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2019 Government Businesses Scrutiny Committee - TasCorp

Parliamentary Activity - Tuesday, 3 December 2019


CHAIR (Mrs Petrusma) - We will begin the Tasmanian Public Finance Corporation. The hearing is scheduled is to finish at 11 o'clock. Minister, can you please introduce the chair, the CEO and any other persons at the table, names and positions for the benefit of Hansard.

Mr GUTWEIN - Moving down from my right, Anton Voss, the CEO of Tascorp, Tony Ferrall, Chair, and to my left, Andrew Finch, my Chief of Staff.

CHAIR - I remind members about the practice of seeking additional information for GBEs. The question must be agreed to be taken by the minister or the chair of the board and the question must be handed in writing to this committee's secretary. Minister or Chair, do you want to give a brief opening statement keeping in mind that we only now have 55 minutes left.

Mr GUTWEIN - I will make a brief opening statement. Tascorp performed well in 2018-19 with a profit before tax of $47.4 million. During 2018-19, a dividend of $80.9 million was paid in relation to the Mersey Community Hospital Fund, while a total of $9 million in dividends and income tax equivalent payments were paid regarding Tascorp's Treasury activities.

It is budgeted in 2019-20 that Tascorp will pay $83.7 million relating to the Mersey Community Hospital Fund and $61.3 million in tax and dividends for its Treasury activities, including a special dividend of $39.5 million.

Tascorp's key functions are: raising funds in domestic and international markets, lending the proceeds to its Tasmania public sector clients, providing deposit facilities to support clients in managing their cash management activities, providing financial risk management advisory services to its clients, investing surplus funds to achieve an acceptable risk versus return trade-off and providing fund management services to the state, in particular the Mersey Community Hospital and TT-Line Vessel Replacement Fund.

I take this opportunity to thank the board and staff for their hard work, which has resulted in another successful year of operation of Tascorp. I would also like to express my thanks to Stephen Rochester for his five years of service as CEO of Tascorp and welcome Anton Voss, who I am sure many would know well, to the CEO role.

Mr O'BYRNE - Treasurer, you have undertaken a significant raid on a whole range of GBEs for dividends to prop up your budget. Our concern with that is it undermines the capacity of those GBEs to conduct their businesses appropriately and efficiently, with the best outcome for Tasmanians. Whilst propping up your budget, it doesn't avoid the massive net debt that Tasmania is heading into. The question is, what is the debt to equity ratio across the government sector, and does Tascorp have any concerns around the capacity of those GBEs to continue to fund those dividends?

Mr GUTWEIN - I will pass on to the chair of Tascorp to provide some answers to the details of that. I make the point that it surprises me that you don't want us to use our government businesses to support services to the Tasmanian community. That really does surprise me. I noticed your comments in the press in recent days. You come into a GBE's hearing week and all you can do is be negative.

What we have done is ensure that our businesses are in a strong financial position. Where they are able to provide additional special dividends to the state they have done so. Those special dividends will be used to support health, education and other services and our very strong infrastructure program.

Mr O'BYRNE - We have never opposed dividends.

Mr GUTWEIN - Well, by the sounds of it -

Mr O'BYRNE - You are just raiding the piggy bank, though, aren't you?

Mr GUTWEIN - I think you are opposing dividends with the comments that you are making.

Mr O'BYRNE - No, it's the level. It is Olympic standard.

Mr GUTWEIN - I point you back to the early 2000s where David Crean under a Labor government took nearly $280 million out of the Hydro and significantly weakened its base because he was drawing -

Mr O'BYRNE - Because he was paying off the Liberal debt.

Mr GUTWEIN - He was drawing more than $50 million a year from the Hydro in special dividends.

Mr O'BYRNE - He was paying off the Liberal debt.

Mr GUTWEIN - Then when we came to government we had to repair their balance sheet. In terms of the Hydro, if we hadn't provided them with more equity as opposed to the level of dividends that they provided it would be about lineball. We have actually put back as much as we've taken from them, as a result of the damage that previous governments did.

In terms of the broader issues, the secretary, treasurer and chair of Tascorp might like to make some comments.

Mr FERRALL - Tascorp applies lending limits for each of the entities that borrow from us and we effectively apply a normal banking approach to assessing the capacity of those entities to support the borrowing.

Where we believe there isn't sufficient support, then we would raise those matters with the Government or the Treasurer and, as he would be aware, there are some occasions where we seek a letter of comfort in relation to specific entities.

Mr GUTWEIN - I make the point too, if you look at the total state sector, that was in a net cash and investments positive situation in the last financial year, as was the general government sector.

