Services) Total

(b))Variation (a)-(b)/(a))

$'000) $'000) $'000) $'000) $'000) $'000) %) Economic Development 25 419 43 302) 44 310) ....) ....) 44 310) 2.3)Education 495 230 669 280) 660 638) ....) 17 553) 678 191) 1.3)Finance-General1 330 599 498 397) 337 467) 155 662) 112 464) 605 593) 21.5)Health and Human Services 581 704 771 393) 767 322) ....) 9 111) 776 433) 0.6)House of Assembly 3 826 4 871) 1 825) 3 045) ....) 4 870) ....)Infrastructure, Energy and

Resources

113 440 168 363) 101 982) 52) 67 255) 169 289) 0.6)Justice2 49 650 76 662) 55 381) 9 317) 6 049) 70 747) (7.8)Legislative Council 2 763 3 774) 1 941) 1 831) ....) 3 772) (0.1)Legislature-General 2 830 3 762) 3 809) ....) ....) 3 809) 1.2)Ministerial and Parliamentary

Support

9 307 13 819) 13 258) 563) ....) 13 821) ....)Office of the Governor 1 771 2 060) 2 081) 409) 8) 2 498) 21.3)Police and Public Safety 96 603 127 123) 128 275) ....) 1 921) 130 196) 2.4)Premier and Cabinet2 17 011 23 859) 25 158) ....) ....) 25 158) 5.4)Primary Industries, Water and

Environment

53 668 76 274) 80 055) ....) 154) 80 209) 5.1)Tasmanian Audit Office 285 254) ....) 353) ....) 353) 39.0)Tourism, Parks, Heritage and

the Arts

47 688 60 989) 65 000) ....) 3 117) 68 117) 11.6)Treasury and Finance 19 714 32 111) 32 294) ....) ....) 32 294) 0.6)

TOTAL EXPENDITURE 1 851 508 2 576 293) 2 320 796) 171 232) 217 632) 2 709 660) 5.2)

Notes: 1. Expenditure for the contribution to the Economic and Social Infrastructure Fund of $128.5 million ($51.5 million for

Recurrent Services and $77.0 million for Works And Services) is reflected in Finance-General.


2. The 2003-04 Budget figure reflects the transfer of the Office of Industrial Relations from the Department of Justice to the Department of Premier and Cabinet.

Explanation of Estimated Major Expenditure Variations Expenditure The reasons for the major Consolidated Fund expenditure variations are detailed below on an agency-by-agency basis.

Education Total expenditure for the Department of Education is anticipated to be $678.2 million, $8.9 million or 1.3 per cent above the Budget estimate of $669.3 million. The increase is primarily due to additional Specific Purpose Payments for Primary and Secondary Education and Technical and Further Education of $4.7 million, and $2.6 million for capital expenditure.

Finance-General Total expenditure for Finance-General is anticipated to be $605.6 million, $107.2 million or 21.5 per cent above the Budget estimate of $498.4 million. The increase in expenditure reflects:

• an additional contribution to Forestry Tasmania of $3.9 million for wild fire fighting; and

• an additional appropriation of $128.5 million into the Economic and Social Infrastructure Fund (ESIF).

The increases in expenditure in Finance-General have been partly offset by savings from allocating funds from the Treasurer's Reserve which are reflected in agency expenditure.

Health and Human Services Total Expenditure for the Department of Health and Human Services is anticipated to be $776.4 million, $5.0 million or 0.6 per cent above the Budget estimate of $771.4 million. The increase in expenditure is primarily due to:

• additional costs associated with increased demand for health care; and

• additional expenditure reflecting increased Commonwealth funding for a number of grants including High Cost Drugs, Home and Community Care Program and Mental Health.

Justice Total expenditure for the Department of Justice is anticipated to be $70.7 million, $6.0 million or 7.8 per cent below the Budget estimate of $76.7 million. The decrease in expenditure is primarily due to below budget expenditure in relation to the Prison Infrastructure Redevelopment Program.

Office of the Governor Total expenditure for the Office of the Governor is anticipated to be $2.5 million, $438 000 or 21.3 per cent above the Budget estimate of $2.1 million. The increase in expenditure is primarily due to additional expenditure resulting from changes in the income tax status of the Governor.

Police and Public Safety Total expenditure for the Department of Police and Public Safety is anticipated to be $130.2 million, $3.1 million or 2.4 per cent above the Budget estimate of $127.1 million. The increased expenditure primarily reflects additional expenditure for non-salary items such as vehicles and property rental.


Premier and Cabinet Total expenditure for the Department of Premier and Cabinet is anticipated to be $25.2 million, $1.3 million or 5.4 per cent above the Budget estimate of $23.9 million. The increase in expenditure is primarily due to additional expenditure for:

• information technology infrastructure and support; and

• the redevelopment of the EnAct Legislation System.

Primary Industries, Water and Environment Total expenditure for the Department of Primary Industries, Water and Environment is anticipated to be $80.2 million, $3.9 million or 5.1 per cent above the Budget estimate of $76.3 million. The increase in expenditure is primarily due to the following:

• Tasmania's contribution to the Fire Ants Eradication Plan;

• additional expenditure for the Mt Lyell Acid Mine Drainage; and

• additional expenditure associated with the quarantine arrangements for the introduction of Spirit of Tasmania III.

Tasmanian Audit Office Total expenditure for the Consolidated Fund contribution to the Tasmanian Audit Office is anticipated to be $353 000, $99 000 or 39.0 per cent above the Budget Estimate of $254 000. This increase in expenditure is due to the pay out of entitlements following the retirement of the Auditor-General.

Tourism, Parks, Heritage and the Arts Total expenditure for the Department of Tourism, Parks, Heritage and the Arts is anticipated to be $68.1 million, $7.1 million or 11.6 per cent above the Budget estimate of $61.0 million. The increase in expenditure is primarily due to additional costs associated with enhanced service delivery and fire fighting costs.


CONSOLIDATED FUND SURPLUS AND FISCAL SURPLUS RECONCILIATION, 2003-04 Table 8.4 provides a reconciliation of the Consolidated Fund Surplus to the Fiscal Surplus for 2003-04.

Table 8.4: Consolidated Fund Surplus and Fiscal Surplus Reconciliation 2003-04

2003-04 Estimated

Budget Outcome

$'000 $'000

CONSOLIDATED FUND SURPLUS 4 670 33 655

Add Special Deposits and Trust Fund Movements

Transfers from the Consolidated Fund1 183 000 351 645

Statutory Authorities Movements 1 000 (9 781)

Other Agency Movements2 ( 105 518) (151 473)

CASH SURPLUS 83 152 224 046

Less Accrual Items

Nominal Interest on Superannuation3 115 935 117 886

Superannuation4 (30 392) (59 443)

Other Movements5 (9 309) 4 899

NET ACCRUAL ADJUSTMENTS 76 234 63 352

FISCAL SURPLUS 6 918 160 704

Notes: 1. Transfers from the Consolidated Fund primarily relates to the contribution to the Superannuation Provision Account

and the appropriation to the Economic and Social Infrastructure Fund. 2. Other Agency Movements consists of payments from the 2001-02 Infrastructure Fund, the Social Infrastructure Fund

and the Economic and Social Infrastructure Fund. 3. Nominal Interest on Superannuation represents the notional interest expense on the State's unfunded

superannuation liability. 4. The accrual superannuation adjustment reflects the timing difference between the recognition of the superannuation

expense and its actual cash payment. 5. Other Movements primarily reflects changes in the level of creditors and debtors, and movements in accrued

revenue and expenses and assets and liabilities.

Chapter 9: Forward Estimates 183

9 FORWARD ESTIMATES Features

• The Fiscal Surplus projections for 2005-06 to 2007-08 on a same policy basis are:

− a surplus of $76.9 million in 2005-06;

− a surplus of $72.2 million in 2006-07; and

− a surplus of $154.7 million in 2007-08.

• General Government Sector Net Debt will reduce to $229.7 million by 30 June 2005 and, on a same policy basis will be eliminated by 30 June 2007, one year ahead of Fiscal Strategy timetable.

• The General Government Sector Cash Surplus is estimated to be an average of $164.9 million over the Forward Estimates.

• A Consolidated Fund Surplus will be maintained during the Forward Estimate period.

184 Chapter 9: Forward Estimates

FORWARD ESTIMATES 2005-06 TO 2007-08 The Forward Estimates Concept The Forward Estimates provide a mechanism for projecting the Budget revenue, expenses and financial position on the assumption that existing policies are maintained and that the Government's planned objectives continue to be pursued, that is, the projections are on a 'same policy basis'. The Forward Estimates, which are generated on this basis, represent the outcomes if the same level of services is provided in each of the three years following this Budget; the existing regime of taxes and charges continues but reflects announced changes in tax policy; expectations of the level of Commonwealth transfer payments are realised; and assumptions underlying the economic parameters are realised. The existing regime for government charges is also assumed to be unchanged.

The Forward Estimates are premised on Treasury estimates of a number of economic parameters. These parameters are regularly reviewed by Treasury, based on economic conditions and forecast movements in major economic aggregates.

The Forward Estimates provide a strategic framework for budgetary decision-making in the medium-term, highlight the flow-on effects of revenue and expense measures contained in the current year's Budget and facilitate the monitoring of achievements against existing Government strategies and objectives.

The Forward Estimates determined on a same policy basis are not forecasts of expected outcomes. Rather, the estimates provide an indication of the outcomes which would emerge if existing policy was to remain unchanged and current parameter assumptions were to be realised. Future policy decisions, variations to the assumptions underlying economic parameters and external influences will all have an impact on the outcomes. In this sense, the Forward Estimates are projections of outcomes under a particular scenario, rather than forecasts.

Impact of Policy Initiatives The expenditure reported in this Chapter includes the policy initiatives announced by the Government in this Budget and the recurrent impact of these expenditure commitments. As outlined in the Treasurer's 2004-05 Budget Speech and detailed further in the Budget Papers, the Government is committed to introducing a number of important policy initiatives in the current Budget year and in the future.

Table 9.1 highlights the projected Fiscal Surplus for each of the financial years from 2004-05 to 2007-08. The budgeted outcome in 2004-05 is a surplus of $15.2 million. The Forward Estimates of the Fiscal Surplus are $76.9 million for 2005-06, $72.2 million for 2006-07, and $154.7 million for 2007-08. The Forward Estimates indicate that, on a same policy basis, the Fiscal Surplus projections are consistent with the achievement of the Government's Fiscal Strategy target to maintain the General Government Sector Budget in surplus. The Forward Estimates Consolidated Fund Surpluses, detailed in Appendix 2 of this Budget Paper, are also maintained in surplus.

The Fiscal Surplus is a useful indicator of the funds available for application to either increase assets or reduce liabilities. Maintaining a surplus will allow the Government to achieve its primary objectives of no new General Government debt being incurred and eliminating the General Government Net Debt. Table 9.2


highlights the projected Net Worth, Net Financial Worth, Net Financial Liabilities and Net Debt for the General Government Sector as at 30 June 2005 to 30 June 2008.


FORWARD ESTIMATES OPERATING STATEMENT The Forward Estimates of the Fiscal Surplus on a same policy basis are $76.9 million for 2005-06, $72.2 million for 2006-07 and $154.7 million for 2007-08. The Fiscal Surplus will increase from $15.2 million in 2004-05 to $154.7 million by 2007-08. The increases over the forward Estimate period largely reflect additional Grants and Subsidies revenue. Table 9.1 details the Forward Estimates Fiscal Surpluses for 2005-06 to 2007-08.

Table 9.1: General Government Operating Statement Forward Estimates Summary1

2005-06 2006-07 2007-08 20202004-05 Forward) Forward) Forward)

Budget) Estimate) Estimate) Estimate) $'000) $'000) $'000) $'000)Revenue

Grants and Subsidies 1 961 343) 2 066 884) 2 101 623) 2 184 083)Taxation Revenue 606 587) 594 484) 608 395) 620 013)Sales of Goods and Services 258 044) 261 004) 262 197) 259 452)Interest Income 31 177) 23 329) 30 451) 36 037)Dividend,Tax and Rate Equivalent Income 154 785) 156 453) 152 318) 163 918)Other Revenue 78 526) 78 484) 78 539) 75 064)

Total 3 090 462) 3 180 638) 3 233 523) 3 338 567) Expenses

Depreciation 163 115) 163 582) 163 605) 160 944)Employee Expenses 1 409 895) 1 473 422) 1 534 088) 1 587 826)Other Operating Expenses 712 933) 728 419) 759 160) 775 286)Nominal Superannuation Interest Expense 121 070) 125 189) 129 195) 132 581)Other Interest Expense 56 530) 37 693) 37 375) 33 793)Grants and Transfers 672 328) 630 596) 611 462) 564 472)

Total 3 135 871) 3 158 901) 3 234 885) 3 254 902) NET OPERATING RESULT ( 45 409) 21 737) ( 1 362) 83 665) Less Net acquisition of Non-Financial Assets

plus Purchase of New Non-Financial Assets 144 179) 150 616) 133 187) 134 326)less Sale of Non-Financial Assets 41 628) 42 233) 43 188) 44 388)less Depreciation 163 115) 163 582) 163 605) 160 944)

Total ( 60 564) ( 55 199) ( 73 606) ( 71 006) FISCAL SURPLUS 15 155) 76 936) 72 244) 154 671) Note: 1. Details of Forward Estimate appropriations to agencies from the Consolidated Fund are provided in Appendix 2 to

this Budget Paper.


REVENUE Total Revenue for the Forward Estimates on a same policy basis is estimated to be $3 180.6 million for 2005-06, $3 233.5 million for 2006-07 and $3 338.6 million for 2007-08.

Explanation of Major Revenue Variations The major revenue variations for 2005-06 to 2007-08 detailed in Table 9.1 are summarised below.

Grants and Subsidies Grants and Subsidies consist primarily of Commonwealth sourced revenue. The increase in Grants and Subsidies is due to increases in General Purpose Payments (GPPs) and Specific Purpose Payments (SPPs) with increases primarily reflecting additional GPPs. In 2005-06, 2006-07 and 2007-08 the increase in GPPs reflects growth in GST revenue due to an increase in the size of the GST revenue pool and positive population growth, partially offset by a decrease in Tasmania's relative need for Commonwealth financial assistance as assessed by the Commonwealth Grants Commission in its five-yearly review of the methodology used to determine state general purpose revenue sharing relativities. Full details of this review are provided in Chapter 10 of this Budget Paper.

The increase in SPPs over the Forward Estimates is primarily due to an increase in Commonwealth funding for the Health Care Grant under the current Australian Health Care Agreement, which commenced on 1 July 2003.

Taxation Revenue The decrease in Taxation Revenue of $12.1 million in 2005-06 reflects net effect of the abolition of the Debits Duty consistent with the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA). This is partially offset by increases in Payroll Tax reflecting anticipated growth in employment in the payroll tax paying sector and expected growth in wages.

Interest Income

The Forward Estimates for Interest Income are anticipated to decrease in 2005-06 due to a significant decrease in the Public Account cash balance available for investment as a result of a debt repayment of $250.0 million in maturing debt in the first half of the financial year ($200.0 million of which matures on 15 July 2005).

Dividend, Tax and Rate Equivalent Income

The reduction in the Dividend, Tax and Rate Equivalent Income in 2006-07 primarily reflects the phase out of the Special Dividend from Hydro Tasmania. The increase in Dividend, Tax and Rate Equivalent Income in 2007-08 is primarily due to increased Dividend and Tax Equivalents for Transend Networks Pty Ltd.


EXPENSES Total expenses for the Forward Estimates on a same policy basis are estimated to be $3 158.9 million for 2005-06, $3 234.9 million for 2006-07 and $3 254.9 million for 2007-08.

Explanation of Major Expense Variations The major expense variations for 2005-06 to 2007-08 detailed in Table 9.1 are summarised below.

Employee Expenses The increase in Employee Expenses over the Forward Estimates primarily reflects indexation for the estimated additional cost of the new State Service Wage Agreement and the estimated additional cost of increases to be provided under the proposed wage agreements for teachers, police officers, nurses and ambulance officers.

Other Operating Expenses The increase in Other Operating Expenses over the Forward Estimates reflects the additional funding required to meet the costs of providing some services and the impact of new initiatives funded in the 2004-05 Budget.

Nominal Superannuation Interest Expense The increase in the Forward Estimates expense for the Nominal Superannuation Interest reflects the increasing superannuation liability. Further information on the General Government unfunded superannuation liability can be found in Chapter 7 of this Budget Paper.

Other Interest Expense The decrease in Other Interest Expense over the Forward Estimates reflects the reduction in the level of General Government Sector Net Debt.

Grants and Transfers The decrease in Grants and Transfers over the Forward Estimates primarily reflects the anticipated profile of expenditure from the 2001-02 Infrastructure Fund, the Social Infrastructure Fund and the Economic and Social Infrastructure Fund. The decrease also reflects a significant reduction in First Home Owners Scheme (FHOS) expenditure as a significant number of first home buyers brought forward their decision to purchase or build a home to take advantage of the $7 000 grant. Demand has largely been met and the number of first home buyers is likely to fall back to levels experienced prior to the introduction of FHOS.

NET ACQUISITION OF NON-FINANCIAL ASSETS The Net Acquisition of Non-Financial Assets for the Forward Estimates on a same policy basis shows an anticipated net favourable impact of $55.2 million for 2005-06, $73.6 million for 2006-07 and $71.0 million for 2007-08.

The increase in the impact of the Net Acquisition of Non-Financial Assets between the 2005-06 and the 2006-07 estimates is primarily due to the decrease in the 2006-07 Forward Estimate for the Purchase of New


Non-Financial Assets which reflects a reduction in Commonwealth funding with completion of the Bass Highway-Penguin to Ulverstone project in 2005-06.

FORWARD ESTIMATES BALANCE SHEET The Balance Sheet for the Forward Estimates reflects the strengthening position of the State's finances, with the elimination of Net Debt and improvement in all other key measures. Table 9.2 summarises the anticipated Forward Estimate position for the General Government Sector between 30 June 2006 and 30 June 2008.


Table 9.2: General Government – Balance Sheet Forward Estimates Summary as at 30 June

2006 2007 2008 20202005 Forward) Forward) Forward)

Budget) Estimate) Estimate) Estimate) $'000) $'000) $'000) $'000)Assets Financial Assets

Cash and Deposits 373 317) 222 158) 353 008) 478 524)Advances Paid 80 593) 80 253) 79 983) 79 786)Investments, Loans and Placements 29 620) 19 570) 9 770) 9 720)Other Non-equity Assets 342 664) 331 435) 320 314) 315 326)Equity 4 260 328) 4 543 803) 4 576 840) 4 614 676)

Total 5 086 522) 5 197 219) 5 339 915) 5 498 032)

Non-financial Assets Land and Fixed Assets 5 872 856) 5 854 357) 5 816 553) 5 774 740)Other Non-financial Assets 15 715) 15 477) 15 248) 15 019)

Total 5 888 571) 5 869 834) 5 831 801) 5 789 759)

Total Assets 10 975 093) 11 067 053) 11 171 716) 11 287 791)

Liabilities Advances Received 260 562) 247 832) 242 081) 236 081)Borrowings 452 622) 191 216) 187 575) 144 034)Superannuation Liability 2 132 690) 2 200 935) 2 258 614) 2 307 375)Other Employee Provisions 320 769) 338 050) 355 002) 375 738)Other Non-equity Liabilities 210 354) 207 628) 215 420) 215 217)

Total liabilities 3 376 997) 3 185 661) 3 258 692) 3 278 445)

NET WORTH1 7 598 096) 7 881 392) 7 913 024) 8 009 346)

NET FINANCIAL WORTH2 1 709 525) 2 011 558) 2 081 223) 2 219 587)

NET FINANCIAL LIABILITIES3 2 362 344) 2 318 002) 2 245 509) 2 119 460)

NET DEBT4 229 654) 117 067) ( 13 105) ( 187 915) Notes: 1. Net Worth represents Total Assets less Total Liabilities. 2. Net Financial Worth represents Financial Assets less Total Liabilities. 3. Net Financial Liabilities represents Net Debt plus gross unfunded Superannuation Liability. 4. Net Debt equals the sum of Deposits Held, Advances Received and Borrowings less the sum of Cash and Deposits,


For further information on the General Government Sector's Assets and Liabilities, refer to Chapter 7 of this Budget Paper.


Net Worth The Forward Estimates on a same policy basis show that, as at 30 June, the Net Worth of the General Government Sector is $7 881.4 million for 2006, $7 913.0 million for 2007, and $8 009.3 million for 2008. Net Worth is calculated as Total Assets minus Total Liabilities, and incorporates a number of financial assets and liabilities not captured by the Net Debt measure, most notably accrued employee superannuation liabilities, ownership of equities, debtors and creditors.

Assets Total Assets are anticipated to increase over the Forward Estimates to $11 067.0 million in 2006, $11 171.7 million in 2007, and $11 287.8 million in 2008. The major asset variations for 2005-06 to 2007-08 detailed in Table 9.2 are summarised below.

Investments, Loans and Placements

The decrease in Investments, Loans and Placements over the Forward Estimates is primarily due to the disbursement of Intelligent Island funds held on deposit and the run-off of the Loan, Property and Equity Portfolio of the Department of Economic Development.

Other Non-Equity Assets The decrease in Other Non-Equity Assets over the Forward Estimates is primarily due to the revenue that has been recognised for the HIH levy in the Nominal Insurer. Each year as the levy is received, the receivable decreases and cash increases.

Equity The increase in equity assets is primarily due to the increasing value of the Government's investment in the net assets of Government Business Enterprises, State-owned Companies, Statutory Authorities and holdings in investments in private sector businesses.

Land and Fixed Assets The decrease in Land and Fixed Assets over the Forward Estimates primarily reflects depreciation of fixed assets.

Liabilities The decrease in Total Liabilities from 2005 to 2006 primarily reflects the repayment of $250.0 million in debt which is maturing in the first half of the financial year ($200.0 million of which matures on 15 July 2005). For further information on General Government Gross Debt, refer to Chapter 7 of this Budget Paper. Total Liabilities are anticipated to increase from $3 185.7 million in 2006 to $3 258.7 million in 2007 and $3 278.4 million in 2008. The major factor influencing the level of liabilities in these years is the increase in the unfunded superannuation liability. For information on the Government's strategies to manage the unfunded superannuation liability, refer to Chapter 7 of this Budget Paper.

Net Financial Worth The Forward Estimates on a same policy basis show that as at 30 June, Net Financial Worth is anticipated to be $2 011.6 million in 2006, $2 081.2 million in 2007 and $2 219.6 million in 2008. Net Financial Worth is calculated as financial assets minus total liabilities.


The increase in Net Financial Worth represents the strengthening position of the State's finances as the level of borrowings is reduced by the generation of cash surpluses, which are utilised to build cash reserves.

Net Financial Liabilities The Forward Estimates, on a same policy basis, show that as at 30 June, Net Financial Liabilities are anticipated to be $2 318.0 million in 2006, $2 245.5 million in 2007 and $2 119.5 million in 2008. Net Financial Liabilities represents Net Debt plus gross unfunded superannuation liabilities.

The reduction in Net Financial Liabilities is consistent with the Government's Fiscal Strategy targets to:

• eliminate the State's General Government Sector Net Debt by 30 June 2008. (On a same policy basis General Government Sector Net Debt will be eliminated by 30 June 2007);

• eliminate the State's unfunded superannuation liability by 30 June 2018; and

• eliminate Net Financial Liabilities for the General Government Sector by 30 June 2017.

Net Debt Net Debt is the standard measure to assess the State Government's level of indebtedness. It is used to analyse the overall strength of the Government's fiscal position, and also provides an indicator of the Government's financial management performance over time. The reduction and eventual elimination of Net Debt has been part of the Government's Fiscal Strategy since 1998-99.

The Forward Estimates on a same policy basis show that as at 30 June, Net Debt is anticipated to be $117.1 million in 2006, and that selected Financial Assets will exceed Gross Debt by $13.1 million in 2007, resulting in the elimination of Net Debt in 2007 and, therefore, the early achievement of the Government's Fiscal Strategy target to eliminate Net Debt by 30 June 2008. This negative Net Debt position will increase to $187.9 million by 30 June 2008.


FORWARD ESTIMATES CASH FLOW STATEMENT The Forward Estimates Cash Surpluses on a same policy basis are $150.6 million for 2005-06, $146.5 million for 2006-07 and $197.7 million for 2007-08. The Cash Surplus represents the Net Cash Flows from Operating Activities in addition to the Net Cash Flows from Investments in Non-Financial Assets.

The maintenance of Cash Surpluses over the Forward Estimates period is consistent with the Government's Fiscal Strategy targets of maintaining Budget surpluses and eliminating Net Debt by 30 June 2008.

The increase in the Cash Surpluses over the Forward Estimates reflects the expected increases in Cash Receipts from Operating Activities, and in particular, growth in Grants and Subsidies Received. The increase is partly offset by additional Payments for Goods and Services over the Forward Estimates, including payments from the Economic and Social Infrastructure Fund.

