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Consideration of Queensland Treasury and Trade Annual Report

2013-14

Report No. 56Finance and Administration CommitteeDecember 2014

Parliamentary

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Consideration of Queensland Treasury and Trade Annual Report

2013-14

Report No. 56 Finance and Administration Committee December 2014

Finance and Administration Committee iii

FINANCE AND ADMINSTRATION COMMITTEE

Chair Mr Steve Davies MP, Member for Capalaba

Deputy Chair Mr Curtis Pitt MP, Member for Mulgrave

Members Mrs Liz Cunningham MP, Member for Gladstone

Dr Bruce Flegg MP, Member for Moggill

Mr Reg Gulley MP, Member for Murrumba

Mrs Freya Ostapovitch MP, Member for Stretton

Mr Mark Stewart MP, Member for Sunnybank

Staff Ms Deborah Jeffrey, Research Director

Dr Maggie Lilith, Principal Research Officer

Mrs Lynette Whelan, Executive Assistant

Mrs Julie Fidler, Executive Assistant (from 5 August 2014)

Contact details Finance and Administration Committee Parliament House George Street Brisbane Qld 4000

Telephone +61 7 3406 7576

Fax +61 7 3406 7500

Email [email protected]

Web www.parliament.qld.gov.au/fac

mailto:[email protected]

http://www.parliament.qld.gov.au/fac

iv Finance and Administration Committee

Contents

Abbreviations vi

Abbreviations (cont.) vii

Glossary vii

Chair’s Foreword ix

1 Introduction 1 1.1 Role of the Committee 1 1.2 Conduct of the Inquiry 2

2 Annual Report 2013-14 2 2.1 Organisational Structure 3 2.2 Key Achievements 5

2.2.1 Strategic plan 6 2.2.2 QTT’s renewal framework 7 2.2.3 Consultants and Contractors 8 2.2.4 Forecasts underpinning the budget 9 2.2.5 Review of government banking 10 2.2.6 Great Start Grants 11 2.2.7 Land tax exemptions 12 2.2.8 State Penalties Enforcement Registry changes 12

2.3 Departmental workforce 13 2.4 Key Performance Indicators 15 2.5 Committee Comments 16

3 Financial Statements 2013-14 17 3.1 Statement of Controlled Comprehensive Income 18 3.2 Statement of Controlled Financial Position 19 3.3 Statement of Administered Comprehensive Income 20 3.4 Ratio Analysis 25 3.5 Committee Comments 25

4 Comparison of actual results to estimated actual results contained in budget papers 25 4.1 Committee comments 28

5 Queensland Treasury’s role as a central agency 28 5.1 Report on State Finances 28 5.2 Consolidated Fund Financial Report 29 5.3 Mid Year Fiscal and Economic Review 29

Finance and Administration Committee v

Appendices 30 Appendix A – Officers appearing on behalf of the department at public departmental hearing – Wednesday 29 October 2014 31 Appendix B – Ratio Analysis 32

Abbreviations and Glossary Consideration of QTT Annual Report 2013-14

vi Finance and Administration Committee

Abbreviations

AASB Australian Accounting Standards Board

CFFR Consolidated Fund Financial Report

CFO Chief Finance Officer

CIF Community Investment Fund

CIO Chief Information Officer

CNF Competitive neutrality fee

COO Chief Operating Officer

FAA Financial Accountability Act 2009

FAC Finance and Administration Committee

FPMS Financial and Performance Management Standard 2009

GGS General Government Sector

GOC Government Owned Corporation

GST Goods and Services Tax

KPIs Key Performance Indicators

LNG Liquefied natural gas

MAIC Motor Accident Insurance Commission

MOG machinery of government

MYFER Mid Year Financial and Economic Review

OSR Office of State Revenue

PFE Public Financial Enterprises

PNFC Public Non-Financial Corporations

PNFS Public Non-Financial Sector

PPPs Public private partnerships

QAO Queensland Audit Office

QCA Queensland Competition Authority

QGIF Queensland Government Insurance Fund

QTC Queensland Treasury Corporation

QTH Queensland Treasury Holdings Pty Ltd

Consideration of QTT Annual Report 2013-14 Abbreviations and Glossary

Finance and Administration Committee vii

Abbreviations (cont.)

QTT Queensland Treasury and Trade

RAB Regulated asset base

SCUH Sunshine Coast University Hospital

SPER State Penalties Enforcement Registry

TIQ Trade and Investment Queensland

TSS Total State Sector

UPF Uniform Presentation Framework

Glossary

Acts All Acts referred to in this report refer to Queensland Acts unless otherwise specified.

general government sector (GGS)

means the institutional sector comprising all government units and non-profit institutions controlled and mainly financed by government, as defined in Australian Accounting Standard AASB 1049

The Committee Finance and Administration Committee

The department Queensland Treasury and Trade

Chair’s Foreword Consideration of QTT Annual Report 2013-14

viii Finance and Administration Committee

Consideration of QTT Annual Report 2013-14 Chair’s Foreword

Finance and Administration Committee ix

Chair’s Foreword

Under the Parliament of Queensland Act, parliamentary committees may perform its role in relation to examination of the public accounts related to its portfolio area. The Committee has responsibility to assess the integrity, economy, efficiency and effectiveness of government financial management by examining government financial documents; and considering the annual and other reports of the auditor-general. With this in mind, the Committee agreed to examine the annual reports of the entities for which it has portfolio responsibilities. This report is the result of that assessment.

On behalf of the Committee, I would like to thank Queensland Treasury and Trade for their assistance. In particular, the Committee wishes to thank the officers who meet with the Committee and provided additional information as requested.

Finally, I would like to thank the other Members of the Committee and committee secretariat for their valuable contribution and their continuing hard work in undertaking the work of the Committee.

Steve Davies MP Chair

Consideration of QTT Annual Report 2013-14

x Finance and Administration Committee


Finance and Administration Committee 1

1 Introduction

1.1 Role of the Committee

The Finance and Administration Committee (the Committee) is a portfolio committee established by the Parliament of Queensland Act 2001 and the Standing Orders of the Legislative Assembly on 18 May 2012.1 The committee’s primary areas of responsibility are:

Premier and Cabinet; and

Treasury and Trade.

In relation to its areas of responsibility, the Committee:

examines bills to consider the policy to be enacted and the application of the fundamental legislative principles set out in the Legislative Standards Act;

examines the estimates of each department;

considers the lawfulness of subordinate legislation;

assesses the public accounts of each agency within the areas of responsibility in regard to the integrity, economy, efficiency and effectiveness of financial management by:

examining government financial documents; and

considering the annual and other reports of the Auditor-General;

consider the public works of each agency within the areas of responsibility in light of matters including, but not limited to the:

suitability of the works for the purpose;

necessity for the works;

value for money of the works;

revenue produced by, and recurrent costs of, the works, or estimates of revenue and costs;

present and prospective public value of the works;

procurement methods used for the works; and

the suitability of the works in meeting the needs and achieving the stated purposes of the works.

Section 92(2) of the Parliament of Queensland Act 2001 provides that a portfolio committee is to also deal with an issue referred to it by the Assembly or under another Act, whether or not the issue is within its portfolio area.

The Committee also has oversight functions in relation to the Auditor-General, the Integrity Commissioner and the Family and Child Commission.

1 Parliament of Queensland Act 2001, s88 and Standing Order 194


2 Finance and Administration Committee

1.2 Conduct of the Inquiry

One of the functions of the Committee, as prescribed in section 95 of the Parliament of Queensland Act 2001 is to assess the public accounts of each agency within the areas of responsibility in regard to the integrity, economy, efficiency and effectiveness of financial management by examining government financial documents.

Government financial documents are defined in the Act to include—

(a) a document tabled in the Assembly under the Financial Accountability Act 2009; and

(b) the annual financial statements and annual reports of Government Owned Corporations (GOC) or the Authority; and

(c) a document that would be a government financial document if it had been tabled in the Assembly as required by law;

but does not include estimates of receipts for the proposed expenditure under an Annual Appropriation Act.2

The annual reports of its portfolio agencies therefore fall within the definition of a government financial document.

The Treasurer and Minister for Trade tabled the Queensland Treasury and Trade (QTT) Annual Report 2013-14 on 30 September 2014.

The Committee resolved to consider the QTT annual report in further detail and invited the department to a public hearing held on Wednesday 29 October 2014. A list of officers who gave evidence at the hearing is contained in Appendix A. In addition, the Committee sought and received additional written information from the department.

Copies of the hearing transcript and answers to questions taken on notice at the hearing are available from the Committee secretariat or on the Committee’s web page at: http://www.parliament.qld.gov.au/work-of-committees/committees/FAC

2 Annual Report 2013-14

Section 63 of the Financial Accountability Act 2009 (FAA) prescribes that accountable officers and statutory bodies must prepare annual reports for their agency in accordance with the requirements set out in the Financial and Performance Management Standard 2009 (FPMS). QTT’s Annual Report was tabled on 30 September 2014. QTT has prepared financial statements in compliance with section 42 of the FPMS.