Whilst you use inflammatory language regarding the very sensible budget that we brought down last year, in terms of investing heavily into infrastructure, and by the end of the four years, forecasting what I would call a modest level of net debt. I make the point that it is a modest level that the state can comfortably afford.

Dr WOODRUFF - I have some questions about lending limits and capacity to pay in relation to Glamorgan Spring Bay Council and the debt they have. They have the loan and I would like you to give a bit more information, if you wouldn't mind, about how much debt the Glamorgan Spring Bay Council has with Tascorp? I have seen it reported at various levels, but I understand it is $6 million that council also took out. I understand the council also received a federal grant of $2.34 million to build a pipeline and dam. That was controversial in the beginning, but leaving that matter aside, the council has now publicly announced it is not able to continue to pay aspects of that. Would you please tell me a bit more about the financial arrangements with Glamorgan Spring Bay, and how you determined their lending limit, as you have said, and the borrowings of whatever it was they asked for?

Mr GUTWEIN - Regarding Glamorgan Spring Bay, the point that I would make about borrowings to local government is that very conservative benchmark issue is used. That conservative benchmark, or one of the conservative benchmarks, is that there is a limit that is applied or considered of net debt to revenue, which is 40 per cent of their revenues. Regarding Glamorgan Spring Bay, they are currently below that at around 39 per cent.

It is important to understand this. What that net debt to revenue ratio basically explains is that if you were on an income of say $50 000 a year, but your net borrowings, the maximum exposure that you would be allowed to have under this particular ratio, on an income of $50 000 a year, is a loan of $20 000. It is very conservative and some of the language that has been used regarding Glamorgan Spring Bay has been almost to the point of being hysterical in terms of their financial position.

In the advice that I received when we were considering this a number of years ago, I was advised that if the borrowing methodology for a general client had been applied to Glamorgan Spring Bay by Tascorp, a borrowing methodology for a general client had been applied, their borrowing capacity would have been around $30 million. But we use a very conservative set of benchmarks with local government.

My understanding is that their current borrowing allocation, or the amount of borrowings that they currently have drawn down at the moment, the balance at 30 June, was about $6.55 million. That's less than 40 per cent of their income.

Dr WOODRUFF - Minister, did Tascorp set a maximum debt level, and is the $6.55 million the maximum debt level?

Mr GUTWEIN - Their borrowing allocation in 2019-20, based on their adjusted income, would be $6.9 million.

Dr WOODRUFF - In 2019-20?

Mr GUTWEIN - In the current year, based on their adjusted income.

Dr Woodruff - 2020?

Mr GUTWEIN - In the 2019-20 year. The estimates today is about the 2018-19 year but, in the current financial year, their adjusted income would just under $14 million. Forty per cent of that, or their borrowing level, would be around $7 million but it's $6.9 million, which is where they have the capacity to go, so that would be 39 per cent.

Dr WOODRUFF - So, did Tascorp assess the maximum -

CHAIR - That is your last question, Dr Woodruff.

Dr WOODRUFF - Thanks. Did Tascorp set a maximum financial leverage, a debt to asset ratio?

Mr GUTWEIN - They have a net debt to revenue ratio and that is 40 per cent of their income.

Dr WOODRUFF - Is that the only ratio that was -

CHAIR - No, sorry, I will pass the call to -

Dr WOODRUFF - To clarification, is that the only ratio that was looked at in this instance? There are lots of different ratios. Is that the only one? I asked for a different one; the financial leverage ratio.

Mr GUTWEIN - I'll ask the Chair to make some comments if he wants, or the CEO.

Dr WOODRUFF - Thanks.

Mr LARGE - Looking forward, if we use the standard methodology that Tascorp approaches, which looks at the forecast operating surpluses, they'd support a borrowing limit of closer to $8 million. Tascorp is comfortable with its current operating arrangements with the borrowings of Glamorgan Spring Bay.

Dr WOODRUFF - Did you set a maximum financial leverage ratio?

CHAIR - Dr Woodruff, it is Mr Tucker's call. Thank you.

Dr WOODRUFF - I'll have to come back to that question, since you didn't answer it. It's annoying.

Mr GUTWEIN - It is not annoying. There is a set of metrics that are applied.

Dr WOODRUFF - I wanted to know if that metric was applied, minister.

Mr GUTWEIN - Yes, that metric was applied.

Dr WOODRUFF - A maximum debt, financial leverage ratio?

Mr GUTWEIN - No, there are a number of metrics that are applied and a very conservative one that I am talking about is net debt to revenue and, at that, they are below the 40 per cent limit.

Mr TUCKER - How does the state benefit from having a central borrowing authority? Do all states have similar operations in place?

