2017-18 Budget Paper 1 - Chapter 3 - Fiscal-Strategy (Word ...



3The Fiscal StrategyKey IssuesThe 2017-18 Budget and Forward Estimates reflect the ongoing successful implementation of the Government's Fiscal Strategy. Net Operating Balance surpluses are estimated over the 2017-18 Budget and Forward Estimates, and importantly there is a return to Fiscal Balance Surplus estimated for both 2019-20 and 2020-21.The Fiscal Strategy reflects the Government's commitment to: delivering improved services to the Tasmanian community; maintaining the Government's infrastructure investment; improving public sector efficiency; constraining government expenditure to within long-term average growth in revenue and maintaining tax competitiveness.Successful implementation of the Government’s Fiscal Strategy is a key factor in providing the Budget flexibility to achieve the Government’s policy priorities of jobs and economic growth; health and education and supporting Tasmanians most in need.It is essential that action continues to be taken to ensure the achievement of the Fiscal Strategy over the medium to long-term. This particularly requires an ongoing commitment to the management of expenditure within available revenue levels and ensuring that recurrent expenditure is not committed against oneoff uncertain revenues.Fiscal PrinciplesThe Government's Fiscal Strategy provides a strong and effective framework for the ongoing management of the State's budget position. It is focused on the achievement of long-term fiscal principles that reflect responsible financial management and aim to deliver long-term budget sustainability. These long-term fiscal principles are enduring in nature and apply across financial and economic cycles. The use of a principles based approach recognises that a government can, in the shortterm, legitimately depart from fiscal objectives in response to changing circumstances, as long as that departure is necessary, transparent and justifiable. While the Fiscal Strategy has a core focus on the longterm, shorterterm objectives and relevant financial measures and economic statistics are also important in enabling the measurement of the Government's progress against the principles. The following longterm principles are embedded in the Charter of Budget Responsibility Act?2007:manage the State's finances responsibly for the wellbeing of all Tasmanians;provide for the future for the next generation of Tasmanians;prepare for unexpected events by building a robust financial position;improve services to Tasmanians by building a strong economy and efficiently allocating resources to gain the maximum community benefit;formulate spending and taxation policies that ensure a reasonable degree of equity, stability and predictability; andensure transparency and accountability in developing, implementing and reporting on fiscal objectives.Strategic ActionsThe Government's Fiscal Strategy includes a number of important strategic actions that are aimed at achieving the long-term fiscal principles. Those strategic actions being implemented by the Government to support the fiscal principles are detailed below. Annual growth in General Government operating expenses will be lower than the long-term average growth in revenue.General Government debt and defined benefit superannuation liabilities will be managed to ensure the combined annual servicing cost is less than six per cent of General Government cash receipts.A competitive tax environment will be maintained with an objective for state taxes to be efficient, fair, simple, stable and ernment businesses will be required to deliver services to Tasmanians at the lowest sustainable cost, while also providing an appropriate financial return to the Government.Tasmanian Government infrastructure investment will maintain existing assets, respond to economic and population growth and reflect the changing needs of the community.Public sector efficiency, productivity and financial transparency will be improved.Fiscal Strategy ProgressTable 3.1 summarises the current progress that has been made by the Government in implementing the strategic actions.Table 3.1:2017-18 Budget Fiscal Strategy ProgressStrategic Action2017-18 Budget ProgressAnnual growth in General Government operating expenses will be lower than the long-term average growth in revenue.The 2017-18 Budget and Forward Estimates are consistent with this strategic action. The compound annual growth in expenditure over the Budget and Forward Estimates period is 1.4?per cent, well below the long-run revenue growth rate of 4.7?per cent (calculated from 1999-00 to 2015-16 actual). Net Operating Balance surpluses are also expected over the Budget and Forward Estimates period.Chart 3.1 highlights General Government revenue and expenditure growth over the period from 1999-00 to 2020-21.Chart 3.2 compares the compound annual growth rates of revenue and expenditure in the periods 1999-00 to 200304; 200304 to 200809; 200809 to 201314; and 2014-15 to 202021. The Chart shows that, over the current period from 201415 to 2020-21, estimated revenue growth is 2.7 per cent compared to estimated expenditure growth of 2.4 per cent.2.General Government debt and defined benefit superannuation liabilities will be managed to ensure the combined annual servicing cost is less than six?per?cent of General Government cash receipts.Table 3.2 shows that, over the 2017-18 Budget and Forward?Estimates period, borrowing and defined benefit superannuation costs as a percentage of General Government cash receipts remain below the established maximum of six?per?cent. The Government