1
THE 2017-18 BUDGET
Key Issues

The 2017-18 Budget focuses on the implementation of the Government's key priorities of jobs and
economic growth; health and education; and supporting Tasmanians in need. It provides significant
additional funding to implement new initiatives to support these priorities while continuing to successfully
implement the Government's established Fiscal Strategy. This Budget lays the foundations for building
Tasmania’s future; investing $2 billion into important infrastructure and including record spending on
health and education as well as measures to grow the economy and create jobs, whilst keeping
downward pressure on cost of living increases.

It is only through the significant improvement in the Budget position that has been achieved by the
Government, together with the positive change in the Tasmanian economy that has also occurred, that
a strong foundation has been able to be provided to enable a sustainable improvement in the vital
services provided to the Tasmanian community.

Over the 2017-18 Budget and Forward Estimates period the Government again meets all of its
established Fiscal Strategy actions. Net Operating Balance surpluses are expected in each year for the
first time in almost a decade; Fiscal Balance surpluses are achieved in the third and fourth years of the
Forward Estimates; and General Government Net Debt improves compared to last year's Budget
expectations.

The fundamentals of the Tasmanian economy are positive. Business confidence in the economy is
strong; labour market conditions and forward indicators are positive with the State's unemployment rate
currently estimated to be below the national average in trend terms; the tourism industry continues to
be a strong contributor to the economy and is directly stimulating spending and investment; and the
Tasmanian economy is expected to expand by 2.5 per cent in 2017-18, which is stronger than the
long-term average rate of growth.

Investment in infrastructure by the Government continues to be at historically high levels. In the 2017-18
Budget, the Government has committed $245 million in new infrastructure funding over the Budget and
Forward Estimates period with total infrastructure expenditure now totalling over $2.0 billion. This
includes significant investment in schools and education ($117 million); hospitals, health facilities and
technology (over $500 million); human services and housing ($120 million); roads and rail (over
$800 million); tourism, recreation and culture ($39 million) and information and communication
technology ($50 million).

To maintain the improvement in the Budget position that has been achieved, it is essential that strong
regard continues to be paid to the prudent management of Budget risks, including highly variable
revenue levels and to the constraining of future expenditure growth within the levels represented by the
Budget and Forward Estimates.
The 2017-18 Budget
1
THE 2017-18 BUDGET
The 2017-18 Budget represents another important step in the improvement in Tasmania's Budget position.
Not only has the Net Operating Balance returned to a surplus position well before the Government's original
2019-20 estimate but, for the first time in almost a decade, Net Operating Balance surpluses are being forecast
for each year of the Budget and Forward Estimates period. Importantly, in addition to this improvement in the
Net Operating Balance, it is now also expected that a Fiscal Balance surplus will be achieved in 2019-20 and
2020-21 and there will be a substantial improvement in the General Government Net Debt position at the end
of the Forward Estimates period compared to the end of the Forward Estimates period at the time of last year's
Budget.
This improvement in Tasmania's Budget position has been achieved at the same time as the Government has
taken action over consecutive Budgets since the 2014 Election to significantly improve the services being
provided to the Tasmanian community. With the establishment of a strong Budget position and a positive
economic environment, the Government can deliver new and improved services in a sustainable manner.
In recent years Tasmania's economic fundamentals have continued to improve. Business confidence in the
economy is strong and labour market conditions and forward indicators are positive with the State's
unemployment rate currently estimated to be below the national average in trend terms. The tourism industry
continues to be a strong contributor to the economy and is directly stimulating spending and investment.
Overall, the Tasmanian economy is expected to expand by 2.5 per cent in 2017-18, which is stronger than
the long-term average rate of growth.
In the 2017-18 Budget the Government has a strong focus on the implementation of its major priorities of jobs
and economic growth; health and education; and supporting Tasmanians in need. This is achieved through:

increasing the level and quality of services available to the Tasmanian community;

the implementation of important Government reforms across portfolio areas;

responding to the needs of the Tasmanian community;

developing infrastructure to support service delivery and vital economic growth;

supporting business to support Tasmanian jobs;