Mr GUTWEIN - I will ask the Chair to make some comments on that. Very simply, it is a matter of pooling. If you had government businesses or councils going to the market individually for their borrowings, they would be negotiating as individual entities. We have the benefit of a central borrowing authority, which manages the opportunity to raise funds. Through being able to raise funds to a more significant level than individual entities can, there are efficiencies achieved and, as a result, hopefully we can provide a very good deal for those that borrow from us.

Mr LARGE - All states have similar but not identical arrangements in terms of a central borrowing authority. In principle, the key reasons for a central borrowing authority are that we can generally have lower borrowing costs for the state, as the Treasurer said, through, effectively, pooling arrangements. There are lower operating costs because you have one entity dealing with the markets as opposed to each individual entity.

It certainly supports better risk management when you have one entity managing all of the debt and investments. For a small jurisdiction like Tasmania, it provides better access to financial markets because we can pool when they are looking at higher levels of borrowing as opposed to individual entities going forward with quite small borrowings. It also assists overall in the state managing its credit rating because we have one entity that deals with the markets.

Mr O'BYRNE - Chair, back to the issue of dividends. The Treasurer used the example of Dr Crean. The Labor Party is not against dividends. It is about balance. At the time you referred to, the government was paying off the debt of the previous Liberal government. We were heading toward paying off that net debt and reasonable dividends were taken. We now see a state budget that is heading toward in excess of $1 billion of net debt and you have significantly increased your dividend take to the tune of hundreds of millions over the last few years.

How sustainable is the Government's dividends policy, particularly when one of the major contributors, Hydro, is heavily reliant on Basslink, which is irregular or unreliable at best? How sustainable is this Olympic standard take of dividends from GBEs, particularly at a time when you are heading into significant net debt?

Mr GUTWEIN - It is very sustainable. Our current dividend policy has been in place since I first became Treasurer in 2014-15, in which businesses pay 90 per cent of their profit with the opportunity, should a business have other needs or requirements, to make a case at the end of the year that they will not pay dividends to that level.

Mr O'BYRNE - It punches a big hole in your budget, if that is the case.

Mr GUTWEIN - No, I do not think Hydro has ever been required to pay to the 90 per cent dividend level. We work with our businesses. Where there is capacity to pay, they pay and meet the 90 per cent dividend policy. In other circumstances, we make adjustments, such as in the saga of the Basslink cable. We provided Hydro with a two-year dividend holiday at that time. They came back to profit much quicker than the board or Treasury believed they would and began to pay a small dividend. We manage this. Our businesses are sustainable. Where they can, and I believe very firmly in this, provide support for services like health, education or investing in infrastructure, they should.

Mr O'BYRNE - Where we are going in terms of the debt levels and the position of the state budget, we are pushing toward over $1 billion dollars of net debt. You are saying in your answer that you may or may not take these dividends. That punches a big hole in your budget and fiscal strategy. You have even gone after your own banker. As to Tascorp, you paid a $9 million dividend last year. This year it is $39 million. That is a significant take. You are going after your own bank.

Mr GUTWEIN - I will let the Chair of Tascorp provide this committee with some comfort as to the level of dividend it pays. As to your language, the room darkens every time you walk into it in terms of your relentless negativity.

Mr O'BYRNE - We are not here to pat you on the back, Treasurer. We are not here to cover you in spin. We are calling you out for your mismanagement.

Mr GUTWEIN - What you are doing is providing me with the opportunity to speak about our budget strategy. Our budget strategy was, very simply, we understand that there are headwinds in the national economy. Our economy is strong and it has been the strongest growing economy in the country for the last 12 months, something I would have thought even you could be proud of.

Mr O'BYRNE - I am very happy with that. If you read all of the releases, we say that.

Mr GUTWEIN - Well, hallelujah, we have a positive statement from the shadow treasurer. He is very happy with the economy. Thank you very much, so are we. Tasmanians should be very proud that we are punching well above our weight for a small state.

Mr O'BYRNE - I would not call it a golden age for a range of people in Tasmania. A lot of people are missing out.

Mr GUTWEIN - From one minute to the next, you go from being positive to morosely negative.

Mr O'BYRNE - We are not Pollyanna, Treasurer. We are calling this out.

Mr GUTWEIN - It is extraordinary. In terms of our budget strategy, we took the view that it was important to increase the level of infrastructure spending in both the general government sector and through our government businesses. In doing so, we brought down a $3.6 billion infrastructure spend over the coming four years, in large part to deliver the intergenerational assets that a growing population and economy need, but also to ensure that we sandbag our local economy against the headwinds that are occurring nationally.

At the moment there has never been a better time in being able to borrow money. It has never been as cheap in our lifetime. Even you would acknowledge that. Therefore, with a budget that is growing strongly and a community and population that requires investment into long-term intergenerational infrastructure, we have taken the view that we are going to put our foot down rather than pulling back and increase our investment.