The Annual Report identifies that QTT’s vision is to deliver better financial and economic outcomes to improve prosperity for Queenslanders that is sustainable across generations.3

The report states with regard to its clients that:

Treasury’s diverse portfolio is reflected in a broad range of clients: from the Premier and the Treasurer and Minister for Trade for whom we provide high-level fiscal, economic, commercial advice and support; Government agencies with whom we partner to meet their infrastructure and procurement needs; the business and the non-government sectors, through to first homebuyers and fine debtors.4

2 Parliament of Queensland Act, section 79 3 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 5 4 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 5

http://www.parliament.qld.gov.au/work-of-committees/committees/FAC



The key responsibilities of QTT are:

Fiscal services – provide policies, strategies and advice at a whole-of-Government level, manage the State’s finances in accordance with the Government’s fiscal strategy and drive the State Budget toward a fiscal surplus by 2015-16. Key clients are the Premier, the Treasurer and Minister for Trade and the Assistant Minister for Finance, Administration and Regulatory Reform on fiscal and economic policy.

Economic services – provides economic analysis and policy advice, statistical, economic and demographic research and advice across Government, and manages the State’s shareholding interest in the Government-owned corporations (GOC) sector. Principal clients are the Treasurer and Minister for Trade, the Assistant Minister for Finance, Administration and Regulatory Reform and shareholding Ministers.

Commercial services/Projects Queensland – investigate and evaluate funding, procurement and delivery models for infrastructure projects with a focus on potential private investment in public infrastructure, and manage the business case and procurement phases of major infrastructure projects for the Government. Manage business case and procurement phases for potential public-private partnerships (PPPs) for specific Government agencies and GOCs.

Revenue management – administers a revenue base of $12.5 billion and grants of $100 million. Provide legislative and policy advice, revenue forecasting and trend analysis for the Queensland Government.

Statutory bodies – has responsibility for five statutory bodies: the Motor Accident Insurance Commission (MAIC), Nominal Defendant, Queensland Treasury Corporation (QTC), Trade and Investment Queensland (TIQ) and the Queensland Competition Authority (QCA).5

The Under Treasurer identified in his report that during 2013-14 much of the department’s energy was devoted to the ongoing task of fiscal consolidation and implementation of the Government’s renewal agenda, including Commission of Audit recommendations. He noted that QTT is responsible for implementing 33 recommendations, of which nine have already been implemented in full and a number of others are in train. The Under Treasurer also noted that QTT has a central and ongoing role in supporting renewal across government.6

2.1 Organisational Structure

The Annual Report contains a copy of the organisation structure applicable as at 30 June 2014. Figure 1 depicts the department organisational structure as contained in the annual report.

The report identifies that during 2013-14 the department had the following specialist divisions:

Fiscal services

Economic services

Commercial services/Projects Queensland

Revenue management services

5 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 5 6 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 2



Figure 1: QTT Organisational Structure as at 30 June 2014:

Source: Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 8

The Annual Report identifies that the statutory bodies and entities, listed in table 1 below, prepared separate annual reports which were provided to the Treasurer and Minister for Trade. The Treasurer and Minister for Trade is a joint Minister, with the Minister for Energy and Water Supply for the Queensland Bulk Water Authority (trading as Seqwater).7

Table 1: Statutory instrumentalities listed who prepared annual reports which were provided to the Treasurer and Minister for Trade

Name of body Constituting Annual Report arrangements

Motor Accident Insurance Commission Motor Accident Insurance Act 1994 Separate Annual Report prepared – tabled 30 September 2014

Nominal Defendant Motor Accident Insurance Act 1994 Included in MAIC Annual Report

Queensland Competition Authority Queensland Competition Authority Act 1997

Separate Annual Report prepared – tabled 30 September 2014

Queensland Treasury Corporation Queensland Treasury Corporation Act 1988


Trade and Investment Queensland Trade and Investment Queensland Act 2013


Source: Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 122

7 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 122



2.2 Key Achievements

The Annual Report highlighted a number of major initiatives and key achievements in each departmental service area.

QTT achievements within each group throughout the year included:

Fiscal group:

Developed the 2014-15 State Budget

Published the 2012-13 Report on State Finances and the 2013-14 Mid-Year Fiscal and Economic Review

Played the lead role in improving the quality and quantity of frontline social services for vulnerable Queenslanders (a key Commission of Audit recommendation) via the Social Services Reform program

Economic Services group:

Worked to extend the role of QCA to include researching the productivity of particular sectors of the economy

Provided advice on complex policy issues including electricity pricing and reform and local management of irrigation schemes

Led key elements of a whole-of-Government framework for measuring and reducing the burden of regulation, facilitating the establishment of a baseline measure and specific red tape reduction targets for agencies

Prepared submissions and engaged directly with the Commonwealth Grants Commission in relation to its 2015 Methodology Review for the Distribution of GST

Commercial Services/Projects Queensland group:

Finalised contractual arrangements with Plenary Schools, Telstra Corporation Limited and Bombardier NGR

Secured federal funding and commenced the expression of interest phase for Toowoomba Second Range Crossing

Oversee and coordinate construction of 1 William Street

Finalised the procurement phase of the Queensland Government Banking Services project

Provided commercial and financial advice to agencies and GOCs on a range of infrastructure and capital projects

Revenue management services group:

Managed $12.5 billion in revenue and grants of $100 million

Paid 4,985 Great Start Grants to first homeowners

Implemented an increase in insurance premium duty, as part of Queensland’s response to the National Disability Insurance Scheme



Expanded our QGrants module Management System to kindergarten and early years grants

Developed a new business model that will optimise debt recovery and enforcement for the State Penalties Enforcement Registry (SPER)8

The Under Treasurer highlighted what he considered to be some of the key achievements for the year, including:

…we supported the preparation of the 2014-15 budget, which will deliver an operating surplus for the current year, and the budget remains on track for a fiscal surplus in 2015-16—the first in a decade. Projects Queensland has had some outstanding results in delivering some major projects during the year: 10 new schools in South-East Queensland under the Queensland schools PPP; new-generation rolling stock involving 75 six-car train sets; and the government wireless network, the first part of which will be operational for G20 in a few weeks time. We have secured federal funding for the Toowoomba second range crossing and we are in the RFP stage of that process, and the 1 William Street construction is progressing ahead of schedule, and you can see it rising above Parliament House behind us somewhere.

At that whole-of-government level, Treasury has procured a new whole-of-government banking contract which will deliver significant benefits across government services. We have led key economic policy efforts in red-tape reduction. We have delivered the Social Services Investment Framework and implemented the Queensland Government Investment Portal as a key step forward for funding opportunities for this sector, and we have supported the Strong Choices campaign about options for reducing the state’s debt levels.9

The Committee sought additional information from the department on the following areas:

Strategic plan

QTT’s renewal framework

Consultants and contractors

Forecasts underpinning the budget

Review of government banking

Great Start Grants

Land Tax Exemptions

SPER changes

2.2.1 Strategic plan

The Annual Report details that QTT’s strategic plan will focus its attention on fiscal strength and economic growth, investing in the community and empowering its people. It will achieve this by having highly skilled and capable people who are committed to delivering better outcomes for the community.10

8 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 19-22 9 Mr Gray, Transcript 29 October 2014: 2 10 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 4



The Under Treasurer advised the Committee that early in the year, QTT developed a new strategic plan aiming for better financial and economic outcomes to improve prosperity, that is sustainable across generations, for Queenslanders. He advised that under the new strategic plan, QTT is focusing its attention on fiscal strength and economic growth, investing in the community and empowering people.11

The Under Treasurer advised that:

Throughout the year Treasury created the right structure for the challenges ahead and consolidated its core strengths, particularly in the economic and fiscal disciplines. The revised structure of Treasury not only provides more depth and support to these critical functions but also allows for more efficient decision-making processes and more opportunities for skill development across Treasury’s workforce.12

2.2.2 QTT’s renewal framework

The Annual Report identifies that the QTT Renewal Program has provided the department with an opportunity to reshape the way they do business, refresh their workforce and restructure the way they operate.13

The report notes that QTT’s Agency Renewal Committee comprises the Under Treasurer, Deputy Under Treasurers and Chief Operating Officer. The Committee has developed a transformational strategy and during the year oversaw a suite of renewal initiatives.14

The report identifies that QTT’s progress has included the following:

Developed a new business model for SPER which has been endorsed by government. This business model includes bringing in private sector expertise to transform how fines and penalties are collected in Queensland.

Launched the Social Services Reform Program, addressing how the government can achieve better and more sustainable services for vulnerable Queenslanders. QTT’s focus in the year ahead will be on developing a more efficient grant administration system.

Created TIQ as a statutory body, to give it autonomy and flexibility to more efficiently respond to the needs of Queensland businesses in export markets.

In the MAIC, the department began moving Nominal Defendant compulsory third party claims to a computer-imaged system with better workflow management to reduce costs and resolve claims more quickly. QTT will expand the review into a broad range of service delivery options in 2014-15.