recognises that superannuation is a significant liability and will continue to ensure that it manages this critical ongoing funding task in the most prudent way and in accordance with the recommendations of the State Actuary. Net Debt remains in a strong position over the Budget and Forward?Estimates period. Net Debt is estimated to be negative $451.8?million at 30?June?2018 (negative $475.6?million in the 201617 Revised Estimates Report), reducing to negative $200?million in 2019, then improving to negative $339.6?million by 30?June?2021.Table 3.1:2017-18 Budget - Fiscal Strategy Progress (continued)Strategic Action2017-18 Budget Progress3.A competitive tax environment will be maintained with an objective for state taxes to be efficient, fair, simple, stable and sustainable.Tasmania needs a competitive tax environment to support business investment and drive economic growth.Chart 3.3 shows that, according to the most recent Commonwealth Grants Commission data, Tasmania’s ratio of revenue the State actually raised from its tax sources to the revenue it could have raised (had it applied the Australian average level of effort to its available revenue base), is the third lowest of all jurisdictions and is well below the national average. During 2016-17, the Government undertook amendments to the Duties Act 2001 and the Land Tax Act 2000 that have now come into effect. These amendments include a duty exemption for an internal reconstruction or consolidation of a corporate group, and introduction of the simpler and fairer landholder duty model, bringing Tasmania in line with other jurisdictions. In addition, amendments to the Duties Act have been made to enable the introduction of a national electronic conveyancing solution, reflecting the shift in contemporary business practice. To further improve the fairness and simplicity of handling deceased estates, amendments have been made to require less onerous evidence to access the duty exemption when registering a change of ownership of a motor vehicle from a deceased estate to the intended beneficiary under a will; and to enable continuation of a principal residence land classification for the financial year following death of a sole owner provided the usage of the property does not change.In the 2017-18 Budget, the Government has taken further action to improve the tax environment for businesses that pay payroll tax by providing payroll tax rebates for new apprentices, trainees and youth employees aged 15 to 24 recruited from 1 July?2017 to 30?June 2019.Table 3.1:2017-18 Budget - Fiscal Strategy Progress (continued)Strategic Action2017-18 Budget ernment businesses will be required to deliver services to Tasmanians at the lowest sustainable cost, while also providing an appropriate financial return to the Government.The Government has significant capital invested in its portfolio of government businesses. As at 30?June?2016, the Government's estimated total equity invested was $4.4?billion. During 2016-17, the Government has implemented a number of measures to improve the governance and efficiency of government businesses, including:ensuring that funds are set aside for the future replacement of the Spirit of Tasmania vessels, with the TT-Line Vessel Replacement Fund Act 2017 being passed by the Parliament;facilitating the replacement of Metro Tasmania’s bus fleet, with the first of four equity injections of $4.5 million being paid to the Company in February 2017;continuing to progress the transition of Forestry Tasmania by: securing commercially sustainable access to residue markets in the south of the State;seeking expressions of interest for the sale of approximately 29?000 ha of largely unpruned and unthinned hardwood plantations; andthe separation of Forestry Tasmania into a commercial wood production division and a non-commercial division, to be effective from 1 July 2017; andcompleting the RBF reforms, including the successor fund transfer of RBF’s accumulation scheme accounts to Tasplan and the transition of the administration of the defined benefits schemes into Treasury.Consistent with the Government’s energy strategy vision of delivering affordable energy at competitive and predictable prices that are amongst the lowest in Australia, the Government has progressed legislative changes to enable the setting of a lower wholesale electricity price for regulated electricity tariffs paid by residential and small business customers for 201718. In addition, Hydro Tasmania has reduced wholesale prices for unregulated customers in 201718 and the 201718 Budget also allocates funding to support those customers that entered into contracts earlier in 2017 who were impacted by volatility in the national electricity market.Table 3.1:2017-18 Budget - Fiscal Strategy Progress (continued)Strategic Action2017-18 Budget ernment businesses will be required to deliver services to Tasmanians at the lowest sustainable cost, while also providing an appropriate financial return to the Government (continued).Over the coming period, the Government will:review and update various governance documents including:Community Service Obligation guidelines; the ministerial charters for Forestry Tasmania and for Hydro Tasmania; andGovernment business board governance with the aim of ensuring; the composition of boards is appropriate to provide sound leadership for the respective businesses; that board membership meets the Government's commitment to a target of 50 per cent representation of women by July 2020; and that boards are more accountable to the Shareholding Ministers;review the wholesale electricity