assisting key industry sectors to reach their full potential; and

providing leadership and confidence in Tasmania as a place to live, work and invest.
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The 2017-18 Budget
2017-18 BUDGET PRIORITIES
The 2017-18 State Budget is strongly focused on the delivery of the Government's priorities outlined in its
Plan for a Brighter Future: Deliverables 2017 document. These priorities are: health and education; jobs and
economic growth; and supporting Tasmanians in need. Together with the effective implementation of the
Government's Fiscal Strategy, the 2017-18 Budget delivers a comprehensive package of initiatives that will
deliver better services to the Tasmanian community and continue to drive jobs and economic growth.
Key priorities being implemented as part of the 2017-18 Budget are detailed below. Further information on
key deliverables for all Government agencies is provided in individual agency chapters of Government
Services Budget Paper No 2.
Health and Education
The Government is committed to continuing its substantial investment in health and education. The 2017-18
Budget forecasts record health spending over four years of over $7 billion, an increase of more than
$650 million compared with estimates in the 2016-17 Budget. Education spending is also at record levels over
four years and will increase by more than $250 million to total $6.4 billion over the Budget and Forward
Estimates period, compared with estimates in the 2016-17 Budget. The 2017-18 Budget includes significant
additional funding that will improve the delivery of services to the Tasmanian community and support the
development of service infrastructure that builds on the far-reaching investment that has already been made
by the Government in these critical areas. This investment supports major Government reforms such as One
State, One Health System, Better Outcomes and changes to the Education Act. Additional funding in the
2017-18 Budget includes the following new major initiatives:
Health

$100 million for key hospital initiatives;

$67.3 million to support Patients First - Stage 2 - New Hospital Beds and Staff;

$16 million for mental health service delivery priorities;

$14.4 million to supplement frontline staffing costs;

$9 million to secure a second medical and police search and rescue helicopter;

$9.5 million to support the cost of Ambulance Officers and $3 million for a new Campbell Town Ambulance
Station; and

$62.7 million for hospital and rural health facility infrastructure including $35 million for Mersey Community
Hospital capital upgrades.
Education

$28.8 million for schools infrastructure and $6 million to support Non-Government schools infrastructure
development;

$18.6 million to support the implementation of Education Act reforms; and

$17.8 million to support student learning through investing in district school nurses, school support workers,
student engagement and flexible learning and child and student wellbeing.
The 2017-18 Budget
3
Jobs and Economic Growth
Investing to support jobs and economic growth is a high priority for the Government. Notwithstanding the
Government's achievements to date and the increasing strength of the Tasmanian economy, the Government
is committed to driving further economic growth and job creation. Major initiatives in the 2017-18 Budget
include:

$21.8 million to support the Cradle Mountain Visitor Experience;

$20 million to support business by reducing electricity costs;

$17.1 million for a payroll tax rebate to support the employment of new apprentices, trainees and youth;

$12.5 million to support the Government's Agri-Food Plan;

$11 million in additional support for Tourism marketing;

$10.4 million to support a continuation of First Home Builder Assistance;

$9.5 million to support Copper Mines of Tasmania and the West Coast community;

$8 million for tourism infrastructure in parks;

$7.3 million for an extension of the successful Accelerated Local Government Capital Program;

$6.9 million to support the City Deal Launceston;

$4.1 million for the Employment Partnership: Jobs Action Plan;

$3 million to implement the Global Education Growth Strategy;

$3.2 million to support the Drysdale Centre of Excellence;

$2 million to support the implementation of the Government's Strategic Growth Plan for Tasmania's Forest
Industries; and

$2 million in grants to small business to support the employment of new apprentices and trainees.
Supporting Tasmanians in Need
Not only is the Government supporting Tasmanians in need by driving jobs and economic growth and
providing improved education and health services, but also through implementing a wide range of other
initiatives and reforms. These include the provision of significant additional funding for vital government
services; the implementation of reforms such as the Government's Corrective Services package; the allocation
of targeted funding that will make a real difference to disadvantaged Tasmanians, including disadvantaged
youth, and the provision of support to non-government organisations that play an important role in directly
supporting our communities. Major new initiatives funded in the 2017-18 Budget include:

$27.5 million to meet the costs associated with additional Out of Home Care services and the
Commissioner for Children and Young People;

$12.5 million to implement the Government's Corrective Services package including sentencing reforms
and a prisoner through-care and reintegration initiative;

$6 million to implement a health and wellbeing program for ambulance, police, fire and emergency services
officers;
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The 2017-18 Budget

$5.6 million for programs supporting youth at risk;

$3.8 million for a Medical Cannabis Controlled Access Scheme to assist with paediatric epilepsy;

$2.5 million to support legal assistance services;

$2.5 million for the final allocation required to meet the full cost of the Equal Remuneration Order transition;

$2 million for the Housing Tasmania Property Modification Program;

$1 million to support a state service-wide approach to the employment of aboriginal and young people;
and