The Office of State Revenue (OSR) developed a vision, mission and strategic objectives linked to the QTT strategic plan and will ramp up its renewal program in 2014-15.

QTT undertook the first stage of a significant business productivity review, examining work practices to improve processes and position QTT to be more strategic and proactive in fiscal and economic management of the State.15

11 Mr Gray, Transcript 29 October 2014: 1 12 Mr Gray, Transcript 29 October 2014: 2 13 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 3 14 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 3 15 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 3



The Under Treasurer confirmed that QTT’s major body of work in 2013-14 was the strategic plan and the broader renewal program which has enabled them to focus on the way the department does its business, refreshing its workforce and restructuring the way they operate.16

The Committee noted that the Under Treasurer talked, in his report on page 2 of the Annual Report, about one his early priorities being to challenge Treasury’s existing way of doing business and that he undertook a grass roots review of internal systems and processes to improve productivity. The Committee sought additional information on what processes were retired and how were they replaced or rejuvenated. The Under Treasurer advised that they hired a consultant to undertake a productivity review which focused on a few key areas.17

The Under Treasurer advised:

We did a couple of the budget areas. We also did the old GOC unit, which was at that stage in Projects Queensland. So what we did is we looked at the end-to-end processes and actually analysed what people were spending their time on. The process or the methodology that was used by the consultants involved identifying noise—what they called noise—which is effectively time spent on wasted activities or low-value activities. So we have attempted to ensure that we redirect our resources into spending more time on higher value-adding, more strategic activity. So that end-to-end process has looked at our interaction with agencies in respect of the budget process and how we process paperwork internally within Treasury.18

The Under Treasurer advised that the review found that QTT officers spent a lot of time double-checking the figures that come from other agencies rather than spending time on more strategic issues. The Under Treasurer confirmed that the review was very much around ensuring that time is spend on more effective and productive activities.19

2.2.3 Consultants and Contractors

The Annual Report identifies that QTT spent $39,955,000 on Consultants and Contractors during the 2013-14 financial year.20 QTT spent $30,894,000 in 2012-13 and $15,002,000 in 2011-12 on Consultants and Contractors.21

With regard to the availability of a list of consultants and contractors, the Under Treasurer advised that a summary of consultants is available on QTT’s website.22

The Committee noted that the amount spent on consultants and contractors increased significantly since 2011-12. It was advised that there were a number of factors involved, including the commencement of operations by Projects Queensland in July 2012, which has had a number of major projects, and the need to employ consultants and advisors to assist in that process and initial scoping studies.23

16 Mr Gray, Transcript 29 October 2014: 1 17 Mr Gray, Transcript 29 October 2014: 3 18 Mr Gray, Transcript 29 October 2014: 3 19 Mr Gray, Transcript 29 October 2014: 2-3 20 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 75 21 Queensland Treasury and Trade, Annual Report 2012-13, September 2013: 87 22 Mr Gray, Transcript 29 October 2014: 2 23 Mr Gray, Transcript 29 October 2014: 3



The Committee sought information about the change in presentation of consultants and contractors expenses and in particular the consultants used for scoping studies, in the annual report. The Under Treasurer advised that the cost of the scoping studies and asset transactions is being met through QTC. He advised that QTT needed to establish a team to go offline and undertake a significant body of work. QTT were stretched for resources internally due to changes within QTT. QTC had the capacity to establish a stand alone unit and the space to be able to isolate this team for confidentiality reasons. So for reasons of convenience it was decided to have QTC undertake this work.24

With regard to the presentation of the expense figures, QTT advised that historically different transactions have been treated in different ways for various reasons. In this instance, QTT had a capacity constraint and QTC exists to facilitate and undertake work like this on the government’s behalf. QTT advised that transactions go through different phases and whilst QTC might undertake the initial scoping phase, but when a transaction is in full swing a different structure might be used. It depends on each circumstance.25

The Under Treasurer confirmed that the advisor costs are commercial-in-confidence at this time but will be released as part of transaction summary reports at the completion of the transactions if the transactions proceed.26

2.2.4 Forecasts underpinning the budget

The Committee sought details regarding how the state is tracking in terms of the forecasts that underpin the budget. The Under Treasurer advised that the world economic outlook remains subdued and there has been some recent instability in world financial markets. The Under Treasurer confirmed that QTT continues to examine forward estimates closely and will be updating the forward estimates in December for the Mid Year Fiscal and Economic Review (MYFER).27

The Under Treasurer advised that QTT has adopted a fairly conservative approach to forecasting revenue. He advised that QTT often gets criticised for being too conservative in its forecasts. However, he considers that being conservative is the right thing to do. He advised that QTT remains confident that the budget forecast of six per cent economic growth for 2015-16 can be achieved. He advised that LNG gas exports will underpin this growth. Beyond 2015-16, QTT remains confident of the four per cent per annum growth forecast in line with the long-term average rate of growth.28

The Committee was advised that the resources sector has declined fairly dramatically, but the tourism and property and construction sectors have been picking up. The Under Treasurer noted that whilst there are some difficulties in the structural adjustment process out of resources into other sectors, Queensland has a broadly based economy and the transition into other sectors is continuing to occur.29

24 Mr Gray, Transcript 29 October 2014: 4 25 Mr Beavers, Transcript 29 October 2014: 5 26 Mr Gray, Transcript 29 October 2014: 5 27 Mr Gray, Transcript 29 October 2014: 3 28 Mr Gray, Transcript 29 October 2014: 3 29 Mr Gray, Transcript 29 October 2014: 3



The Committee asked how much LNG exports were contributing to economic growth. QTT advised that based on forecasts at budget time, LNG exports are expected to contribute around three and three-quarters percentage points to the forecast six per cent GSP growth in 2015-16. This contribution is expected to be around one percentage point in both 2014-15 and 2016-17 and around a quarter of a percentage point in 2017-18. QTT advised that, while they have not produced forecasts beyond 2017-18, LNG exports are not expected to contribute significantly to growth beyond that year, as the LNG plants are assumed to have ramped up to full capacity from that time and QTT has not factored in any further expansions in capacity beyond that currently under consideration.30

The Committee sought additional information regarding the slowdown in domestic activity. The Under Treasurer confirmed that the slowdown is reflected in state final demand, which is activity within the state, and reflects the transition process of moving from resources into some other activities such as tourism, property and construction. The Under Treasurer advised that these other activities are starting to build up and he considers that these activities will start to flow through into state final demand.31

He advised that state final demand only presents part of the picture and exports provide the other contribution to economic growth. Queensland has always been a large exporting state. The Under Treasurer indicated that, apart from exports of resources, including LNG, he is encouraged by the export activity in areas such as education, health and information technology.32

The Under Treasurer advised that recent figures have indicated that business conditions were a bit subdued but business confidence looking forward is the strongest of any state.33

2.2.5 Review of government banking

The Annual Report identifies that the government’s banking and receipting services contracts expired on 30 June 2014. QTT managed a procurement process to secure replacement contracts with a view to achieving greater efficiency and deliver better value for money. The scope of the replacement contracts covered:

transactional banking and merchant services, such as establishment and maintenance of bank accounts and funds transfer facilities

corporate purchasing card services

agency revenue collection services34

The Annual Report states that throughout 2013-14, QTT worked with other government agencies on a competitive procurement process for a new banking services arrangement and this process attracted strong interest from the market. The procurement process was completed in August 2014 and the implementation of the new arrangements will be managed within QTT.35

30 Correspondence to FAC from Under Treasurer, QTT, dated 31 October 2014: 1 31 Mr Gray, Transcript 29 October 2014: 6 32 Mr Gray, Transcript 29 October 2014: 6 33 Mr Gray, Transcript 29 October 2014: 6 34 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 32 35 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 32



The Committee sought additional information about what benefits will come from the new system. The Under Treasurer advised that:

The whole-of-government banking project is spread out over a period of about 12 months or so and was finalised around 30 June this year and was awarded to the Commonwealth Bank in respect of the banking arrangements, also the Commonwealth Bank and MasterCard in respect of corporate card arrangements, and Australia Post in respect of other arrangements. As a starting point, it is a confirmation of existing arrangements, but there is enormous capacity for innovation in the way we go about our banking services. So we are in that phase now, and I have set up within Treasury a fiscal reform division—a whole fiscal reform division—of which there is a banking reform unit dedicated to driving those reforms out of the banking process. Those reforms are driving changes in the way we do basic functions like accounts receivable and accounts payable.

In parts of the government our accounts receivable and accounts payable processes are still very prehistoric, if I can use that word. In the digital age in which we live in now, with people being able to book theatre tickets and sporting tickets online and pay all sorts of things online, we still ask the public to pay through pretty ancient means including paying over the counter, cheques and things like that. Our ambition is to try to eliminate cheque transactions within government within the next 12 months or so and as much as possible to eliminate cheque transactions with external stakeholders over a longer period of time. We recognise there will be some people who will still want to pay by cheque or receive a cheque, but they will be very much at the margin. Certainly the uptake of new technology by the general population indicates that people are very willing and ready to pay with more efficient electronic means. So there will be significant improvements driven out of the reform of the accounts payable and accounts receivable processes.