The Forward Estimates show the Net Increase/(Decrease) in Cash Held on a same policy basis is a Net Decrease of $151.2 million for 2005-06 and Net Increases of $130.9 million for 2006-07 and $125.5 million for 2007-08. The movement in Cash Held from 2004-05 to 2005-06 reflects the decision by the Government to invest surplus cash in the repayment of gross debt. This has the effect of increasing cash expenditure, creating the Net Decreases in Cash Held in 2004-05 and 2005-06. For further information on this policy, refer to Chapter 7 of this Budget Paper. The Net Increase in Cash Held in 2006-07 reflects a reduction in payments to repay borrowings in 2006-07.

Table 9.3 details the anticipated cash flows over the Forward Estimate period.


Table 9.3: General Government – Cash Flow Statement Forward Estimates Summary

2005-06 2006-07 2007-08 2022004-05 Forward) Forward) Forward)

Budget) Estimate) Estimate) Estimate) $'000) $'000) $'000) $'000)Cash Receipts from Operating Activities

Taxes Received 606 587) 594 484) 608 395) 620 013)Receipts from Sales of Goods and Service 257 468) 260 604) 261 716) 258 950)Grants and Subsidies Received 1 961 343) 2 066 303) 2 101 623) 2 184 083)Dividend,Tax and Rate Equivalent Income 154 785) 156 453) 152 318) 163 918)Interest Received 31 316) 23 401) 30 453) 36 039)Other Receipts 202 516) 205 519) 205 655) 191 549)

Total 3 214 015) 3 306 764) 3 360 160) 3 454 552) Cash Payments for Operating Activities

Payments for Goods and Services (2 164 843) (2 246 519) (2 351 114) (2 440 501)Grants and Subsidies Paid ( 668 832) ( 627 092) ( 608 167) ( 561 053)Interest Paid ( 58 170) ( 47 917) ( 37 907) ( 33 948)Other Payments ( 123 749) ( 126 270) ( 126 522) ( 131 433)

Total (3 015 594) (3 047 798) (3 123 710) (3 166 935) Net Cash Flows from Operating Activities (A) 198 421) 258 966) 236 450) 287 617) Net Cash Flows from Investments in Non-Financial

Assets Sales of Non-Financial Assets 41 628) 42 233) 43 188) 44 388)Purchases of Non-Financial Assets ( 144 179) ( 150 616) ( 133 187) ( 134 326)

Total (B) ( 102 551) ( 108 383) ( 89 999) ( 89 938) Net Cash Flows from Investments in Financial

Assets for Policy Purposes (C) 4 535) 566) 641) 817)Net Cash Flows from Investments in Financial

Assets for Liquidity Purposes (D) 10 000) 10 000) 9 750) ....) Net Cash Flows from Financing Activities

Advances Received (net) ( 12 637) ( 12 730) ( 5 751) ( 6 000)Borrowing (net) ( 191 219) ( 260 085) ( 2 698) ( 42 598)Deposits Received (net) ( 1 983) ( 2 031) ( 2 081) ( 2 132)Other Financing (net) ( 10 376) ( 37 462) ( 15 462) ( 22 250)

Total (E) ( 216 215) ( 312 308) ( 25 992) ( 72 980) Net Increase/(Decrease) in Cash Held1 ( 105 810) ( 151 159) 130 850) 125 516) SURPLUS/(DEFICIT)2 95 870) 150 583) 146 451) 197 679)


Notes: 1. Net Increase/(Decrease) in Cash Held is equal to A+B+C+D+E. 2. Cash Surplus is equal to A+B

Chapter 10: Commonwealth-State Financial Arrangements 197

10 COMMONWEALTH-STATE FINANCIAL ARRANGEMENTS

Features

• Tasmania's estimated share of Commonwealth sourced revenue in 2004-05 will total $1 961.3 million.

• In 2004-05, Tasmania's share of Goods and Services Tax (GST) revenue is forecast to be $1 379.0 million.

• In 2004-05, Specific Purpose Payments (SPPs), including the Health Care Grant, are expected to total $566.3 million.

• In February 2004, the Commonwealth Grants Commission (CGC) released the findings of its latest five-yearly review of the methodology used to determine state general purpose revenue sharing relativities. In 2004-05, under the 2004 Review methodology, Tasmania will be about $40.8 million worse off than it would have been if the general purpose GST revenue had continued to be distributed under the previous methodology.

• The CGC suggested in its report that a review of equalisation is 'important and worthy of consideration', suggesting that benefits could be achieved from such an undertaking. At the March 2004 Treasurers' Conference, Tasmania supported a review of the application of Horizontal Fiscal Equalisation (HFE) to consider whether the method and process surrounding it could be simplified. This was agreed at the Conference.

198 Chapter 10: Commonwealth-State Financial Arrangements

INTRODUCTION Commonwealth sourced revenue is a vital source of revenue for all states and territories (states). This revenue is required to address the imbalance between the revenue raising powers and functional responsibilities of Commonwealth and State governments. In 2000-01, the Commonwealth raised 72 per cent of total General Government revenue, but had direct responsibility for approximately 57 per cent of total outlays. While this imbalance existed prior to the implementation of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA), the degree of imbalance has increased further since 1 July 2000, as a result of reforms implemented under the Agreement. In 2003-04, it is estimated that the Commonwealth will derive 73 per cent of total General Government revenue, but is still only directly responsible for 57 per cent of General Government expenditure.

In 2004-05, it is expected that Commonwealth sourced revenue will comprise 63.5 per cent of the State's total General Government Sector revenue.

There are many different factors that influence the quantum of revenue transferred from the Commonwealth to the states. Foremost amongst these factors are the provisions of the IGA, actions taken by the Commonwealth in relation to the IGA and the determinations of the Commonwealth Grants Commission (CGC), as well as the outcomes of SPP negotiations.

The purpose of this Chapter is to provide information regarding:

• the importance of Commonwealth sourced revenue to the State Budget;

• the significant issues currently affecting Commonwealth-State financial arrangements; and

• the magnitude and nature of the estimated Commonwealth sourced revenues to be received by the State during 2004-05.

Background information is also provided in the appendices to this Chapter that explains why Commonwealth payments to the states are essential and the role of the CGC.

This Chapter has been prepared using the accrual Uniform Presentation Framework (UPF). Consequently, some of the contents will differ from the corresponding Budget Chapters in the years prior to 2002-03 because those Budgets presented estimates only of those Commonwealth receipts that were paid into the Consolidated Fund. Under the newer accruals presentation, this Chapter now includes Commonwealth receipts that will pass through the Special Deposits and Trust Fund. This will be reflected primarily in the presentation of Specific Purpose Payments (SPPs) estimates.


SUMMARY OF COMMONWEALTH SOURCED REVENUE The following table provides a summary of the estimated magnitude and nature of Commonwealth sourced revenue to be received by Tasmania in 2004-05.

Table 10.1: Summary of Commonwealth Sourced Revenue, 2004-05 2003-04Budget

2004-05 Budget

$m $m General Purpose Payments

GST Revenue 1 299.7 1 379.0 Budget Balancing Assistance 9.3 ….National Competition Policy Payments to Tasmania 17.6 16.0

Total General Purpose Payments 1 326.6 1 395.0 Specific Purpose Payments

Health Care Grant 159.7 175.4 Other Specific Purpose Payments 372.9 390.9

Total Specific Purpose Payments 532.6 566.3

Total Commonwealth Sourced Revenue 1 859.2 1 961.3

Source: Department of Treasury and Finance

Tasmania's share of the GST revenue pool in 2004-05 will comprise just over 70 per cent of total transfers from the Commonwealth. The second largest individual source of Commonwealth revenue is the Health Care Grant, which will comprise 8.9 per cent of the total estimated Commonwealth sourced revenue in 2004-05. Total receipts from the Commonwealth in 2004-05 are projected to increase by 5.5 per cent on 2003-04 levels. Reasons for this increase, and further information on the calculation of the various Commonwealth revenue amounts, are provided later in this Chapter.

Chart 10.1 highlights the significance of Commonwealth sourced revenue to the State Budget. In 2004-05, it is estimated that total Commonwealth sourced revenue will comprise 63.5 per cent of total revenue. This is approximately 3.2 times the level of funding which the State generates from its own taxation revenue sources.


Chart 10.1: Commonwealth Sourced Revenue as a Proportion of Total Revenue, 2004-05

Commonwealth Specific Purpose

Payments $566.3m (18.3%)

Interest Income $31.2m (1%)

Commonwealth General Purpose

Payments $1395m (45.1%)

Returns from GBEs, SOCs and State

Authorities $154.8m (5%)

Other Revenue $78.5m (2.5%)

Sales of Goods and Services $297.6m

(10.0%)

State Taxation $606.6m (19.6%)

1

Note: 1. Commonwealth General Purpose Payments for 2004-05 include National Competition Policy Payments to Tasmania.

Chart 10.2 summarises the major trends that have occurred in Commonwealth sourced revenue over the past decade. Major points to be made in relation to Chart 10.2 are:

• a major change in the composition of Commonwealth transfers of revenue to the states occurred from 2000-01 as a result of the implementation of the IGA. This change resulted in a significant increase in the level of General Purpose Payments (GPPs);

• in aggregate, the transfer of revenue by the Commonwealth to the states has gradually increased over time;

• while GPPs increased as a consequence of the IGA, this increase has been partially offset by decreases in State taxes that were required under the IGA. In addition, the increase in GPPs has also been negated to some extent by significantly increased expenditure required of the State under the national tax reform arrangements; and

• when both Commonwealth sourced revenue and the revenue derived from State taxes are taken into account, the total revenue to Tasmania from these sources has grown marginally, in real terms, under the IGA arrangements, but at a rate that is not sufficient to offset the cost increases driven by rising demand for government services.


Chart 10.2: Changes in Major Sources of Budget Revenue (Real Terms)

020406080

100120140160180200

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

(est

)

2004

-05

(est

)

Inde

x: 1

994-

95 =

100

(rea

l pri

ces)

Commonwealth SPPs Commonwealth GPPs State Taxes Total

Sources: Commonwealth Budget Paper Number 3 (various years); Commonwealth Statement of Estimated Payments,

March 2004 Treasurers' Conference; Department of Treasury and Finance, Tasmanian Budget Paper No 1 Budget Overview (various years).


MAJOR ISSUES IN COMMONWEALTH–STATE FINANCIAL RELATIONS The following sections highlight a number of major issues that currently exist in the area of Commonwealth-State financial relations.

Commonwealth Grants Commission 2004 Major Review Every five years, the Commonwealth Grants Commission (CGC) undertakes a review of the methodology it uses to assess the relative fiscal needs of each state. The most recent such review was completed in February 2004. The methodology implemented from the 2004 Review will be used by the CGC for the next five years to recommend the distribution of GST revenue amongst the states.

Tasmania made significant contributions to the Review, including:

• the provision of a major submission in April 2002;

• hosting workplace discussions between the CGC (staff and Commissioners) and staff in government service delivery areas around Tasmania eg Burnie Court Rooms and Launceston General Hospital;

• participation at both staff and Commissioner level conferences in October 2002 and November 2002;

• the provision of a rejoinder submission in February 2003;

• participation in bi-lateral discussions with the Commission in March 2003;

• the completion of CGC information and data requests on an on-going basis throughout the Review;

• participation at both staff and Commissioner level conferences in September 2003 and December 2003; and

• the provision of a final submission in October 2003.

The CGC's final report indicates that Tasmania's per capita GST relativity has declined, meaning that it will receive $40.8 million less in GST revenue for 2004-05 than it would have done were GST distributed to the states according to the previous methodology.

In the Executive Summary of the CGC's Report, the Commission suggested that a review of Horizontal Fiscal Equalisation (HFE) (see Appendix 1) is 'important and worthy of consideration', concluding that benefits could be achieved from such an undertaking. As discussed below, state and territory Treasurers gave consideration to such a review at the annual Treasurers' Conference in March 2004 and agreed to a review being undertaken. However, it was agreed that the review be limited to the examination of how HFE is currently implemented, largely focussing on a simplification of the process. A broader review of the underlying HFE principle could potentially pose a significant revenue threat to Tasmania because, despite the negative impact of the 2004 Review on the State's relativity, HFE still delivers the most equitable fiscal outcome compared with alternative approaches to the distribution of Commonwealth GPPs. In 2004-05, Tasmania is estimated to receive approximately $560 million more than it would have done if GST revenue were distributed on a per capita basis only. Without this result, Tasmania would be significantly disadvantaged, relative to the average fiscal circumstances of all states, because of its higher costs of providing services and lower capacity to raise revenue, both of which are unavoidable.


Impact of the IGA on Commonwealth Sourced Revenue Background Under the IGA, signed by the states and the Commonwealth in June 1999, all parties agreed to a range of important nationally coordinated commitments and reforms.

The most significant commitment made by the Commonwealth under the IGA was the guarantee that the budgetary position of each individual state would be no worse off under the new arrangements than it would have been had the reforms not been implemented. The benchmark for each state against which the need for this guarantee to apply is assessed is the Guaranteed Minimum Amount (GMA). This is comprised of Commonwealth transfers (Financial Assistance Grants and Business Franchise Fee replacements) and the State taxation revenues foregone and increased expenditures incurred under the IGA arrangements. In the event that the level of GST revenue for any state is less than the amount of its GMA, the Commonwealth agreed to make top-up payments, known as Budget Balancing Assistance (BBA), in addition to GST revenue grants.

Impact of IGA Changes on Commonwealth Sourced Revenue The 2003-04 financial year is the first year since the implementation of national tax reform and the IGA in 2000-01 that Tasmania will not require BBA from the Commonwealth. Up until this year, any increase in the level of GST revenue to the State has solely benefited the Commonwealth, by reducing the top-up payments it needed to make to ensure that Tasmania's budget position was not financially disadvantaged as a result of the IGA. In 2004-05, Tasmania's general purpose funding is, again, expected to be determined with reference to its share of GST revenue, rather than its GMA.

While Tasmania is, again, forecast to receive a net benefit from the implementation of the IGA in 2004-05, and in the Forward Estimates period, that benefit will be eroded by the abolition of debits tax from 1 July 2005.

Chart 10.3 shows that the benefits to Tasmania from national tax reform will increase consistently from 2003-04. This is to be expected, as the Commonwealth and the states agreed to the tax reform requirements in the IGA specifically on the basis that access to GST revenue would provide the states with a source of general revenue that would grow more over time than the Financial Assistance Grants (FAGS) previously distributed by the Commonwealth, which were only escalated on a real per capita basis.

It is emphasised that Chart 10.3 is based on estimates, and comparatively small changes in a number of factors, including population levels, GST relativities and the level of GST revenue, could impact appreciably on the extent to which the State benefits from the IGA. To illustrate this point, the reduction in the State's relativity as a result of the 2004 Review of the CGC's methodology means that Tasmania will receive $40.8 million less than it would have otherwise received.


Chart 10.3: Estimated Impact of the IGA on Tasmania in the Absence of BBA, 2000-01 to 2007-08

-200

-150

-100

-50

0

50

100

150

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

$m

Sources: Final Budget Outcome 2000-01 (Commonwealth); Final Budget Outcome 2001-02 (Commonwealth); Final Budget

Outcome 2002-03 (Commonwealth); Statement of Estimated Payments to the States and Territories (Commonwealth, 26 March 2004); Department of Treasury and Finance estimates.

On the basis of the estimates provided to the March 2004 Treasurers' Conference, only New South Wales is forecast to require BBA to ensure that it is no worse off in 2004-05 as a result of the IGA.

It should also be noted that Tasmania's Budget estimates for 2004-05 and the Forward Estimates depart from those contained in the estimated payments advice to the Treasurers' Conference in March 2004, due to the impact of differing assumptions regarding the State's population growth and GST relativities in the Forward Estimate years.

2004 Treasurers' Conference The IGA established the Treasurers' Conference comprising the Commonwealth Treasurer and the Treasurers of all states.

The major functions of the Treasurers' Conference are to:

• oversee the operation of the GST;

• oversee and coordinate the implementation of the IGA;

• discuss the CGC recommendations prior to the Commonwealth Treasurer making a determination; and

• make recommendations to the Commonwealth Treasurer on the level of general purpose revenue transferred to each state under the terms of the IGA.

The Treasurers' Conference last met on 26 March 2004. At this meeting, the Treasurers:

• discussed the recommendations of the CGC's 2004 Review of Revenue Sharing Relativities;


• endorsed the abolition of debits tax in each jurisdiction, under the terms of the IGA, by 1 July 2005;

• accepted Terms of Reference in relation to a review, by 2005, of the need to retain a number of state transaction taxes listed in the IGA;

• agreed to a review of Horizontal Fiscal Equalisation (HFE); and

• noted the report of the GST Administration Subcommittee for 2003-04.

Major Specific Purpose Payment Issues As indicated earlier in this Chapter, Specific Purpose Payments (SPPs) from the Commonwealth are a significant source of funds for Tasmania. Detailed information on SPPs is provided later in this Chapter. This section highlights some major issues currently existing in relation to SPPs.

There are three major SPP agreements due for renegotiation in 2004. These are the Australian National Training Authority (ANTA) Agreement, Government Schools Funding and the Public Health Outcome Funding Agreement (PHOFA). The current status of each is reported below.

In addition, the Commonwealth will release a white paper in May 2004, entitled 'Auslink', on national land transport reforms, which will have funding implications for the states.

Australian National Training Authority (ANTA) Agreement The ANTA Agreement, which expired on 31 December 2003, is currently under renegotiation. Funding of some $28 million per annum is provided to Tasmania under this agreement to assist with meeting the cost of providing a nationally consistent vocational education and training system.

All states refused to accept the Commonwealth's initial offer for the 2004-2006 Agreement, largely on the basis of the proposed inclusion of a clause that would require states to apply the Commonwealth Building and Construction Code (the code) and implementation guidelines (the guidelines) to federally funded capital projects. Agreement to this clause would have set a serious precedent for other capital SPPs.

The unwillingness of the states to sign the Commonwealth's offer by 31 December 2003 led the Commonwealth Minister for Education to roll-over the current agreement for 12 months, rather than continue negotiations. Furthermore, the Minister has suggested that negotiations not begin again until October 2004. All state and territory education ministers have written to the Minister, requesting that negotiations begin sooner.

Government Schools In 2003-04, the Government Schools SPP will provide $45.6 million in recurrent funding and $6.4 million in capital funding to Tasmania towards public schooling.

The current agreement expires on 31 December 2004. The Commonwealth Education Minister publicly announced the Commonwealth funding offer for the next quadrennium in March 2004. While there has been much public debate regarding the Commonwealth Government's policy about funding to non-Government compared to Government schools, there are other significant areas of concern in the Commonwealth's funding offer. These include conditions on funding that require public schools, through state governments, to:

• increase the level of reporting on school performance (primarily for the information of parents);


• report on student performance against literacy and numeracy benchmarks in years 3, 5 and 7;

• agree to a uniform starting age by 2010 and commit to common outcomes in maths, science, English, civics and citizenship;

• commit to the safer schools framework; and

• expand performance measures beyond basic numeracy and literacy.

Some of the requirements (ie the commitment to the safer schools framework, better performance reporting) are, in principle, positive steps towards the improvement of educational outcomes. However, due to a lack of detail and, more significantly, a lack of consultation with the states, it is unclear what each of these requirements entail and what penalties would be imposed for non-compliance. What is of considerable concern is the Commonwealth Minister's apparent threat to withdraw funding from schools that fail to meet performance targets. Furthermore, it is unclear how these statements of intent relate to the Commonwealth's commitment that 'no school will have their funding cut'.

Public Health Outcome Funding Agreement (PHOFA) The PHOFA is primarily a funding mechanism to simplify administrative arrangements in respect of specified public health assistance to the states. The base funding in the PHOFA provides Commonwealth funding to Tasmania for the following public health programs:

• National Drug Strategy;

• National HIV/AIDS;

• National Immunisation Program;

• BreastScreen Australia;

• National Cervical Screening Program;

• National Women's Health Program;

• National Education Program on Female Genital Mutilation; and

• Alternative Birthing Services.

The current bi-lateral agreement (1999-00 to 2003-04) expires on 30 June 2004 and has provided funding of approximately $24 million to Tasmania over the life of the agreement. The Commonwealth presented its 2004-05 to 2008-09 agreement offer to the states in late April 2004.

Monitoring of Commonwealth SPP Commitments The terms of the IGA include a commitment that 'the Commonwealth will continue to provide SPPs to the States and Territories and has no intention of cutting aggregate SPPs as part of the reform process set out in this Agreement, consistent with the objective of the State and Territory Governments being financially better off under the new arrangements.'

This commitment was a crucial factor in reaching agreement on the IGA. It was included in the IGA to address the concern held by the states that, when the states ultimately started to benefit from the increase in GST revenue, the Commonwealth would use this as an opportunity to reduce other transfers through SPP agreements.


In the light of the importance of this issue to the states, they have established a monitoring process to assess whether the Commonwealth is meeting its commitment in relation to the level of SPPs. While the Commonwealth has refused to formally endorse these monitoring arrangements, the process has shown that the Commonwealth has met its commitments in relation to 2002-03 and, based on its Mid-Year Economic and Fiscal Outlook 2003-04, is expected to meet its commitments in relation to 2003-04 and 2004-05.

The Commonwealth commitment in relation to SPPs has been assessed by comparing the level of SPPs made in 2002-03, and those estimated to be made in 2003-04 and 2004-05, with the level that would have been necessary to maintain the level of SPPs in 1999-00 in real per capita terms. Notwithstanding the results of the SPP monitoring undertaken to date, it was suggested at the Treasurers' Conference in March 2004 that a guarantee to maintain SPPs in real per capita terms is not meaningful when the costs of most SPP programs grow at a much faster rate than the Consumer Price Index and population. Further, while the Commonwealth may have met this guarantee, the increase in input controls and the administrative burden the Commonwealth is now imposing with its recent SPP offers is significantly reducing State Budget flexibility.


COMMONWEALTH SOURCED REVENUE - DETAILED INFORMATION The following sections provide detailed information on Commonwealth sourced revenue and the estimated level of receipts from the Commonwealth in 2004-05. The two types of Commonwealth sourced revenue identified are:

• General Purpose Payments; and

• Specific Purpose Payments.

General Purpose Payments Description General Purpose Payments (GPPs) from the Commonwealth can be applied at a state's discretion, whereas Specific Purpose Payments (SPPs) must be spent in accordance with purposes agreed to between the Commonwealth and the states (or as prescribed by the Commonwealth). Prior to implementation of the IGA in July 2000, the largest component of Commonwealth sourced revenue and GPPs were the Financial Assistance Grants (FAG). However, as a result of the IGA, FAGs and a number of other revenue items have been replaced by the distribution of GST revenue to the states, and the provision of BBA during the IGA's 'guarantee period', both of which are also classified as General Purpose Payments.

The additional financial assistance provided by the Commonwealth in relation to National Competition Policy outcomes is also classified as a GPP in this document. There are no general purpose capital grant programs currently in place.

GST Revenue Grants Under the terms of the IGA, the Commonwealth distributes all the revenue it receives from the GST to the states. As with all jurisdictions, Tasmania's allocation of GST revenue is based on the State's population share, adjusted by a relativity factor that embodies the State's per capita financial needs, based on recommendations by the CGC. The relativity factors are calculated by the CGC, with input from each jurisdiction, in accordance with the principle of Horizontal Fiscal Equalisation (HFE). The principle of HFE, the CGC, and its most recent recommendations are discussed in the appendixes to this Chapter.

The most recent estimates available to the states for the purposes of framing their 2004-05 Budgets forecast net GST of $34.1 billion available for distribution to the states in 2004-05. It is estimated that Tasmania's share of GST revenue in 2004-05 will be $1 379.0 million, an increase of $70.0 million (5.35 per cent) over the Budget estimate for 2003-04, which included a BBA component. Aside from the amount of GST available for distribution to the states, the major factors in determining Tasmania's share of GST revenue are the State's population and its GST relativity. Despite the population growth forecast for Tasmania in 2004-05, the State's estimated share of the national population total is predicted to decline in 2004-05. The State's GST relativity has also been decreased from 1.59948 in 2003-04 to 1.55939 for 2004-05. Table 10.2 provides a reconciliation of the change in Tasmania's share of GST revenue between 2003-04 and 2004-05 Budget Estimates.


Table 10.2: Reconciliation of the Change in Tasmania's GST Revenue, 2003-04 to 2004-05

Amount1

$m $m Guaranteed Minimum Amount (GMA) 2003-04 – Budget Estimate 1 309.0 Plus

Change due to Population Growth 0.4 Change due to Lower GST Relativity (40.8)Change due Growth in GST Revenue Pool 119.8 Change in BBA (9.3)

70.0

GST Revenue Share 2004-05 – Budget Estimate 1 379.0

Sources: Budget Paper No 1 Budget Overview 2003-04; Department of Treasury and Finance estimates. Note: 1. Figures may not total due to rounding.

