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Treasurer – Debt

Dr Rosalie Woodruff MP

Dr Rosalie Woodruff MP  -  Tuesday, 7 June 2022

Tags: Treasury, State Budget

Dr WOODRUFF - Chair, I think it is devolving.

I want to go back to some of the bigger budget issues, Treasurer. Saul Eslake made quite a number of comments immediately after you brought down the Budget and they weren't all supportive of the decisions you have made. He said on the ABC that the Government has consciously decided to increase the deficits it will run in the next four years and to increase the level of debt it will carry at the end of that four-year period by more than a billion dollars compared to what had been envisaged in last year's budget. His words are that that's surprising, given that you as Treasurer have correctly said that there is not a substantial amount of the Budget reacting to the COVID 19 pandemic at the moment and that you have said that there is a generally strong outlook, you've painted that generally strong outlook for the Tasmanian economy.

You would know that the Greens don't have a problem with having reasonable levels of debt to spend on things that we need to spend on today. But the issue here is about honesty with Tasmanians. Saul Eslake finds it surprising because what you are doing is completely counter to what you are saying. You are pretending that the Budget is in a strong economic situation, whereas he finds that surprising because the evidence of $1 billion of debt says otherwise.

Do you accept that you are not being really clear with Tasmanians about what you are doing; you are effectively being tricky?

Mr FERGUSON - I don't think I am that clever to be as tricky as that, Dr Woodruff. The Budget is an honest appraisal of the state of the economy and forecasts are for really positive times ahead in terms of growth and employment growth. It also gives an honest account of itself in terms of the decisions that Government has taken before, during and after the pandemic in responsibly borrowing, not just to meet the infrastructure needs.

Thankfully, you have recognised assets that will be with us for a long time, and also the COVID 19 impact on the Budget, which we have been very forthright about in the Budget. Nothing has been hidden.

I was listening carefully to the question. I'm not sure if I have fully comprehended where you wish me to go in responding because I am not sensing anything where you are asking me to respond to Mr Eslake's criticism in particular, but if you can clarify it, I will probably do that.

Dr WOODRUFF - The issue is you can't have a strong economic outlook if you can't service the debt that you are raising. The issue is, and Mr Eslake points it out, he says that the budget papers admit that by 2025 26, in the final year of the forward Estimates period, that your Government will be devoting more than 6 per cent of revenue to meeting the debt service and unfunded superannuation expenses. And that that itself breaches one of your six fiscal strategy guidelines that you laid down at the beginning of the pandemic.

The issue is here: you don't have the revenue to service the debt that you are generating and you are breaching your own fiscal responsible guidelines.

Mr FERGUSON - Now I understand the question better. I disagree with a couple of things. First of all, the fiscal strategy wasn't set out at the COVID 19 pandemic. It is entirely unrelated to that.

What I have done is referenced the pandemic in the budget papers which reflect that in the final year of budgeted forward Estimates, it's anticipated that the strategic action in the fiscal strategy would be breached - one of them would be breached. That is exactly the one that you have pointed to, so I won't repeat what you have said because you have accurately stated it. Only that it is not a recognition that we can't afford those borrowings because the outlays that are being met on an emerging cost basis for superannuation liability have been known for many years, including in the time where the Labor Party spent the money that was in the superannuation provision account that had been set up prior.

If you look at the debt servicing section in the Assets and Liabilities chapter of BP 1, you can see that Treasury laid out the true cost, or the anticipated true cost, of servicing our borrowings. In the final year, the net interest bill is $169 million, after you account for investment income, at 2 per cent of Budget, net interest cost ratio. So, quite affordable, quite defensible when, in return, you get so much infrastructure being built that is not spending money on groceries - it is buying the house and extending the property that belongs to Tasmanians.


Mr FERGUSON - Do you mind if I just say one more thing, which is that I don't want to put words in other people's mouths but I believe Saul Eslake has been at pains to describe the difference between good debt and bad debt. And I would characterise the borrowings that we are choosing to go into as good debt, with the exception, of course, for the unavoidable fact that we chose to go into deficit budgets during the pandemic, as I think all governments did.

Dr WOODRUFF - I won't put words into Mr Eslake's mouth. I will just read the words that he said. He said you - your Government - don't at any point in the future want to be spending more than 6 per cent of its revenue paying pensions to retired public servants that haven't been previously funded, and paying interest on debt. That's what you're doing.

You've created sustainable fiscal strategy conditions. You've breached one of them. That raises a lot of questions about your capacity. Where are you going to get the revenue from? You're handing out money to wealthy landowners.