2.2.6 Great Start Grants

The Committee sought information regarding the results of the Great Start Grant administered by QTT. The Under Treasurer advised with historically low interest rates, housing construction activity is strengthening during 2014-15.36 He advised that:

The Great Start Grant has provided a total of almost $125 million to more than 8,300 Queensland families to help them build their first home. It is obviously a boost to those families but also a boost to the construction sector.

Economic output of the construction sector totalled $26 billion in 2012-13, accounting for 9.4 per cent of total state output and making it the second largest industry after mining. So that is a very significant contribution from the construction industry. As I say, that is continuing to show signs of improvement. Employment in the construction industry averaged 230,700 persons in 2013-14, accounting for 9.9 per cent, or virtually 10 per cent, of total employment in Queensland. That was in 2013-14. I suspect in 2014-15 those figures will be higher.

Total trend private dwelling approvals were 13.2 per cent higher over the year to August 2014. Recent data on financing activity also suggests an improved outlook in the established housing market for both home occupiers and investors.37

36 Mr Gray, Transcript 29 October 2014: 5 37 Mr Gray, Transcript 29 October 2014: 5



2.2.7 Land tax exemptions

The Annual Report notes that the Revenue Management Services division within QTT will implement a new land tax exemption for people who acquire a new home but do not complete the sale of their old home by 30 June.38 The Committee sought additional information regarding this proposal.

The Under Treasurer advised that:

These people are in a transition or a twilight zone so this exemption is intended to address that issue. The 2014-15 state budget introduced a new land tax transitional home exemption to assist individuals who may incur a land tax liability on 30 June whilst in the process of transitioning from their old home into their new home. A land tax transitional home exemption applies where the individual—so these are the criteria—occupied their old home as their home on 30 June of the previous year, became the owner of their new home during the financial year before 30 June, occupied either their old home or their new home as their home on 30 June, continues to occupy their new home on 30 June of the following year and no longer owns their old home on 30 June the following year.39

2.2.8 State Penalties Enforcement Registry changes

The Annual Report identifies that as part of QTT’s commitment to public sector renewal, during 2013-14 they began reviewing the business model for SPER. This review examined ways to improve SPER’s debt recovery and enforcement services. From the review QTT has developed a new business model based on the appointment of a Debt Services Manager to manage a panel of private sector debt collection agents who will focus on the more ‘straightforward’ debts. The report identifies that client engagement and education will remain a central part of the charter and they will continue to manage the more complex debtors. The Annual Report notes that it is intended that the new business model will be fully implemented during 2014-15.40

The Committee sought additional information regarding the proposed changes. The Under Treasurer advised:

In recent years SPER has seen some significant growth both in the volume of debt and also in the complexity of some of the debt referred to it from a variety of agencies, including state agencies, local councils, universities et cetera. The debt level of the debt pool has been driven by population growth, increasing use of technology for automatic infringement detection—so that is red-light, speed and toll-road cameras—and the establishment of new infringement types including, obviously, toll evasion as the toll roads come into play in Brisbane and the offender debt levy. In particular, the introduction of new toll roads has had a significant impact on the growth of unpaid fines. So we have seen this enormous flood of debt coming into SPER. As at 30 June 2014, the outstanding debt in SPER was $842 million. So there has been a real need to address that flow of debt into SPER. In addition, the current ICT system is rapidly reaching the end of its useful life. So it does need to do something in any case.

38 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 22 39 Mr Gray, Transcript 29 October 2014: 6 40 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 35



The government’s SPER reform program has been developed as part of the renewal program and it involves developing and delivering a new service delivery model. That new model involves outsourcing some debt recovery to a broker—a debt services manager. So we are going to have a broker coordinating a series of debt collection agencies—a debt services manager as a broker then managing a series of debt collection agencies to undertake some of the debt recovery. Under this model, SPER will focus on what it is best placed to do and that is dealing with debt that requires escalated enforcement for debtors who cannot or will not pay and particularly those who have financial difficulties in paying some of those debts. The private sector, through the debt services manager and the debt collection agencies, will deal with the remaining debt, which it is well placed to do. That is the debt that, if you get to it early and get the right information, you can collect far more efficiently than we have been doing to date.

The new model is scalable so that it can respond to growing volumes more easily by spreading peak loads across a number of debt collection agencies. It also addresses the end-to-end fine collection processes across separate government agencies. Our reform program will also implement processes to address the significant aged legacy debt within that SPER debt pool, including the increased use of stronger enforcement options. In addition, we are looking to ensure that, in terms of the end-to-end solution, we address some of the upstream issues. By the time it gets into the SPER system it is already pretty much toxic debt. So what we are trying to do is encourage—say in respect of the toll roads—the toll road operators to more actively pursue the toll evaders earlier in the process so that they never get into the PIN, which is the penalties infringement notice, and then ultimately from the PIN into the SPER system.41

The Committee queried whether there will be a need for legislative change in order to achieve the proposed changes. The Under Treasurer advised that they do not think there will be a need for legislative change. He suggested that they could introduce a lower civil debt recovery threshold for toll road operators which would only involve an administrative process. He indicated that this will incentivise toll road operators to start the debt recovery process earlier.42

The Committee also queried the proposed time frames for the project and was advised that QTT have been in active discussions with toll road operators and they hope that this could be achieved within the next three to six months.43

2.3 Departmental workforce

The Annual Report identifies that the QTT workforce decreased in size during 2013-14. Table 2 details the QTT workforce as at 30 June 2014 in comparison to 30 June 2013.

41 Mr Gray, Transcript 29 October 2014: 7 42 Mr Gray, Transcript 29 October 2014: 7 43 Mr Gray, Transcript 29 October 2014: 7



Table 2: QTT workforce at a glance – 2011-12 and 2012-13

2012-13 2013-14

Number % of workforce Number % of

workforce Increase / (Decrease)

Percentage change

People 1,103 100.00% 9711 100.00% -132 -11.97%

FTE 1,058.77 95.99% 932.232 96.01% -127 -11.95%

Part time and casual staff 140 12.69% 127 13.08% -13 -9.29%

Men 502 45.51% 452 46.55% -50 -9.96%

Women 601 54.49% 519 53.45% -82 -13.64%

Aboriginal & Torres Strait Islanders 14 1.27% 9 0.93% -5 -35.71%

People from non-English speaking backgrounds 169 15.32% 145 14.93% -24 -14.20%

People with disability 67 6.07% 23 2.37% -44 -65.67%

Women in middle & upper management (AO7-AO8 levels) 119 10.79% 1043 10.71% -15 -12.61%

Women in senior officer & senior executive service (SO-CEO levels) 40 3.63% 344 3.50% -6 -15.00%

Average annual earnings by men $87,963.84 $88,905.72 $941.88 1.07%

Average annual earnings by women $72,777.55 $73,022.35 $244.80 0.34%

Permanent separation rate 7.94% 1 Represents decrease of 11.96%, attributed to TIQ being established as a statutory body. Headcount includes staff in MAIC and Nominal

Defendant. 2 Represents employees active and paid in final pay of 2013-14 financial year. FTE includes staff in MAIC and Nominal Defendant. 3 Represents 10.7% of band. 4 Represents 3.5% of band.

Source: Queensland Treasury and Trade, Annual Report 2012-13: 36 and Queensland Treasury and Trade, Annual Report 2013-14: 16

The Annual Report identifies that during 2013-14, six employees received redundancy packages at a cost of $362,164 (includes one voluntary redundancy for the MAIC). In addition to this, 10 employees were offered redundancy packages and nine accepted these packages with separation dates in July and August 2014. As at 30 June 2014 there were two employees who have not accepted an offer of a voluntary redundancy and are being supported to find alternative permanent employment in the Queensland public sector.44

The Under Treasurer advised the Committee that there have been a few leadership changes during 2013-14 with an infusion in particular of some new commercial and business experience. He advised that QTT has appointed its first Chief Operating Officer (COO) and its first Chief Information Officer (CIO). QTT has also appointed a new Chief Finance Officer (CFO), a new Commissioner of State Revenue and a new head of Projects Queensland.45

44 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 122 45 Mr Gray, Transcript 29 October 2014: 2



2.4 Key Performance Indicators

The Annual Report details the Key Performance Indicators (KPIs) for each of the departmental service areas. The following tables illustrate the KPIs for 2012-13 and 2013-14 together with the set targets.