$420 000 to support an Eligible Persons Register.
Other Major 2017-18 Budget Initiatives
In addition to the 2017-18 Budget initiatives detailed above, the 2017-18 Budget also includes a number of
other important new initiatives that reflect key government policy priorities. These initiatives include:

$60 million to meet payments to Local Government under the Government's water and sewerage reforms;

$50 million to meet costs associated with major digital transformation projects that will improve service
delivery;

$29.9 million for Tranche 2 rail revitalisation infrastructure funding;

$27 million for the Fuel Reduction Program and $2 million for Bushfire Planning, Mitigation and Response
in our parks;

$20 million for the additional costs of Tranche 2 irrigation projects;

$19.1 million for Freight Access Bridge Upgrades to help boost transport productivity;

$16 million to meet cost and demand pressures in the Tasmanian Prison Service;

$13.1 million to undertake the Department of Police, Fire and Emergency Management's much needed
Project Unify to improve its information systems;

$12.5 million for community infrastructure including $3.5 million for the Circular Head Health and Wellbeing
Centre, $3.5 million for the Dial Regional Sports Centre Upgrade, $2 million for the Oatlands Swimming
Pool and $3.5 million for the Devonport Golf Club;

$7.8 million to support the new Emergency Services Computer Aided Dispatch System; and

