Ladies and gentlemen it’s my pleasure to have the opportunity to provide you with an update on Tasmania’s economic performance, the state of Tasmania’s finances, and the challenges and opportunities that lie ahead for us as a community. I also want to outline some further thoughts on one of the State’s largest challenges in terms of protecting our brand and maintaining public health - water and sewerage.
The Hodgman Liberal Government has been working hard over the last three years to fix the Budget, and to deliver on our commitments to the people of Tasmania, and I believe that the evidence of this effort is apparent in the mid-year economic and fiscal update I released last week.
Tasmania’s current economic performance and the State’s finances are a vast improvement compared to the parlous state we inherited when we took office, almost three years ago. In a few months, I will be delivering my fourth Budget as Tasmania’s Treasurer, which will continue the Hodgman Liberal Government’s record for disciplined and responsible financial management.
As Treasurer, it is pleasing that on so many economic indicators, Tasmania continues to move in the right direction.
Our economy continues to grow and State Final Demand is now 4.5 per cent above the level recorded at the time of the last election. Private investment was $4.1 billion in the year to September 2016, or 6.2 per cent above the level of March 2014, and remains very solid due mainly to increased construction activity.
Similarly, one of the best litmus tests for the broader health of the economy, household consumption, is benefitting from strong levels of confidence and is up 6.4 per cent over the same period.
Our population is now growing at the fastest rate in five years, and more visitors are coming to Tasmania than ever before – the most recent Tourism Tasmania data shows that in the year to September, nearly 1.2 million people visited the State, which is 12.5 per cent higher than three years ago.
This growth is providing the necessary confidence to business, and this is reflected in the number of tourism developments that have either been announced or are currently under construction. In the year to September 2016, the total value of building work commenced was up by 17 per cent compared to the year before. And there’s more in the pipeline – with the value of building work up by 56 per cent over the same period.
Retail trade has boomed and we have now had 26 months of consecutive growth.
Confidence is key and according to the most recent Sensis Business Index Survey, Tasmanian business confidence levels are stronger than the national average over much of the past two years. The Government and its policies, I’m pleased to say, is the most supported state or territory government in the country. It’s not that long ago that two out of every three businesses felt that the previous Government’s policy settings worked against them.
Whilst on almost every measure we have delivered a good set of numbers, it’s what these numbers mean for Tasmanian workers and their families that is most important.
Improved business confidence and investment means that businesses will employ more Tasmanians, and we’re seeing Tasmania’s employment market turn around. Last Thursday, the ABS confirmed that the recovery in our employment levels continues. 1,200 more people were employed in the last 12 months, and there are over 4,300 more people in jobs since the election. Our unemployment rate is now below six per cent for the first time since 2011.
At 5.9 per cent, it is now equal to the rate in Victoria and better than in Queensland, South Australia and Western Australia and only 0.2% away from the national average.
These results underline the Hodgman Liberal Government’s commitment to invest in job-creating infrastructure and our $425 million jobs package, because we know that the best thing we can do for our broader economy and the family budget, is to provide the opportunity for more Tasmanians to have a job. Furthermore, we are confident that this will continue, as we grow our tourism markets and agricultural and aquaculture sectors, and make further investments in our education system.
However ladies and gentlemen, these results have not come easily – there have been difficult decisions to make and difficult choices to face. When the Hodgman Liberal Government was elected, the Budget was in deficit, with no return to surplus in the foreseeable future. We set out to repair the State’s finances, and we have delivered on that commitment.
In our first Budget we had no choice but to cut costs and reduce the size of the public sector. However in doing this we were able to plan for a return to a balanced budget. Importantly, we sent a signal, that as a government, we understood that in the same way a household or business needs to cut its cloth to match the circumstances it faces, as a Government we would do that as well. We reduced recurrent expenditure, but increased capital investment into job creating infrastructure projects that would provide for not just this generation, but the generations to come.