While Tasmania is forecast by the Commonwealth to account for 2.4 per cent of the national population in 2004-05, using HFE as the basis for distributing GST revenue to the states means that Tasmania receives a greater share of revenue from the GST than it would if GST revenue were distributed on an equal per capita basis. However, despite the nominal increase in GST revenue forecast for the State in 2004-05, the decline in Tasmania's share of the national population and a lower GST relativity in 2004-05 mean that Tasmania's share of the GST/HCG pool is forecast to decrease from an estimated 4.2 per cent in 2003-04 to only slightly above 4.0 per cent in 2004-05.

In 2004-05, it is estimated that the total level of general purpose revenue transferred from the Commonwealth to Tasmania, excluding National Competition Policy payments, will be determined by the State's share of the GST revenue pool, rather than Tasmania's GMA. Table 10.3 provides an estimate of the amount of Commonwealth sourced general purpose revenue to be received by Tasmania in 2004-05.

Table 10.3: GST Revenue Grants and BBA Payments, 2003-04 and 2004-05

2003-04 2004-05Budget Budget

$m $m GST Revenue 1 299.7 1 379.0Budget Balancing Assistance 9.3 ….

Total General Purpose Revenue (excluding National Competition Policy Payments) 1 309.0 1 379.0

Sources: Budget Paper No 1 Budget Overview 2003-04; Department of Treasury and Finance estimates.


National Competition Policy Payments The Agreement to Implement the National Competition Policy and Related Reforms signed by the Commonwealth and all states in 1995 provides for the states to receive general revenue grants from the Commonwealth which reflect a share of the expected revenue gains to the Commonwealth arising from states' implementation of the National Competition Policy (NCP) reform agenda. The Commonwealth acknowledged that the benefits to the states from the expanded economic activity arising from economic reform would, as a result of the states' limited own-source revenue measures, not otherwise be fully available to them and consequently agreed to make NCP Payments to the states. It is these circumstances that gave rise to NCP Payments, rather than any notion of providing compensation for complying with the process requirements of the NCP. The payments are being made in three tranches according to a schedule agreed between the Commonwealth and the states at the 1995 Premiers' Conference. Payments are distributed amongst the states on an equal per capita basis.

No estimates of either the 2006-07 NCP payment pool or Tasmania's share of that pool have been provided by the Commonwealth. In its 2003-04 Budget, the Commonwealth noted that provision had been made for NCP payments in 2006-07, but that the details of the funding pool and distributions to the states would not be disclosed until such time as negotiations, with the states, had been concluded.

The NCP Agreement does not contain any defined termination date for NCP payments and, consistent with the provisions of the Agreement, the states would expect that NCP payments would continue to be received on the grounds that the Commonwealth will continue to benefit from NCP reforms. It is anticipated that the financial arrangements associated with NCP beyond 2005-06 will be agreed by the Council of Australian Governments (COAG) following a review of NCP which is due to be completed by August 2005.

The National Competition Council (NCC) is responsible for assessing the compliance by each state with the conditions governing the making of NCP Payments. Until 2002-03, Tasmania had received all of the NCP Payments to which it was entitled. In 2003-04, however, the NCC recommended that Tasmania's payment be subject to a 5 per cent pool suspension in relation to outstanding legislation review items. Tasmania's actual 2003-04 NCP payment was consequently reduced from $18.1 million to $17.2 million. This was the lowest suspension or penalty imposed on any state or territory.

If satisfactory progress towards reform is made in relation to the outstanding items, the NCC will recommend that the suspension be lifted, or reduced, and the funds released to Tasmania. However, if the NCC deems that insufficient progress has been made, it is likely to recommend that all or part of the suspension be converted to a permanent deduction from the 2003-04 NCP payment, and that the deduction be ongoing.

With respect to the pool suspension arising from the 2003 assessment, a significant number of the outstanding legislative reforms identified by the NCC have since been implemented, including amendments to the Taxi and Luxury Hire Car Industries Act 1995, the Agricultural and Veterinary Chemicals (Control of Use) Act 1995, the Vocational Education and Training Act 1994 and the Architects Act 1929. With significant progress having been made by Tasmania in those areas, and further amendment Bills drafted and awaiting introduction to Parliament, it is expected that most, and possibly all, of the suspended payments will be returned to the State in 2004-05.

While Tasmania's maximum level of NCP payments in 2004-05 is currently set at $18.8 million, NCP payments to the State are budgeted at $16.0 million, in recognition of the uncertainties surrounding the NCC's assessment of Tasmania's progress toward NCP reform. This reflects a prudent provision on the part


of the State, rather than an acknowledgement by Tasmania that the NCC would be justified in recommending penalties for the State.

Table 10.4: Estimated NCP Payments to Tasmania NCP PaymentsYear to Tasmania1

$m

2003-04 17.22004-05 estimate 16.02005-06 estimate 16.12006-07 estimate2 16.12007-08 estimate2 16.1

Source: Department of Treasury and Finance Notes: 1. Based on a continuation of current State population shares. Assumes either a partial suspension of, or deduction

from, Tasmania's maximum NCP payments by the NCC. 2. No estimates of the 2006-07 and 2007-08 NCP payment pool or Tasmania's share of that pool have been provided by

the Commonwealth, nor any undertaking given that NCP payments will continue beyond 2005-06.

Specific Purpose Payments Description SPPs are grants provided for specific purposes, either agreed between each state and the Commonwealth, or as prescribed by the Commonwealth.

SPPs are usually determined through the Commonwealth Budget. Recurrent SPPs normally result from specific fixed term funding agreements, usually of three or five years duration. Often the states have to commit to matching these grants dollar for dollar in order to receive the funds being made available. Conditions such as this reduce a state's control over its own Budget priorities by limiting discretion as to how its financial resources can be applied. Consequently, all states are continually looking to remove such conditions from new or renegotiated inter-government agreements.

The largest SPPs are for public hospitals, roads, housing and education. Other significant SPPs include payments in relation to Home and Community Care (HACC), the Supported Accommodation Assistance Program (SAAP) and Disability Services programs. Together, these SPPs represent considerable tied funding.

As discussed earlier in this Chapter, the Commonwealth has guaranteed that funding for SPPs will not be reduced as a result of the reform of Commonwealth-State financial arrangements. This guarantee is being monitored by the Treasurers' Conference.

Health Care Grant (HCG) The current Australian Health Care Agreements (AHCAs) commenced on 1 July 2003 and provide for HCGs to be paid to states for the five years ending 30 June 2008. The HCG is the single largest source of Commonwealth revenue to the states after GST revenue.


The HCG differs from other SPPs because of its links to the GST pool arrangements and, unlike conventional SPPs, the funds are not 'tied' to expenditure for a particular purpose. However, in order for states to receive the HCG funding they are required to meet strict performance targets in the delivery of public hospital and other health services. Notwithstanding the in-principle distinction from SPPs, the new AHCAs have meant that the HCGs now share a greater number of characteristics with the more conventional SPP agreements.

The current AHCAs were reluctantly signed by the states in August 2003 after the Commonwealth had refused to continue negotiations and had indicated that it would impose significant financial penalties on those states that failed to sign. The Commonwealth has effectively reduced HCGs to all states by $1 billion over the five years of the Agreement when compared to what the states would have received had the AHCAs been rolled over on the same basis as the previous Agreement. Given the significant increases in health care costs, combined with the increase in demand for health services, this offer was considered inadequate by all states. Unfortunately, the Commonwealth refused to enter into any meaningful debate on the issue, and the states were left with no option but to take the Commonwealth's offer.

In addition to the reduction in funding, the AHCAs impose significant compliance conditions on the states, including the extension of matching of Commonwealth funding (this effectively reduces the states' sovereignty over their own Budgets) and costly administrative requirements. It also introduced an annual compliance penalty on any state that is deemed to be non-compliant with the Commonwealth's conditions.

The AHCA funding consists of four main elements:

• a base grant to assist states in providing the full range of hospital services and to assist with public hospital quality improvement and the provision of palliative care;

• payments to assist with the implementation of the National Mental Health Reform Strategy;

• funding for a Pathways Home program to assist the move nationally to a greater focus on the care and services provided to support the transition from hospital to home; and

• a compliance payment, receipt of which is conditional on meeting matching, reporting and other performance requirements.

Table 10.5 provides details of the estimated HCG payments for 2004-05.

Table 10.5: Health Care Grant – Tasmania, 2004-05 Tasmanian NationalComponents Share Total

$m $m Base Grant 160.9 7 474.1National Mental Health Reform Strategy 1.5 63.3Pathways Home Program 1.3 52.0Compliance Payment 11.7 311.4

TOTAL1 175.4 7 900.8

Source: Commonwealth Department of Health and Ageing. Note: 1. National total excludes additional non-base HCG payments to Queensland for the Torres Strait Islands and South

Australia for the Woomera Detention Centre.


Total Specific Purpose Payments Total SPPs to Tasmania, including the HCG, are estimated to be $566.3 million in 2004-05, representing a real terms increase of 4 per cent over the 2003-04 estimate of $532.6 million. This can be largely attributed to an increase in the Commonwealth capital road programs in 2004-05. Capital grants, by their nature, are subject to this type of a year-to-year variability.

Table 10.6 compares estimates for the major types of SPPs for 2004-05 with estimates for 2003-04.

Table 10.6: Specific Purpose Payments – Tasmania, 2003-04 and 2004-05

Real Terms 2003-04 2004-05 Change Over Program Budget Budget 2003-04

$m $m % Health Care Grants1 159.7 175.4 7.4 CSHA Block Assistance2 22.3 22.3 (2.4)Government Schools3 45.6 49.7 6.5 Roads 20.6 33.8 60.2 HACC and SAAP 24.3 25.9 4.3 Disability Services 19.1 19.1 (2.3)Local Government General Purpose Payments 49.0 51.3 2.3 Other4 192.0 189.0 (3.8)

TOTAL 532.6 566.3 4.0

Sources: Budget Paper No 1 Budget Overview 2003-04; Department of Treasury and Finance estimates. Notes: 1. At the time of the 2003-04 Budget, the AHCA was still under active negotiation and the most conservative potential

outcome was used for the 2003-04 Budget estimate. 2. Excludes special housing programs. 3. Recurrent grants only. 4. Comprised of all remaining SPPs (including capital SPPs) from the Commonwealth to Tasmania, excluding

payments direct to Local Government.

Specific Purpose Payments 'To' the State and 'Through' the State It is important to note that the amounts in Table 10.6 represent the total capital and recurrent SPPs to be made to Tasmania. There are two categories of SPPs:

• those involving payments directly to a state government that assist in meeting its expenditure responsibilities. These are referred to as SPPs 'to' the State; and

• those involving payments to a state government for on-passing to other bodies such as Local Government and non-government organisations. These are referred to as SPPs 'through' the State.

It is also important to note that in the years prior to the 2003-04 Budget, this Table only presented estimates of SPPs to be paid into the Consolidated Fund. However, under the new accruals presentation, the Table now also includes SPPs which pass through the Special Deposits and Trust Fund.


Table 10.7 illustrates the destination of Tasmania's SPPs in 2003-04 and 2004-05.

Table 10.7: Classification of Specific Purpose Payments by Destination, 2003-04 and 2004-05

Real Terms 2003-04 2004-05 Change Over Destination Budget Budget 2003-04 $m $m % 'Through' the State (to Local Government) 49.0 51.3 2.3 'Through' the State (to other organisations) 144.2 137.1 (7.1)

Total 'Through' the State 193.2 188.4 (4.7) 'To' the State 339.4 378.0 8.9

TOTAL SPECIFIC PURPOSE PAYMENTS 532.6 566.3 4.0

Sources: Budget Paper No 1 Budget Overview 2003-04; Department of Treasury and Finance estimates.

Total Commonwealth Sourced Revenue The reforms to Commonwealth-State financial relations significantly increased the level of Commonwealth sourced revenue received by the states from 2000-01.

Table 10.8 shows the (nominal) amounts and shares that Tasmania has received in GPPs, SPPs and total Commonwealth sourced revenue over the period 1976-77 to 2004-05. The last column of the table shows the decline in Tasmania's population as a proportion of Australia's population.

Table 10.8 also shows that there has been no increase in Tasmania's share of Commonwealth revenue as a consequence of the reform of Commonwealth-State financial relations under the IGA. For GPPs, levels of funding for 2000-01 and subsequent years cannot be directly compared with earlier years because of the change in funding arrangements under the IGA.


Table 10.8: Commonwealth Sourced Revenue - Tasmania General Tasmania's Specific Tasmania's Total Tasmania's Tasmania's

Purpose Grant Purpose Grant Grants Grant PopulationYear Grants Share Grants Share Share Share

$m % $m % $m % % 1976-77 218.2 5.2 149.4 3.7 367.6 4.5 2.91977-78 247.6 5.1 164.5 3.7 412.1 4.4 2.91978-79 274.2 5.2 156.1 3.5 430.4 4.4 2.91979-80 301.8 5.2 163.0 3.5 464.8 4.3 2.9

1980-81 329.1 4.8 189.6 3.5 518.8 4.2 2.91981-82 357.3 4.1 202.7 4.3 560.0 4.2 2.91982-83 400.1 3.7 244.2 4.1 644.3 4.1 2.81983-84 465.8 3.9 307.7 4.3 773.5 4.3 2.81984-85 512.7 4.0 308.0 3.8 820.6 4.2 2.8

1985-86 532.7 3.9 287.5 3.4 820.1 3.9 2.81986-87 548.7 3.8 302.2 3.4 851.0 3.8 2.81987-88 547.3 3.7 314.8 3.4 862.1 3.6 2.81988-89 516.4 3.8 367.2 3.2 883.7 3.6 2.71989-90 528.8 3.9 483.8 3.9 1 012.6 3.8 2.7

1990-91 549.4 4.1 433.8 3.0 983.3 3.5 2.71991-92 592.0 4.3 496.2 3.3 1 088.2 3.7 2.71992-93 605.8 4.3 537.8 3.1 1 143.6 3.6 2.71993-94 615.7 4.2 498.8 3.0 1 114.6 3.5 2.71994-95 628.8 4.2 497.6 2.8 1 126.4 3.5 2.6

1995-96 661.9 4.2 538.2 2.9 1 200.1 3.5 2.61996-971 662.8 4.2 552.4 2.9 1 215.2 3.5 2.61997-981 677.7 4.2 480.1 3.3 1 157.8 3.7 2.51998-991 726.1 4.3 498.0 3.2 1 224.1 3.6 2.51999-00 796.6 4.5 539.6 3.0 1 336.2 3.8 2.5

2000-01 1 098.4 4.0 522.7 2.7 1 621.1 3.5 2.42001-02 1 218.9 3.9 535.4 2.6 1 754.3 3.4 2.42002-03 1 297.2 4.0 537.4 2.5 1 834.6 3.4 2.42003-04 (estimate)2,3 1 326.6 4.0 532.6 2.4 1 859.2 3.4 2.42004-05 (estimate)2,3 1 395.0 4.0 566.3 2.3 1 961.3 3.3 2.4 Sources: Commonwealth Budget Paper Number 3 (numerous years); Commonwealth Statement of Estimated Payments,

March 2003 Treasurers' Conference; Department of Treasury and Finance; and program specific information. Notes: 1. General Purpose Payments for 1996-97 to 1998-99 are net of State Fiscal Contributions and include Competition

Revenue from 1997-98 onwards. 2. General Purpose Payments include GST revenue, BBA (where applicable) and NCP Payments made to Tasmania. 3. As a result of the changes to Commonwealth-State financial arrangements, Commonwealth General Purpose

Payments to the states from 2000-01 onwards are not directly comparable with previous years. The amount to be received is the same as that which would have been received under the previous Commonwealth-State financial arrangements, after adjustment for the revenue to be foregone and the additional expenditure to be incurred by the states. See discussion under the section 'General Purpose Payments' above.


APPENDIX 1 Why Commonwealth Revenue is Essential The transfer of revenue by the Commonwealth to the states is an essential part of the financial relations that exist between the different levels of government in Australia. These transfers are fundamentally linked to the nature of the Australian Federation and the way in which that Federation has developed over the past 103 years. In particular, they reflect the differing powers and responsibilities provided to the different levels of government and the fundamental desire to achieve a level of equity across the different states. The reasons for the revenue transfers to the states are outlined in further detail in the following sections on Vertical Fiscal Imbalance (VFI) and Horizontal Fiscal Equalisation (HFE).

Vertical Fiscal Imbalance Since Federation, a financial relationship between the Commonwealth and State Governments has evolved in which the dominant characteristic is the fundamental imbalance between the revenue raising powers and functional responsibilities of each level of government. While the seeds of the present vertical fiscal imbalance lie in the original Constitution agreed at Federation, it has since been reinforced by Constitutional amendments and by High Court interpretations of the Constitution.

The term VFI refers to the difference between own source revenue and own purpose expenditure commitments for a level of government. This is illustrated in Chart 10.4, which compares the percentage shares of revenue and expenditure on a consolidated basis for the Commonwealth, State and Local Governments. It shows that, in 2003-04, it is estimated that the Commonwealth raised 73 per cent of total (General Government) revenue, whereas its own purpose (General Government) spending was only 57 per cent of total General Government outlays. In contrast, the states' share of this revenue was only 21 per cent, while combined state General Government outlays represented 37 per cent of the national total. Revenues and expenditures for Local Government are estimated to be broadly in balance.


Chart 10.4: Vertical Fiscal Imbalance as at 2003-04

0

10

20

30

40

50

60

70

80

Commonwealth State Local

Perc

enta

ge o

f Ow

n So

urce

Rev

enue

or O

wn

Purp

ose

Expe

nditu

re

Own Purpose Outlays Own Source Revenue

Source: Government Financial Estimates, Australia 2003-04, Cat. No. 5501.0.55.001 Australian Bureau of Statistics.

As a result of VFI, there is a requirement for significant Commonwealth financial transfers to the states on an ongoing basis. As detailed in this Chapter, Commonwealth financial assistance to the states is provided in a variety of ways. It comprises General Purpose Payments or recurrent untied grants, and tied grants, known as Specific Purpose Payments, for both recurrent and capital purposes.

The reforms to Commonwealth-State financial relations, which commenced under the IGA on 1 July 2000, resulted in a substantial increase in VFI. The states have foregone FAGs, revenue replacement payments and financial institutions duty, and will cease to collect debits tax and a range of stamp duties in return for receiving all the revenues collected under GST, which is a Commonwealth tax. While VFI will be increased, the intention is that these arrangements will actually provide the states with a greater level of certainty in relation to Commonwealth revenue. This is because they will, in principle, sever the link between Commonwealth general revenue grants to the states and the fiscal policy decisions of the Commonwealth.

Horizontal Fiscal Equalisation In addition to the differences that exist between the powers and responsibilities of the Commonwealth and State Governments, another fundamental characteristic of financial relations in the Australian Federation is the degree to which the fiscal capacities of the states differ. This refers to the difference, in per capita terms, between the cost to a state of providing a range of services common to all states and the financial resources available to it, including own source revenues and certain grant monies paid from the Commonwealth (apart from General Purpose Payments). The causes of such horizontal fiscal imbalance are complex and varied (demographic, geographic and economic to name a few). Those causes over which a state has no control are the explicit focus of the HFE process.

In the absence of an arrangement whereby Commonwealth General Purpose Payments and HCGs are distributed in accordance with HFE, those states which face unduly high costs and/or a lesser ability to raise revenues, through no fault of their own, would be required to deprive their communities of the


opportunity to access similar levels and standards of service than those offered elsewhere in Australia. The principle of HFE is therefore an integral element of Commonwealth-State financial transfers.

The HFE framework that is now used takes, as its starting point, the scope of state transactions and functions, including all related recurrent expenditures and revenues, which are considered the normal responsibility of state governments. The actual expenditures and revenues for each state are taken to differ from the experience of all states on average, due to influences beyond the states' control (disabilities) as well as differences in policy, practice and operating efficiency. The Commonwealth Grants Commission makes adjustments to the average expenditure and revenue for individual states to reflect their disabilities relative to the situation faced by other states, but it does not 'compensate' for differences attributable to policy, practice and relative efficiency. In this way the smaller states such as South Australia, Tasmania and the Northern Territory, which on the whole face higher than average per capita costs and lower than average revenue raising abilities, are granted a greater than proportional share of general revenue assistance to enable them to discharge their standard functions without necessarily having to impose above average revenue raising measures on their communities.

The IGA requires the GST revenue to be distributed to the states using the principle of HFE. As the IGA is attached to Commonwealth legislation and to legislation in each of the states, HFE is now effectively given the force of the law. This is a significant benefit to Tasmania, given the importance of the distribution of revenues on an HFE basis for the State.


APPENDIX 2 The Commonwealth Grants Commission Established in 1933, the CGC is an independent Commonwealth Government statutory body charged with the task of making recommendations to the Commonwealth Treasurer, in the form of per capita relativity factors, on how GST revenue and the HCGs 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, which is discussed in the previous section. As a result of this assessment, it is estimated that Tasmania will receive approximately $560.0 million more in 2004-05 than it would have received if GST Revenue Grants and the HCGs were distributed between the states on a per capita basis.

The CGC's assessments 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 revenue raising effort of each state can be measured by comparing the own-source revenue actually raised with its revenue raising capacity, as assessed by the CGC, based on 'standardised' revenue. Standardised revenue reflects the amount of revenue that could be raised by a state if national average tax rates were applied to each jurisdiction's revenue base. This measure includes state taxation, income from interest earnings, property and mining royalties, and contributions to government from public trading enterprises.

A revenue raising effort index has been calculated for each state and is shown for the five years to 2002-03 in Table 10.9. Chart 10.5 shows the revenue raising effort ratio of each state for the 2002-03 financial year, the most recent year for which Commission data are available. In both Table 10.9 and Chart 10.5, the average revenue raising effort of all states is represented by 100.

While the CGC's assessment of Tasmania's revenue raising efforts, in terms of total own-source revenue, has risen from an index of 96.61 in 2001-02 to 101.24 in 2002-03, the gain is primarily the result of an increase in the contributions to state revenue from public trading enterprises.

Table 10.9: Trends in State Revenue Raising Effort Ratios State/Territory 1998-99 1999-00 2000-01 2001-02 2002-03

New South Wales 97.55 101.80 100.13 101.70 100.70Victoria 114.92 100.02 101.95 99.98 100.94Queensland 88.31 96.39 91.07 94.48 90.15Western Australia 94.19 96.58 107.94 103.06 103.62South Australia 110.77 109.57 104.06 104.70 118.03Tasmania 89.93 88.37 99.43 96.61 101.24Australian Capital Territory 87.43 104.78 103.94 94.99 95.43Northern Territory 77.10 86.88 84.42 84.36 89.97 Source: Report on State Revenue Sharing Relativities 2004 Review – Supporting Information, Commonwealth Grants

Commission.


Chart 10.5: State Revenue Raising Effort Ratios, 2002-03

80.00

90.00

100.00

110.00


Ratio

Source: Report on State Revenue Sharing Relativities 2004 Review, Commonwealth Grants Commission.

It should be noted that because the CGC updates the data used to assess revenue raising effort each year, the indices for 1998-99 to 2001-02 in Table 10.9 are not directly comparable with those published last year in Budget Paper No 1 Budget Overview 2003-04. Furthermore, the methodology used has changed as a result of the 2004 Review.

An index has also been calculated that shows the relative level of service provision for each state. This index for the five years to 2002-03 is presented in Table 10.10. The ratio indicates a state's actual outlays as a proportion of the CGC's assessment of standardised expenditure. Standardised expenditure is simply the average expenditure by all states adjusted for each state to reflect its assessed disabilities.

The index incorporates an adjustment to exclude debt servicing payments because such outlays are not always directly related to the provision of services in a reference year. A significant proportion of interest costs are relating to borrowing in previous financial years. The figures are shown graphically in Chart 10.6 for 2002-03, which is the most recent year for which Commission data are available.


Table 10.10: Trends in State Level of Service Provision Ratios State/Territory 1998-99 1999-00 2000-99 2001-02 2002-03

New South Wales 97.84 97.86 95.06 95.47 94.65Victoria 98.91 100.01 101.03 99.55 105.57Queensland 98.40 93.95 98.91 103.28 94.64Western Australia 103.17 104.86 103.17 101.16 108.20South Australia 102.28 109.21 108.68 106.72 106.54Tasmania 97.34 100.22 99.53 101.52 96.88Australian Capital Territory 129.63 121.48 129.12 121.07 121.97Northern Territory 114.59 110.09 106.74 99.20 95.91 Source: Report on General Revenue Grant Relativities 2004 Review, Commonwealth Grants Commission.

Chart 10.6: State Level of Service Provision Ratios, 2002-03

90.00

100.00

110.00

120.00

130.00


Rat

io

It should be noted that, as a result of the methodological changes from the CGC's 2004 Review, the above indices are not comparable with the corresponding Table and Chart published in Budget Paper No 1 Budget Overview 2003-04.