There are many options to raise revenue. I can think of a really good one, which would be mining taxes, commensurate with what the mainland does. That's a gift to you from the Greens' alternative budget. Every year we fund the work that we do in our alternative budget through simply requiring mining companies to be paying the same amounts of corporate tax as other states do. No more. Just the same. Is that one of the things that you're going to be looking at? Because we've got a problem with your Budget.

Mr FERGUSON - I'm not going to be announcing big company taxes today at Estimates.

Dr WOODRUFF - Go ahead.

Mr FERGUSON - When one day you and the Labor Party are back in bed again, you can discuss raiding the economy again, as you ran down the economy not that long ago.

Dr WOODRUFF - Not a cent of it's going into the economy, that's the problem.

Mr FERGUSON - Mr Eslake has actually said some very responsible things about debt. I've just been shown some of his commentary in the phase where we were first engaging in borrowing to build as part of our infrastructure program, where he said in The Examiner:

This underscores my view that neither the Government nor anyone else should be panicking about the increase in debt, and the Government certainly shouldn't be in any hurry to start paying it down.

That was at the beginning of the phase of borrowing to build.

For what it's worth as well, our infrastructure program is now doing in one year what the Labor and Greens party were doing in four years. It gives a shape of the magnitude of the step up and the step-change that we've engaged in. We don't apologise to you for that because it's what Tasmanians need. We're catching up on so much legacy asset renewal -

Dr WOODRUFF - Catching up on eight years of not doing anything, that's what you're catching up on.

Mr FERGUSON - asset renewal and replacement. I know it's triggering for some but it's important to let it be known that it's fully four times the volume that was being achieved previously, so it's a big step-change. It's one that I embrace and industry have absolutely have embraced because it's saved a lot of jobs as well and created a lot of opportunity for men and women in the construction sector.

It does surprise me that people would occasionally, in political circles mainly, continue to try and pour scorn on our very deliberate and prudent decision to borrow to build assets that are going to be there for our grandchildren.

Dr WOODRUFF - I made the point at the start that we don’t disagree with doing that. The question here is about your fiscal strategy and you kicking the can down the road for another treasurer and breaching your own guidelines. The question is about how well you can manage things, what else you are going to breach and what your guidelines mean. Are you concerned about the fact that you've had to make that decision? I think it's fair if you were honest with people about the pressures of the Budget.

Mr FERGUSON - I'm grateful for the opportunity to invite me to be honest about it. That's exactly what we've done. Rather than taking Dr Broad's suggestion that we change the fiscal strategy, we've retained the fiscal strategy -

Dr WOODRUFF - But are you concerned with breaching it?

Mr FERGUSON - and the Treasury papers have given an honest account of that indicator and what it looks like in the forward Estimates. I'm not for changing the strategy around that.

Some people might conveniently be forgetting that that action is not just about superannuation liability, as you stated. It's about superannuation liability and net borrowings being under 6 per cent of budget. We've been honest about the fact that it is 6.3 per cent in the final year projected. And $1.5 billion of that is allocated, really, against COVID 19 expenditure. I'd be surprised if anybody wants to argue with that, but bring it on. If it weren't for that, if it was recognised to be 5.8 per cent, not above 6 per cent. It has just been pointed out to me as a reminder, as the Budget paper reminds those who would have read it, that the use of principles-based approach recognises that a Government can, in the short term, legitimately depart from fiscal objectives in response to changing circumstances, as long as that departure is necessary, transparent and justifiable.

It is the Liberal Government's fiscal strategy; we made it coming to office in 2014. I understand it's had a fairly chequered history prior to that, where it was frequently changed. I think that history will bear that out, Mr Winter, as much as it might disappoint you.

Mr WINTER - I do appreciate you adding the humour into this afternoon.

Mr FERGUSON - This isn't comedy hour, this is reality and it's a serious discussion. If you have something serious, pop it in your alternative Budget. To the chair and the committee, we do have a plan. We've been through a pandemic and we are obviously paying for that. Our infrastructure plan is delivering great assets for our state, some of which are long overdue and others that are about looking forward and creating industries and new productivity opportunities. Our borrowings are very defensible.

Dr Woodruff, I'll conclude with this point. The fiscal strategy is there for a reason. I'm not proposing, nor am I aware of any suggestion, that I should change it. It's an important measure to for us to be measured against as well as recognising that, as page 30 of the Budget indicates, it is reasonable for Government to temporarily depart from it where it is justifiable and transparent.