Our Budget can comfortably sustain the level of net debt that is projected and the end of the forward Estimates. I am certain you have read the Treasurer's Annual Financial Report, which indicates that the cash position is significantly improved at the end of the financial year. Even after delivering just south of $700 million worth of infrastructure over the last 12 months, we have a strong balance sheet. Importantly, across the total state sector we hold net cash and investments, not net debt, which the Treasurer's Annual Financial Report indicates. For all of your negativity, we are in a strong financial position.

Mr O'BYRNE - The Treasurer was referring to asking Tascorp to -

Mr GUTWEIN - Mr Ferrall might like to speak about the capacity of Tascorp to provide the level of dividends.

Mr FERRALL - We are paying a special dividend this year, as you flagged. We have built up equity strongly over the last four years. Tascorp effectively has an approved capital of $50 million and we have also built up equity to the tune of about $105 million, so the board considered that it was quite reasonable and appropriate to pay a special dividend in excess of our required or accrued equity position.

Mr O'BYRNE - On page 6, the fiscal deficits relate to an infrastructure spend -

CHAIR - Mr O'Byrne, this is your very last question and then it goes to Dr Woodruff.

Mr O'BYRNE - Thank you. Treasurer, you are basically saying that the infrastructure spend is funded off the books. You are going into what you say is sustainable debt, but there are holes across all of your arguments. One of the biggest holes - and it came out in the Auditor-General's report last week - is that over the past four years the Department of State Growth has underspent its capital budget by a total of $274 million and in the past 12 months the Department of Education delayed $30 million of school upgrades.

You are dragging money out of the GBEs with your dividend policy and potentially putting at risk some of the operations of those businesses if that continues. You justify it by saying you are spending money on infrastructure. The Auditor-General has called you out on a lack of infrastructure that you can't actually get out the door. The funding from the GBEs, the dividends, is funding recurrent, isn't it?

Mr GUTWEIN - No, it's not. I again refer you to the Government's cashflow statement. After meeting our operational expenditures, in a cash sense we have significant cash surpluses. Once again, you don't understand what you're talking about, unfortunately. I know that won't change your view that you should be as negative and as relentless in your pursuit of making negative points that you think you need to as shadow treasurer, but I caution you. The state is in a good financial position and, importantly, if you look at the infrastructure we spent on last year, the Government invested $682 million into infrastructure last year. That was 2.4 times more than the last full year of the Labor-Greens government.

Mr O'BYRNE - So the Auditor-General was wrong?

CHAIR - Mr O'Byrne, I ask you not to interrupt while the minister is speaking.

Mr GUTWEIN - In terms of our budget strategy, I strongly endorse the strategy we brought down, because we have a growing population, we have a growing economy, we have some balance sheet strength and it's important that we invest into those long-term intergenerational assets that Tasmanians need. I would hope that you would get on board. Even the Tasmania Report yesterday, which you again cherry-picked to suit your own negative aims, was strongly supportive of the Government's strategy of investing more into infrastructure.

Dr WOODRUFF - To get a bit more clarity around the Glamorgan Spring Bay loan, did you provide a letter of comfort for the council to Tascorp so that they were able to achieve that loan of $6.55 million?

Mr GUTWEIN - There was no letter of comfort requested. Could I make a point so that people understand the Glamorgan Spring Bay situation?

Dr WOODRUFF - Actually, I would like to ask you some questions and then you can you can talk about the context from your point of view.

Mr GUTWEIN - But it goes to the issue you are raising. In terms of the Glamorgan Spring Bay loan and its investment into that pipeline, you would be aware that a 30-year contract was established with Tassal which, when water begins flowing through that pipeline, they then begin making payments to the Glamorgan Spring Bay Council. None of that was taken into account in terms of the loan arrangements Tascorp entered into. They don't look past the entity of what it is investing in. That improves the Glamorgan Spring Bay Council's financial position again.

Dr WOODRUFF - Let's hope that's the case, because I'm concerned to find out the circumstances under which that loan was approved in the first place. It was certainly the case that the previous council that made the decision provided an extraordinarily small amount of information about the financial validity for that project, including a childishly small financial statement of the cost analysis of the project. It is like a fifth-grade, possibly, Excel spreadsheet that takes up one-quarter of a page that councils were provided with.

I would like to find out what Tascorp required of council in their assessment of whether they should provide that loan. You have already mentioned the net debt to revenue ratio. Can you please tell me whether Tascorp also established and set a maximum financial leverage ratio and a minimum interest coverage ratio? I ask those things because other GBEs, I understand, have those ratios set by Tascorp. Hydro, for example, reports them in their annual report. I am trying to see whether the council had the same standards required of it.