Chapter 11: State Government Concessions 223

11 STATE GOVERNMENT CONCESSIONS

Features

• In 2004-05, it is estimated that Government agencies will provide concessions of $217.2 million, an increase of $17.0 million or 8.5 per cent on concessions of $200.2 million provided in 2003-04.

• The most significant increases relate to:

− the introduction of duty relief on conveyance duty. It is estimated that duty relief on conveyance duty totalling $8.0 million will be provided in 2004-05 to first home buyers;

− Land Tax Concessions. It is estimated that $61.3 million will be provided in 2004-05, an increase of $8.6 million or 16.3 per cent on the 2003-04 Budget estimate of $52.7 million; and

− the Community Service Obligation payment to Metro Tasmania. It is estimated that $21.6 million will be provided in 2004-05, an increase of $700 000 or 3.3 per cent on the 2003-04 Budget estimate of $20.9 million.

• In 2004-05, the Government will be providing additional funding for the following concessions:

− Transport Access Scheme. It is estimated that additional funding of $553 000 will be provided in 2004-05 to meet the increased costs of delivering this concession; and

− Pensioner, Aged and Unemployed Concessions (Private Operators). It is estimated that additional funding of $178 000 in 2004-05 will be provided to ensure the continuation of concessions on core regular passenger services for the aged, blind, widow pensioners and unemployed.

224 Chapter 11: State Government Concessions

INTRODUCTION The Government, through its agencies, provides eligible users of its goods or services with a variety of concessions in the form of discounts, rebates, subsidies, Community Services Obligations (CSOs) and Community Service Activities (CSAs).

State Government concessions are defined as a reduction, discount, rebate/subsidy or waiver/exemption provided by State Government agencies and Government businesses on the value of goods or services to an individual, family or household based on one or more of the following eligibility criteria:

• low income;

• recognition of age or service to the country or community; and

• special needs or disadvantages.

Eligibility for these concessions is varied, and is usually linked to the production of a specified concession card to indicate inclusion in one of the above groups.

The methods used to estimate the value of the concessions are varied and are dependant upon the nature of the concession. The methods include:

• the cost of a direct Budget outlay as a result of the direct payment of a subsidy or rebate to a recipient;

• the value of the revenue forgone, for example concessions or discounts; and

• the cost of the goods and services provided.

CSOs are defined as commercial activities undertaken by a Government Business Enterprise (GBE) that would not ordinarily be undertaken if the GBE were operating in the private sector. In accordance with the Government Business Enterprise Act 1995, a CSO can only be declared where the activity is the result of a Government directive, the activity being undertaken results in a net cost to the GBE, and the activity would not be performed by the GBE if it were free to act commercially.

CSAs are defined as non-commercial activities undertaken by State-owned Companies under contract with the Government. To qualify as a CSA, the activity must meet similar identification criteria and net cost conditions as CSOs.

The State Government Concessions information contained in this Chapter has been provided by the Government agencies responsible for the delivery of the concessions.

It is estimated that in 2004-05, agencies will provide concessions totalling $217.2 million to the Tasmanian community. This is an increase of $17.0 million or 8.5 per cent on the 2003-04 Budget estimate of $200.2 million.

Table 11.1 lists, by agency, the value of State Government concessions to be provided in 2004-05. Details of specific agency concessions are also provided in this Chapter.

Information on State Government concessions can also be found in the Tasmanian Government Concessions booklet that is published each year by the Government.


Table 11.1: Summary of State Government Concessions by Agency, 2004-05

2003-04 2004-05 Department Budget Budget

$'000 $'000 Education 10 508 10 667 Finance-General 76 944 93 019 Health and Human Services 52 823 51 206 Infrastructure, Energy and Resources 52 750 55 059 Primary Industries, Water and Environment 278 253 Tourism, Parks, Heritage and the Arts 33 37 Treasury and Finance 6 836 6 990

TOTAL CONCESSIONS 200 172 217 231

AGENCY CONCESSIONS Department of Education The level of concessions provided by the Department of Education in 2004-05 is expected to be $10.7 million, which is $159 000 or 1.5 per cent above the level of concessions estimated to be provided in 2003-04.

Table 11.2 summarises the concessions to be provided by the Department in 2004-05. A description of each concession follows the Table.

Table 11.2: Concessions provided by the Department of Education 2003-04 2004-05 Budget Budget

$'000 $'000 Accommodation Allowance for Tertiary Students 1 445 1 445 Special Bursaries Scheme 22 92 Spectacles Assistance Scheme 100 130 Student Accommodation Allowance for Senior Secondary Students 446 446 Student Assistance Scheme 5 324 5 224 Student Child Care Subsidy1 23 24 TAFE Tasmania Course Fee Concession1 3 130 3 287 TAFE Tasmania Student Grant1 18 19



Note: 1. This concession has not previously been included within the Department of Education's concessions table. For

comparison purposes, the values of the concession has been included in the 2003-04 Budget estimates.

Accommodation Allowance for Tertiary Students Provides financial support to tertiary students who, because of the distance between their usual home located in Tasmania and the closest tertiary institution offering their chosen course of study, must live away from home to commence or continue their tertiary studies.

Special Bursary Scheme The Special Bursary Scheme is an emergency assistance scheme that provides assistance to students from families who are experiencing poverty and/or particularly needy circumstances and require assistance with the cost of purchasing school uniform items.

Spectacles Assistance Scheme Provides assistance for full time students from low-income families attending a State or non-government school or a registered home education situation, for the purchase of spectacles.

Student Accommodation Allowance for Senior Secondary Students Scheme Provides financial support to senior secondary students who, because of the distance between their usual home located in Tasmania and the closest senior secondary institution offering their chosen course of study, must live away from home to commence or continue their senior secondary studies.

Student Assistance Scheme Provides assistance for full time students from low-income families attending a State or non-government school towards the cost of school levies.

Student Child Care Subsidy Eligible recipients of the Student Child Care Subsidy receive a reimbursement of up to 50 per cent of child care costs (maximum of $1 000 per student per year).

TAFE Tasmania Course Fee Concession The TAFE Tasmania Course Fee Concession provides eligible low-income students enrolling in non-commercial courses with a concession of $1.00 per training hour, capped at $250 per year.

TAFE Tasmania Student Grant Eligible recipients of the Student Grant receive a grant of $60 per year to help offset additional educational expenses while studying full time at TAFE.

Finance-General The level of concessions provided by Finance-General in 2004-05 is expected to be $93.0 million, which is $16.1 million or 20.9 per cent above the level of concessions estimated to be provided in 2003-04.

The increase in the value of concessions provided by Finance-General between 2003-04 and 2004-05 is primarily due to the introduction of duty relief on conveyance duty for first home buyers. Duty relief on


conveyance duty will be available up to a maximum of $4 000 for home buyers who qualify for the First Home Owners Grant Scheme and who are purchasing a property up to the value of $350 000.

As part of the 2005-06 Budget, this concession will be reviewed to assess its effectiveness in assisting first home buyers into the housing market. Duty relief on conveyance duty will initially be available until 30 June 2005.

Table 11.3 summarises the concessions to be provided by Finance-General in 2004-05. A description of each concession follows the Table.

Table 11.3: Concessions provided by Finance-General 2003-04 2004-05 Budget Budget

$'000 $'000 Debits Duty 1 405 1 441 Duty Exemption on the Conveyance to a Relative of Real Property used for Primary

Production 400 400 Duty Exemption on the Registration or Transfer of Registration of a Motor Vehicle 441 441 Duty Relief1 …. 8 000 Duty Loan2 3 000 1 700 Land Tax Pensioner and Charitable Bodies Concession3 2 780 3 004 Land Tax Primary Production Concession3 31 823 36 500 Land Tax Residential Concession3 18 049 21 800 Payroll Tax Assistance 4 985 5 345 Pensioner Rates Remission 14 061 14 388


Notes: 1. The Government will be providing a new concession in 2004-05 to assist first home buyers enter the housing market.

This concession will provide duty relief on conveyance duty of up to a maximum of $4 000 for home buyers who qualify for the First Home Owners Grant Scheme and who are purchasing a property up to the value of $350 000.

2. The decrease in the Duty Loan concession in 2004-05 reflects the estimated effect of the introduction of the duty relief on conveyance duty concession.

3. The value of Land Tax concessions offered by the State Government has increased in 2004-05 primarily as a result of increased land values and an increase in the number of recipients.

Debits Duty An exemption from debits duty applies to a bank account held by an eligible recipient of a pension, benefit or an allowance, where Centrelink or Department of Veterans' Affairs payments are directly credited. To be eligible, a recipient must hold a Pensioner Concession Card or a Health Care Card.

Duty Exemption on the Conveyance to a Relative of Real Property used for Primary Production This exemption applies to the conveyance of real property, used solely or principally in connection with the business of primary production, from a natural person to a relative of that person. A conveyance can also be to a trustee of a trust of which all the beneficiaries are relatives of the person.


The exemption also applies in certain other circumstances involving the conveyance of real property from a company to a trustee of a trust or a natural person, providing certain conditions are met. These are outlined in Schedule 3 of the Duties Act 2001.

Duty Exemption on the Registration or Transfer of Registration of a Motor Vehicle Exemption from duty on an application to register, or transfer registration of, a motor vehicle, is granted to a person who owns a vehicle, which is exempted from Motor Tax under the Vehicle and Traffic Act 1999 or the Transport Act 1981. Eligibility is the same for both exemptions and includes a range of specific criteria applying to both vehicle type and ownership.

The exemption is determined by the Registrar of Motor Vehicles and is only referred to the Revenue, Gaming and Licensing Division of the Department of Treasury and Finance if a claim is retrospective. Some further exemptions are available under the Duties Act 2001.

Duty Relief Duty relief on conveyance duty is a major Budget initiative for the Government in 2004-05. Duty relief on conveyance duty will be available up to a maximum of $4 000 for home buyers who qualify for the First Home Owners Grant Scheme and who are purchasing a property up to the value of $350 000.

As part of the 2005-06 Budget, this concession will be reviewed to assess its effectiveness in assisting first home buyers into the housing market. The relief will initially be available until 30 June 2005.

It is estimated that in 2004-05, $8.0 million will be provided to first home buyers through this new concession.

Duty Loan The Duty Loan concession applies to first home buyers where the value of the property does not exceed $120 000 and the property being purchased is the principal place of residence. The loan is interest-free and repayable over two years, by eight quarterly instalments. With the introduction of duty relief on conveyance duty for first home buyers, it is expected that the value of Duty Loans in 2004-05 will be low.

Land Tax Pensioner and Charitable Bodies Concession Land that is owned by the holder of a Pensioner Concession Card or its equivalent, and war veterans suffering incapacity does not attract land tax.

Land Tax Primary Production Concession Land that is used as primary production land in a business-like manner with a reasonable expectation of profit does not attract land tax. Examples of primary production include agriculture, aquaculture, fishing, horse breeding, forestry plantations or dairy farming. Land tax concessions are assessed on the basis of applications forwarded by individual landowners.

Land Tax Residential Concession An exemption from payment of land tax applies to all owners of land (as at 1 July each year) on which a dwelling, flat or structure used for domestic purposes exists and which is occupied by the owner as the principal place of residence.


Payroll Tax Assistance Specific Industry Assistance A payroll tax rebate is provided to all child care centre employers and for employers who are involved in the Information Technology industry. To receive the information technology rebate the employers must have a significant participation in the Information Technology industry, either in Tasmania or elsewhere and be involved with the development of software or hardware.

Training Payroll tax relief is provided to employers in relation to wages paid to apprentices under the Tasmanian Trainee Apprentice Incentive Scheme (TTAIS). The scheme provides employers of trainees with a rebate equal to the payroll tax paid in respect of those employees. Similar relief is provided to specialised group training schemes in such industries as building and hospitality.

Pensioner Rates Remission Local councils receive reimbursement of the amount of the concession (rates remission) granted on Local Government rates paid by pensioners. The remission allowable to pensioners is 30 per cent of their Local Government rates up to a maximum of $325 per annum (from $318 in 2003-04).

Department of Health and Human Services The level of concessions provided by the Department of Health and Human Services in 2004-05 is expected to be $51.2 million, $1.6 million or 3.0 per cent less than the level of concessions estimated to be provided in 2003-04.

The decrease is primarily the result of a $1.4 million reduction in the Community Service Activity (CSA) provided by Aurora Energy Pty Ltd. The reduction in the CSA reflects the revised estimated cost of providing winter concessions to eligible beneficiaries in 2004-05. It is estimated that the cost of providing the winter concessions in 2003-04 will be $11.3 million, $2.2 million less than the Budget estimate of $13.5 million. A $1.5 million decrease in the value of the Public Rental Subsidy to more accurately reflect the expected level of actual payments has also been reflected in the 2004-05 Budget estimates. These decreases are partially offset by small increases across the remaining concessions.



Table 11.4: Concessions provided by the Department of Health and Human Services

2003-04 2004-05 Budget Budget

$'000 $'000 Adult Dental Services 580 665 Breast Screening Services – Travel Subsidy 85 100 Community Service Activity – Payment to Aurora Energy Pty Ltd1 13 526 12 164 Enteral Feeds and Supplement 222 230 Equipment Lending Scheme 407 407 Funeral Allowance 18 29 Heating Allowance2 450 506 Home Oxygen Therapy 512 695 Medical Aids and Appliances 521 523 Nocturnal Ventilatory Support Therapy 212 302 Patient Travel Assistance Program 1 932 2 546 Pharmaceutical Benefits (Outpatients) 2 950 3 143 Private Rental Assistance 2 130 2 370 Public Rental Subsidy3 27 174 25 652 Spectacle Assistance Scheme 524 524 'Streets Ahead' Sales Initiative2 1 500 1 277 Tasmanian Lymphoedema Garment Scheme 80 73


Notes: 1. The decrease in funding and associated payment for the Aurora Energy Pty Ltd Community Service Activity for

pensioner concessions reflects the revised estimated cost of providing of winter concessions to eligible beneficiaries. 2. This concession has not previously been included within the Department of Health and Human Services concessions

table. For comparison purposes, the value of the concession has been included in the 2003-04 Budget estimate. 3. Public Rental Subsidy is the difference between the market rent of a property and the amount actually paid by the

tenant as an income-based tenant contribution. Whilst the table above shows a budgeted reduction, the 2004-05 subsidy amount is consistent with the actual subsidy incurred for the 2003-04 financial year, which is anticipated to be $25.0 million.

Adult Dental Services This concession covers the provision of subsidised dental services to Pensioner Concession Card Holders and Health Care Card Holders. The main services subsidised are the Denture Scheme and the Southern Emergency Pilot Scheme. The Southern Emergency Pilot Scheme involves public sector clients who require emergency care by private sector dentists.

Breast Screening Services – Travel Subsidy The Breast Screening Services Travel Subsidy is provided to women attending breast screening assessment clinics. The subsidy is available to women requiring assessment of a detected abnormality. Previously, assessment clinics were held in both Launceston and Hobart. The unavailability of radiologists and


concerns over the ability to provide high quality clinical services now requires all assessment clinics to be held in Hobart, resulting in increased applications for the subsidy.

Community Service Activity - Aurora Energy Pty Ltd Under arrangements for the electricity supply industry in Tasmania, an agreement for the provision of concessions to eligible Pensioner and Health Care Card Holders has been established between the Government and Aurora Energy Pty Ltd as a Community Support Activity (CSA). Eligible pensioners are entitled to receive a daily rebate of 48.4 cents per day all year round on the normal retail price of electricity. Eligible Health Care Card Holders receive the same daily rebate for the two winter quarters only. An amount of $12.2 million is expected to be paid to Aurora Energy Pty Ltd to fund the CSA in 2004-05.

Enteral Feeds and Supplements This subsidy is provided under the Statewide Home Nutrition Policy for clients accessing enteral feeds and supplements.

Patients are eligible for assistance under this scheme if they have been assessed as requiring enteral feeds or food supplement products and are not eligible for financial assistance from any other government funded program such as Department of Veterans' Affairs and Nursing Home Subsidy payments, and have not received compensation payments that include provision for future home nutrition.

Equipment Lending Scheme The Equipment Lending Scheme provides specific equipment to assist people to live independently and safely in their own home. The main client groups are the frail, aged and people with disabilities. The maintenance of all equipment is facilitated through the Department.

Funeral Allowance Financial assistance may be provided towards the costs of an 'essential care funeral' where the deceased person is without funds in their estate and where relatives of the deceased do not claim the deceased and/or are unable to assist due to extenuating financial circumstances.

Heating Allowance In accordance with the Heating Allowance Act 1971, eligible pensioners receive a means tested allowance of $56 per annum to assist with heating costs. This allowance is paid in two instalments of $28 during May and September.

Home Oxygen Therapy This concession covers the provision of short-term and long-term oxygen therapy for acute care and chronic home care of lung disease patients who require continuous oxygen therapy. The concession covers oxygen cylinders and concentrators (which are on loan) and disposable accessories and consumables.

Medical Aids and Appliances Under this program, aids such as enteral feeding sets and pumps, specialised garments for burn victims, wigs and other specialised aids are provided to patients to assist with independent living. These devices are often required continuously to avoid institutionalised care and complications for instance, feeding sets for cerebral palsy patients.


Nocturnal Ventilatory Support Therapy This concession covers the provision of continuous positive airway pressure mask accessories and consumables to Health Care Card holders and disadvantaged patients with sleep apnoea syndrome. These patients are unable to maintain adequate oxygenation during sleep and require assistance to avoid severe complications.

Patient Travel Assistance Program Travel expense assistance is provided to Tasmanian patients required to travel outside their region for medical treatment that is not available in the patient's home region. The assistance encompasses expenses relating to patient travel, medical support and close family member travel. Patient treatment may require intrastate and interstate travel.

Pharmaceutical Benefits (Outpatients) This concession covers the provision of pharmaceuticals, excluding highly specialised drugs, to outpatients of Tasmanian hospitals at discounted rates.

Private Rental Assistance – includes Private Rental Support and Rent Subsidy The objective of this program is to maintain, support and provide assistance for people on low incomes to access the private sector rental market. Assistance in the form of bond, cost of removals and rent in advance or arrears is delivered through non-government community organisations in Hobart, Launceston, Devonport and Burnie. In addition to the core funding provided above, a further $1.5 million has been provided under the Affordable Housing Strategy to expand this service over the next two financial years. Accordingly, a further $734 000 will be available in 2004-05, which is expected to provide assistance to an additional 300 clients.

Public Rental Subsidy Rental property services are provided statewide, with the objective of providing adequate, affordable, appropriate and secure rental housing to people on low incomes, particularly those who have difficulty accessing appropriate housing in the private market. The assistance consists of the provision of direct customer services and the effective management of stock to meet client needs. The value of assistance provided is the difference between the market rent of properties and the amount actually paid by tenants as income-based tenant contributions.

Spectacle Assistance Scheme The Spectacle Assistance Scheme operates through an agreement between the State Government and participating Tasmanian optometrists. The State Government funds the Scheme, which currently provides a 75 per cent subsidy for basic frames and lenses and may provide assistance with the purchase of intra-ocular lenses, contact lenses and artificial eyes to eligible permanent residents of Tasmania, who are in receipt of a Commonwealth benefit or pension. Low-income earners not receiving a Commonwealth benefit may also receive assistance, depending on individual circumstance and availability of funding. All eligible clients are permitted one pair of reading and one pair of distance glasses, or one pair of multi-focal glasses every two years. The scheme is demand driven and therefore annual costs can fluctuate.


'Streets Ahead' Sales Initiative The 'Streets Ahead' sales initiative was implemented in July 2000 to provide low-income Tasmanians opportunities to enter home-ownership. Through 'Streets Ahead', clients are offered a range of incentives to purchase Housing Tasmania properties that are surplus to requirements. The primary component of this is a deposit assistance payment, which has recently been increased to a standard $6 000 per transaction in accordance with the Affordable Housing Strategy. Under the Affordable Housing Strategy, sales of 150 dwellings are planned for 2004-05, all of which are expected to be eligible for 'Streets Ahead' incentive payments. Other components include legal costs and transaction fees and charges.

Tasmanian Lymphoedema Garment Scheme The Tasmanian Lymphoedema Garment Scheme aims to ensure equitable access to compression garments for all Tasmanians with lymphoedema who have been assessed by qualified therapists as in need of compression garments in the treatment of their condition. This is achieved through the provision of financial assistance to those with a demonstrated need for assistance.

Department of Infrastructure, Energy and Resources The level of concessions provided by the Department of Infrastructure, Energy and Resources in 2004-05 is expected to be $55.1 million, which is $2.3 million or 4.4 per cent above the level of concessions estimated to be provided in 2003-04.


Table 11.5: Concessions provided by the Department of Infrastructure, Energy and Resources


$'000 $'000 Community Service Obligation - Payment to Metro Tasmania Pty Ltd1 20 877 21 557 Conveyance Allowance 733 733 Driver Licence Concession 772 790 Motor Tax Rebate 895 912 Motor Vehicle Registration Fee Concession 1 280 1 370 Payment to School Bus Operators - Contract Services1 18 832 19 397 Payment to School Bus Operators - Route Services1 6 940 7 148 Pensioner Aged and Unemployed Concessions (Private Operators)2 903 1 081 Pensioner Air Travel Subsidy 8 8 Transport Access Scheme3 1 510 2 063



Notes: 1. The increase in this concession is due to indexation. 2. The increase in the Pensioner Aged and Unemployed Concessions (Private Operators) concession is due to increased

funding of $178 000 being provided to ensure that the subsidy continues to be available on core regular passenger services for the aged, blind, widow pensioners and unemployed.

3. The increase in the Transport Access Scheme concession is due to increased funding of $553 000 being provided in 2004-05 for indexation and to meet increased costs associated with the delivery of this service.

Community Service Obligation - Payment to Metro Tasmania Pty Ltd Funding is provided for the subsidisation of the commercial fares necessary to support the full range of Metro Tasmania Pty Ltd services to pensioners, students and the unemployed.

Conveyance Allowance The Department administers allowances to parents and guardians for the cost of transporting full time students by private car to the nearest appropriate bus stop or school, if the student lives five kilometres or more from their nearest bus stop or school. Allowances are also paid to some Bass Strait Islands residents to send students to further their education on mainland Tasmania or in other states.

Driver Licence Concession Driver licence concessions are available to pensioners and drivers over the age of 65 years. These persons are exempt from a licence fee but are required to pay a small fee to cover the cost of producing the photo licence.

For eligible applicants under the age of 65 years the concession varies depending on the period for which the licence is issued and from 1 July 2004 ranges from $8.00 for a one year licence to $38.80 for a five year licence.

Motor Tax Rebate The 40 per cent motor tax rebate is available to holders of Pensioner Concession Cards who own a commercial vehicle, which is not used for trade or business.

A 100 per cent motor tax rebate is available to persons in receipt of a totally and permanently incapacitated pension or persons or their guardians who are members of the Transport Access Scheme. Certain charitable organisations or benevolent societies may also be eligible for the rebate.

Motor Vehicle Registration Fee Concession The motor vehicle registration fee concession is available to holders of a Pensioner Concession Card, Department of Veterans' Affairs Card or members of the Transport Access Scheme. The concession provides discounts on the registration fee for motor vehicles, trailers, caravans and motor cycles.

Payment to School Bus Operators - Contract Services The Department administers contract payments to school bus operators. Contracts are issued for the conveyance of students to and from school. Contracts are usually issued where there are no other public transport services available and are maintained subject to compliance with criteria such as minimum applicable distances from the closest school and minimum passenger numbers requiring regular transport.


Payment to School Bus Operator - Route Services In accordance with Government policy, provision is made for payments to operators of private route service buses to supplement the fare revenue from students, which is set at levels significantly below the commercial adult fare. Students who hold approved concession passes travel free and this item provides for payment of the student fare plus a government contribution to operators in such instances.

Pensioner, Aged and Unemployed Concessions (Private Operators) Subsidy schemes are in place to enable pensioners, the aged and unemployed persons to obtain concession fares for travel on privately owned buses and the Mersey River Ferry. The Government will be providing additional funding of $178 000 per anum to this concession to ensure that the subsidy continues to be available on core regular passenger services for the aged, blind, widow pensioners and unemployed.

Pensioner Air Travel Subsidy Aged pensioner residents of King or Flinders Islands are entitled to one return trip to Northern Tasmania per financial year.

Transport Access Scheme A range of concessions and benefits are available under the Transport Access Scheme to provide assistance to people who have permanent physical or intellectual disabilities, to enable them to use the range of transport facilities available to the general community. The Government will be providing additional funding to the Transport Access Scheme of $553 000 in 2004-05. The additional funding is required primarily due to an increase in the concession rate for travel in a standard taxi from 35 per cent to 50 per cent and an annual increase in membership of the scheme of 4.2 per cent.

Department of Primary Industries, Water and Environment The level of concessions provided by the Department of Primary Industries, Water and Environment in 2004-05 is expected to be $253 000, which is $25 000 or 9.0 per cent less than the level of concessions estimated to be provided in 2003-04.

Table 11.6 summarises the concessions to be provided the Department in 2004-05.