Table 3: KPIs for Fiscal services – 2012-13 and 2013-14

Notes 2012-13 Target

2012-13 Actual

2013-14 Target

2013-14 Actual

Achievement of Government's four fiscal principles:

- to stabilise then significantly reduce debt Partially

met Partially met Partially

met Partially

met

- to achieve and maintain a general government sector fiscal balance by 2015-16

On track

Not met

On track

On track

- to maintain a competitive tax environment for business Met Met Met Met

- to target full funding of long term liabilities in accordance with actuarial advice Met Met Met Met

Quarterly reports on financial position completed within six weeks of quarter end 4 4 - -

Compliance with the UPF requirements and relevant AAS for whole of government financial reporting 100% 100% - -

Achievement of key milestones in the Budget process 100% 100% - -

Achievement of key milestones in the Report on State Finances process 100% 100% - -

Data provision to the Commonwealth Grants Commission and Australian Bureau of Statistics within agreed timeframes 100% 100% - -

Total cost of portfolio resource allocation advice $20.4m Discontinued - -


Table 4: KPIs for Economic services – 2012-13 and 2013-14


2012-13 Actual

2013-14 Target

2013-14 Actual

Cost of monitoring and governance per GOC $0.19m $0.23m - -

Stakeholder and client satisfaction with outputs (related satisfied or very satisfied 95% 99% 95% 98%

Percentage of GOC Statements of Corporate Intent (SCI) available for completion by 30 June 92% 92% - -

Percentage of quarterly performance monitoring reports completed within six weeks 100% 100% - -

Responses to requests for information 3,910 3,048 - -

Formal products and services delivered to Fiscal 60 24 - -

Formal products and services delivered to other clients 272 464 - -

Delivery of outputs within timeframes agreed with clients (excludes internet services) 95% 99% - -




Table 5: KPIs for Commercial Services/Projects Queensland – 2012-13 and 2013-14


2012-13 Actual

2013-14 Target

2013-14 Actual

Percentage of key project milestones met 1 New

Measure New

Measure 100% 89%

1 Following a review at the beginning of 2013-14 to ensure that the target accurately represents the outputs of Projects Queensland, the definition of milestones in this service standard has been widened to encompass stages of the projects rather than just project completion. The target based on the revised definition would have been 85 per cent.


Table 6: KPIs for Revenue Management Services – 2012-13 and 2013-14


2012-13 Actual

2013-14 Target

2013-14 Actual

Client satisfaction with services provided 1 70% 72% 70% 76.7%

Total revenue dollars administered per dollar expended – accrual 1 $196 $190 $192 $2040

Average overdue debt as a percentage of total revenue collected 1 1.5% 1.6% 2% 2%

SPER clearance rate (finalisations/lodgements) 2 76% 99% 77% 88%

SPER percentage of debt pool under compliance 55% 60% 58% 62%

Amount of revenue, grants and subsidies administered $12.4b $11.8b - -

Number of First Home Owner Grant (FHOG) applications paid 12,000 $12,757 - -

FHOG applications processed within service standards 95% 100% - -

Percentage of investigations performed within standards 90% 89% - -

Percentage of lodgements and payments received electronically 70% 83% - -

1 Increase due to lower than expected expenses. 2 Increase due to SPER business improvement initiatives and targeted approach to debt finalisation.


2.5 Committee Comments

The Financial Management Handbook identifies that:

Annual reports are key accountability documents that provide information to users about the achievements, performance and financial result of the agency for the financial year. The report also provides commentary on the outlook for the future direction of the agency. Users of annual reports include the public, members of Parliament, the media, other agencies and the agency itself.46

46 Queensland Treasury and Trade, Financial Accountability Handbook, Volume 5: Reporting Systems,

http://www.treasury.qld.gov.au/office/knowledge/docs/financial-accountability-handbook/5-5-annual-reports.pdf [28 May 2014]

http://www.treasury.qld.gov.au/office/knowledge/docs/financial-accountability-handbook/5-5-annual-reports.pdf



The Committee is satisfied that QTT’s 2013-14 Annual Report adequately addresses the requirements of the Financial Management Handbook.

3 Financial Statements 2013-14

Section 50 of the FPMS provides that the annual report of a department or statutory body must include:

the annual financial statements, including the management and audit certificates, and

the information required by the Annual Report Requirements for Queensland Government Agencies as prepared and released by DPC.

The Financial Management Handbook states that when reproducing the financial statements in the annual report, they must be exactly the same as those audited and certified by the Auditor-General (or delegate). No changes, however minor, are permitted.47

The FAA (section 77) also requires that the CFO must give the accountable officer a statement about whether the financial internal controls of the department are operating efficiently, effectively and economically. The statement must be given to the accountable officer in the way and at the time stated in the FPMS.48

With regard to the 2013-14 Financial Statements the Annual report states:

As required by the Financial Accountability Act 2009, our Chief Finance Officer provided a statement to our accountable officer, the Under Treasurer, assuring him of the efficiency, effectiveness and economy of our financial operations and governance. This statement indicated no deficiencies or breakdowns in internal controls which would impact adversely on our financial statements or governance for the year.49

QTT’s financial statements fall into two categories:

Administered, which report on the funds QTT administers on behalf of the Queensland Government in its role as the State’s financial manager.

Controlled, which disclose the revenue, expenses, assets and liabilities used to conduct the department’s business.

In 2013-14, QTT administered $29.23 billion of revenue and $6.61 billion of expenses on behalf of the State. This excludes administered item revenue which is appropriation revenue received from the Consolidated Fund to meet administered expenses. The largest single source of administered revenue was Commonwealth grants $16.06 billion, followed by State taxes, fees, fines and levies of $10.51 billion.50

The main component of Commonwealth revenues was Queensland’s share of the goods and services tax (GST). Other Commonwealth revenue includes funding for National Partnership Payments and Natural Disaster Relief and Recovery funding arrangements.51

47 Queensland Treasury and Trade, Financial Accountability Handbook, Volume 5: Reporting Systems,

http://www.treasury.qld.gov.au/office/knowledge/docs/financial-accountability-handbook/5-5-annual-reports.pdf [28 May 2014] 48 Financial Accountability Act 2009, section 77 49 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 36 50 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 36 51 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 36

http://www.treasury.qld.gov.au/office/knowledge/docs/financial-accountability-handbook/5-5-annual-reports.pdf



QTT administered a number of grants on behalf of the State in 2013-14 including the Great Start Grant, First Home Owner Grant, the Queensland Building Boost Grant and grants to the Queensland Reconstruction Authority.52

QTT’s controlled revenues consist principally of Parliamentary appropriations. In 2013-14, revenue allocated to services was $193.34 million (compared with $192.69 million in 2012-13).53

3.1 Statement of Controlled Comprehensive Income

Total income for the year ending 30 June 2014 decreased by $0.745 million from 2012-13.54 The table below identifies the summary of QTT’s Controlled Statement of Comprehensive Income including explanations of major variances.

Table 7: Comparison of the 2013-14 actual financial results with the 2012-13 actual financial results

Source: Queensland Treasury and Trade, Annual Report 2013-14: 40

The annual report also includes details of the QTT controlled key financial performance indicators which are detailed in table 8.

52 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 36 53 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 36 54 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 40



Table 8: Controlled key financial performance indicators – 2012-13 and 2013-14

2012-13 Actual

2011-12 Actual

2012-13 Actual

Net cost of services funded by appropriation ($m) $190.91 $153.95 $190.91

State funding as % of total revenues 90% 92% 90%

Fixed assets employed ($'000) $32,823 $40,983 $32,823

Net assets ($'000m) $55,486 $61,168 $55,486


3.2 Statement of Controlled Financial Position

The department reflected an equity decrease due to equity withdrawals where depreciation funding is provided via appropriation funding and the transfer of net assets related to MoG transfer of TIQ to a statutory body in 2013-14.55

The following table contains a comparison of the actual Statement of Financial Position as at 30 June 2013 with the Statement of Financial Position as at 30 June 2014, including reasons for variations.

Table 9: Comparison of the 2013-14 actual financial position with the 2012-13 actual financial results





3.3 Statement of Administered Comprehensive Income

Total income for the year ending 30 June 2014 increased by nearly $3.069 million from 2012-13.56 The table below identifies the Summary of QTT’s Administered Statement of Comprehensive Income including explanations of major variances.

Table 10: Comparison of the 2013-14 actual financial results with the 2012-13 actual financial results





The largest single source of administered revenue was Commonwealth grants of $16.06 billion, followed by State taxes, fees, fines and levies of $10.51 billion. The main component of Commonwealth revenues was Queensland’s share of the goods and services tax (GST). Other Commonwealth revenue includes funding for National Partnership Payments and Natural Disaster Relief and Recovery funding arrangements.57

The following table details QTT administered revenue for the last three financial years.

Table 11: Comparison of the administered revenue – 2011-12, 2012-13 and 2013-14

2011-12 2012-13 2013-14

Commonwealth funding as a percentage of total revenues 51% 39% 45%

State funding as a percentage of total revenues 17% 24% 18%

Funding from external sources as a percentage of total revenues 32% 32% 32%


The following tables detail the administered revenues and expenses by category.