Mr GUTWEIN - In terms of the process of the application that Glamorgan Spring Bay would make, I am not sure what your spreadsheet relates to, whether that is the project itself; it sounded like it was. In terms of Glamorgan Spring Bay Council's ability to borrow and its capacity to repay, they are matters that Tascorp would have considered.

Mr FERRALL - In terms of councils generally, they operate with a low business risk by the nature of their revenues, and so we take that into account. In terms of the financial metrics of Glamorgan Spring Bay Council, they are still within the low-risk range when measured against S&P's methodology. An interest-to-operating revenue will be around 2 per cent, versus Standard and Poor's low-risk benchmark of less than 5 per cent. So, from a Tascorp perspective, we are comfortable that Glamorgan Spring Bay Council is not a high-risk lending.

CHAIR - Thank you. I will now pass the call on to -

Dr WOODRUFF - Excuse me, Chair, would you mind if Mr Ferrall answered the question I asked of him?

CHAIR - No. I remind the committee that there are two questions for the Opposition, one question for the Greens, and one question for the Government. You have had more questions than most this morning, Dr Woodruff.

Dr WOODRUFF - Mr O'Byrne has had a whole slew of questions.

CHAIR - He is entitled to double the questions.

Dr WOODRUFF - Probably four times the amount. I understand why this is a hypersensitive topic - water on the east coast and sneaky dealings.

CHAIR - It's nothing to do with that, it's about fairness and proportionality. I give the call to Mrs Rylah.

Mrs RYLAH - As my electorate is Braddon, I have a very strong interest in the Mersey Hospital. You have mentioned in your opening statement, minister, that there is a $83 million dividend coming back. My interest is in the annuity payment coming from the capital and the current projections of that capital over the next 10 years. What is the indexation range if that is being applied to each of the payments? I presume the payment will become capital and interest at some point. I am guessing they are all pure interest for the moment. If you could give me indication of the indexation rate.

Mr GUTWEIN - I will work back, regarding the payment, as you put it, that is returned to the state government as a dividend. Its indexation rate is 3.5 per cent each year, which is in line with what the previous agreement was with the federal government prior to us taking back the hospital. My advice is that the fund will last into and pay a dividend into the 10th year. Mr Ferrall might like to make some further comments.

Mr FERRALL - Correct.

Mrs RYLAH - So 3.5 per cent is above our current inflation rate, so that is taking into account some of the higher cost indications for hospitals. Is that the thinking behind that?

Mr GUTWEIN - I guess there are two parts to it. One is that in our hospitals there is a range of indexation rates that are applied to different costs. For example, wages go up at either 2 per cent or whatever the new agreement would be - two point something once agreements are finalised. General expenditure is normally indexed at around 2.5 per cent and then for specialist medical equipment or other pharmaceuticals at 4 per cent. The agreement for the Mersey was structured on the same basis going forward as the original agreement that was in place with the Commonwealth and 3.5 per cent is the indexation rate on an annual basis.

Mrs RYLAH - Thank you.

Mr O'BYRNE - Treasurer, Tascorp's annual report states that they have realigned the TT-Line purchase hedging payments to support TT-Line's negotiations in respect of its ship purchase. What precisely did Tascorp do and what have the costs been as a result of the delay from FSG fulfilling this contract?

Mr GUTWEIN - I will ask the CEO to make some comments on that.

Mr VOSS - The change there was around the deposit. We haven't done anything with regard to the end dates which we also did some foreign exchange transactions. We provided some efficient forward exchange contracts for the TT-Line arrangements. We did something for the short end around the deposit, and we have also done something for the actual payment for the full delivery of the vessels. That is what that part in the annual report is that you are referring to.

Mr O'BYRNE - When you say you have done something, what is that something?

Mr VOSS - We have done forward exchange contracts to hedge the euro costs because they have to buy them in euros. We have done a forward exchange contract to take some of the risk around those payments and the movements between the Australian dollar and the euro exchange rate. They are the transactions we have undertaken for the TT-Line.

Mr O'BYRNE - Last year, in the hearings upstairs in the other place, they talked about the $80 million deposit for the new vessels. The Auditor-General's report and the financial statements state entities tabled last week said that the deposit had not been paid and therefore there was no financial exposure in the event of a contractual default by FSG. Is that accurate? Is it right?

Mr VOSS - The deposit has not been paid. That is correct.

Mr GUTWEIN - To be clear on that, no money has been paid, nor will it until the conditions precedent under the contract are met.