Table 11.6: Concessions provided by the Department of Primary Industries, Water and Environment


$'000 $'000 Recreational Angling Licence Fee 206 184 Recreational Game Licence Fee 9 9 Recreational Sea Fishing Licence Fee1 53 43 Shack Site Pensioner Rebate 2 10 17

TOTAL CONCESSIONS 278 253


Notes: 1. The estimated decrease in the value of the concession for Recreational Sea Fishing Licences is primarily due to a

reduction in the number of applicants under the age of 16. 2. The Shack Site Pensioner Rebate is expected to increase in 2004-05 due to an increase in base rentals resulting in

more shack site licensees qualifying for pensioner discounts.

The concessions provided by the Department apply to the holders of Pensioner Concession, Health Care and Senior Cards. The Department's concessions are determined on the basis of a 20 per cent discount on the normal full adult rate for game licence fees. For recreational fishing licenses, the discount is $15 off the Recreational Licence Fee. This concession also applies to persons under the age of 16.

The Recreational Angling Licence concession provides a range of concessions for eligible pensioners and Senior Card Holders, and children between the ages of 14 and 17.

Department of Tourism, Parks, Heritage and the Arts The level of concessions provided by the Department of Tourism, Parks, Heritage and the Arts in 2004-05 is expected to be $37 000.

Table 11.7 summarises the concessions to be provided by the Department in 2004-05.

Table 11.7: Concessions provided by the Department of Tourism, Parks, Heritage and the Arts


$'000 $'000 Hastings Caves/Pool Entry Fee 8 8 Mole Creek Caves Entry Fee 8 8 National Park Entry Fee 17 21

TOTAL CONCESSIONS 33 37

The concessions provided by the Department apply to the holders of Pensioner Concession, Health Care and Seniors Cards. The Department's concessions are determined on the basis of a 20 per cent discount from the normal full adult rate for Hastings Reserve entry fees, Mole Creek Caves entry fees and general National Park entry fees.

Department of Treasury and Finance The level of concessions provided by the Department of Treasury and Finance in 2004-05 is expected to be $7.0 million, which is $154 000 or 2.3 per cent above the levels of concessions estimated to be provided in 2003-04.

Table 11.8 summarises the concessions to be provided the Department in 2004-05. A description of each concession follows the Table.


Table 11.8: Concessions provided by the Department of Treasury and Finance


$'000 $'000 Community Service Obligation – Payment to Hydro Tasmania for Bass Strait Islands 6 170 6 170 Community Service Obligation – Payment to The Public Trustee1 666 820


Note: 1. The increase in expenditure for The Public Trustee Community Service Obligation (CSO) is the result of a review of

the cost of providing services and increased activity undertaken by The Public Trustee under the CSO contract.

Community Service Obligation - Bass Strait Islands This payment is provided to Hydro Tasmania for the delivery of the Bass Strait Islands Community Service Obligation (CSO). The Bass Strait Islands CSO provides for the subsidised supply by Hydro Tasmania of electricity to Bass Strait Islands customers and the provision of concessions to pensioner customers on the Bass Strait Islands.

Community Service Obligation - The Public Trustee The Public Trustee provides four categories of CSO to the community, on behalf of the Government:

• administration of Absolute Estates with a gross asset value of less than $60 000;

• administration of Continuing Trust and Life Tenancy Estates with a gross asset value of less than $100 000;

• administration and management of Minor Trusts with a gross asset value of less than $20 000; and

• administration of assets for Represented Persons with a gross asset value of less than $100 000.

The current CSO agreement has been extended for one year to 30 June 2004. A new three year agreement commencing 1 July 2004 is currently being finalised.

Appendix 1: Uniform Government Reporting 239

APPENDIX 1 UNIFORM GOVERNMENT REPORTING

Features

• To satisfy Loan Council requirements, this Chapter brings together information presented elsewhere in the Budget Papers for the General Government Sector, together with Budget information for the Public Non-Financial Corporations (PNFC) Sector and the Total Non-Financial Public Sector.

• Government Finance Statistics data is presented in accordance with accrual concepts, consistent with the accrual Uniform Presentation Framework agreed by the Australian Loan Council in March 2000.

• The budgeted Fiscal Surplus for 2004-05 is $15 million for the General Government Sector, a deficit of $102 million for the PNFC Sector and a deficit of $87 million for the Total Non-Financial Public Sector.

• Between 30 June 2004 and 30 June 2005, General Government Net Debt is forecast to decrease from $315 million to $230 million, Public Non-Financial Corporations Net Debt to increase from $1 620 million to $1 650 million, and Total Non-Financial Public Sector Net Debt to decrease from $1 935 million to $1 880 million.

• Tasmania's budgeted Loan Council Allocation (LCA) for 2004-05 is a surplus of $71 million.

240 Appendix 1: Uniform Government Reporting

INTRODUCTION The financial performance information in this Appendix has been prepared in accordance with the Uniform Presentation Framework (UPF) applying to governments preparing 'early' Budgets using the accrual based Government Finance Statistics (GFS) framework.

This Appendix provides 2002-03 outcomes, 2003-04 revised estimates and 2004-05 Budget estimates for the Operating Statement, Balance Sheet and Cash Flow Statement for the Tasmanian General Government, Public Non-Financial Corporations (PNFC) and Total Non-Financial Public Sectors. For the General Government Sector, Forward Estimates are provided for the period 2005-06 to 2007-08. In accordance with the UPF, information on the actual end of year results will be released in the Treasurer's Annual Report 2003-04. The report will be publicly released by no later than 30 September 2004.

Jurisdictions are not required to report Budget or Forward Estimates for the Public Financial Corporations (PFC) Sector. Consequently, information on the PFC Sector and the Total State Government Sector is not included in this Appendix. Under the terms of the UPF, this information is only reported in the Loan Council Outcomes Report.

GFS data is prepared by all states and territories and the Commonwealth on the basis of common concepts and classifications to facilitate inter-jurisdictional comparisons. Some comparisons with other states and territories are provided later in the Appendix.

The purpose of this Appendix is, therefore, to:

• report on Tasmania's recent financial performance;

• enable a comparison with the recent financial performance of other states and territories;

• present information on Loan Council arrangements and the Loan Council Allocation (LCA), which is primarily based on GFS aggregates; and

• satisfy information requirements under the UPF.


GOVERNMENT FINANCIAL ESTIMATES Tables A1.1 to A1.9 provide details of the Operating Statements, Balance Sheets and Cash Flow Statements for the General Government, Public Non-Financial Corporations and Total Non-Financial Public Sectors respectively. The amounts in the tables are rounded to the nearest million dollars. As a consequence, rounded figures may not add to the totals.

Table A1.1: General Government – Operating Statement 2002-03 2003-04 2004-05) 2005-06) 2006-07) 2007-08) Revised Budget Forward Forward Forward Actual Estimate Estimate Estimate Estimate Estimate

$m $m $m $m $m $m GFS Revenue

Grants and Subsidies 1 850 1 941) 1 961) 2 067) 2 102) 2 184 Taxation Revenue 559 613) 607) 594) 608) 620)Sales of Goods and Services 264 254) 258) 261) 262) 259)Interest Income 24 29) 31) 23) 30) 36)Dividend and Income Tax Equivalent

Income 173 154) 155) 156) 152) 164)Other Revenue 136 125) 79) 78) 79) 75)

Total 3 006 3 115) 3 090) 3 181) 3 234) 3 339) Less GFS Expenses

Depreciation 159 163) 163) 164) 164) 161)Employee Expenses 1 225 1 306) 1 410) 1 473) 1 534) 1 5884Other Operating Expenses 739 735) 713) 728) 759) 775)Nominal Superannuation Interest Expense 101 118) 121) 125) 129) 133)Other Interest Expense 79 72) 57) 38) 37) 34)Grants and Transfers 491 621) 672) 631) 611) 564)

Total 2 794 3 015) 3 136) 3 159) 3 235) 3 255)

Equals NET OPERATING BALANCE 212 100) (45) 22) (1)) 84)

Less Net Acquisition of Non-financial Assets

Purchase of New Non-financial Assets 184 159) 144) 151) 133) 134)less Sale of Non-financial Assets 63 57) 42) 42) 43) 44)less Depreciation 159 163) 163) 164) 164) 161)

Total (38) (61) (61) (55) (74) (71)

Equals FISCAL BALANCE 250 161) 15) 77) 72) 155)


Note: 1. The 2003-04 Revised Estimate is based on restructured data to provide a valid comparison with the Forward

Estimates.

Table A1.2: General Government – Balance Sheet as at 30 June 2003 2004 2005 2006) 2007) 2008) Revised) Budget) Forward) Forward) Forward) Actual Estimate) Estimate) Estimate) Estimate) Estimate)

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

Cash and Deposits 441 479) 373) 222) 353) 479)Advances Paid 135 85) 81) 80) 80) 80)Investments, Loans and Placements 1 39) 30) 20) 10) 10)Other Non-equity Assets 309 357) 343) 331) 320) 315)Equity 4 014 4 126) 4 260) 4 544) 4 577) 4 615)

Total 4 900 5 087) 5 087) 5 197) 5 340) 5 498) Non-financial Assets

Land and Fixed Assets 5 902 5 875) 5 873) 5 854) 5 817) 5 775)Other Non-financial Assets ....) 13) 16) 15) 15) 15)

Total 5 902 5 888) 5 889) 5 870) 5 832) 5 790)

Total Assets 10 802 10 975) 10 975) 11 067) 11 172) 11 288) Liabilities

Advances Received 315 273) 261) 248) 242) 236)Borrowings 748 645) 453) 191) 188) 144)Unfunded Superannuation Liability 2 008 2 063) 2 133) 2 201) 2 259) 2 307)Other Employee Provisions 332 313) 321) 338) 355) 376)Other Non-equity Liabilities 177 219) 210) 208) 215) 215)

Total Liabilities 3 580 3 513) 3 377) 3 186) 3 259) 3 278) NET WORTH1 7 222 7 462) 7 598) 7 881) 7 913) 8 009) NET FINANCIAL WORTH2 1 320 1 573) 1 710) 2 012) 2 081) 2 220) NET FINANCIAL LIABILITIES3 2 494 2 377) 2 362) 2 312) 2 246) 2 119) NET DEBT4 486 315) 230) 117) (13)) (188)) Notes: 1. Net Worth equals Total Assets less Total Liabilities. 2. Net Financial Worth equals Total Financial Assets minus Total Liabilities. 3. Net Financial Liabilities equals Net Debt plus Gross unfunded superannuation liabilities. 4. Net Debt equals the sum of Deposits Held, Advances Received and Borrowings less the sum of Cash and Deposits,



Table A1.3: General Government – Cash Flow Statement 2002-03 2003-04 2004-05) 2005-06) 2006-07) 2007-08 Revised Budget Forward Forward Forward Actual Estimate Estimate Estimate Estimate Estimate

$m $m $m $m $m $m Cash Receipts from Operating Activities

Taxes Received 558 613) 607) 594) 608) 620)Receipts from Sales of Goods and Services 229 253) 257) 261) 262) 259)Grants and Subsidies Received 1 863 1 941) 1 961) 2 066) 2 102) 2 184)Dividend and Income Tax Equivalent Income .... 154) 155) 156) 152) 164)Interest Received 22 29) 31) 23) 30) 36)Other Receipts 483 224) 203) 206) 206) 192)

Total 3 155 3 214) 3 214) 3 307) 3 360) 3 455) Cash Payments for Operating Activities

Payments for Goods and Services (2 034) (2 047) (2 165) (2 247) (2 351) (2 441)Grants and Subsidies paid (506) (620) (669) (627) (608) (561)Interest paid (79) (75) (58) (48) (38) (34)Other Payments (109) (146) (124) (126) (127) (131)

Total (2 728) (2 888) (3 016) (3 048) (3 124) (3 167) Net Cash Flows from Operating Activities 427 326) 198) 259) 236) 288) Net Cash Flows from Investments in

Non-financial Assets Sale of Non-financial Assets 63 57) 42) 42) 43) 44)Purchases of Non-financial Assets (184) (159) (144) (151) (133) (134)

Total (121) (102) (103) (108) (90) (90) Net Cash Flows from Investments in Financial

Assets for Policy Purposes (20) 25) 5) 1) 1) 1)Net Cash Flows from Investments in Financial

Assets for Liquidity Purposes ....) (6)) 10) 10) 10) ….) Net Cash Flows from Financing Activities

Advances Received (net) (11) (42) (13) (13) (6) (6)Borrowing (net) (813) (116) (191) (260) (3) (43)Deposits Received (net) ....) (2) (2) (2) (2) (2)Other Financing (net) ....) (45) (10) (37) (15) (22)

Total (824) (205) (216) (312) (26) (73) Net Increase/(Decrease) in Cash Held (538) 38) (106) (151) 131 126)

SURPLUS/(DEFICIT)1 306 224) 96) 151) 146) 198)


Note: 1. Cash Surplus/(Deficit) is equal to Net cash flows from operating activities plus Net cash flows from investments in

non-financial assets.

Table A1.4: Public Non-Financial Corporations Sector – Operating Statement

2002-03 2003-04 2004-05

Actual Revised

Estimate Budget

Estimate

$m $m $mGFS Revenue

Grants and Subsidies 52 50 49 Sales of Goods and Services 1 051 1 109 1 168 Interest Income 6 4 4 Other .... 15 18

Total 1 109 1 178 1 239 less GFS Expenses

Depreciation 185 204 215 Employee Expenses 243 281 285 Other Operating Expenses 388 406 440 Other Interest Expense 135 140 148 Dividend and Income Tax Equivalent Expenses 173 153 155

Total 1 124 1 185 1 244

equals NET OPERATING BALANCE (15) (7) (5)

less

Net Acquisition of Non-financial Assets Purchases of Non-financial Assets 342 338 334 less Sale of Non-financial Assets 75 11 22 less Depreciation 185 204 215 plus Other Transactions in Non-financial Assets (1) .... ....

Total 81 123 97

equals FISCAL BALANCE (96) (129) (102)


Table A1.5: Public Non-Financial Corporations Sector – Balance Sheet as at 30 June

2003 2004 2005

Actual Revised

Estimate Budget

Estimate

$m $m $m Assets Financial Assets

Cash and Deposits 136 152 178 Investments, Loans and Placements 39 45 8 Other Non-equity Assets 272 313 322 Equity 12 …. ….

Total 459 510 508 Non-financial Assets

Land and Fixed Assets 6 095 6 353 6 513 Other Non-financial Assets 16 29 39

Total 6 111 6 382 6 552

Total Assets 6 570 6 892 7 062 Liabilities

Advances Received 16 35 35 Borrowings 1 717 1 782 1 801 Unfunded Superannuation Liability 311 320 329 Other Employee Entitlements 59 78 76 Other Provisions 2 …. …. Other Non-equity Liabilities 547 557 564

Total liabIlities 2 652 2 773 2 807 Shares and Other Contributed Capital 3 918 4 119 4 253 NET WORTH1 .... …. …. NET FINANCIAL WORTH2 (6 111) (6 382) (6 552) NET FINANCIAL LIABILITIES3 1 869 1 940 1 979 NET DEBT4 1 558 1 620 1 650 Notes: 1. Net Worth equals Total Assets less Total Liabilities (including Shares and Other Contributed Capital). 2. Net Financial Worth equals Total Financial Assets minus Total Liabilities and Shares and Other Contributed Capital. 3. Net Financial Liabilities equals Net Debt plus Gross Unfunded Superannuation Liabilities. 4. Net Debt equals the sum of Deposits Held, Advances Received and Borrowings less the sum of Cash and Deposits,



Table A1.6: Public Non-Financial Corporations Sector – Cash Flow Statement

2002-03 2003-04 2004-05

Actual Revised

Estimate Budget

Estimate

$m $m $m Cash Receipts from Operating Activities

Taxes Received Receipts from Sales of Goods and Services 1 056 1 121 1 186 Grants and Subsidies Received 45 27 26 Interest Received 4 3 2 Other Receipts 97 103 102

Total 1 202 1 254 1 316 Cash Payments for Operating Activities

Payments for Goods and Services (598) (695) (728)Grants and Subsidies Paid .... ….) ….)Interest Paid (118) (112) (113)Other Payments (91) (126) (149)

Total (807) (934) (990)

Net Cash Flows from Operating Activities 395 321 325 Net Cash Flows from Investments in Non-financial Assets

Sales of Non-financial Assets 75 (11) 21 Purchases of Non-financial Assets (255) (338) (334)

Total (180) (349) (313) Net Cash Flows from Investments in Financial Assets for Policy Purposes .... .... .... Net Cash Flows from Investments in Financial Assets for Liquidity Purposes (11) 41 41 Net Cash Flows from Financing Activities Advances Received (15) 62 50 Distributions Paid (145) (67) (53)Borrowing (net) (101) (59) (66)Deposits Received (net) .... …. .... Other Financing (net) 41 …. ….

Total (220) (64) (69)

Net Increase/(Decrease) in Cash Held (16) (50) (15)

CASH SURPLUS /(DEFICIT)1 70 (95) (40)


non-financial assets plus Distributions paid (Income tax equivalents and Dividends).


Table A1.7: Total Non-Financial Public Sector – Operating Statement 2002-03 2003-04 2004-05)

Actual Revised

Estimate Budget)

Estimate)

$m $m $m GFS Revenue

Taxation Revenue 543 602 595 Grants and Subsidies 1 858 1 943 1 964 Sales of Goods and Services 1 272 1 363 1 427)Interest Income 26 26 28)Other 136 140 96)

Total 3 835 4 074 4 110) less GFS Expenses

Depreciation 344 367 378)Employee Expenses 1 468 1 576 1 684)Other Operating Expenses 1 076 1 142 1 153)Nominal Superannuation Interest Expenses 101 118 121)Other Interest Expenses 204 205 199)Grants and Transfers 442 573 625)

Total 3 635 3 981 4 160)

equals NET OPERATING BALANCE 200 93 (50)

less Net Acquisition of Non-financial Assets

Purchases of Non-financial Assets 526 497 478)less Sale of Non-financial Assets 138 68 63)less Depreciation 344 367 378)plus Change in Inventories .... .... .... plus Other transactions in Non-financial Assets .... .... ....

Total 44 62) 37)

equals FISCAL BALANCE 156 31 (87)


Table A1.8: Total Non-Financial Public Sector – Balance Sheet as at 30 June

2003 2004) 2005)

Actual Revised

Estimate Budget

Estimate

$m $m $m Assets Financial Assets

Cash and Deposits 575 631) 551 Advances Paid 117 85) 81 Investments, Loans and Placements 40 84) 38 Other Non-equity Assets 349 559) 552 Equity 109 .... ....

Total 1 190 1 359) 1 222 Non-financial Assets

Land and Fixed Assets 11 997 12 228) 12 387 Other Non-financial Assets 6 27) 40

Total 12 003 12 255) 12 427

Total Assets 13 193 13 615) 13 649 Liabilities

Deposits Held .... .... .... Advances Received 315 308 296 Borrowings 2 465 2 427 2 255 Unfunded Superannuation Liability 2 319 2 334 2 462 Other Employee Entitlements 394 401 399 Other Provisions 2 .... .... Other Non-equity Liabilities 476 776 646

Total Liabilities 5 971 6 247 6 057 Shares and Other Contributed Capital .... .... .... NET WORTH1 7 222 7 368 7 591 NET FINANCIAL WORTH2 (4 781) (4 888) (4 834) NET FINANCIAL LIABILITIES3 4 367 4 268) 4 342) NET DEBT4 2 048 1 935 1 880 Notes: 1. Net Worth equals Total Assets less Total Liabilities (including Shares and Other Contributed Capital). 2. Net Financial Worth equals Total Financial Assets minus Total Liabilities and Shares and Other Contributed Capital.


3. Net Financial Liabilities equals Net Debt plus Gross Unfunded Superannuation Liabilities. 4. Net Debt equals the sum of Deposits Held, Advances Received and Borrowings less the sum of Cash and Deposits,


Table A1.9: Total Non-Financial Public Sector – Cash Flow Statement 2002-03 2003-04 2004-05

Actual Revised

Estimate Budget

Estimate

$m $m $m Cash Receipts from Operating Activities

Taxes Received 542 602 595 Receipts from Sales of Goods and Services 1 245 1 374 1 443 Grants and Subsidies Received 1 864 1 920 1 940 Interest Received 23 26 28 Other Receipts 430 328 304

Total 4 104 4 250 4 310 Cash Payments for Operating Activities

Payments for Goods and Services (2 581) (2 731) (2 881)Grants and Subsidies Paid (461) (412) (467)Interest Paid (187) (187) (166)Other Payments (199) (273) (272)

Total (3 428) (3 603) (3 786)

Net Cash Flows from Operating Activities 676 647 523 Net Cash Flows from Investments in Non-financial Assets

Sales of Non-financial Assets 138 46 63 Purchases of Non-financial Assets (439) (497) (478)

Total (301) (451) (415) Net Cash Flows from Investments in Financial Assets for Policy Purposes (11) 25) 5 Net Cash Flows from Investments in Financial Assets for Liquidity

Purposes (11) 35 51 Net Cash Flows from Financing actiVities

Advances Received (11) (47) (16)Borrowing (net) (914) (175) (257)Deposits Received (net) .... (2) (2)Other Financing (net) 13 (45) (10)

Total (912) (269) (285)

Net Increase/(Decrease) in Cash Held (559) (12) (120)

SURPLUS /(DEFICIT)1 375 196 109




non-financial assets.

Table A1.10: General Government Expenses by Purpose 2002-03 2003-04 2004-05

Actual Revised

Estimate Budget

Estimate

$m $m $m General Public Services 185 170 219 Public Order and Safety 256 252 254 Education 717 801 841 Health 650 784 808 Social Security and Welfare 122 90 97 Housing and Community Amenities 165 154 160 Recreation and Culture 68 96 96 Fuel and Energy 9 1 1 Agriculture, Forestry, Fishing and Hunting 60 74 67 Mining and Mineral Resources other than Fuels, Manufacturing

and Construction 14 6 6 Transport and Communications 118 283 287 Other Economic Affairs 187 120 127 Nominal Interest on Superannuation 101 118 121 Other purposes 143 66 52

TOTAL EXPENSES 2 794 3 015 3 136


Table A1.11: General Government Taxes 2002-03 2003-04

Revised 2004-05 Budget

Actual Estimate Estimate

$m $m $m Employers' Payroll Taxes 155 167 174 Taxes on Property

Land Tax 25 27 34 Property Owners Contributions to Fire Brigade 20 32 35 Taxes on Financial and Capital Transactions 142 154 134

Total Taxes on Property 187 213 203 Taxes on the Provision of Goods and Services Levies on Statutory Corporations .... 6 7 Taxes on Gambling

Taxes on Private Lotteries 21 22 23 Casino Taxes 50 56 53 Race Betting Taxes 1 …. ….

Total Taxes on Gambling 72 78 76 Taxes on Insurance

Insurance Companies' Contributions to Fire Brigades 15 3 4 Third Party Insurance Taxes .... .... .... Other Taxes on Insurance 29 34 35

Total Taxes on Insurance 44 37 39

Total Taxes on the Provision of Goods and Services 116 115 115 Taxes on use of goods and performance of activities Motor Vehicle Taxes

Vehicle Registration Fees and Taxes 64 71 72 Stamp Duties on Vehicle Registration 35 38 35

Total Motor Vehicle Taxes 99 109 107

Total Taxes on Use of Goods and Performance 99 224 222

TOTAL TAXES 559 613 607


LOAN COUNCIL Loan Council Arrangements Loan Council arrangements provide for each state and territory to nominate a Loan Council Allocation (LCA) based on the estimated combined underlying General Government and Public Non-Financial Corporations (PNFC) deficit/(surplus), plus certain memorandum items. Memorandum items are other financing transactions which, for Loan Council purposes, are treated as analogous to borrowings. This measure of the level of financing, therefore, focuses on the call of the public sector on national savings.

The Loan Council considers the appropriateness of LCA nominations from the perspective of consistency of the aggregate LCA with national macro economic policy, each jurisdiction's current budgetary position and the expected medium-term outlook in cases where a state or territory's fiscal position is of concern.

The Loan Council arrangements, which were introduced in 1993-94 and published in a 1993 report entitled Future Arrangements for Loan Council Monitoring and Reporting, use the Government Financial Estimates (GFE) deficit or surplus as the primary element of the LCA. Since that time, revised Loan Council reporting arrangements have been introduced and published in a March 1997 report entitled Uniform Presentation Framework. These arrangements are designed to reduce the complexity and duplication involved in Loan Council reporting by facilitating a framework that will integrate the Loan Council reporting arrangements into the Uniform Presentation Agreement first reached at the May 1991 Premiers' Conference.

Loan Council Allocations The LCAs nominated for 2004-05 are listed in Table A1.12. At its meeting of 26 March 2004, the Loan Council considered that the aggregate of 2004-05 LCA nominations was consistent with current macro-economic policy objectives and endorsed each jurisdiction's nomination without change.