Table 12: Administered royalties, State taxes, fees, fines and levies – 2011-12 and 2012-13

Category 2011-12 $billion

2012-13 $billion

2013-14 $billion

Payroll tax 4.07 4.32 4.46

Duties 3.19 3.08 3.73

Royalties 2.77 2.11 2.35

Gaming taxes and other taxes 0.96 0.99 0.99

Land tax 1.02 0.99 0.99

Fees, fines and levies 0.12 0.37 0.34


Table 13: Total administered expenses by category – 2011-12, 2012-13 and 2013-14

Category 2011-12 $billion

2012-13 $billion

2013-14 $billion

Superannuation benefit payments 2.12 3.23 2.18

Borrowing costs 1.43 1.71 2.00

Annual Leave Central Scheme 1.43 1.49 1.44

Grants and contributions 0.39 0.24 0.09

Long service leave reimbursements 0.40 0.51 0.41

Benefit payments 0.24 0.21 0.10

All other expenses 0.20 0.35 0.17

Supplies and services 0.16 0.17 0.23





The Committee noted that there was an increase in administered income between 2012-13 and 2013-14 and sought an explanation for the increase. The department advised that the increase of $3.069 billion in administered income is mainly due to the increase of $3.341 billion in Commonwealth grants and $0.78 billion in taxes, fees, levies and fines, partially offset by the reduction of $1.223 billion in administered item revenue.58

QTT advised that the increase in Commonwealth grants mainly comprised:

$1.494 billion due to the timing of funding provided by the Commonwealth for the Natural Disaster Relief and Recovery Arrangements, with grants received in 2013-14

$1.426 billion increase in GST funding due to an increase in the GST pool and Queensland's GST relativity

$0.174 billion in recurrent project National Partnership Payments due to new agreements in 2013-14 (including the 2018 Gold Coast Commonwealth Games and G20), partly offset by ceased agreements in 2012-13 and revised cash flows for current agreements

$0.155 billion in funding under the Students First – Education Reform funding arrangement, which commenced on 1 January 2014. Also contributing is the indexation of the government schools component of the previous National Schools Special Purpose Payments

$0.041 billion in additional funding received from the Commonwealth for public hospitals.59

The increase in taxes, fees, levies and fines relates to an increase in the collection of transfer duty of $0.647 billion and payroll tax of $0.142 billion by OSR. The reduction in administered item revenue reflects a reduction in administered expenses which are primarily funded by administered item revenue including superannuation benefit payments ($1.059 billion) and grants and contributions ($0.151 billion).60

The Committee noted that there was a decrease in grants and contributions expenses from the previous financial year. The notes to the accounts identify the reason as the abolition of the Community Investment Fund (CIF) effective 1 July 2013 and that departments now receive funding for their implementation directly from the Consolidated Fund. The Committee sought an explanation for this change.

QTT advised that the CIF was created to hold some of the revenue collected from specific gaming taxes for the benefit of the community. The change was made because the movement of funds was administratively complex and provided no demonstrable benefit to the community. Prior to the CIF’s abolition, payments were made to various accounts including the Consolidated Fund and then transitioned to the CIF. From the CIF, payments were made to a number of departments/agencies which then passed on the money for its ultimate intended purpose.61

The department advised that the expenditure obligations of the CIF exceeded its revenues so it received additional injections from the Consolidated Fund. In some instances, the lines of ministerial and departmental accountability blurred around the CIF and therefore the decision was made to abolish the CIF to achieve more efficient financial management. QTT confirmed that all the financial commitments previously attached to the CIF are now met from the Consolidated Fund.62

58 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 3 59 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 3 60 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 3 61 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 5 62 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 5



The explanation in the notes to the accounts for the decrease in grants and contributions also identifies that there was a cessation of grant funding to Seqwater as a result of Seqwater no longer paying competitive neutrality fees from 1 July 2013 following a revision of government policy.63 The Committee sought an explanation for the changes and the implications for future years. QTT advised:

Government made the policy decision that Seqwater is to receive, via bulk water prices, a return only equal to the costs of debt on its entire regulated asset base (RAB). This is a change from the previous government policy through which only "drought" assets received a cost of debt return and all other assets received a weighted average cost of capital (WACC) return. This WACC included a 1.16% competitive neutrality fee (CNF). The previous government policy in relation to the CNF was for Seqwater to pay the competitive neutrality fee to Queensland Treasury and Trade who then provided this money to the holder of the price path debt (formerly held by the SEQWGM) to pay down this debt. The revised policy position means that there is no longer WACC applied to Seqwater's RAB and therefore no longer a competitive neutrality fee payable by Seqwater.64

The Committee also sought an explanation for the increase in finance costs on the previous year which the notes identify was attributed to a provision of government services and capital program funding requirements. QTT advised that they:

…borrows through QTC on behalf of the State and its QTC interest therefore represents the majority of the whole-of-government finance costs. As per Budget Paper 2, page 142, the Government's capital program was budgeted to be $6,634 billion for 2013-14 with operating expenses of $47,149 billion partly funded by revenue of $44,851 billion. Net borrowings were expected to be $6.7 billion. That is, as long as the State Budget remains in fiscal deficit, as was the case in 2013-14, it can only be expected that borrowing costs will increase from year to year.65

The Annual Report identified that there was a decrease in superannuation benefit payments from the previous financial year. The notes outline that the decrease in 2013-14 reflects higher than average State share of benefit payments made during 2012-13 as a result of the voluntary redundancy program.66 The Committee sought additional information and the expected future trend of this item. QTT advised that:

The decrease in defined benefit superannuation payments in 2013-14 reflects a return to normal levels of funding following higher superannuation payments in 2012-13 as a result of employee separations associated with the Government's fiscal repair program. The payment profile from year to year depends on the retirement plans of members. Broadly speaking, with the average member age being over 50, payments are expected to peak in approximately 5 years before declining slowly over the course of the following 10 years.67

QTT administered the Queensland Government Insurance Fund (QGIF). The fund operates as a self-insurance arrangement into which government agencies pay premiums to meet the cost of claims and insure against future potential liabilities. Claims are made through QTT’s Administered accounts, while the actuarial assessed provision for future claims is held at the whole of government level.68

63 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 38 64 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 6 65 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 7 66 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 38 67 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 7 68 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 37



The following table provides a snapshot as at 30 June 2014 of the QGIF with a comparison to the same results as at 30 June 2012 and 30 June 2013.

Table 14: QGIF Financial Summary – 2011-12, 2012-13 and 2013-14

Category 30 June 2012 $million

30 June 2013 $million

30 June 2014 $million

Assets under investment 983.0 1,122.8 1,362.1

Provision for future liabilities 926.4 884.2 897.0

Premiums collected 131.8 162.6 182.4

Claims paid 96.3 116.0 112.1

Fund operating expenses 4.6 4.7 4.3

Reinsurance expense 17.5 28.6 28.1


The fund reinsurance program has been in place since 1 November 2011 and subject to annual renewal. Claims liabilities and associated investment balances are reported in the Report on State Finances.69

The Committee sought additional information on the loss on ‘financial instruments at fair value’ which was attributed to a forward swap contract to hedge the interest rate exposure risk associated with the Sunshine Coast University Hospital project. QTT advised:

On 27 July 2012, the State of Queensland entered into a commercial agreement with Exemplar Health for the delivery of the Sunshine Coast University Hospital (SCUH) Public Private Partnership project. To manage the interest rate risk exposure associated with the SCUH Project, Treasury, on behalf of the State, entered into an interest rate swap.

Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to their fair value at balance date. At 30 June 2013, Treasury identified an unrealised gain of $24.4 million, predominately due to an increase in the fair value of the SCUH derivative, as a result of increases in interest rates. During 2013-14, interest rates fell, leading to a reduction in the fair value of the SCUH derivative and requiring that an unrealised loss of $16.9 million be recognised in the Treasury Administered Statement of Comprehensive Income.70

The Committee also sought advice as to whether there were other projects with similar forward swap contracts in place and whether QTT anticipated any further losses. QTT advised that:

There are no other projects with similar forward swap contracts in place. QTT notes that there is potential for further losses to be recognised in association with the SCUH derivative if the fair value of the derivative falls further (i.e. if interest rates decline further). Given the 25 year period of the contract, it is expected that there will be movements in the fair value of the derivative from year to year. However, it should be recognised that the purpose of the derivative is to remove interest rate risk from the SCUH project, by fixing the interest rate, at what were considered to be historically low levels.71

69 Queensland Treasury and Trade, Annual Report 2013-14, September 2014: 37 70 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 4 71 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 4



3.4 Ratio Analysis

The Committee undertook a ratio analysis to examine the department’s liquidity, stability and profitability ratios. The results of this analysis is contained in Appendix B.

3.5 Committee Comments

The Committee is satisfied with the results of its consideration of the department’s financial results.

4 Comparison of actual results to estimated actual results contained in budget papers

The Service Delivery Statements for QTT included estimated actual results which are prepared at the time the budget papers are prepared, usually between February and April, prior to the budget being delivered in June. There are a number of differences between the estimated actual results contained in the 2014-15 Budget papers and the final actual results for 2013-14. The results of this analysis are contained in Tables 15 and 16.