Tasmanians responded immediately in the positive. Whilst some of the things we did were difficult, confidence levels in the community rose and as a result of our increased public investment the private sector rolled up its sleeves and Tasmania got back to business quickly.
Our second Budget stayed that course, and built on our commitment to budget repair. We maintained our spending on infrastructure by investing into schools and hospitals, roads and bridges and were able to forecast a surplus for the 2016-17 year, three years ahead of schedule.
In delivering my third Budget last year, we were faced with a $500 million write-down in GST receipts over the Forward Estimates, GBE dividends being more than $260 million less than expected in 2016-17 alone, and the Government facing the twin challenges of bushfires and the extended Basslink outage.
In response, we produced a carefully considered Budget that continued to provide for modest growth in public sector wages. We forecast a surplus of $77 million in 2016-17. In that Budget, we were still able to provide $140 million to support industry and jobs, $50 million in new funding for schools and increase the first home builder grant by $10,000, as well as a continuation of our rolling four year $1.8 Billion infrastructure program.
It was therefore especially pleasing, that in releasing the Treasurer’s Annual Financial Report for 2015-16, that Tasmania’s finances were returned to surplus a year earlier than expected. The first surplus budget in seven years and the best result in a decade. Not only that, we have delivered this result through finding efficiencies and savings, smarter ways of doing things, rather than simply increasing taxes and expecting Tasmanians to foot the bill.
Just over a week ago, I released an update on the 2016-17 Budget, the Revised Estimates Report, which outlined further improvement in the Government’s Budget position.
Over the Budget and Forward Estimates period, we are now forecasting an operating surplus every year and rather than being in net debt this year, we will hold more than $500 million in net cash and investments.
Importantly, not only does the Revised Estimates Report highlight the improvements that we continue to make to the bottom line, it also shows that the Government continues to make progress in all areas of its important Fiscal Strategy.
A competitive tax environment continues to be maintained with an objective for Tasmania’s state taxes to be efficient, fair, simple, stable and sustainable. According to the most recent Commonwealth Grants Commission data, Tasmania is the second lowest taxing jurisdiction in Australia, and is well below the national average.
At various times since 2000, expenditure growth under previous Governments has averaged around 5 per cent and for the five year period from 2003 to 2008, expenditure was more than 8 per cent. Whilst the estimates over the period 2014-15 to 2019-20 forecast revenue growth of 2.5 per cent and expenditure growth of 1.7 per cent, the Revised Estimates Report now forecasts estimated expenditure from 2015-16 to 2019-20 to be 1.3 per cent, whilst revenue growth will be just under 2 per cent.
We have maintained a disciplined approach to our two per cent wages policy and this has been critical to our achieving low overall expenditure growth.
Whilst this good news is pleasing, we acknowledge that the improvements in Tasmania’s economy are not evenly spread, and it has not been all smooth sailing. Over the last year or so, the Government has had to respond to a number of significant challenges. We have been disciplined and responsible and we have been able to manage these problems, and continue to balance the Budget.
In total now, additional funding of $57 million has been provided by the Government to assist in managing the costs associated with the January 2016 bushfires.
Following the June 2016 Flood Event, a total of nearly $30 million of additional recurrent and capital funding has been provided to meet the immediate and subsequent recovery costs associated with the event. The total impact across the state in both public and private property terms is estimated to be more than $180 million as well as the tragic and very unfortunate loss of three lives.
Whilst Tasmania’s overall economic performance has been positive, the improvements have not been evenly spread, with parts of the North and North West not experiencing the same growth as observed in Hobart. For this reason, in 2016 I announced the Northern Economic Stimulus Package, which aims to accelerate job creating projects in the North and North West. As part of this package we are:
This Package leverages the strength in the State Government’s balance sheet to stimulate economic activity where it’s needed. It is in addition to the support that the Government is providing through the allocation of $90 million to the Northern Cities Major Development Initiative which will underpin the Devonport Living City project, and the UTAS relocation projects in Launceston and Burnie.