Mr O'BYRNE - Last year, you spoke about the cost of holding the deposit in euros which at the time were earning a negative interest, based on the transcript from last year. If the deposit has been paid, how much has this cost? That probably goes to your first answer but what is the cost to holding? Normally you would have time. You know when it is delivered and you can manage the contracts, but for a deposit that you don't know when you are going to pay, that exposes you to some short-term risks. That was reported at the hearings last year. What has happened in the last 12 months and how are you mitigating that?

Mr VOSS - There has been a roll of the forward exchange contracts to hedge the risk. I would not know the cost of that. I would have to take that on notice and have it checked for you.

Mr O'BYRNE - Is it a cost, not a positive?

Mr VOSS - I would have to check that.

Mr O'BYRNE - Can we take that on notice?

Mr GUTWEIN - Yes, I am happy to if you write to me.

Dr WOODRUFF - Treasurer, going back to the previous question I asked, could you please answer yourself, or ask Mr Ferrall to answer, whether there was the setting of a maximum, or establishing of a maximum, financial leverage ratio and a minimum interest coverage ratio for Glamorgan Spring Bay Council when they sought a loan?

Mr GUTWEIN - Again, and I will make the point, the metrics that are applied are extraordinarily conservative. In terms of the 40 per cent benchmark against their net revenue position, that is an extraordinarily conservative benchmark. In terms of any other metrics that might have been applied through the process, if the chair has anything further that he can add I am very happy for him to do so.

Mr FERRALL - We don't set a limit per se from Tascorp's perspective. The 40 per cent creates a limit, quite obviously, but we don't. That really depends on their revenues, what that might be in terms of a maximum borrowing. But it's not a limit in the way you describe.

Dr WOODRUFF - So, through you, Treasurer, you don't establish those ratios, you don't assess those ratios, or set those ratios, in relation to councils?

Mr FERRALL - From your question, we don't identify a maximum limit for each council. What we do is look at the 40 per cent ratio and ensure that the councils stay below that 40 per cent which, as the Treasurer said, is a very conservative measure.

Dr WOODRUFF - Depending of the circumstances of the council, and some of them have vastly different numbers of assets and other ability to be able to pay back interest, or to be able to leverage finance. For example, the mayor has made -

Mr FERRALL - The point of it being conservative does take that into account though. That is not -

Dr WOODRUFF - That 40 per cent, according to the mayor, is already setting them in a difficult situation where, essentially, they have no money. They were in a difficult situation. I want to see whether the sort of rigour that was applied to the Hydro and other GBEs is also applied to councils, given the controversy surrounding this project, or whether it was just sufficiently rigorous in its assessment.

Mr GUTWEIN - I make a point that the arrangements regarding councils are far more conservative than the way that Tascorp would deal with general clients. I have made the point that if this were a council - sorry, if the council was a general client, the advice before me is that they would have been able to sustain borrowings of upwards of $25 million to $30 million.

Dr WOODRUFF - Minister, with respect, you say that as though it has some validity.

Mr GUTWEIN - I make the point again and it appears -

Dr WOODRUFF - You say it as if it was true.

CHAIR - Dr Woodruff, I ask you to stop interrupting the minister.

Mr GUTWEIN - The 40 per cent level applied to their income is not the amount that they can spend to service a loan. It is actually the value of the loan. That is what you are misunderstanding. This is not about a 40 per cent level of their revenue being utilised to service a loan. It is actually the total value of the loan. It is incredibly conservative and that is something that -

Dr WOODRUFF - You state that as though it is true.

CHAIR - Order, Dr Woodruff. The call will pass on to Mr Tucker as soon as the minister is finished.

Mr GUTWEIN - Again, I state that as if it is true because it is a fact.

Dr WOODRUFF - Which fact? Who says that is actually appropriate in the circumstances? Why aren't all these other things taken into account?

CHAIR - Dr Woodruff, that is your first warning. I am sorry you are talking over the minister. You let the minister finish his statement without interruption. The call will then go to Mr Tucker.

Mr GUTWEIN - If I could make the point that if the Hydro, or any of our other commercial businesses, would be horrified if they had to adopt a similar level of such a conservative nature to that which we apply to councils. It is obvious that you got a story up in the press at the time about challenges that Glamorgan Spring Bay was facing. The simple fact is, and as I have explained it in very simple terms, if somebody had an income of $50 000, the cap on the borrowings, under the current metrics that apply to councils, is that they could borrow no more than $20 000. This is not about 40 per cent of their income being utilised to service the loan. This is the limit on the loan value. It is extraordinarily conservative.

Mr TUCKER - I noted that you stated earlier that the Glamorgan Spring Bay Council has not got a letter of comfort. What letters of comfort are in place and what purpose do they serve?

Mr GUTWEIN - That is a very good question and I am happy to answer it.