Table 15: Comparison of the 2013-14 actual financial results with the 2013-14 estimated actual financial results

Item Estimated Actual 2013-14

$’000

Actual Result 2013-14

$’000

Variance $’000

INCOME STATEMENT

Income

Service revenue 213,938 193,340 (20,598)

User Charges 13,935 18,820 4,885

Grants & other contributions 878 452 (426)

Other revenue 0 705 (705)

Gain/(loss) on sale/disposal of property, plant & equipment

0 (2,050) (2,050)

Total Income 228,751 211,267 5,545

Expenses

Employee expenses 121,158 101,844 (19,314)

Supplies & services 87,331 77,400 (9,931)

Grants & subsidies 0 0 0

Depreciation & amortisation 11,640 10,791 (849)

Impairment expense 0 92 (92)

Other expenses 8,622 20,865 12,243

Total expenses 228,751 210,992 (17,759)

Operating surplus/(Deficit) 0 275 275

Source: Queensland Treasury and Trade, Service Delivery Statements 2014-15 and Annual Report 2013-14



Table 16: Comparison of the 2013-14 actual financial results with the 2013-14 estimated actual financial results

Item Estimated Actual 2013-14

$’000

Actual Result 2013-14

$’000

Variance $’000

BALANCE SHEET

Current Assets

Cash assets 15,448 25,976 10,528

Receivables 4,899 6,035 1,136

Other 4,032 3,432 (600)

Total Current Assets 24,379 35,443 11,064

Non-current Assets

Other financial assets 6,832 6,833 1

Property, plant & equipment 6,951 2,928 (4,023)

Intangibles 19,101 18,477 (624)

Other 0 0 0

Total Non-current Assets 32,884 28,238 (4,646)

Total Assets 57,263 63,681 6,418

Current Liabilities

Payables 8,169 15,453 7,374

Accrued employee benefits 3,024 2,786 (238)

Unearned revenue 0 36 36

Other 526 0 (526)

Total Current Liabilities 11,719 18,275 6,556

Non-current Liabilities

Interest-bearing liabilities & derivatives 0 0 0

Total Non-Current Liabilities 0 0 0

Total Liabilities 11,719 18,275 6,556

Net Assets/(Liabilities) 45,544 45,406 (138)

Equity

Capital/contributed equity 7,629 21,660 14,031

Accumulated surplus/(accumulated deficit) 37,915 23,746 (14,169)

Total Equity 45,544 55,486 9,942

Source: Queensland Treasury and Trade, Service Delivery Statements 2014-15 and Annual Report 2013-15

The Committee asked the department to explain the differences between the estimated actual results contained in the budget papers and the actual results contained in the Annual Report. QTT provided the following explanations:

Employee expenses – $1,476,000 decrease from estimated actual.

The decrease is primarily due to vacancies not being filled in 2013-14. Also contributing is staff on leave or secondments with positions not being backfilled.72

72 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 8



Cash assets – $12,288,000 increase from estimated actual

The increase is mainly due to higher than expected end of year payables of $ 11.998 million.73

Property, plant and equipment – $1,786,000 decrease from estimated actual.

The decrease is primarily due to $1,848 million resulting from the impact of unbudgeted write down of leasehold improvements following the sale and lease back of 33 Charlotte Street. This includes $2,036 million in write down of the assets' net book values, partially offset by $0,188 million in budgeted depreciation expenses not eventuating following the write down.74

Payables – $11,998,000 increase from estimated actual

In order to present a State Budget in June, Treasury relies on departmental estimates collected at the end of March. Given that payables are a function of expenses accrued but not yet paid, it is as a matter of course difficult to estimate. Much of the increase relates to work of a project nature.75

Superannuation benefit payments – an increase of $2,176,000,000 from estimated actual

Instead of being reported as a separate item in the estimated actual, Superannuation benefit payments of $2,335 billion are budgeted as part of Other expenses. Therefore there is only a slight decrease of $0,159 million from the estimated actual.76

Other expenses – a decrease of $4,246,941,000 from estimated actual

Instead of being reported as separate items in the estimated actual, Superannuation benefit payments of $2,335 billion, Annual Leave Central Scheme claims paid of $1,422 billion, Long service leave reimbursements of $0,411 billion, and impairment losses of $0,074 billion are budgeted as parts of Other expenses. After adjusting for the above, there is only a slight decrease of $4,943 million in Other expenses.77

Transfers of Administered revenue to government – an increase of $26,985,702,000 from estimated actual

The increase in transfers of administered revenue to government from actual is $2,223 billion not $26,985 billion. The increase is primarily due to an increase in Commonwealth grants of $1.6 billion as a result of $1.5 billion in funding received in advance in June 2014 for Natural Disaster Relief and Recovery Arrangements and $0,097 billion in additional roads funding.

Also contributing is the fact that the estimated actual does not include payroll tax revenue of $0,562 billion and the associated transfer of payroll tax revenue to government. From 1 July 2014 departments are no longer liable for payroll tax. To provide comparable revenue forecast across periods, the 2013-14 estimated actual was recast to reflect the removal of payroll tax.78

Cash & cash equivalents – a decrease of $2,253,212,000 from estimated actual

The decrease reflects the $2.26 billion reduction in the Treasury Offset account on account of an increase in departmental and consolidated fund surpluses under the Whole of Government offset arrangements.79

73 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 8 74 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 8 75 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 9 76 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 9 77 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 9 78 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 9 79 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 10



Payables – an increase of $511,708,000 from estimated actual

The increase in payables reflect quarterly reimbursements of $400.75 million to Annual Leave Central Scheme and Long Service Leave Central Scheme members and $105 million in QGIF premiums yet to be passed through to the State. Payables for these schemes are not budgeted for in the Department's Service Delivery Statement as the liabilities for these schemes are held at whole-of-government level.80

4.1 Committee comments

The Committee considers that the variations in the actual results compared to the estimated results is due to timing issues caused by the estimated actual results being prepared significantly before the end of the financial year in order to enable sufficient time for preparation of the budget.

The Committee has previously recommended that where material variations occur between the estimated actual results and actual results, commentary could be included in the annual report explaining discrepancies. The Committee continues to support the view that this should happen. The government has also supported the Committee’s view and advised that QTT will include new policies and guidance in its 2014-15 update of the Financial Reporting Requirements for Queensland Government Agencies. The Committee considers that this will enhance future reporting.

5 Queensland Treasury’s role as a central agency

As a central agency, QTT has a number of additional obligations under the Financial Accountability Act for the operation, management and reporting of the Consolidated Fund and the consolidated state accounts. QTT is also responsible for the preparation and presentation of the Report on State Finances and MYFER.

5.1 Report on State Finances

Section 25 of the FAA requires the Treasurer to prepare the following financial reports each financial year:

the financial statements for the whole of government (referred to as the Total State Sector or TSS)

the financial statements for the General Government Sector (GGS).

The Auditor-General is required to audit the statements and provide an audit opinion on them. Together the TSS and GGS financial statements and the Outcomes Report make up the annual Report on State Finances.

Only agencies that are considered as material by virtue of the size of their financial transactions and/or resource managed are consolidated, i.e. their balances are included in the report.

Transactions that occur between agencies and within an agency in one sector are eliminated from the financial statements, so as to give a true picture of the State’s financial performance and position based on transactions outside of the government sector. Transactions between the sectors have not been eliminated.

80 Correspondence to FAC from Chief Operating Officer, QTT, dated 21 November 2014: 10



The Australian Accounting Standards Board (AASB) has issued an accounting standard dealing with when and how transactions and balances are to be recorded, valued, reported and disclosed in whole of government financial statements. The Act requires this Standard to be applied in the preparation of the financial statements.

The Report on State Finances 2013-14 was tabled by the Treasurer and Minister for Trade on 27 November 2014. The Committee will consider this report.

5.2 Consolidated Fund Financial Report

Under section 23 of the FAA, QTT prepares the Consolidated Fund Financial Report (CFFR), which is audited by the Auditor-General and tabled in the parliament by the Treasurer. It contains particulars of transactions and balances of the Consolidated Fund and details of collections from, and appropriation paid to, each Department (including adjustments to original appropriation). The Statement is to be audited by the Auditor-General within three months after the end of the financial year to which it relates and tabled in the Legislative Assembly.81

The Treasurer and Minister for Trade tabled the CFFR 2013-14 on 10 September 2014. The Committee considered and reported on the CFFR when it examined the Appropriation Bill (No.2) 2014 and the Appropriation (Parliament) Bill (No.2) 2014. Refer FAC Report Nos. 49 and 50.