Fixing the budget and bringing it back into balance has meant that we can invest in the essential services of health, education and supporting Tasmanians in need.
The Government has provided funding to support the extension of 30 high schools to Year 11 and 12. These reforms are a critical investment in our children and our future.
Similarly, the 2016-17 Budget included the provision of an additional $50 million to support the Government’s health system priorities.
Funding for health is at record levels, and will total $6.4 billion over the next four years.
What many people don’t realise is that we now have 200 more health professionals, including nurses, doctors, allied health and paramedics than when we came to government. We’re also recruiting more graduate nurses, and reducing the stress load on our hospital staff, by capping nursing shifts at 12 hours and limiting the number of double shifts.
We understand the importance of education in lifting our State’s economic prospects. It’s well understood that investing in our people is one of the best things we can do and for this reason, we are putting a record $1.48 billion into funding education and training.
We are delivering the largest ever state investment in school infrastructure - $110 million in Government school upgrades over the next four years. We’re employing more teachers – employing more than 110 extra last financial year compared to the year before.
However, if we are to improve our educational outcomes and our economic productivity, it’s important that we encourage young people to go beyond completing Year 12. It’s for this reason that the Government is partnering with the University of Tasmania to deliver the Campus Relocation Project in Northern Tasmania. I am particularly proud of the investment we are making in partnership with the Federal government and UTas in this historic project.
By supporting the transformation of the northern University campuses, we will change Launceston and Burnie for the better. This $300 million project will be a catalyst for much needed urban renewal of the Launceston and Burnie CBDs, bringing a vibrant student population, cutting edge facilities, and will attract thousands more students into the north and north-west, providing more choice and more jobs in those regions.
Whilst we continue to work towards improving our economy and the prospects for all Tasmanians, there are still challenges ahead of us, and there remains work to be done. It is critical that the Hodgman Government continue to build on the economic momentum it has generated, to ensure that the policy settings allow business to flourish, and to provide the health, education and other services that Tasmanians need.
Although the State Government continues to do everything it can to ensure that Tasmanians have the infrastructure and services that every Australian has a right to expect, unfortunately Tasmania has a challenge that continues to be a detriment to our brand and to our broader public health –that is the state of our water and sewerage services.
Last year something extraordinary happened in a corporate sense and I want to acknowledge Miles Hampton and his TasWater board for that bold action. They unilaterally acted and overrode the local government owners of these assets, cutting their dividends and increased the level of investment into our water and sewerage infrastructure. However there is still more that needs to be done, more heavy lifting is required and investment must be accelerated.
When Tasmania’s water and sewerage services sector was reformed in 2008, the Tasmanian Economic Regulator’s initial performance baseline study, the State of the Industry Report showed that:
That was nearly eight years ago. We have collated the most recent publicly available data in the fact sheet I released yesterday from reports by the Tasmanian Economic Regulator, the EPA and TasWater itself. If we look at that data, it shows that sadly the situation has not improved, and if anything, it has deteriorated. Despite some improvements, 25 small towns still operate with restrictions on the safe use of their drinking water, including 21 current Boil Water alerts and four Do Not Consume alerts.
In its last State of the Industry report, the Economic Regulator found that there were a high number of interruptions to water supply, and a high number of sewer main breaks, chokes and overflows. Twelve of TasWater’s wastewater treatment plants had inflows that exceeded their capacity, and according to the EPA only one out of 78 plants achieves 100 per cent compliance with the EPA’s regulatory discharge to waters limits. And there are still too many instances of raw sewerage being released into the environment.
In the Economic Regulator’s own words, “these outcomes resulted from prolonged under investment in sewerage networks and treatment facilities across the State as well as unsatisfactory operating practices and inadequate maintenance.”
In a first-world country in the modern age, this is simply unacceptable. Tasmania’s tourism industry and our exports of world-class produce both rely on our clean and unpolluted brand. These problems with water and sewerage exist across our State, and Tasmania’s brand suffers when our visitors need to check public health warnings to swim at our local beaches, when tourism operators have to provide guests with bottled water, or when oyster farmers have to shut down production due to sewage released into the environment.