market arrangements; andestablish TasWater as a Government Business Enterprise to accelerate infrastructure projects, improve services and restrain price rises.5.Tasmanian Government infrastructure investment will maintain existing assets, respond to economic and population growth and reflect the changing needs of the community.The 2017-18 Budget continues the Government's significant investment in infrastructure. The Government has committed $245.2?million in new infrastructure funding over the Budget and Forward Estimates period with total infrastructure expenditure over this period now totalling over $2?billion. This is a material increase on the over $1.8 billion allocated over last year’s Budget and Forward Estimates period.The Government’s investment in infrastructure is strongly focused on its high priority policy areas of improving health and education services; jobs and economic growth and supporting Tasmanians in need. Over the Budget and Forward Estimates period $117 million is provided to improve school and education infrastructure, total funding for hospitals, health and ICT-related infrastructure exceeds $500?million (including $389?million for the Royal Hobart Hospital Redevelopment and $35?million for Mersey Community Hospital Redevelopment), $35 million is provided under the Government’s Affordable Housing Strategy and $827?million has been provided for roads and rail infrastructure (including a provision of $120?million for future Australian Government Roads Funding). Table 3.1:2017-18 Budget - Fiscal Strategy Progress (continued)Strategic Action2017-18 Budget Progress5.Tasmanian Government infrastructure investment will maintain existing assets, respond to economic and population growth and reflect the changing needs of the community (continued).Significant new and existing funding is also being provided by the Government to support other entities to undertake major infrastructure projects including $90.6 million for rail infrastructure, $68 million for irrigation infrastructure, $65 million for the Northern Cities initiative and $6?million for non-government school infrastructure.Chart 3.4 shows that, over the 2017-18 Budget and Forward Estimates period, investment by the Government in NonFinancial Assets continues to exceed the value of depreciation. Table 3.3 summarises 2017-18 Budget and Forward Estimates Depreciation and Purchases of NonFinancial Assets estimates.6.Public sector efficiency, productivity and financial transparency will be improved.The Government has implemented a number of important financial management reforms that will strengthen the State financial framework and help improve transparency. These include:amendments to the Charter of Budget Responsibility Act;the new Financial Management Act 2016 (due to be implemented on 1 July 2018); andthe publication of the First Tasmanian Government Fiscal Sustainability Report in April 2016.Funding of $50 million has been allocated over the 2017-18 Budget and Forward Estimates period to undertake a number of significant digital transformation projects. Not only will these projects improve the provision of services to the community but they are also expected to deliver public sector efficiency and productivity benefits.The Government is committed to ensuring negotiated wage outcomes are sustainable and affordable. The wages policy limits wage outcomes to two?per?cent per?annum.Integration and automation of the employee system Empower is progressing through the business planning stages to the development of a reporting framework within the Department of Justice. When completed it will provide substantial efficiency gains across government through reduced manual payment processes and overheads. Importantly the system will significantly increase access to meaningful workforce data and reporting, to inform workforce management and planning. Fiscal Strategy DataChart 3.1:General Government Revenues and Expenses, 1999-00 to 2020-211Note:This Chart is based on actual data for the period 1999-00 to 2015-16, the Estimated Outcome for 2016-17 (excluding the impact of the significant one-off payment for the Mersey Hospital of $730.4 million) and the Budget and Forward Estimates for 2017-18 to 2020-21.Chart 3.2:Comparative Compound Annual Growth Rates of General Government Revenue and Expenditure, 199900 to 202021Table 3.2:General Government Borrowing and Defined Benefit Superannuation Costs, 2017-18 to 2020-21?2017-182018-192019-202020-21ForwardForwardForward?BudgetEstimateEstimateEstimate$m$m$m$mSuperannuation defined benefit schemes285.8296.6307.9319.9Borrowing costs9.89.59.18.3Total borrowing and defined benefit scheme costs295.7306.2317.0328.1????Borrowing and defined benefit costs as a percentage of General Government cash receipts4.9%5.1%5.2%5.3%Chart 3.3:Ratio of Actual to Assessed Revenue, 2015-161Source: Commonwealth Grants Commission 2017 Update Report on GST Revenue Sharing RelativitiesNote:The ratio of actual to assessed revenue compares the revenue a state actually raised from its tax sources to the revenue it could have raised had it applied the Australian average level of effort to its available revenue base.Table 3.3:Purchases of Non-Financial Assets in Excess of Depreciation, 2017-18 to 2020-212017-182018-192019-202020-21ForwardForwardForward?BudgetEstimateEstimateEstimate$m$m$m$mPurchases of Non-Financial Assets609.9574.0402.1342.7Depreciation268.6263.7322.8337.6Surplus341.3310.379.35.1????Chart 3.4:Purchases of Non-Financial Assets and Depreciation, 2006-07 to 2020-21 ................
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