There’s an internet site (http://economicscience.net/content/JokEc) which lists a series of jokes about economists, which I sometimes refer to when preparing for a talk (self-deprecatory humour is one of the safest kinds). And one of the jokes on that site describes two economists walking down a street and hearing two people yelling at each other out of the windows of their apartments on opposite sides of that street. One economist says to the other, “they’ll never reach an agreement”, and when the second economist asks, “why are you so sure of that?”, the first economist replies, “because they’re arguing from different premises”.
There’s a large element of that in the debate between Opposition Treasury spokesman Peter Gutwein and Premier Lara Giddings which was published in the pages of The Examiner three weeks ago.
Mr Gutwein drew attention to the fact that, in recent years, the Government has not been making cash payments to the Superannuation Provision Account (SPA) originally established in 1994 to accumulate assets which could eventually be used to defray the Government’s unfunded liabilities for superannuation payments to retired State employees. This is undoubtedly true.
It’s equally true that former Premiers Paul Lennon and David Bartlett, before each of the last two State elections, lengthened the timetable originally established by former Treasurer David Crean for accumulating sufficient assets fully to offset this liability from 2018 to 2035. That’s partly because, since David Crean’s retirement, the Government has been less disciplined about spending: during the period in which Dr Crean was Treasurer, government operating expenses rose at an average annual rate of about 4½%, whereas since then they’ve risen at an average annual rate of about 7½%. The State Government has also been spending a lot more on infrastructure since Dr Crean retired. As a result, it hasn’t been running cash surpluses (from which it makes payments into the SPA) of the same magnitude as it was when Dr Crean was Treasurer: indeed, since 2009-10 it has been running cash deficits, and hence hasn’t been able to make any cash contributions to the SPA. Nor will it in the current financial year.
Mr Gutwein then went on to argue (if I’ve understood him correctly) that if the Government had to borrow an amount sufficient to pay down the unfunded superannuation liability and other obligations which it has, the State would have a debt of $2.4 billion.
At best, Mr Gutwein seems to be confusing gross and net debt in the same way that Barnaby Joyce did during his brief and inglorious tenure as Federal Opposition Finance spokesman. He also seems to be making the quite unrealistic assertion that the Government might one day have to meet the superannuation liability all at once. That would only be true if all of the State employees still in unfunded super schemes decided to retire on the same day, all sought lump sum payments, and if all the existing retirees died on that same day and their survivors sought lump sum payments rather than continuing pensions. There’s a greater chance of Andrew Demetriou agreeing to Tasmania having its own team in the AFL than of that happening.
My reading of Tasmania’s financial position, based on the most recent Budget Papers, is this. Tasmania’s ‘general’ or ‘core’ government liabilities stood at an estimated $6.2 billion as at 30 June just ended. Of this amount, the unfunded superannuation liability represented $5.0 billion, and more conventional borrowings just $283 million. Offsetting this, the Government had financial assets totalling $7.9 billion, of which by far the largest element was its investment in government business enterprises (GBEs) like Hydro Tasmania and Aurora, totalling $6.0 billion. It also had cash and bank deposits of $567 million (more than enough to repay its conventional debt if repayment were demanded all at once).
Assuming that the Government’s GBE investments aren’t for sale, it had ‘net financial liabilities’ of $4.3 billion at 30 June last. That’s equivalent to about 91% of Tasmania’s gross State product, which is above the average for all States and Territories, but lower than the equivalent figure for South Australia, and about the same as that for Victoria.
The Government also has ‘non-financial assets’ (principally land, buildings and infrastructure assets) totalling $11.7 billion. So its ‘net worth’ is of the order of $13½ billion.
If we look at the State public sector as a whole (that is, including GBEs and other non-budget agencies), at 30 June last Tasmania had total liabilities estimated at just over $15 billion (of which unfunded super was $5.7 billion and conventional borrowings $5.9 billion), financial assets of $6 billion and non-financial assets (including for example those of the Hydro) of $22½ billion – implying a ‘net worth’ of about $13½ billion.
In other words, Tasmania is not Greece. Nor is it America (although the Tasmanian Government doesn’t have the ability that the US Government has to ‘print money’ to pay off its debts, if it ever came to that).
The problem Tasmania does have is that this position will deteriorate significantly – Tasmania will be heading in the wrong direction – if it doesn’t do something like what the Government proposed in this year’s State Budget. That’s because spending, if it’s not reined in (which can’t be achieved without ‘difficult’ decisions like school closures), will continue to grow at a faster rate than revenues (which are being eroded by the unwillingness of Australians to spend as freely as they did before the onset of the global financial crisis, and threaten to be eroded further by the Gillard Government’s review of the carve-up of GST revenues among the States and Territories).
So unless Tasmanians are willing to pay higher State taxes (of which there’s no sign, and which would in any cases have adverse consequences for the State’s economy, since most State taxes are paid by businesses), there’s really no broad alternatives to the strategies laid out by Lara Giddings in her first Budget. It’s open to other parties to suggest alternative ways of achieving similar (or greater) reductions in spending – but ‘backing off’ from the broad path laid out by Ms Giddings would ultimately condemn future generations to harsher reductions in spending on ‘core’ services than the Government is proposing now, as well as re-inforcing the growing perception on the mainland that Tasmania is a place where it’s very difficult to get anything done.
Full version of op-ed published in this morning’s Launceston Examiner newspaper, which looks at competing claims made last month in that newspaper by Opposition Treasury spokesman Peter Gutwein and Premier/Treasurer Lara Giddings