Firstly a letter of comfort serves a number of purposes. It provides the Board of Tascorp an assurance that the shareholder ministers and the government are supportive of and have a full understanding of the entity's borrowings. It involves Treasury in the assessment process and they make and provide recommendations to the Treasurer in regards to letters of comfort. It evidences to the borrower that its current operations require that level of support.

I think it is a point, and pull me up if I am wrong, we don't take a level of security from the businesses and the councils we loan to. We lend to them without -

Dr WOODRUFF - I can't believe you are wasting our time by this childish performance, it demeans you.

Mr GUTWEIN - You have no interest in who has a letter of comfort?

Dr WOODRUFF - If I wanted a tutorial on a letter of comfort, I would have gone to the web and googled the definition myself.

CHAIR - Order, Dr Woodruff. I did ask you to stop interrupting. Thank you.

Mr GUTWEIN - Are you aware of who we have letters of comfort in place for? That was what the question was.

Dr WOODRUFF - It was a two-part question.

Mr GUTWEIN - Do you have some interest in who has a letter of comfort? I think the shadow treasurer does. Hydro Tasmania has a letter of comfort that was put in place in 2014 and amended in 2017. The letter of comfort is for $1.335 billion; their physical exposure is $743 million, significantly below the original $743 million -

Mrs RYLAH - $1.335 billion.

Mr GUTWEIN - Yes. Tasmanian Irrigation schemes have a letter of comfort in place for a total of $68 million for the borrowings; their physical exposure is $26.9 million.

For Tasmanian railways, TasRail, a letter of comfort is in place for the value of $20 million. They have zero exposure.

Tasracing, a letter of comfort. This was put in place some time ago, back in 2011, nearly a decade ago, and it was $43.13 million. They have an exposure currently of $8.7 million.

TT-Line, with the borrowing for the ships, have a letter of comfort that they haven't drawn down on, for up to $665 million, but they have zero drawdown against that at the moment.

I make one final point, it comes back to anybody who is reading the transcript of today's hearings, as to the shadow treasurer's initial claims that our businesses and our borrowings were at a significant level, from what I have explained then, our businesses are in good shape.

Mr O'BYRNE - My point was about the future, Treasurer, and you know that.

Mr GUTWEIN - I don't know that and I don't accept that. I think you are attempting with your relentless negativity to put the worst possible spin on anything you possibly can. That is what I think you are doing.

Mr O'BYRNE - Not true, Treasurer. It is disturbing that the committee is not able to hear from Tascorp about the potential cost of holding the deposit for the TT-Line. In the hearing last year, the information was readily made available to the committee. It is a bit concerning that we are not able to get that detail, but what time lines are you currently -

Mr GUTWEIN - We are just taking that question of detail on notice and we will provide -

Mr O'BYRNE - I know you have taken it on notice, but it was - I am making a point.

Mr GUTWEIN - I am not sure what point you are making.

Mr O'BYRNE - What are the time lines you are currently working to for the deposit to be paid?

Mr GUTWEIN - That is a question for TT-Line estimates. They are working through the circumstance with FSG. Importantly, the funds are available when the conditions precedent have been met. They are available. I can't offer you anything further than that today.

Mr O'BYRNE - In specific relation to the deposit, could you explain to the committee how that funding is structured? At what stage are you able to - is it a 30-day call, is it a 15 day call, is it an immediate call, is it six months' call? What is the structure of the fund that you are holding the deposit in?

Mr FERRALL - February 2020. It has been rolled.

Mr O'BYRNE - It has been rolled to February 2020. What is the cost of rolling it to February 2020?

Mr FERRALL - I don't have that. We can get those questions of detail for you.

Mr O'BYRNE - The state budget allocates the funds to TT-Line for 2021-22, from memory. What happens in February 2020? Do you roll it again? What is the strategy?

Mr FERRALL - We are in regular contact with TT-Line and we look at rolling the deposit to a point which optimises the capacity for TT-Line to pay the deposit when it is due. There is no identified date where that will happen because, as the Treasurer indicated, the conditions precedent must be satisfied before TT-Line will pay a deposit. We are working closely with them to ensure that we keep those funds rolled on an appropriate basis.

Mr O'BYRNE - In your previous answer you referred to three other accounts that have been set up. Is that right? Did I get that right? Could you explain the nature of the other funds that you are holding for TT-Line?

Mr VOSS - It relates to the payments for the actual delivery of the vessels. They were set up -

Mr O'BYRNE - Based on the original contract?

Mr VOSS - Yes. They were set up as part of the forward exchange contract we entered into with them.

Mr O'BYRNE - The ship will no doubt be delayed, based on what we understand. Are those contracts impacted by the delays? Will that be a cost to the government for Tascorp?