5.3 Mid Year Fiscal and Economic Review

The MYFER, published annually, provides a mid-year update on the fiscal and economic outlook for the State based on assessments prepared by Treasury. This includes updated forecasts for major economic parameters, revised estimates of State Government borrowings and consolidated sectoral financial statements on Government Finance Statistics basis. Current and previous reviews are available on the Queensland Treasury and Trade website.82

The MYFER is required by the Australian Loan Council's UPF. The UPF focuses on financial statements for three sectors – General Government (departments), Public Non-financial Corporations (PNFC) (Government-owned Corporations) and Public Financial Enterprises (PFE) (for example, Queensland Treasury Corporation). For Budget purposes, estimates are prepared for the GGS, PNFC sectors and the combined Public Non-financial Sector (PNFS).83

The MYFER presents revised fiscal estimates for the current Budget year and the three following years for the GGS, PNFC and PNFS. These revised estimates take into account fiscal and economic developments since the preparation of the Budget. The MYFER also includes a revised estimated of the Loan Council Allocation.84

The MYFER 2013-14 was published in December 2013 and was considered by the Committee in its Report No. 47 – Consideration of Queensland Treasury and Trade Annual Report 2012-13. It is anticipated that the MYFER 2014-15 will be available in December 2014.

81 Queensland Treasury and Trade, Consolidated Fund Financial Report,

http://www.treasury.qld.gov.au/office/knowledge/docs/consolidated-fund-financial-report/index.shtml [12 November 2014] 82 Queensland Treasury and Trade, Mid Year Fiscal and Economic Review, http://www.budget.qld.gov.au/related-documents/mid-year-

review.php [20 November 2014] 83 Queensland Treasury and Trade, Whole of Government reporting, http://www.treasury.qld.gov.au/office/services/reporting/w-o-g/govt-

fin-stats.shtml [4 August 2014] 84 Queensland Treasury and Trade, Mid Year Fiscal and Economic Review, http://www.treasury.qld.gov.au/office/knowledge/docs/mid-

year-review/index.shtml [20 November 2014]

http://www.treasury.qld.gov.au/office/knowledge/docs/consolidated-fund-financial-report/index.shtml

http://www.budget.qld.gov.au/related-documents/mid-year-review.php

http://www.budget.qld.gov.au/related-documents/mid-year-review.php

http://www.treasury.qld.gov.au/office/services/reporting/w-o-g/govt-fin-stats.shtml

http://www.treasury.qld.gov.au/office/services/reporting/w-o-g/govt-fin-stats.shtml

http://www.treasury.qld.gov.au/office/knowledge/docs/mid-year-review/index.shtml

http://www.treasury.qld.gov.au/office/knowledge/docs/mid-year-review/index.shtml

Appendices Consideration of QTT Annual Report 2013-14


Appendices

Consideration of QTT Annual Report 2013-14 Appendices


Appendix A – Officers appearing on behalf of the department at public departmental hearing – Wednesday 29 October 2014

Witnesses

Mr Mark Gray, Under Treasurer, Queensland Treasury and Trade

Mr Alex Beavers, Deputy Under Treasurer, Queensland Treasury and Trade

Mr Warwick Agnew, Chief Operating Officer, Queensland Treasury and Trade

Ms Debbie Brooks, Chief Finance Officer, Queensland Treasury and Trade



Appendix B – Ratio Analysis

Controlled* Administered **

Type of Ratio Ratio Calculation Formula

Result for the financial year ended 30 June

Result for the financial year ended

30 June Interpretation of Results

2013 2014 2013 2014 Liquidity Ratios Current Ratio Current Assets divided by

Current Liabilities 1.65 1.94 1.02 (0.78) The current ratio is used to evaluate the liquidity, or

ability to meet short term debts. The generally acceptable current ratio is 2:1 (i.e. twice as many current assets as current liabilities). The minimum acceptable current ratio is 1:1. A current ratio of less than 1 could be an indication of significant going concerns issues. High current ratios are needed for companies that have difficulty borrowing on short term notice.

Acid-Test Ratio Quick Assets (cash and cash equivalents plus current receivables) divided by current liabilities

1.39 1.75 0.73 (1.19) The acid test ratio measures the amount of cash immediately available to satisfy short term debt (i.e. everyday expenses). In general the acid test ratio must be at least 1:1. A very low ratio may indicate that the entity is unable to meet its short term debt payments and, therefore, has going concern problems. Ratios of greater than 2 could indicate excessive amounts of cash on hand that could be better utilised by expanding the underlying asset base or satisfying the entity's community service obligations.

Current Cash Debt Ratio

Net Cash provided by Operating Activities divided by Average Current Liabilities

0.74 0.45 0.19 (0.49) The current cash debt ratio measures ability of the entity to pay current liabilities in given year with cash derived from operating activities. A negative balance means that the entity will have to dip into cash reserves or seek additional funding to pay its debts in the coming year. Negative results over a prolonged period could be indicative of going concern problems.

Consideration of QTT Annual Report 2013-14 Appendices





Result for the financial year ended

30 June Interpretation of Results

2013 2014 2013 2014

Stability Ratios Debt Ratio Total liabilities divided by Total Assets

0.3 0.29 12.57 (45.94) A ratio that indicates what proportion of debt an entity has relative to its assets. The measure gives an idea to the leverage of the entity along with the potential risks the entity faces in terms of its debt-load. A debt ratio of less than 1 means that an entity has more assets than debt, while a debt ratio of greater than 1 means that an entity has more debt than assets. A debt ratio greater than 1 is a strong indicator of significant going concern issues.

Times Interest Earned

Operating result divided by borrowing costs

n/a - no debt

n/a - no debt

14.24 0.00 The times interest earned ratio indicates the extent of which earnings are available to meet interest payments. A lower ratio means less earnings are available to meet interest payments and that the business is more vulnerable to increases in interest rates. A times interest earned ratio below 1.0 indicates the business is having difficulties generating the cash necessary to pay its interest obligations (i.e. the higher the debt burden) and could be indicative of going concern issues. In these situations, the history and consistency of earnings is very important. The more consistent the entity's earnings the lower the interest coverage ratio can be.






Result for the financial year ended 30 June Interpretation of Results

2013 2014 2013 2014

Profitability Ratios Operating Income Margin

Operating result divided by Departmental Services Revenue

0.92% 0.14% n/a n/a The operating income margin identifies how much income is derived from every dollar of departmental services revenue received (i.e. appropriation) . An operating income margin that is too low could indicate that the entity has going concern issues.

Profit Cover

The result of operating result less grants and contributions is divided by current liabilities

4.87% (0.97)% n/a (1199)% The profit cover ratio shows the percent of current liabilities that operating income other than grant income can retire. A profit cover ratio of 100% or greater shows that the entity can repay all current debt within one year. A negative ratio may mean that the entity is dependent on government grants to meet its short term debts and may be an indication of going concern problems.

Return on Assets

Operating result divided by average total assets

2.19% 0.43% n/a n/a The return on assets ratio measures how efficiently the operating result is being generated from the assets employed in the department. A low return on assets indicates that the earnings are low for the amount of assets (which is common in not-for-profit entities). However, a low return on assets ratio compared to industry averages may indicate an inefficient use of business assets.

Notes

* Queensland Treasury and Trade "controlled" transactions and balances relate to those transactions and balances that are under the discretionary control of the Under Treasurer.

Departmental Services Revenue (appropriation paid) has been treated as "Sales Revenue" on the basis that the appropriation represents the services purchased by the Parliament from the Department.

** Queensland Treasury and Trade administers transactions and balances on behalf of the whole of Government.

In preparing the ratios analysis for the whole of Government, assumptions were made in relation to the allocation of certain revenue and expenses which may have an impact on the calculation of the ratios.

Borrowing costs include the interest paid to the departments on their bank accounts and trust funds. Minor impact on the overall ratio, if excluded ratios are (controlled) 14.51 and (administered) 23.39.

Consideration of QTT Annual Report 2013-14 Statement of Reservation


Statement of Reservation

CURTIS PITT MP

SHADOW TREASURER AND SHADOW MINISTER FOR TRADE

SHADOW MINISTER FOR ENERGY AND WATER SUPPLY

SHADOW MINISTER FOR ABORIGINAL AND TORRES STRAIT ISLANDER PARTNERSHIPS

MEMBER FOR MULGRAVE

PO Box 15057, City East QLD 4002

[email protected] (07) 3838 6767

Mr Steve Davies MP Chair Finance and Administration Committee Parliament House George Street BRISBANE QLD 4000 Email: [email protected] Dear Chair, I write to lodge a statement of reservations on the Finance and Administration Committee's report on the 2013-14 Queensland Treasury and Trade Annual Report. The Opposition takes issue with the refusal of the Newman Government to publicly release how many millions of dollars are being spent in secret on consultants to progress a record program of asset sales without any election mandate. The use of Queensland Treasury Corporation to engage these consultants in order to bypass right to information laws is a deliberate attempt to avoid Parliamentary accountability. The advice provided to the Committee also contradicts the Treasurer's advice to the Estimates hearing that this was “exactly the same way” the previous Government undertook asset sales. The previous Government disclosed the cost of consultants in the 2009-10 Treasury Annual Report prior to some transactions concluding or or even commencing. The Opposition is also disappointed by the claims made by the Under Treasurer that this information is 'commercial-in-confidence' when it has been publicly released previously. Yours sincerely

Curtis Pitt MP Shadow Treasurer

Documents

Report No. 56 - Consideration of Queensland Treasury and ...€¦ · Consideration of Queensland Treasury and Trade Annual Report ... Public Financial Enterprises . ... provides that