Table A1.12: Approved LCAs for 2004-05 NSW Vic Qld SA WA Tas NT ACT C/W

$m $m $m $m $m $m $m $m $m Nominated LCA 927 (13) 435 (481) 628 (160) 2 (64) (3 749) Note: 1. The LCA is a deficit concept. A negative LCA represents a surplus.

The Tasmanian nomination was compiled from forward estimates of the General Government Sector deficit/(surplus), information provided by the PNFC Sector and an assessment of the magnitude of the borrowing programs of local government councils and the University of Tasmania.

After combining the underlying surplus and net advances paid for the PNFC Sector with the memorandum items for Local Government and University borrowing, the result was a surplus LCA nomination for Tasmania of $160 million for 2004-05. This compares with the surplus LCA nomination in 2003-04 of $128 million.


A tolerance band calculated as two per cent of Total Non-Financial Public Sector revenue applies between the budgeted LCA and the LCA outcome. The tolerance limit applicable to Tasmania's nominated LCA for 2004-05 is $83 million.

Table A1.13 compares the LCA approved by the Loan Council in March 2004 with the budgeted LCA for 2004-05. The tolerance limit also applies between the LCA approved by the Loan Council and the budgeted LCA.

Table A1.13 shows that Tasmania's budgeted LCA for 2004-05 of $71 million is inside the tolerance limit.

Table A1.13: Comparison of Budgeted Loan Council Allocation and the LCA Approved Nomination for 2004-05

2004-05 2004-05 Loan Council Budget Allocation Estimate

$m $m General Government underlying Deficit/(Surplus) (75) (96)Public Non-Financial Corporations (PNFC) underlying Deficit/(Surplus) (75) 40)

Non-Financial Public Sector underlying Deficit/(Surplus) (150) (56)

Non-Financial Public Sector Net Advances Paid (30) (35) Memo Items

University …. …. Local Government 20 20 Other .... ....

TOTAL LCA (160) (71)

Consolidation of Transactions GFS presents a consolidated view of the financial transactions of the General Government and PNFC Sectors. The Total Non-Financial Public Sector is the consolidated total of the General Government and PNFC Sectors. This enables the overall impact of State Government non-financial activity and its two component sectors of the Tasmanian economy to be illustrated.

To compile statistics about the financial activities of the whole State Government sector, or its components, the receipts and payments for certain types of transactions between units within the chosen grouping have to be matched and eliminated to avoid double counting. This process is known as consolidation.

For instance, in the case of GFEs, transactions between the Department of Treasury and Finance and the Department of Primary Industries, Water and Environment are netted out as both agencies are classified as General Government. Transactions between the Department of Treasury and Finance and Hydro Tasmania are not netted out in the General Government and PNFC tables as the former agency is classified as General Government while the latter is a PNFC. However, such transactions are netted out for the purposes of the


Total Non-Financial Public Sector table. The following table outlines the entities classified according to the GFS concept.

Table A1.14: Classification of Public Sector Entities Administrative InstitutionalName Sector Sector

Economic Development Budget General GovernmentEducation Budget General GovernmentHealth and Human Services including Housing Division Budget General GovernmentHouse of Assembly Budget General GovernmentInfrastructure, Energy and Resources Budget General GovernmentJustice Budget General GovernmentLegislative Council Budget General GovernmentLegislature-General Budget General GovernmentOffice of the Governor Budget General GovernmentPolice and Public Safety Budget General GovernmentPremier and Cabinet Budget General GovernmentPrimary Industries, Water and Environment Budget General GovernmentTasmanian Audit Office Budget General GovernmentTourism, Parks, Heritage and the Arts Budget General GovernmentTreasury and Finance Budget General GovernmentInland Fisheries Service Budget General GovernmentMarine and Safety Tasmania Budget General GovernmentRoyal Tasmanian Botanical Gardens Budget General GovernmentState Fire Service Budget General GovernmentThe Nominal Insurer Budget General GovernmentTasmanian Public Finance Corporation Non-Budget PFCMotor Accidents Insurance Board Non-Budget PFCBurnie Port Corporation Pty Ltd Non-Budget PNFCEgg Marketing Board Non-Budget PNFCHydro Tasmania Non-Budget PNFCAurora Energy Pty Ltd Non-Budget PNFCTransend Networks Pty Ltd Non-Budget PNFCForestry Tasmania Non-Budget PNFCHobart Ports Corporation Pty Ltd Non-Budget PNFCKing Island Ports Corporation Non-Budget PNFCMetro Tasmania Pty Ltd Non-Budget PNFCPort Arthur Historic Site Management Authority Non-Budget PNFCPort of Devonport Corporation Pty Ltd Non-Budget PNFCPort of Launceston Pty Ltd Non-Budget PNFCPrinting Authority of Tasmania Non-Budget PNFCPrivate Forests Tasmania Non-Budget PNFCRivers and Water Supply Commission Non-Budget PNFC


Table A1.14: Classification of Public Sector Entities (continued) Administrative Institutional

Name Sector Sector

Southern Regional Cemetery Trust Non-Budget PNFCTasmanian International Velodrome Management Authority Non-Budget PNFCThe Public Trustee Non-Budget PNFCTOTE Tasmania Pty Ltd Non-Budget PNFCTT-Line Company Pty Ltd Non-Budget PNFC

Appendix 2: Consolidated Fund Estimates 257

APPENDIX 2 CONSOLIDATED FUND ESTIMATES

Features

• Information in this Appendix is provided on a cash basis, representing cash receipts and cash payments into, and from, the Consolidated Fund.

• In 2003-04, it is estimated that the Consolidated Fund Surplus (CFS) will be $33.7 million. This compares to the budgeted CFS of $4.7 million for 2003-04.

• Total receipts are estimated to be $2 742.9 million in 2003-04, an increase of $162.4 million or 6.3 per cent on 2003-04 budgeted receipts of $2 580.5 million.

• Expenditure in 2003-04 is estimated to be $2 709.7 million, an increase of $133.4 million or 5.2 per cent on 2003-04 budgeted expenditure of $2 576.3 million.

• In 2004-05, it is estimated that the CFS will be $39.4 million.

• Total Consolidated Fund receipts are estimated to be $2 749.8 million in 2004-05, an increase of $169.3 million or 6.6 per cent on 2003-04 budgeted receipts of $2 580.5 million.

• Consolidated Fund expenditure in 2004-05 is estimated to be $2 710.5 million, an increase of $134.2 million or 5.2 per cent over the 2003-04 budgeted expenditure of $2 576.3 million.

• Consolidated Fund Surplus projections for 2005-06 to 2007-08 on a same policy basis are:

− 2005-06: $32.9 million surplus;

− 2006-07: $43.4 million surplus; and

− 2007-08: $54.0 million surplus.

258 Appendix 2: Consolidated Fund Estimates

INTRODUCTION This Appendix provides information on the 2003-04 Consolidated Fund Estimated Outcome, the 2004-05 Consolidated Fund Budget Estimates and the Consolidated Fund Forward Estimates for the years 2005-06 to 2007-08. The information in this Appendix has been prepared on a cash basis, representing cash receipts and cash payments into, and from, the Consolidated Fund.

The 2003-04 Consolidated Fund Estimated Outcome has been determined from agency assessments of their indicative additional funding requirements or potential savings, based on the latest available information prior to the finalisation of the 2004-05 Budget Papers. Estimates are determined using information from a number of sources including the latest advice from the Commonwealth, Government Business Enterprises, State-owned Companies and agencies.

Detailed information on the final Consolidated Fund Outcome for 2003-04 will be published in:

• the Preliminary Outcomes Report, which will be published by 15 August 2004;

• the Treasurer's Annual Financial Report, which will be tabled in Parliament on 31 October 2004; and

• Agency Annual Reports, which will be tabled in Parliament by 31 October 2004.


ESTIMATED OUTCOME, 2003-04 Estimated Consolidated Fund Surplus The Consolidated Fund Surplus (CFS) is the excess of Consolidated Fund receipts over the expenditure of these funds (net of loan repayments). A CFS represents funds that are available for the retirement of debt.

Table A2.1 provides details of the estimated CFS outcome for 2003-04 and expected variances from the 2003-04 Budget estimates by major receipt and expenditure categories. The budgeted CFS was $4.7 million. The estimated CFS outcome for 2003-04 is $33.7 million.

Table A2.1: Estimated Consolidated Fund Surplus, 2003-04

2003-04)Budget)


$'000) $'000) %)Receipts


Total Receipts 2 580 527) 2 742 879) 6.3)Less Expenditure

Recurrent Expenditure1 2 425 731) 2 492 028) 2.7)Capital Expenditure 150 562) 217 632) 44.5)

Total Expenditure2 2 576 293) 2 709 660) 5.2)

Gross Consolidated Fund Surplus/(Deficit) 4 234) 33 219) 684.6)

Add Loan Repayments 436) 436) ....)

Consolidated Fund Surplus 4 670) 33 655) 620.7)

Notes: 1. Recurrent Expenditure in the 2003-04 Budget and the 2003-04 Estimated Outcome includes a contribution of

$436 000 payable to the Debt Retirement Reserve Trust Account. This figure (Loan Repayments) is then added back to show the Consolidated Fund Surplus.

2. Estimated Outcome Total Expenditure in 2003-04 includes a contribution to the Economic and Social Infrastructure Fund of $128.5 million, of which $51.5 million has been allocated to Recurrent Services expenditure and $77.0 million to Works and Services expenditure.


Estimated Receipts, 2003-04 Total Consolidated Fund receipts for 2003-04 are estimated to be $2 742.9 million, which is $162.4 million or 6.3 per cent above the Budget estimate of $2 580.5 million. Table A2.2 provides information on estimated variances from the Budget estimate by major receipt category.

Table A2.2: Consolidated Fund - Estimated Receipts, 2003-04

2003-04)Budget)


$'000) $'000) %)Recurrent Receipts

Commonwealth Sources General Purpose Payments1 1 326 600) 1 384 062) 4.3)Specific Purpose Payments2 363 239) 378 616) 4.2)

Total Commonwealth Sources 1 689 839) 1 762 678) 4.3)State Sources

Taxation3 542 094) 625 245) 15.3)Receipts from Government Business Enterprises, State-owned

Companies and State Authorities4 144 438) 159 811) 10.6)Departmental Fees and Recoveries 79 257) 78 100) (1.5)Recoveries of State Debt Charges 2 982) 2 401) (19.5)Sale and Rent of Government Property 11 603) 11 603) ....)Resource Rents and Royalties5 10 907) 9 907) (9.2)Other Recurrent Receipts6 43 872) 52 794) 20.3)

Total State Sources 835 153) 939 861) 12.5)

Total Recurrent Receipts 2 524 992) 2 702 539) 7.0)

Capital Receipts

Commonwealth Sources7 26 615) 29 195) 9.7)State Sources8 28 920) 11 145) (61.5)

Total Capital Receipts 55 535) 40 340) (27.4)

TOTAL RECEIPTS 2 580 527) 2 742 879) 6.3)

Notes: 1. The increase in General Purpose Payments of $57.5 million reflects above Budget GST Revenue of $67.2 million

largely due to growth in the total GST revenue pool, but also including a population growth effect for Tasmania that is greater than budgeted. This is partly offset by a decrease in GST Budget Balancing Assistance of $9.3 million.

2. The increase in Specific Purpose Payments of $15.4 million is primarily due to additional receipts for the Technical and Further Education Grant, the Primary and Secondary Education Grant, High Cost Drugs and the Health Care Grant.

3. The increase in Taxation receipts primarily reflects additional Duties receipts of $64.2 million, Payroll Tax receipts of $8.2 million, Motor Tax receipts of $3.0 million, Casino, Tax and Licence Fees of $5.7 million and Land Tax receipts of $1.8 million.

4. The increase in Receipts from Government Business Enterprises, State-owned Companies and State Authorities primarily reflects an increase in Dividends from Aurora ($3.6 million) and Hydro Tasmania ($3.2 million) and an increase in Income Tax Equivalents from Forestry Tasmania ($3.2 million) and Aurora ($6.4 million). These increases


in Dividends are party offset by a decrease in Dividends from Forestry Tasmania of $4.5 million due to the underestimation of tax expenses at the time of the 2003-04 Budget.

5. The decrease in Resource Rents and Royalties reflects a reduction in Mineral Royalties receipts of $1.0 million. 6. The increase in Other Recurrent Receipts primarily reflects additional interest on investments of $9.0 million due to a

revision of interest rate forecasts and the availability of more recent cash flow forecast data, providing more up to date estimates of the balance of surplus funds available for investment.

7. The increase in Capital Receipts from Commonwealth Sources primarily reflects additional funding for Primary and Secondary Education.

8. In 2003-04, it was anticipated that net proceeds of $28.5 million would be realised from the sale of Civil Construction Corporation, the Tasmanian Grain Elevators Board, the Stanley Cool Stores Board and non-core assets of the Hobart Ports Corporation Pty Ltd (HPC). In 2003-04, estimated net proceeds of $10.7 million will be realised from the sale of the three Government businesses, with further proceeds of up to $25.0 million expected to be realised in 2004-05 from the sale of assets of the HPC. The proceeds are to be transferred to the Economic and Social Infrastructure Fund.


Estimated Expenditure, 2003-04 Total Consolidated Fund expenditure in 2003-04 is estimated to be $2 709.7 million, which is $133.4 million, or 5.2 per cent above the Budget estimate of $2 576.3 million.

Table A2.3 provides information on expected variances from original Budget estimates on a major category basis.

Table A2.3: Consolidated Fund - Estimated Total Expenditure, 2003-04

2003-04)Budget)


$'000) $'000) %)Recurrent Services

Appropriation Act1 2 243 541) 2 320 796) 3.4)

Reserved by Law2 162 190) 171 232) 5.6)Treasurer's Reserve3 20 000) ....) (100.0)

2 425 731) 2 492 028) 2.7)Works and Services

Capital Investment Program 123 707) 113 777) (8.0)Economic and Social Infrastructure Fund4 26 855) 103 855) 286.7)

150 562) 217 632) 44.5)

TOTAL 2 576 293) 2 709 660) 5.2)

Notes: 1. The Treasurer's Reserve is reported separately from Budget expenditure, but is included as an expenditure saving in

the estimated outcome. 2. Reserved by Law expenditure in the 2003-04 Budget and the 2003-04 Estimated Outcome includes a contribution of

$436 000 payable to the Debt Retirement Reserve Trust Account. 3. Expenditure authorised from the Treasurer's Reserve is included in agency expenditure under the Appropriation

Act. Net additional revenues and expenditure savings may be used to supplement the amount provided in the Budget for the Treasurer's Reserve.

4. The estimated additional expenditure of $77.0 million represents the Works and Services component of the $128.5 million contribution to the Economic and Social Infrastructure Fund (ESIF). The remaining $51.5 million of the contribution to the ESIF is included in Recurrent Services.

Table A2.4 provides information on expected Consolidated Fund variances for 2003-04 on an agency basis.


Table A2.4: Consolidated Fund - Estimated Total Expenditure by Agency, 2003-04

2003-04 Estimated Outcome

Agency

2003-04)Budget)

Recurrent)Services)

Reserved)by Law)


$'000) $'000) $'000) $'000) $'000) %) Economic Development 43 302) 44 310) ....) ....) 44 310) 2.3)Education1 669 280) 660 638) ....) 17 553) 678 191) 1.3)Finance-General2 498 397) 337 467) 155 662) 112 464) 605 593) 21.5)Health and Human Services3 771 393) 767 322) ....) 9 111) 776 433) 0.7)House of Assembly 4 871) 1 825) 3 045) ....) 4 870) ....)Infrastructure, Energy and Resources4 168 363) 101 982) 52) 67 255) 169 289) 0.6)Justice5,6 76 662) 55 381) 9 317) 6 049) 70 747) (7.7)Legislative Council 3 774) 1 941) 1 831) ....) 3 772) (0.1)Legislature-General 3 762) 3 809) ....) ....) 3 809) 1.2)Ministerial and Parliamentary

Support 13 819) 13 258) 563) ....) 13 821) ....)Office of the Governor7 2 060) 2 081) 409) 8) 2 498) 21.3)Police and Public Safety8 127 123) 128 275) ....) 1 921) 130 196) 2.4)Premier and Cabinet5,9 23 859) 25 158) ....) ....) 25 158) 5.4)Primary Industries, Water and

Environment10 76 274) 80 055) ....) 154) 80 209) 5.2)Tasmanian Audit Office11 254) ....) 353) ....) 353) 39.0)Tourism, Parks, Heritage and the

Arts12 60 989) 65 000) ....) 3 117) 68 117) 11.7)Treasury and Finance 32 111) 32 294) ....) ....) 32 294) 0.6)


Notes: 1. Expenditure for the Department of Education is anticipated to be $9.6 million above Budget primarily due to

increased activities funded by Specific Purpose Payments from the Commonwealth for Primary and Secondary Eduction and Technical and Further Education.

2. Expenditure for Finance-General is anticipated to be $107.2 million above Budget primarily due to a $128.5 million contribution to the Economic and Social Infrastructure Fund (ESIF) ($51.5 million Recurrent Services and $77.0 million Works and Services). This is partially offset by the Provision for Wage Increases and savings from allocating funds from the Treasurer's Reserve, which is reflected in agency expenditure.

3. Expenditure for the Department of Health and Human Services is anticipated to be $5.0 million above Budget primarily due to additional costs associated with increased demand for health care and increased Commonwealth funding for a number of grants including High Cost Drugs and the Home and Community Care Program.

4. Expenditure for the Department of Infrastructure, Energy and Resources is anticipated to be $926 000 above Budget primarily due to additional expenditure for various contract payments.

5. The 2003-04 Budget reflects the transfer of the Office of Industrial Relations ($443 000) from the Department of Justice to the Department of Premier and Cabinet.

6. Expenditure for the Department of Justice is anticipated to be $5.9 million below Budget primarily due to below Budget expenditure in relation to the Prison Infrastructure Redevelopment Program.

7. Expenditure for the Office of the Governor is anticipated to be $438 000 above Budget primarily due to additional expenditure resulting from changes in the income tax status of the Governor.


8. Expenditure for the Department of Police and Public Safety is anticipated to be $3.1 million above Budget due to increased expenditure on various non-salary items, in particular property rental, vehicles, helicopter leases and the radio network rental.

9. Expenditure for the Department of Premier and Cabinet is anticipated to be $1.3 million above Budget primarily due to costs associated with the redevelopment of the EnAct Legislation System and increased expenses for information technology infrastructure and application support.

10. Expenditure for the Department of Primary Industries, Water and Environment is anticipated to be $3.9 million above Budget due to increased expenditure for the Fire Ants Eradication Plan and the Mt Lyell Acid Mine Drainage Project.

11. Expenditure for the Tasmanian Audit Office is anticipated to be $99 000 above Budget due the pay out of entitlements following the retirement of the Auditor-General.

12. Expenditure for the Department of Tourism, Parks, Heritage and the Arts is anticipated to be $7.1 million above Budget primarily due to additional costs associated with enhanced service delivery and fire fighting costs.


BUDGET ESTIMATES, 2004-05 Consolidated Fund Surplus, 2004-05 In 2004-05, it is estimated that the Consolidated Fund Surplus will be $39.4 million.

Table A2.5: Consolidated Fund Surplus, 2004-05 2003-04)

Budget)2004-05)Budget)

$'000) $'000)Receipts

Commonwealth Sources Recurrent Receipts 1 689 839) 1 783 830)Capital Receipts 26 615) 40 415)

Total Commonwealth Sources 1 716 454) 1 824 245)

State Sources Recurrent Receipts 835 153) 900 411)Capital Receipts 28 920) 25 168)

Total State Sources 864 073) 925 579)

Total Receipts 2 580 527) 2 749 824)

Less Expenditure

Recurrent Services Expenditure on Outputs

Appropriation Act 2 253 541) 2 390 598)Reserved by Law 172 190) 179 448)

Total Recurrent Services 2 425 731) 2 570 046)

Works and Services Capital Investment Program 123 707) 140 475)Economic and Social Infrastructure Fund 26 855) ....)

Total Works and Services 150 562) 140 475)

Total Expenditure 2 576 293) 2 710 521)

Gross Consolidated Fund Surplus/(Deficit) 4 234) 39 303)Add Loan Repayments1 436) 124)

Consolidated Fund Surplus 4 670) 39 427)

Note: 1. For the purpose of calculating the Consolidated Fund Surplus, Reserved by Law expenditure includes the amount of

the contribution payable to the Debt Retirement Reserve Trust Account. This figure is also shown as Loan Repayments.


Consolidated Fund Receipts, 2004-05 Consolidated Fund receipts are estimated to be $2 749.8 million in 2004-05, an increase of $169.3 million or 6.6 per cent on the 2003-04 Budget estimate of $2 580.5 million.

Table A2.6 outlines the variations between the 2004-05 and the 2003-04 Budget estimates by major category.

Table A2.6: Consolidated Fund - Total Receipts, 2004-05 2003-04)


)Variation)

$'000) $'000) %)Recurrent Receipts


2 524 992) 2 684 241) 6.3) Capital Receipts

Commonwealth Sources 26 615) 40 415) 51.9)State Sources 28 920) 25 168) (13.0)

55 535) 65 583) 18.1)

Total Receipts 2 580 527) 2 749 824) 6.6)

A detailed list of receipts to the Consolidated Fund is provided in Table A2.7.


Table A2.7: Consolidated Fund Receipts, 2003-04 and 2004-05 2003-04)


$'000) $'000)

COMMONWEALTH SOURCES

Recurrent Receipts General Purpose Payments

GST Revenue1 1 299 700) 1 379 000)Budget Balancing Assistance2 9 300) ....)Competition Payments3 17 600) 16 000)

Total General Purpose Payments 1 326 600) 1 395 000)


Commonwealth-State Housing Agreement 22 259) 22 259)Disability Services Grant 19 084) 19 083)Health Care Grant4 159 700) 175 402)High Cost Drugs 5 950) 7 350)Home and Community Care Program 17 303) 18 743)Public Health Outcomes Funding Agreement 3 931) 3 931)Supported Accommodation Assistance Program 7 016) 7 179)

Education Primary and Secondary Education 45 593) 49 681)Technical and Further Education 22 790) 23 989)National Child Care Strategy 217) 217)

Primary Industries, Water and Environment World Heritage Area5 4 300) 3 400)

Notes: 1. The increase in GST Revenue in 2004-05 is primarily due to an increase in the size of the GST revenue pool and an

estimated increase in the rate of growth of Tasmania's population, offset by a decrease in Tasmania's relativity assessed by the Commonwealth Grants Commission.

2. As Tasmania's allocation of GST Revenue is anticipated to exceed its Guaranteed Minimum Amount in 2004-05, General Purpose Payments from the Commonwealth with not include a Budget Balancing Assistance component.

3. Tasmania's maximum level of National Competition Payments in 2004-05 is currently set at $18.8 million. However, in recognition of the uncertainties surrounding the National Competition Council's assessment of Tasmania's progress toward NCP reform, competition payments to the State in 2004-05 are estimated to be $16.0 million.

4. The Health Care Grant to the State is anticipated to be higher under the current Australian Health Care Agreement, which commenced on 1 July 2003.

5. The decrease in funding in 2004-05 reflects a decision by the Commonwealth to reduce the level of funding for the Tasmanian Wilderness World Heritage Area.


Table A2.7: Consolidated Fund Receipts, 2003-04 and 2004-05 (continued)

2003-04)Budget)

2004-05)Budget)

$'000) $'000)Police and Public Safety

Natural Disasters Organisations 212) 217)Finance-General

Assistance for Concessions 5 853) 6 124)Grant to the State for Local Government 49 031) 51 255)

Total Specific Purpose Payments 363 239) 388 830)

Capital Receipts Specific Purpose Payments

Health and Human Services Housing 2 224) 2 111)

Education Primary and Secondary Education 6 411) 6 567)Technical and Further Education 3 284) 3 901)

Infrastructure, Energy and Resources National Highway System1 14 696) 27 836)



Total Commonwealth 1 716 454) 1 824 245)

STATE SOURCES

Taxation Land Tax2 25 547) 33 673)Motor Taxation 45 910) 49 046)Payroll Tax3 235 953) 252 336)

Financial Transaction Taxes Debits Duties 22 769) 24 281)Duties4 138 409) 180 806)

Notes: 1. The increase in receipts for the National Highway System reflects funding in relation to a number of roads projects

including the Bass Highway-Penguin to Ulverstone and the Bridgewater Bridge. 2. The estimated increase in Land Tax revenue in 2004-05 is primarily a result of the State and Local Government

financial reforms under which Local Government will be required to pay Land Tax from 1 July 2004. 3. The estimated increase in Payroll Tax revenue in 2004-05 is the result of anticipated growth in employment in the

payroll tax paying sector. 4. The estimated increase in Duties revenue in 2004-05 is primarily a result of much higher than expected growth in the

activity and prices in the Tasmanian real estate market in the first half of 2003-04. As of 20 May 2004, the Government will be providing duty relief on conveyance duty to first home buyers. This relief will initially be available until 30 June 2005. Up to a maximum of $4 000 will be available for home buyers who qualify for the First Home Owner Grant scheme, and who are purchasing property with a value of up to $350 000.