Mr VOSS - We would have a discussion with TT-Line about what the actual outcomes were and once they are negotiated -

Mr O'BYRNE - But you've got set dates when they mature or when they become ready; is there a cost in refinancing if there is a delay?

Mr FERRALL - With the nature of the arrangements we've got in place, there could be a gain or a loss depending on the market situation at the time. That was why, on your comment earlier, we have taken it on notice to give you a specific answer on the costs or otherwise of those changes.

Dr WOODRUFF - Treasurer, the federal government provides an opportunity for people immigrating to Tasmania under the Business Innovation and Investment Visa scheme to essentially have a golden ticket visa option for people who are able to afford it by investing in the state. This is a special arrangement for people who have the money to immigrate to Tasmania if Tasmania accepts them. Tascorp on its website has a migration bonds page with two different streams: an investor stream and a significant investor stream. Can you please tell me how many such investors applied over each of the last one, two and three years, and how many migrated under that scheme?

Mr GUTWEIN - I don't have the detail. I understand it is around $3 million.

Mr VOSS - I would have to get the details on the specifics of the question you just asked, but it is a relatively small amount. It is in the order of about $3.5 million migration bonds we have got with clients.

Dr WOODRUFF - Sorry, you misunderstood my question. The question was how many people have applied and how many -

Mr FERRALL - We will take that on notice; we don't have that information.

Dr WOODRUFF - So I could put that question on notice?

Mr GUTWEIN - Please do.

Dr WOODRUFF - And the amount was, you think, about $3.5 million in investment. Could I ask for that by year in the question?

Mr GUTWEIN - Is it the last three years you're looking for?

Dr WOODRUFF - Four years, thank you.

Mr GUTWEIN - We will provide what information we can.

Mr O'BYRNE - On page 3 you refer to a number of targets. I don't know whether you met them or not. How are those targets set? Do you benchmark against other jurisdictions, other states? How do you set those targets and how are they benchmarked?

Mr FERRALL - Which targets exactly?

Mr O'BYRNE - You set a whole range of targets but you don't explain how those are set - for example, return on investment for some of your funds, what is the approach?

Mr FERRALL - Through our corporate planning process we establish those targets or review them, and they do vary. If you look at something like operating profit before tax, as an example, that is obviously an outcome of a whole range of things in terms of how we operate. We set that target in advance and then we try to operate to that.

Mr O'BYRNE - I suppose the question is, how do you set that and do you benchmark it against other jurisdictions?

Mr FERRALL - On that particular measure, we don't benchmark that to other jurisdictions. That is almost an outcome measure in that sense but it holds us to account in going through the year in terms of our estimated revenues and our estimated costs, using that one as a particular example. Things like tax equivalents paid on an annual basis are driven by our profit ultimately, but in terms of the board's performance and acquittal to the Treasurer, we identify those things in advance and try to work through them.

Mr O'BYRNE - So there is no formal benchmarking with other states in terms of your performance? You can set any target you want internally if it is abstract to the context you work in.

Mr GUTWEIN - I think Mr Ferrall largely explained this in terms of the question about the benefits of having a central borrowing authority and what other states have. Some of the other states have central borrowing authorities with hundreds of people employed and a much wider ambit than we have. Every year Tascorp goes through the corporate planning process. That corporate plan is submitted by the board in draft form and Treasury provides advice. Looking back at some of the obvious metrics here, past performance will also be used as a guide in setting them. Benchmarking us against, say, the central borrowing authority of New South Wales would be like benchmarking a small Tasmanian building society against the Commonwealth Bank.

Mr O'BYRNE - I disagree.

Mr GUTWEIN - You have to admit that Tascorp is a much -

Mr O'BYRNE - They are very different operations, but percentages are percentages, returns are returns.

Mr GUTWEIN - We have 16 people compared to organisations interstate that would have hundreds of people employed.

Mr O'BYRNE - Staffing? That's different. I'm not talking about staffing; that's an obvious answer.

Mr GUTWEIN - Likewise, managing operations and both borrowing and deposits are of a significantly different scale to that which Tascorp do.

Dr WOODRUFF - Page 53 of the annual report says that short-term incentive payments were ended with the payment for the 2017-18 year. Does that mean Tascorp no longer issues incentive payments?

Mr GUTWEIN - That is absolutely right, that's finished.

Dr WOODRUFF - So there is no other form of remuneration or incentive or performance incentive that is being replaced with payments?

Mr GUTWEIN - No.

Dr WOODRUFF - The report of the royal commission into misconduct in banking was handed down in February this year. Have there been any impacts so far on the practices and procedures of Tascorp in response to that?

Mr FERRALL - Not specifically.

CHAIR - The time for scrutiny has now expired. The next scrutiny will be Aurora Energy.

The committee suspended 11 a.m.