In my view, the problems that TasWater is being asked to fix are primarily due to a failure by the owners, both prior to the reforms and since. As the Regulator stated Local Government under invested when they owned the assets directly and since the reforms began they haven’t invested enough to get the job done.
The 2008 reforms were intended ensure that all Tasmanians could be afforded the modern water and sewerage services that they are entitled to expect. And yet, the problems in our water and sewerage sector remain.
After the merger of the regional entities to form TasWater, we now have a public entity that has state-wide responsibility for some of our most basic, yet critical, infrastructure – but it is an entity that answers to 29 separate owners, Tasmania’s local councils.
Whilst those 29 owners receive the financial benefits of ownership, individually and as a group they bear little or no responsibility for the delivery of safe and reliable water and sewerage services.
Local Government as owners have received the benefits of ownership but have not exercised the responsibility of ownership.
I was appalled that last year at a public hearing the owners focussed more on the need to slug Tasmanians price rises to the tune of 30 per cent over the next six years than they did on explaining how they would solve the problem of fixing the underinvestment they are responsible for.
The reforms when introduced were intended to ensure that the water and sewerage sector could operate on a sustainable footing, however since July 2009, the original regional corporations, and subsequently TasWater, have paid a total of $177 million to local government whilst sewerage spills continue, and small towns are expected to tolerate unsafe drinking water.
And despite report after report making it clear that the problems are not being fixed, councils have gone on expecting a cheque every year instead of adequately investing into the water and sewerage infrastructure this State needs.
As a group, councils have accepted the benefits of ownership through the returns they receive, whilst being in a very strong financial position. Local government, as a sector, has:
They are in a position to do more, and it staggers me that they claim they can’t.
It wasn’t until TasWater’s board took a stand last year, that councils were forced to accept that they bear the responsibility for fixing the infrastructure that they have underinvested in and allowed to decay. The board last year acted to reduce distributions after 2017-18 from $30 million a year to $20 million and to increase infrastructure investment.
However, from 2009 to the end of TasWater’s current 10-year plan, this still equates to nearly $400 million paid to local government, rather than being invested to fix the problem for which, they as the owners of our water and sewerage system, are responsible.
In owning a business that does not on many levels meet minimum regulatory standards it beggars belief that you would expect it to continue to pay you a dividend. It is even more irresponsible when that business is a publicly-owned manager of essential community infrastructure.
And yet, for the next 10 years, councils expect to pocket returns equivalent to around 15 per cent of TasWater’s total capital expenditure program, while the problems remain.
It may seem that I am being harsh toward local government, and to be frank I am. This is critical public infrastructure owned by all Tasmanians, and as Tasmanians, we all have a right to expect that our water and sewerage bills – first and foremost – pay to fix the problems we all know exist.
Whilst the water and sewerage sector is not one that the State Government has control over, as Treasurer I must raise this important issue because this problem must be fixed.
The State Government considers we have reached a crisis point, and is no longer prepared to stand by and let this situation continue. As the first step toward fixing this, I have written to the Owner’s Representative Group this morning to convene an urgent meeting this Friday to explain that this situation is unacceptable and that urgent action is necessary to remedy the problem. I will be making it clear that all options are on the table.
Clean water and a reliable sewerage service are important to our brand, to our economy and for our public health.
In finishing let me recap a little. The Budget has been repaired, and our economy is growing again In terms of the challenges that we collectively face, I think you all understand the importance I place on our water and sewerage outcomes improving and improving quickly.
The Premier will be outlining our Agenda for 2017 in his State of the State address in early March and I am currently framing the May Budget around these important goals and initiatives.
So, whilst I won’t elaborate further on what that Agenda will include today, suffice to say I think it’s going to be an exciting year and that Tasmania has a very bright future.
Thank you for the opportunity to address you all today.