2003-04)Budget)

2004-05)Budget)

$'000) $'000)Gambling Taxes

Casino Tax and Licence Fees 50 853) 53 208)Lottery Tax 22 344) 22 826)Racing and Gaming Taxes1 279) ....)

Other Sundry Licences 30) 30)

Total Taxation 542 094) 616 206)

Receipts from Government Business Enterprises, State-owned Companies and State Authorities

Dividends Aurora Energy Pty Ltd2 11 549) 14 337)Burnie Port Corporation Pty Ltd 375) 384)Civil Construction Services Corporation3 80) ....)Forestry Tasmania4 8 322) 4 029)Hobart Ports Corporation Pty Ltd 785) 820)Hydro Tasmania5 13 500) 22 600)Motor Accidents Insurance Board6 ....) 4 323)Port of Devonport Corporation Pty Ltd 355) 669)Port of Launceston Pty Ltd 665) 718)Printing Authority of Tasmania 115) 24)Southern Regional Cemetery Trust 54) ....)Stanley Cool Stores Board3 49) ....)TOTE Tasmania Pty Ltd 734) 502)Tasmanian Grain Elevators Board3 140) ....)Tasmanian Public Finance Corporation 6 507) 6 128)

Notes: 1. The estimated revenue from minor gaming activities for 2004-05 is nil, as minor gaming taxes will be abolished with

effect from 1 July 2004. The estimated revenue from bookmakers tax for 2004-05 is nil. 2. The increase in Dividends from Aurora Energy Pty Ltd is due to improved profitability as a result of strong winter

sales. 3. In 2003-04, Civil Construction Services Corporation, the Stanley Cool Stores Board and the Tasmanian Grain

Elevators Board were sold as part of the Government's Divestment Strategy. Consequently, no further returns will be received from these businesses.

4. The apparent decline in Dividends from Forestry Tasmania is a result of the 2003-04 forecast being overstated due to an underestimate of income tax expense in 2002-03.

5. The structure adopted for the phase out of the Hydro Tasmania Special Dividend affects the level of dividends from Hydro Tasmania for three years commencing from 2003-04. Ordinary dividend levels will rise over this period, while the Special Dividend will be progressively reduced.

6. The increase in Dividends from the Motor Accidents Insurance Board reflects increased investment revenue forecasts as a result of the improvement in world equity markets.



2003-04)Budget)

2004-05)Budget)

$'000) $'000)Dividends (continued)

The Public Trustee 60) 62)Transend Networks Pty Ltd1 9 000) 8 000)

Sub-total 52 290) 62 596)Special Dividends

Hydro Tasmania2 26 500) 17 400)

Sub-total 26 500) 17 400)Tax Equivalents

Aurora Energy Pty Ltd 17 467) 17 257)Civil Construction Services Corporation3 60) ....)Forestry Tasmania4 ....) 7 837)Hobart Ports Corporation Pty Ltd 1 376) 1 195)Hydro Tasmania 30 000) 30 056)Port of Devonport Corporation Pty Ltd 308) 662)Printing Authority of Tasmania ....) 21)Stanley Cool Stores Board3 63) ....)TOTE Tasmania Pty Ltd 354) 242)Tasmanian Grain Elevators Board3 25) ....)Tasmanian Public Finance Corporation 2 510) 2 564)The Public Trustee 60) 50)Transend Networks Pty Ltd5 8 000) 11 900)

Sub-total 60 223) 71 784)

Notes: 1. The decline in Dividends from Transend Network Pty Ltd relates to an over estimation of profit after tax and

dividends in 2003-04. This arose from an underestimation of tax expense related to actual versus forecast permanent timing differences on the depreciation of assets.

2. The expected reduction in the Special Dividend from Hydro Tasmania reflects the phasing out of this form of return to the Government.

3. In 2003-04, Civil Construction Services Corporation, the Stanley Cool Stores Board and the Tasmanian Grain Elevators Board were sold as part of the Government's Divestment Strategy. Consequently, no further Tax Equivalents will be received from these businesses.

4. Higher Tax Equivalents are expected from Forestry Tasmania during 2004-05 due to the cessation of past tax losses. 5. Higher Tax Equivalents are expected from Transend Networks Pty Ltd during 2004-05 as a result of lower

deductible expenditures and higher income related to the Australian Competition and Consumer Commission pricing decision.



2003-04)Budget)

2004-05)Budget)

$'000) $'000)Rates Equivalents

Hydro Tasmania1 ....) 3 000)

Sub-total ....) 3 000)

Guarantee Fees Aurora Energy Pty Ltd2 1 247) 1 422)Burnie Port Corporation Pty Ltd 10) 24)Civil Construction Services Corporation3 22) ....)Forestry Tasmania 129) 144)Hobart Ports Corporation Pty Ltd 39) 37)Hydro Tasmania2 3 000) 4 106)Metro Tasmania Pty Ltd 13) 13)Port of Devonport Corporation Pty Ltd 38) 48)Port of Launceston Pty Ltd 48) 48)Rivers and Water Supply Commission 49) 41)TOTE Tasmania Pty Ltd 13) 17)TT-Line Company Pty Ltd4 797) 905)Transend Networks Pty Ltd5 20) 100)

Sub-total 5 425) 6 905)

Total Recoveries from GBEs, SOCs and State Authorities 144 438) 161 685)

Notes: 1. As part of the State Local Government Financial Reform package, it was agreed that Crown Lands occupied by

Hydro Tasmania as a part of its hydro electricity generation system would continue to be exempt from Local Government rates. However, to ensure competitive neutrality, the Government agreed to impose a rates equivalent regime on Hydro Tasmania. The revenue from this rates equivalent regime is to retained by the Government. While details of the rates equivalent regime are yet to be finalised, it is estimated that revenue of approximately $3.0 million per annum will be received from Hydro Tasmania.

2. The increase in Guarantee Fees from Aurora Energy Pty Ltd and Hydro Tasmania in 2004-05 is a result of an increase in the Guarantee Fee rate applying to those businesses

3. In 2003-04, Civil Construction Services Corporation, the Stanley Cool Stores Board and the Tasmanian Grain Elevators Board were sold as part of the Government's Divestment Strategy. Consequently, no further Guarantee Fees will be received from these businesses.

4. The increase in Guarantee Fees from TT-Line Company Pty Ltd in 2004-05 is a result of increased borrowings related to the purchase of Spirit of Tasmania III.

5. The increase in Guarantee Fees from Transend Networks Pty Ltd in 2004-05 is attributable to increased capital expenditure partly funded by borrowings.



2003-04)Budget)

2004-05)Budget)

$'000) $'000)Departmental Fees and Recoveries

Economic Development 1 100) 1 100)Education1 8 556) 2 016)Health and Human Services 16) 16)Infrastructure, Energy and Resources 32 544) 32 017)Justice2 8 105) 9 652)Police and Public Safety 294) 300)Premier and Cabinet 2) 2)Primary Industries, Water and Environment3 27 916) 25 605)Tourism, Parks, Heritage and the Arts 385) 385)Treasury and Finance 339) 512)

Total Departmental Fees and Recoveries 79 257) 71 605)

Recoveries of State Debt Charges Interest4 2 866) 1 735)Sinking Fund Recoveries 116) 35)

Total Recoveries of State Debt Charges 2 982) 1 770)

Sale and Rent of Government Property Crown Lands Administration Fund5 11 603) 6 103)

Total Sale and Rent of Government Property 11 603) 6 103)

Resource Rents and Royalties Mineral Royalties 8 000) 8 000)Regional Water Authority Licence Fees 1 911) 1 908)Rent and Fees from Mineral Lands 770) 770)Storage of Explosives and Inflammable Liquids 226) 226)

Total Resource Rents and Royalties 10 907) 10 904)

Notes: 1. The reduction in Fees and Recoveries from the Department of Education is a result of the abolition of the Municipal

Library Levy from 1 July 2004 as part of the State and Local Government financial reforms. 2. The increase in Fees and Recoveries from the Department of Justice in 2004-05 reflects an increase in revenue from

the Magistrates Court and Births, Deaths and Marriages and increased recoveries from the Poppy industry. 3. The reduction in Fees and Recoveries from the Department of Primary Industries, Water and Environment is a result

of the abolition of the Planning and Local Government Levy from 1 July 2004 as part of the State and Local Government financial reforms.

4. The reduction in Interest receipts is primarily due the early redemption of public bodies loans. 5. Infrastructure works and other costs associated with the shack sites project in 2004-05 are estimated to be

substantially higher than the anticipated revenue in that year due to a delay in the sales program for the shack sites project. As a result, the estimated level of receipts paid into the Consolidated Fund from the Crown Land Administration Fund in 2004-05 has been reduced.



2003-04)Budget)

2004-05)Budget)

$'000) $'000)Other Recurrent Receipts

Fines - Infringement Notices 5 500) 5 500)Fines and Fees 3 000) 3 000)Funding for the 27th Pay1 22 400) 4 200)Interest on Investments - Finance-General2 8 800) 16 000)Interest on Investments - Rivers and Water Supply Commission 25) 25)Miscellaneous 637) 653)Recoveries from Departmental Business Units 260) 260)Stamp Duties - Instalment Payments 3 250) 2 500)

Total Other Recurrent Receipts 43 872) 32 138)

Capital Receipts Midway Point Improvement Act 1975 35) 35)Public Bodies Assistance Act 1971 255) 14)State Loans and Loan Guarantees Act 1976 26) 18)Tourism and Recreational Development Act 1977 4) 1)Private Forests Loans 100) 100)Proceeds from Sale of Government Assets3 28 500) 25 000)

Total Capital Receipts 28 920) 25 168)

Total State 864 073) 925 579)

Total Receipts 2 580 527) 2 749 824)

Notes: 1. In 2003-04, all Government departments, with the exception of the Department of Health and Human Services

(DHHS), were liable to meet the cost of 27 pay periods. DHHS will be required to meet costs associated with a 27th Pay As You Go tax instalment in 2004-05. This receipt into the Consolidated Fund is funded from an account held within the Special Deposits and Trust Fund within which funds have been accumulated to meet the costs associated with the 27th pay.

2. The increase in Interest on Investments – Finance-General is mainly due to the increased level of surplus cash available in the Public Account for investment.

3. In 2003-04, it was anticipated that net proceeds of $28.5 million would be realised from the sale of Civil Construction Services Corporation, the Tasmanian Grain Elevators Board, the Stanley Cool Stores Board and non-core assets of the Hobart Ports Corporation Pty Ltd (HPC). In 2003-04, estimated net proceeds of $10.7 million will be realised from the sale of the three Government businesses, with further proceeds of up to $25.0 million to be realised in 2004-05 from the sale of assets of the HPC. The proceeds are to be transferred to the Economic and Social Infrastructure Fund.


CONSOLIDATED FUND EXPENDITURE, 2004-05 Expenditure in 2004-05 is expected to be $2 710.5 million, an increase of $134.2 million or 5.2 per cent over 2003-04 budgeted expenditure of $2 576.3 million.

Table A2.8: Consolidated Fund - Summary of Estimated Expenditure, 2004-05

2003-04)Budget)

2004-05)Budget)

)Variation)

$'000) $'000) %)Recurrent Services

Appropriation Act 2 253 541) 2 390 598) 6.1)Reserved by Law 172 190) 179 448) 4.2)

2 425 731) 2 570 046) 5.9) Works and Services

Appropriation Act 150 562) 140 475) (6.7)

Total Appropriations 2 576 293) 2 710 521) 5.2)

Further information on expenditure is provided in Table A2.9. A listing of all Reserved by Law items is provided in Table A2.10. Descriptions of the activities of departments funded through the Consolidated Fund are provided in Budget Paper No 2 Operations of Government Departments 2004-05.

Recurrent Services Total Recurrent Services is estimated at $2 570.0 million in 2004-05. This is $144.3 million or 5.9 per cent higher than the 2003-04 budgeted amount of $2 425.7 million. The increase in recurrent expenditure primarily relates to the provision of additional recurrent funding of $31.5 million for 2004-05 Budget initiatives and funding for the estimated additional cost of the new State Service Wage Agreement and the proposed wage agreements for teachers, police officers, nurses and ambulance officers.

Works and Services Works and Services expenditure in 2004-05 is anticipated to be $140.5 million, a decrease of $10.1 million or 6.7 per cent on the 2003-04 Budget of $150.6 million. The primary reason for the decrease in the Works and Services appropriation relates to the Works and Service contribution to the Economic and Social Infrastructure (ESIF). The 2003-04 Budget estimate included a Works and Services contribution of $26.9 million to the ESIF, whilst the 2004-05 Budget does not provide for a Works and Services contribution to the ESIF. The decrease in Works and Services expenditure is offset by an increase in funding for the Roads Program of $14.5 million, primarily due to increased expenditure in relation to the Bass Highway-Penguin to Ulverstone and the Bridgewater Bridge projects. More detailed information in relation to the Capital Investment Program is provided in Chapter 6 of this Budget Paper.


Table A2.9: Total Consolidated Fund Expenditure, 2004-05 2004-05 Budget

Agency

2003-04)Budget)

Recurrent)Services)

Reserved)by Law)


$'000) $'000) $'000) $'000) $'000) %) Economic Development 43 302) 42 385) ....) ....) 42 385) (2.1)Education 669 280) 675 492) ....) 17 616) 693 108) 3.6)Finance-General 498 397) 338 748) 166 863) 9 274) 514 885) 3.3)Health and Human Services 771 393) 809 998) ....) 13 760) 823 758) 6.8)House of Assembly 4 871) 1 834) 3 166) ....) 5 000) 2.6)Infrastructure, Energy and Resources 168 363) 103 668) 52) 82 155) 185 875) 10.4)Justice 76 662) 62 030) 6 125) 13 365) 81 520) 6.3)Legislative Council 3 774) 1 974) 1 902) ....) 3 876) 2.7)Legislature-General 3 762) 3 848) ....) ....) 3 848) 2.3)Ministerial and Parliamentary

Support 13 819) 13 401) 587) ....) 13 988) 1.2)Office of the Governor 2 060) 2 227) 490) 8) 2 725) 32.3)Police and Public Safety 127 123) 134 341) ....) 1 016) 135 357) 6.5)Premier and Cabinet 23 859) 25 952) ....) ....) 25 952) 8.8)Primary Industries, Water and

Environment 76 274) 79 371) ....) 1 180) 80 551) 5.6)Tasmanian Audit Office 254) ....) 263) ....) 263) 3.5)Tourism, Parks, Heritage and the Arts 60 989) 62 525) ....) 2 101) 64 626) 6.0)Treasury and Finance 32 111) 32 804) ....) ....) 32 804) 2.2)


For an explanation of the estimated major Consolidated Fund expenditure variations, refer to Chapter 4 of this Budget Paper.


Reserved by Law items are not included in the annual Appropriation Act. The authority to spend from these items is provided by the legislation under which the particular items are established.

Table A2.10: Estimated Expenditure on Reserved by Law Items 2003-04)


$'000) $'000)Finance-General

Superannuation Benefits Payable under the Solicitor-General Act 1983 103) 83)Payment to the Parliamentary Superannuation Fund and Parliamentary Retirement

Benefits Fund (Parliamentary Superannuation Act 1973 and Parliamentary Retiring Benefits Act 1985) 1 624) 2 395)

Superannuation Benefits Payable under the Judges' Contributory Pensions Act 1968 2 476) 1 158)Interest Payable in Australia on Commonwealth Stock and Bonds raised on behalf of

Tasmania (Financial Agreement Act 1927) 3 650) 997)Refund to the Commonwealth of charges incurred in respect of Commonwealth Stock

and Bonds raised or refinanced on behalf of Tasmania (Financial Agreement Act 1927) 3) 2)

Contribution payable to the Debt Retirement Reserve Trust Account (Financial Agreement Act 1994) 436) 124)

Payments to Municipalities under the Local Government (Rates and Charges Remissions) Act 1991 14 061) 14 388)

Appropriation to the Treasurer's Reserve (Public Account Act 1986, Section 11 (2)) 10 000) 10 000)Payments under the Duties Act 2001 3 000) 2 500)Payments under the Beauty Point Landslip Act 1970 20) 20)Financial Assistance under the Rosetta Landslip Act 1991 50) 50)Contribution to the Superannuation Provision Account (Retirements Benefits Act 1993,

Section 13) 117 258) 130 408)Payments to the Tasmanian Community Fund 4 536) 4 696)Superannuation Benefits payable under the Governor of Tasmania Act 1982 38) 42)

Total 157 255) 166 863) House of Assembly

Parliamentary Salaries and Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 2 905) 3 026)

Travelling Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 109) 109)

Members' Committee Fees and Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 31) 31)

Total 3 045) 3 166)

Infrastructure, Energy and Resources Contribution towards Construction of Streets in Towns by Municipal Councils Local

Government (Highways) Act 1982. 52) 52)


Table A2.10: Estimated Expenditure on Reserved by Law Items (continued)

2003-04)Budget)

2004-05)Budget)

$'000) $'000)Justice

Salary, Solicitor-General (Solicitor-General Act 1983) 258) 281)Salary, Director of Public Prosecutions (Director of Public Prosecutions Act 1993) 276) 300)Salaries of Magistrates (Magistrates Court Act 1987) 2 477) 2 824)Salaries of Judges (Supreme Court Act 1987) 1 666) 1 758)Salary and Travelling Allowance, Master of the Supreme Court (Supreme Court Act

1959) 232) 257)Expenses of Parliamentary Elections and Referendums (Electoral Act 1985 and

Referendum Procedures Act 1994) 535) 670)Criminal Injuries Compensation Act 1976 Section 11(4): Payments 3 512) ....)Expenses under the Legislative Council Electoral Boundaries Act 1995 10) 10)Expenses of Aboriginal Land Council of Tasmania Elections 20) 25)

Total 8 986) 6 125) Legislative Council

Parliamentary Salaries and Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 1 680) 1 751)

Travelling Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 111) 111)

Members' Committee Fees and Allowances (Parliamentary Salaries, Superannuation and Allowances Act 1973) 40) 40)

Total 1 831) 1 902) Ministerial and Parliamentary Support

Allowances of Ministers (Parliamentary Salaries and Allowances Act 1973) 550) 587) Office of the Governor

Salary, His Excellency the Governor (Governor of Tasmania Act 1982) 210) 483)Salary, The Administrator (Governor of Tasmania Act 1982, Section 5(1)) 7) 7)

Total 217) 490) Tasmanian Audit Office

Salary and Travelling Allowance, Auditor-General (Financial Management and Audit Act 1990) 254) 263)

TOTAL ESTIMATED RESERVED BY LAW ITEMS 172 190) 179 448)


FORWARD ESTIMATES The Consolidated Fund Surplus (CFS) is estimated to be $39.4 million in 2004-05, $32.9 million in 2005-06, $43.4 million in 2006-07 and $54.0 million in 2007-08.

Table A2.11 highlights the projected CFS for each of the financial years 2004-05 to 2007-08.

Table A2.11: Consolidated Fund Forward Estimates Summary

2004-05)Budget) 2005-06) 2006-07) 2007-08)

$'000) $'000) $'000) $'000)Receipts

Recurrent Commonwealth Sources 1 783 830) 1 866 707) 1 946 628) 2 029 035)State Sources 900 411) 886 663) 906 565) 934 206)

2 684 241) 2 753 370) 2 853 193) 2 963 241)Capital

Commonwealth Sources 40 415) 43 940) 26 184) 26 359)State Sources 25 168) 170) 171) 171)

65 583) 44 110) 26 355) 26 530)

Total Receipts 2 749 824) 2 797 480) 2 879 548) 2 989 771) Expenditure

Recurrent Services 2 569 922) 2 617 647) 2 703 308) 2 799 494)Works and Services 140 475) 146 945) 132 879) 136 239)

Total Expenditure 2 710 397) 2 764 592) 2 836 187) 2 935 733)

Consolidated Fund Surplus1 39 427) 32 888) 43 361) 54 038)

Note: 1. For the purposes of calculating the CFS, recurrent expenditure has been reduced by the contribution payable to the

Debt Retirement Reserve Trust Account of $124 000 in 2004-05 and $61 000 in 2005-06, with no contribution payable thereafter.


Table A2.12: Consolidated Fund Forward Estimates – Receipts Summary

2004-05)Budget) 2005-06) 2006-07) 2007-08)

$'000) $'000) $'000) $'000)

COMMONWEALTH SOURCES

Recurrent Receipts General Purpose Payments1 1 395 000) 1 469 070) 1 539 600) 1 612 300)Specific Purpose Payments2 388 830) 397 637) 407 028) 416 735)

Capital Receipts

Specific Purpose Payments3 40 415) 43 940) 26 184) 26 359)

Total Commonwealth 1 824 245) 1 910 647) 1 972 812) 2 055 394)

STATE SOURCES

Recurrent Receipts Taxation4 616 206) 605 181) 620 652) 632 837)Receipts from Government Business Enterprises,

State-owned Companies and State Authorities5 161 685) 163 342) 159 220) 170 940)Departmental Fees and Recoveries 71 605) 72 630) 74 010) 75 330)Recoveries of State Debt Charges 1 770) 492) 265) 178)Sale and Rent of Government Property 6 103) 11 603) 11 603) 11 603)Resource Rents and Royalties 10 904) 11 901) 11 901) 11 901)Other Recurrent Receipts6 32 138) 21 514) 28 914) 31 417)

Capital Receipts

Capital Receipts7 25 168) 170) 171) 171)

Total State 925 579) 886 833) 906 736) 934 377)

Total Receipts 2 749 824) 2 797 480) 2 879 548) 2 989 771)

Notes: 1. The increase in the General Purpose Payments is primarily due to additional Commonwealth GST Revenue receipts

over the Forward Estimates period. 2. The increase in Recurrent Specific Purpose Payments is primarily due to an increase in Commonwealth funding for

the Health Care Grant receipts, under the Australian Health Care Agreement, which commenced on 1 July 2003. 3. The variations in capital Specific Purpose Payments reflect the Commonwealth funding for the National Highway

System and the anticipated commencement and completion of major projects over the Forward Estimates period. 4. The decrease in Taxation receipts in 2005-06 reflects the abolition of Debits Duty consistent with the

Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. This is partially offset by an increase in Payroll Tax, reflecting anticipated growth in employment in the payroll tax paying sector and expected growth in wages.


5. The decrease in Receipts from Government Business Enterprises, State-owned Companies and State Authorities 2006-07 primarily reflects the phase out of the Special Dividend from Hydro Tasmania.

6. The decrease in Other Recurrent Receipts in 2005-06 reflects a decrease in Interest on Investments due to a significant decrease in the Public Account cash balance available for investment as a result of the repayment of $250.0 million in debt maturing in the first half of the financial year ($200.0 million of which matures on 15 July 2005).

7. Capital Receipts are expected to be $25.2 million in 2004-05 primarily due to proceeds of up to $25.0 million expected to be realised in 2004-05 from the sale of assets of the Hobart Ports Corporation Pty Ltd (HPC) The proceeds are to be transferred to the Economic and Social Infrastructure Fund.

For a further explanation of the major receipts variations, refer to Chapter 9 of this Budget Paper.


Table A2.13: Consolidated Fund Forward Estimates – Expenditure Summary1

2004-05)Budget) 2005-06) 2006-07) 2007-08)

$'000) $'000) $'000) $'000) Economic Development 42 385) 42 673) 43 176) 43 562)Education2 675 492) 698 794) 722 719) 748 433)Finance-General

Debt Management3 99 753) 97 563) 93 617) 95 758)Employee Related Costs 17 070) 22 070) 22 070) 22 070)Superannuation 134 386) 143 986) 149 510) 158 722)Payments to Government Business Enterprises4 49 717) 49 729) 27 740) 27 757)Other 95 414) 60 103) 89 765) 107 062)Administered Payments 109 271) 111 318) 113 602) 115 187)

Health and Human Services5 809 998) 840 928) 871 215) 900 937)House of Assembly 5 000) 5 144) 5 303) 5 432)Infrastructure, Energy and Resources 103 720) 106 606) 109 414) 111 766)Justice6 68 155) 70 374) 73 737) 73 433)Legislative Council 3 876) 3 994) 4 126) 4 234)Legislature-General 3 848) 3 921) 4 000) 4 067)Ministerial and Parliamentary Support 13 988) 14 303) 14 655) 14 940)Office of the Governor 2 717) 2 771) 2 830) 2 878)Police and Public Safety7 134 341) 141 016) 149 410) 156 218)Premier and Cabinet 25 952) 26 618) 27 580) 28 189)Primary Industries, Water & Environment 79 371) 80 728) 81 706) 81 632)Tasmanian Audit Office 263) 276) 290) 305)Tourism, Parks, Heritage and the Arts 62 525) 61 371) 62 690) 62 271)Treasury and Finance 32 804) 33 422) 34 153) 34 641)

2 570 046) 2 617 708) 2 703 308) 2 799 494) Capital Investment Program (Departments) 52 386) 54 418) 55 430) 57 747)Roads Program8 81 690) 86 007) 70 807) 72 362)Housing Program 6 399) 6 520) 6 642) 6 130)Economic and Social Infrastructure Fund ....) ....) ....) ....)

140 475) 146 945) 132 879) 136 239)

TOTAL 2 710 521) 2 764 653) 2 836 187) 2 935 733)

Notes: 1. The increases in expenditure for agencies over the Forward Estimates in part reflects the estimated additional cost of

the new State Service Wage Agreement and the estimated additional cost of increases to be provided under the proposed wage agreements for teachers, police officers, nurses and ambulance officers.

2. The increase in expenditure for the Department of Education's is primarily due to additional funding to meet the costs associated with the Teachers Nexus Agreement and an increase in Commonwealth revenues for Primary and Secondary Education and Technical and Further Education


3. The variation in the Forward Estimates for Debt Management is due to a decrease in debt servicing costs as a result of the reducing level of General Government Net Debt.

4. The decrease in Payments to Government Business Enterprises in 2006-07 reflects the final payment of $40.0 million in relation to the Government's contribution to fund the acquisition by TT-Line of one of the two vessels by for the Bass Strait service being made in 2005-06.

5. The increase in expenditure for the Department of Health and Human Services primarily reflects indexation provided to meet increased costs and demand for services, phased in additional funding for carers of children in out of home care, indexation for non-government organisation service providers, and funding for the whole-of-government initiative 'TIME for Kids'.

6. The increase in expenditure for the Department of Justice primarily reflects increasing recurrent costs for the Monetary Penalties Enforcement Project, additional funding for demand pressure within the prison, and funding for the whole-of-government initiative Safe at Home – A Criminal Justice Framework for Responding to Family Violence in Tasmania.

7. The increase in expenditure for the Department of Police and Public Safety primarily reflects funding for the whole-of-government initiative Safe at Home – A Criminal Justice Framework for Responding to Family Violence in Tasmania.

8. The decrease in expenditure for the Roads Program reflects a decrease in funding received from the Commonwealth. The Capital Investment Program Forward Estimates reflect the Government's Fiscal Strategy commitment to maintain the State-funded component of the CIP in real terms.


CONVENTIONS AND GLOSSARY OF TERMS

CONVENTIONS Figures in tables 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 for zero or rounded to zero figures is '.…'.

Percentages in excess of 999 per cent are shown as '….'.

GLOSSARY OF TERMS Accrual Accounting

Accrual accounting recognises revenue and expenditure at the time it is earned or incurred, rather than when money is actually received or paid.

Advances

Repayable, interest-bearing loans often provided on concessional terms.

Appropriation

An amount which may be expended from the Consolidated Fund under the authority of an Act of Parliament.

Auditor-General

A statutory office, established under the Financial Management and Audit Act 1990, responsible for the independent review of State financial matters. The Auditor-General is required to report annually to Parliament on the accounts of departments and other public bodies.

Benchmarking

The process of comparing the performance of Government agencies in producing goods and services with other governments or the private sector. This process enables analysis of the effectiveness and efficiency of the production of Outputs relative to best practice procedures in other jurisdictions and the private sector and, in turn, assists the Government in making decisions on the level and range of Outputs purchased from departments.


Budget Balancing Assistance

Under the transitional arrangements of the Intergovernment Agreement, the shortfall between the revenue from the Goods and Services Tax (GST) distributed to a state or territory and that state or territory's Guaranteed Minimum Amount is referred to as Budget Balancing Assistance, with the amount being provided by the Commonwealth in the form of a grant.

Budget Committee

A Cabinet Sub-Committee that is responsible for considering all Budget related matters and making appropriate recommendations to Cabinet.

Capital Investment Program

The Capital Investment Program (CIP) comprises major capital investment projects for all on-Budget agencies and is funded through the Works and Services section of the Consolidated Fund. The CIP was introduced to link Government investment in capital and maintenance projects with departmental corporate and asset management plans and specific Government policy objectives and Outputs. Details of projects included in the CIP are provided in Chapter 6 of Budget Paper No 1 Budget Overview 2004-05.

Cash Accounting

Cash accounting recognises revenue and expenditure only at the time cash is received or paid.

Chain Volume Measures

Whereas constant price estimates measure real changes in various economic statistics by removing the effect of rising prices through an index composed in terms of a constant base year, chain volume measures provide estimates of real change by factoring in changing price relativities from year to year. Chain volume measures have recently replaced constant price estimates as the adjustment mechanism preferred by the Australian Bureau of Statistics for the calculation of real prices.

Commonwealth Grants Commission

An independent body established by the Commonwealth Government to advise on the per capita relativities for distributing general revenue grants among the six states and two territories.

Community Service Activities (CSAs)

CSAs are non-commercial activities undertaken by State-owned Companies under contract with the Government. To qualify as a CSA, the activity must meet similar identification criteria and net cost conditions as CSOs.

Community Service Obligations (CSOs)

CSOs are activities undertaken by a GBE that would not be undertaken if it was a commercial entity operating in the private sector. In this regard, the GBE Act requires that CSOs can only be declared where the function performed, service provided, or concession allowed will result in a net cost to the GBE, is the direct result of a direction given under, or a specific requirement of, an Act of Parliament and would not be performed, provided or allowed if the GBE were a business in the private sector acting in accordance with sound commercial practice.


Competitive Neutrality

A policy under the Competition Principles Agreement (see National Competition Policy) to prevent any resource allocation distortions arising out of the public ownership of entities engaged in significant business activities. Competitive neutrality aims to ensure that Government businesses do not enjoy any net competitive advantage simply as a result of their public sector ownership.

Concessions

See State Government Concessions.

Consolidated Fund

The Fund established by Part II of the Public Account Act 1986 to receive all taxes and the majority of other revenue received by the Government. All payments from the Consolidated Fund must be authorised by an Act of Parliament.

Consolidated Fund Appropriation Act

An Act which appropriates moneys from the Consolidated Fund for expenditure by the Government during the financial year. Appropriation Acts are generally in force from 1 July in one calendar year until 30 June in the subsequent year.

Consolidated Fund Surplus (CFS)

The CFS is the excess of Consolidated Fund receipts over the expenditure of these funds (net of loan repayments). A CFS represents funds which are available for the retirement of debt. A negative CFS is the same as the Net Financing Requirement (NFR).

Constant Price Terms

Constant price estimates provide a convenient way of measuring real changes in economic time series. Specifically, such estimates measure the change in a series after adjusting values to remove the effects of price movements over time using an index compiled in terms of a constant base year. In Australian Bureau of Statistics series, most measures of real changes are now estimated using chain volume measures.

See also: Chain Volume Measures; Real Terms.

Consumer Price Index

A measure of the change in prices, over time, of a basket of goods and services representing household expenditure patterns. It aims to measure the changes in the cost of living for the average household.

Department Operating Accounts

Accounts created in the Special Deposits and Trust Fund to record all department-related transactions. These accounts receive funds appropriated to departments from the Consolidated Fund and retain certain revenue that is not identified for return to the Consolidated Fund. Department Operating Accounts enable the consideration of the total resourcing of Government Outputs.


Economic and Social Infrastructure Fund

The Economic and Social Infrastructure Fund was established in the 2003-04 Budget to provide funding for major economic projects and the implementation of social initiatives. Further information on the Economic and Social Infrastructure Fund is provided in Chapter 4 of Budget Paper No 2 Operations of Government Departments 2004-05.

Equalisation Grants

See Fiscal Equalisation.

Fees

Fees from regulatory services are levies not primarily designed to raise general revenue, but which are associated with the granting of permit or privilege or for the regulation of activity. This distinguishes them from charges for services rendered to clients and receipts from the sale of goods and services provided by public sector agencies.

Financial Agreement Acts 1927 and 1994

Agreements between the Commonwealth Government and State Governments establishing the Loan Council and prescribing a framework for governmental borrowing and sinking fund arrangements.

Financial Year

The financial year runs from 1 July in one calendar year to 30 June in the following year.

Fines

Fines are civil and criminal penalties imposed on law breakers other than penalties imposed by tax authorities.

First Home Owners Scheme

Under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA), the states and territories were required to establish, administer and fund a First Home Owners Scheme. The scheme provides first home owners with a grant of $7 000 to offset the impact of the GST on house prices.

Fiscal Capacity

The capacity of a State to meet its financial responsibilities. It reflects the adequacy of the various tax bases available to that State, as well as the existence of any disabilities or advantages faced by that State in the provision of services and the raising of revenues.

Fiscal Equalisation

Also described as horizontal fiscal equalisation, it refers to the principle of allocating financial assistance to the states and territories which, as assessed by the Commonwealth Grants Commission, is designed to provide a jurisdiction with the capacity to provide services at a standard comparable to those of the other jurisdictions on average provided it makes the average revenue raising effort.


Fiscal Surplus

The Fiscal Surplus measures a government's investment-saving balance. A Fiscal Surplus indicates that a government is saving more than enough to finance all of its operations and capital spending. The Fiscal Surplus (which is recorded in the operating statement) differs from the net operating balance in relation to the treatment of capital expenditure. The Fiscal Surplus includes net capital expenditure, but not depreciation.

Full Time Equivalents (FTEs)

A measure of staffing levels which converts the total number of hours worked by all staff (including part time and casual staff) to an equivalent number of full time staff.

General Government Sector

For the purpose of reporting uniform information on Government Financial Statistics (GFS), public sector entities have been classified according to the General Government, Public Non-Financial Corporation (PNFC) or Public Financial Corporation (PFC) Sectors. General Government agencies are departments, bodies, or offices that provide services free of charge or at prices substantially below their cost of production.

General Revenue Assistance

Grants provided by the Commonwealth to the state and territory Governments and Local Governments, to be used for purposes determined by the recipients. Prior to 2000-01, the main form of general revenue assistance provided to the states and territories was the Financial Assistance Grant. Other forms of general revenue assistance provided were National Competition Policy related payments and Identified Local Road Funds. Under the IGA, general revenue assistance grants are provided in the form of GST revenue payments. In addition, National Competition Policy related payments have continued under the new arrangements. There has been undertaking form the Commonwealth that National Competition Policy will continue beyond 2005-06.

Goods and Services Tax (GST)

This is a tax imposed by the Commonwealth Government from 1 July 2000 on most goods and services provided in Australia. All of the revenue raised from this tax is distributed to the states and territories using the principle of horizontal fiscal equalisation.

Government Business Enterprises

Government Business Enterprises (GBEs) are entities which operate outside the Public Account, principally on the basis of funds derived through their operations, and have no impact on Budget expenditure except in circumstances where they receive funding for CSOs or receive payments for services provided. GBEs also may provide returns to the Consolidated Fund in the form of dividends to shareholders (the State) and the payment of taxation equivalents and guarantee fees and are subject to their own enabling legislation and the GBE Act. GBEs prepare annual reports, with financial statements on a commercial, accrual accounting basis, which are tabled in Parliament and are subject to audit by the Auditor-General as the auditor appointed by the shareholders.


Government Financial Statistics (GFS)

The Government Financial Statistics system employed by the Australian Bureau of Statistics is designed to provide statistics relating to all public sector entities such as government departments, statutory authorities, government businesses and local government authorities. The GFS is based on two international standards, the United Nations' System of National Accounts (SNA93) and the International Monetary Fund's A Manual on Government Finance Statistics. It is the framework used to prepare budgets and outcomes, in accordance with UPF.

Governor-in-Council

The Governor acting with the advice of the Executive Council, which consists of two or more Ministers of the Crown presided over by the Governor.

Grants

Non-repayable, non-interest bearing assistance.

Grants and Subsidies Expenditure

Grants and Subsidies Expenditure is a classification of expenditure that relates to payments or concessions made by the Government to individuals, groups or organisations. These include Community Service Obligations (CSOs) and Community Service Activities (CSAs) payments to Government Business Enterprises (GBEs) and State-owned Companies (SOC). These payments are determined by the Government and are non-discretionary. In relation to the Output Methodology, these payments are not strictly Outputs, but rather Government purchases the administration of these payments from departments. Details of Grants and Subsidies expenditure are included in relevant department chapters in Budget Paper No 2.

Gross State Product

The total value added in production in the State economy in a year. Broadly, it equals the total value of goods and services produced less the cost of goods and services used in the production process.

GST Administration Costs

Under the IGA, the states and territories are required to meet the costs of administering the GST. These costs are those incurred through the Australian Tax Office and Australian Customs Service in the collection of the GST.

GST Law

Has the same meaning as defined in the A New Tax System (Goods and Services Tax) Act 1999 of the Commonwealth.

Guarantee Fees

Guarantee fees are applied to GBEs and SOCs to compensate for the lower borrowing rates that GBEs and SOCs often receive due to their Government ownership. Guarantee fees apply to effectively increase the borrowing rate that GBEs and SOCs receive up to the market borrowing rate. In line with National Competition Policy principles, guarantee fees remove any competitive advantage that a GBE or SOC may receive in terms of reduced debt costs through Government ownership.


Guaranteed Minimum Amount

Under the Intergovernmental Agreement, the Commonwealth has guaranteed that no state or territory will be worse off financially under the new Commonwealth-State financial arrangements than they would have been had the National Tax Reforms not taken place. The guaranteed minimum amount is the minimum level of funding required by each state or territory to ensure that the guarantee provisions of the IGA are met.

Horizontal Fiscal Equalisation

See Fiscal Equalisation.

Implicit Price Deflator – GSP

An Implicit Price Deflator (IPD) is another means, in addition to the Consumer Price Index, by which changing prices can be measured. The IPD for Gross State Product (GSP) is a broad measure of price change used in the State accounts. IPD indexes are obtained by dividing a current price value by its corresponding constant price value or chain volume measure.

Infrastructure Fund

The Infrastructure Fund (comprising a Social Infrastructure Fund and an Economic Infrastructure Fund) was established in the 2001-02 Budget to provide funding for the development of major government social and economic infrastructure.

Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA)

This is the agreement signed by the Commonwealth and all state and territory Governments in June 1999 which provides for major changes to Commonwealth-State financial relations. Under the IGA GST revenue is to be distributed to the states and territories on a horizontal fiscal equalisation basis. In return, the states and territories have agreed to forego revenue and accept additional expenditure responsibilities.

Loan Council

A body comprising the Commonwealth, state and territory Treasurers which meets, usually on an annual basis, to determine the Loan Council Allocation for the Commonwealth, states and territories for the forthcoming financial year.

Loan Council Allocation (LCA)

A state or territory's Loan Council Allocation is the borrowing level for the jurisdiction endorsed by the Loan Council, based on its combined General Government and PNFC sector deficit (adjusted for financing transactions), plus a number of memorandum items. These items reflect public sector transactions which may have many of the characteristics of borrowings but do not constitute formal borrowings. One example is operating leases. Thus the LCA provides an indicator of the likely impact of the Total State Public Sector's operations on the economy through its net call on national savings.

Major Works

Capital investment projects, including construction and maintenance, which have an estimated total value greater than $100 000.


National Competition Policy (NCP)

NCP involves a series of policy initiatives, agreed by all Australian governments that are aimed at promoting free and open competition, where this is in the public benefit, which in turn will increase efficiency and productivity throughout the Australian economy. The basis of NCP is three intergovernmental agreements between the Commonwealth and state and territory Governments that were signed on 11 April 1995. These agreements are the Conduct Code Agreement (relating to the extension of Part IV of the Commonwealth's Trade Practices Act 1974 to all businesses), the Competition Principles Agreement (relating to the implementation of a series of policy elements designed to improve competition in the Australian economy) and the Agreement to Implement the National Competition Policy and Related Reforms (relating to the sharing of the financial benefits expected to flow from the implementation of NCP).

NCP is not about competition for competition's sake and, in most areas, requires the use of the public benefit test to ensure that all government and community objectives are considered before specific action is taken to facilitate competition in the economy. For example, considerations include, but are not limited to, economic and regional development (including employment and investment growth) and the interests of consumers generally or a class of consumers, and social welfare and equity considerations (including community service obligations).

Net Debt

The State's Net Debt is defined as the difference between selected financial assets (claims the Government has on external organisations and individuals) and selected financial liabilities (claims of external organisations and individuals on the Government) held in the form of cash, deposits, non-transferable loans, transferable debt securities (eg Treasury notes and bonds) and finance leases. This definition does not include other financial assets and liabilities such as accounts receivable/payable, assets (such as shares) representing equity in other organisations (including public trading enterprises), liabilities for unfunded employee entitlements and assets and liabilities in the form of long-term trade credit.

Net Interest Cost Ratio

The ratio of net interest costs met from the General Government sector (where net interest costs are defined as gross interest expenses less interest revenue and interest received from investments) to total revenue of the General Government sector net of total interest recoveries.

Nominal Terms

Values expressed in nominal terms are actual values at a point in time and reflect changing price levels over time. The term is used to contrast with 'real terms'.

Outcomes

There are three different levels of outcomes.

• Community Outcomes are the long-term, high level objectives sought by the Government for the benefit of the Tasmanian community. These Outcomes are at such a high level that all of the activities of the State Service, along with contributions from the non-government sector of the Tasmanian community, contribute to their achievement.

• Government Policy Priorities are those policy directions which indicate a change in direction, an area of reform or a change in priority.


• Agency Outcomes are those Outcomes for which an agency can be held accountable, and the achievement of which contributes not only to the Government Policy Priorities but also to the Community Outcomes.

Output

An identifiable good or service produced by, or on behalf of, a department and provided to customers outside the department. The Government purchases Outputs in order to achieve policy objectives or Outcomes.

Output Expenditure

Expenditure over which a department has flexibility to reallocate funds to other Outputs within the limits of Budget allocation principles.

Output Methodology

A system of operating, budgeting and reporting which focuses attention on the Government's desired policy Outcomes and the level of Outputs required to be provided by the Government in order to achieve those Outcomes.

Premiers' Conference

A meeting of the Prime Minister, State Premiers and the Chief Ministers of the two Territories, which prior to the year 2000 was held annually, to deal with Commonwealth-State financial relations issues. Under the IGA, this meeting has been replaced by the Treasurers' Conference.

Public Account

The account established by the Public Account Act 1986. It consists of two separate Funds: the Consolidated Fund and the Special Deposits and Trust Fund.

Public Debt

The indebtedness to the Commonwealth for the State's share of loan raising under the Financial Agreement.

Public Non-Financial Corporation Sector

The PNFC comprises those entities that aim to cover the majority of their expenses by revenue from the sale of goods and services and which are mainly market, non-regulatory and non-financial in nature. Generally, this sector covers the State's Government Business Enterprises (GBEs) and State-owned Companies (SOCs).

Public Financial Corporations Sector

The Public Financial Corporations Sector comprises those entities that provide financial services, including central borrowing authorities (the Tasmanian Public Finance Corporation) and insurance companies (Motor Accidents Insurance Board).

Central borrowing authorities provide finance for other government entities and arrange investments of their surplus funds.


Real Terms

Statistics measured in real terms remove the effects of rising prices or inflation to facilitate a more accurate measure of change over time. Such values are now most commonly referred to in terms of constant price estimates or chain volume measures (where changing price relativities are factored in from year to year). Except where otherwise stated, figures in the Budget documents expressed in real terms are calculated using the Gross State Product Implicit Price Deflator (GSP IPD).

Recurrent Services

That part of expenditure from the Consolidated Fund which relates to the 'ordinary annual' expenditures of the Government that are incurred in the production of Outputs. The major components of expenditure are salary and administrative and operating expenses, including building services and maintenance and furniture and equipment purchases. In addition, Recurrent Services include Grants and Subsidies expenditure and Reserved by Law payments.

Reserved by Law Payments

Reserved by Law payments are recurrent expenditures that are made where there is a legislative requirement for funding to be provided for specific purposes without the necessity for a separate appropriation.

Royalty

A payment made for the use of publicly owned resources such as timber, water, fish, minerals or intellectual property.

Special Deposits and Trust Fund

A Fund established under the Public Account Act 1986 which comprises various individual accounts designated for specific purposes.

Specific Purpose Payments (SPPs)

SPPs (also known as tied grants) are payments made by the Commonwealth to the states and territories, generally under section 96 of the Constitution, for the purposes, and on such terms and conditions, as may be specified by the Commonwealth. All SPPs of a recurrent nature are in the form of grants, while a small amount of assistance of a capital nature takes the form of advances.

State Capital Program

The State Capital Program comprises the capital programs of State authorities, GBEs and SOCs and the capital expenditure programs of Government departments. Details of the State Capital Program are provided in Chapter 6 of Budget Paper No 1 Budget Overview 2004-05. It provides information on the whole State public sector's capital expenditure in Tasmania.

State Debt

The total of debt incurred by the State under the Financial Agreement and borrowings through Tascorp.


State Government Concessions

A State Government Concession is a reduction, discount, subsidy, rebate or waiver/exemption provided by a State Government agency on the value of goods or services (associated fees) to an individual, family or household based on one or more of the following eligibility criteria:

• low income;

• in recognition of age or service to the country or community; and

• special needs or disadvantages.

Eligibility is usually, but not always, linked to the production by the recipient of a specified concession card to indicate their inclusion in one of the above groups.

State-owned Company

State-owned Companies (SOCs) operate outside the Public Account, principally on the basis of funds derived through their operations and are subject to Corporations Law. They have no impact on the Consolidated Fund except in circumstances where they receive payment for services provided by the SOC to the Government, or provide dividends, taxation equivalents or guarantee fees to the Government.

State Public Sector Debt

The term used to describe the overall indebtedness of the Government and its State authorities, which includes repayable advances from the Commonwealth to the State for specific programs.

Statutory Authority

Statutory authorities are each established under specific legislation which defines the purpose for which they are established and the general functions for which they are responsible. Statutory authorities can be classified into two distinct categories, namely:

• those authorities that are subject to specific requirements contained in their enabling legislation; and

• those authorities which are subject to provisions contained in their enabling legislation and are also subject to the provisions of the Government Business Enterprises Act 1995 (GBE Act). Authorities in this category are those which undertake commercial trading activities. These authorities are described as GBEs.

Statutory Office

A position established under an Act of Parliament, for example the office of Auditor-General.

Supply Act

The purpose of a Supply Act is to appropriate funds for payments necessary for the ongoing business of the Government during the period between the first day of each financial year and the passing of the Consolidated Fund Appropriation Bill. It lapses when the Consolidated Fund Appropriation Act is passed. In previous years, where the Budget was introduced into Parliament and finally passed by Parliament well into the Budget year, the Supply Act played a very important role in the provision of funds to agencies. Since the movement to a May Budget in 1999, a Supply Act has not been required.


Tascorp

The Tasmanian Public Finance Corporation (Tascorp) acts as the State's central borrowing authority for the Government and raises funds for State authorities, GBEs and SOCs. It also provides an investment facility for these entities.

Taxation

A compulsory levy or impost which the Government imposes on transactions, inputs, documents, property and certain activities for the purpose of raising revenue. Unlike a charge, fee or royalty, a tax does not carry a specific entitlement to goods and services.

Taxation Equivalents

Taxation equivalents are tax-like payments that are required to be paid to the Tasmanian Government by GBEs and SOCs, in line with National Competition Policy principles, to compensate for GBEs and SOCs being exempt from Commonwealth income tax. Taxation equivalents are applied to ensure that GBEs and SOCs are not placed at a competitive advantage due to their exemption from this tax.

Territorial Revenue

Revenue arising from the sale, rent or other use of Crown land or property rights.

Treasurers' Conference

Under the IGA, the Treasurers' Conference is established, comprising the Treasurer of the Commonwealth and the Treasurers of the states and territories. The detailed responsibilities of the this forum are provided in the IGA.

Treasurer's Reserve

An appropriation to the Treasurer to provide funds to meet expenditure which could not have been reasonably foreseen at the time of preparation of the Budget. The Treasurer's Reserve is comprised of a statutory amount of $10 million, as provided for in the Public Account Act 1986, together with any additional amount appropriated.

Uniform Presentation Framework (UPF)

The May 1991 meeting of the Premier's Conference agreed to the introduction of the Uniform Presentation Framework in 1991. The primary objective of the UPF is to ensure that Commonwealth, state and territory governments provide a common core of financial information in their Budget Papers to provide more meaningful comparisons of each government's financial results and projections.

The format of the UPF was last revised in March 2000 to adopt accrual Government Finance Statistics based reporting.

Vertical Fiscal Imbalance

An imbalance between the expenditure responsibilities of each tier of government and the own-source revenue resources available to that tier. Australia is characterised by significant vertical fiscal imbalance, since the Commonwealth raises around 72 per cent of national tax revenues but has direct responsibility for only approximately 54 per cent of all public sector outlays.


Works and Services

That part of Consolidated Fund expenditure relating to the construction, purchase and maintenance of major capital assets such as roads, public housing, schools, hospitals and equipment. Works and Services expenditure is reflected in the Roads, Housing and Department's Capital Investment Programs and the appropriation of funds to the Economic and Social Infrastructure Fund.