$7 million for the Mowbray Connector.
The 2017-18 Budget
5
Implementing our Fiscal Strategy
The Government is committed to the ongoing successful implementation of its Fiscal Strategy. It is only
through the achievement of an improvement in the Government's Budget position that the Government has
been able to responsibly provide the funding required to improve services to the Tasmanian community. As
noted in chapter 3 of this Budget Paper, the Government continues to meet all of the actions established in
its Fiscal Strategy. Furthermore, it is now expected that the Net Operating Balance will be in surplus over the
Budget and Forward Estimates period. It is, however, important that attention continues to be paid to the
potential for significant variations to occur in revenue levels, particularly relating to GST receipts. Continued
discipline in respect of expenditure levels will also be important to ensure that the Budget is managed on a
long-term sustainable basis.
2017-18 BUDGET ESTIMATES SUMMARY
The following sections provide a summary of the key Budget estimates included in the 2017-18 Budget.
Further detailed information on these estimates is provided in this Budget Paper and, on an agency by agency
basis, within Government Services Budget Paper No 2.
Table 1.1:
Key Budget and Forward Estimate Aggregates
2016-17)
2017-18)
2018-19)
2019-20)
2020-21)
Forward)
Forward)
Forward)
Budget)
Budget)
Estimate)
Estimate)
Estimate)
$m)
$m)
$m)
$m)
$m)
Revenue
5 573.7)
5 874.0
5 863.0
5 984.8
6 048.7
Expenses
5 496.3)
5 819.8
5 812.3
5 933.6
6 003.4
77.3)
54.3
50.7
51.3
45.3
Fiscal Surplus/(Deficit)
(160.6)
(253.9)
(229.2)
2.8
71.1
Net Debt at 30 June
(301.3)
(451.8)
(200.0)
(212.9)
(339.6)
534.9)
657.0
604.8
420.6
359.5
GENERAL GOVERNMENT
Net Operating Surplus/(Deficit)
Infrastructure Investment
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The 2017-18 Budget
Net Operating Balance
The Net Operating Balance is estimated to be a surplus of $54.3 million in 2017-18. Net Operating Balance
surpluses are also expected to be achieved across the Forward Estimates period.
Chart 1.1 highlights the change in the Net Operating Balance that has occurred since 2006-07 and the current
projections for the 2017-18 Budget and Forward Estimates period.
Chart 1.1:
Net Operating Balance, 2006-07 to 2020-21
It should be noted that the receipt of Australian Government funding for capital programs, particularly one-off
major projects, has the effect of improving the Net Operating Balance outcome. Given the nature of the Net
Operating Balance measure, it reflects the receipt of revenue from the Australian Government but does not
factor in the expenditure of these funds on infrastructure projects. Given this situation, the Underlying Net
Operating Balance has been used for a number of years as a measure that removes the distorting impact of
one-off Australian Government funding for specific capital projects. The Underlying Net Operating Balance is
therefore generally derived by excluding non-operational capital related funding received from the Australian
Government from the Net Operating Balance.
In 2016-17, the Estimated Outcome will also be significantly affected by the financial impact of the expected
transfer of the Mersey Community Hospital from the Australian Government to the State. This includes the
significant one-off Australian Government payment of $730.4 million and additional Other Revenue of
$10 million that reflects the accounting treatment of the transfer of ownership of the Mersey Community
Hospital asset value. Given the material and one-off nature of these transactions, their impact has also been
reflected in the presentation of the Underlying Net Operating Balance.
The 2017-18 Budget
7
Table 1.2 below provides information on the Underlying Net Operating Balance for the 2016-17 Estimated
Outcome and 2017-18 Budget and Forward Estimates period.
Table 1.2:
Underlying Net Operating Balance, 2016-17 to 2020-21
2016-17
2017-18
2018-19
2019-20
2020-21
Estimated
Forward
Forward
Forward
Outcome
Budget Estimate Estimate
Estimate
$m
$m
$m
$m
$m
812.0
54.3
50.7
51.3
45.3
119.8
116.1
49.2
60.0
60.0
Royal Hobart Hospital Redevelopment
25.0
15.0
10.0
....
....
Sustainable Rural Water Use and Infrastructure
Program2
22.0
19.0
14.0
....
....
730.4
....
....
....
....
10.0
....
....
....
....
907.2
150.1
73.1
60.0
60.0
(95.2)
(95.8)
(22.4)
(8.7)
(14.7)
Net Operating Balance
Less
One-off Australian Government Capital Funding
Roads and Rail Funding1
Mersey Community Hospital Transfer
Australian Government Payment
Asset Value Transfer
Underlying Net Operating Balance
Notes:
1. The existing five-year roads funding agreement with the Australian Government expires at the end of 2018-19. Based
on Australian Government roads funding over recent years, an estimated Future Australian Government Roads
Funding allocation of $60 million has been included in 2019-20 and 2020-21 to provide a more accurate estimate of
the likely level of infrastructure expenditure that will occur over the Forward Estimates period.
2. This has previously been referred to as Water for the Future Funding in previous Budget Papers.
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The 2017-18 Budget
Fiscal Balance
A Fiscal Balance deficit of $253.9 million is estimated for 2017-18 with the outcome improving over the
Forward Estimates period to a surplus of $71.1 million in 2020-21. The improvement in the Fiscal Balance
reflects both the expected Net Operating Balance outcome and the impact of capital expenditure over the
Budget and Forward Estimates period.
Chart 1.2 illustrates the Fiscal Balance since 2006-07.
Chart 1.2:
Fiscal Balance, 2006-07 to 2020-21
The 2017-18 Budget
9
Net Debt
Net Debt represents Borrowings less the sum of Cash and Deposits and Investments. The reference to
'negative' Net Debt means that Cash and Deposits and Investments exceeds Borrowings. This can also be
referred to as Net Cash and Investments.
It is estimated that General Government Net Cash and Investments will be $451.8 million as at 30 June 2018.
This Net Cash and Investments position represents an improvement of $277.7 million on the estimated
30 June 2018 figure of $174.1 million detailed in the 2016-17 Budget Papers.
General Government Net Cash and Investments is estimated to remain positive over the Forward Estimates
period and be $339.6 million as at 30 June 2021. This reflects the impact of estimated Net Operating Balance
outcomes and infrastructure investment levels.
Chart 1.3 illustrates Net Debt since 2007.
Chart 1.3:
10
Net Debt, 2007 to 2021
The 2017-18 Budget
Sources of Revenue
In 2017-18, General Government Sector total revenue is estimated to be $5 874 million. This represents an
increase of $300.3 million on the 2016-17 Budget Estimate of $5 573.7 million.
Chart 1.4 provides information on the major sources of General Government Sector Revenue in 2017-18.
Chapter 5 of this Budget Paper provides a detailed explanation of the major revenue items included in the
2017-18 Budget and over the Forward Estimates period.
Chart 1.4:
Sources of General Government Revenue, 2017-18
The 2017-18 Budget
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Purposes of Expenditure
In 2017-18, General Government Sector total expenditure is estimated to be $5 819.8 million. This represents
an increase of $323.5 million on the 2016-17 Budget Estimate of $5 496.3 million.
Chart 1.5 provides information on the major purposes of General Government Sector Expenditure in 2017-18.
This Chart reflects the detailed information provided in Table A1.17 in appendix 1 of this Budget Paper.
Chapter 4 of this Budget Paper provides a detailed explanation of the major expense variations included in
the 2017-18 Budget and over the Forward Estimates period.
Chart 1.5:
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General Government Expenses by Purpose, 2017-18
The 2017-18 Budget
Infrastructure Investment
Infrastructure investment is essential to the delivery of vital services to the Tasmanian community and is a
key element of the Government's fiscal, jobs and economic growth strategies. Infrastructure investment in
2017-18 is estimated to be $657 million. Over the 2017-18 Budget and Forward Estimates period, the
Government has allocated over $2 billion to infrastructure investment. Major infrastructure expenditure over
the 2017-18 Budget and Forward Estimates period includes:

hospitals and health ($493.7 million);

schools and education ($117.0 million);

human services and housing ($120.3 million);

law and order ($23.5 million);

roads and rail ($707.2 million);

information and communication technology ($67.5 million);

tourism, recreation and culture ($39.0 million);

other infrastructure ($18.7 million); and

a general provision of $335 million that has been set aside by the Government to be allocated to future
infrastructure investment projects or used to provide capacity to meet cost variation and the impact of the
re-scheduling of projects and a separate provision of $120 million has been included for future Australian
Government roads funding.
Chart 1.6 provides details of infrastructure investment expenditure for 2017-18 by classification. Chapter 6 in
this Budget Paper provides a detailed explanation of the Government's investment in infrastructure over the
2017-18 Budget and Forward Estimates period.
Chart 1.6:
Infrastructure Investment by Classification, 2017-18
The 2017-18 Budget
13
CURRENT BUDGET RISKS AND SENSITIVITIES
The achievement of a Net Operating Balance Surplus in 2015-16 was an important step in the implementation
of the Government's Fiscal Strategy. In the 2017-18 Budget, a further important step is taken with the
forecasting of a Net Operating Balance surplus in 2016-17 (estimated outcome) and in each year of the current
Budget and Forward Estimates period. Importantly there is also an estimated return to a Fiscal Surplus in
2019-20, which increases in 2020-21, and General Government Net Debt will improve by approximately
$177.6 million by the end of the current Forward Estimates period compared to the end of the 2016-17 Budget
Forward Estimates period.
Notwithstanding these positive outcomes it is important to note that, in the context of annual General
Government revenues of $6 billion, the estimated Net Operating Balance surpluses (of between $45 million
and $54 million) over the Budget and Forward Estimate period represent a surplus of less than one per cent
of total revenues. These positive outcomes are sensitive to relatively small movements in total revenues and
expenditures and the impact of a number of risks and sensitivities that are unable to be effectively quantified
at the present time. The effective management of these risks, as and when they arise, together with managing
associated expenditure levels, will be essential to the achievement of the estimates and further improvement
in the sustainability of the Budget position.
A number of current significant Budget risks and sensitivities are summarised below. Due to the changing
nature of the budgetary and economic environment, other risks and sensitivities may arise or existing risks
and sensitivities may assume greater importance during the course of the coming financial year.
Grants
Goods and Services Tax Revenue
On 30 April 2017, the Australian Treasurer, the Hon Scott Morrison MP, announced a review by the
Productivity Commission of the economic impact of horizontal fiscal equalisation. The Productivity
Commission is to provide a report to the Australian Government by 31 January 2018. This puts at risk the
distribution of the GST in accordance with the principle of horizontal fiscal equalisation.
In 2017-18, the GST distribution will deliver $1.1 billion more revenue to Tasmania than its population share.
The Commonwealth Grants Commission, in recommending Tasmania's GST share, recognises the above
average cost of providing services to Tasmania's smaller, more regional and more disadvantaged population,
and Tasmania's limited own-source revenue base.
This additional $1.1 billion in GST revenue represents approximately 18 per cent of Tasmania's total revenue
in 2017-18 and the Productivity Commission Review presents a significant risk to Tasmania's Budget over the
forward estimates period and beyond.
More immediately, the risks to Tasmania's GST revenue estimate in the 2017-18 Budget are linked directly to
the State's share of the national population; the size of the GST revenue pool; and Tasmania's relativity factor
which is currently forecast to fall over the Forward Estimates. GST revenue collections are highly sensitive to
changes in national consumer spending patterns, as has been evidenced by recent reductions in the national
pool in the Australian Government's 2016-17 Mid-Year Economic and Fiscal Outlook and in its 2017-18
Budget.
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The 2017-18 Budget
Tasmania's relativity factor (as recommended by the Commonwealth Grants Commission (CGC)) has been
finalised for 2017-18. Chapter 5 provides detailed information about the 2017 CGC Update Report. As shown
in Chart 5.2 in chapter 5, this relativity can be subject to a significant amount of volatility.
There is a one-to-one relationship between variations in the size of the national pool of GST available for
distribution to the states and variations in GST revenue to Tasmania. For example, a one per cent variation
in the GST pool would result in a $23.9 million variation in Tasmania's GST revenue in 2017-18, assuming
that the State's population share and assessed relativity remained constant.
Other Australian Government Funding
Australian Government-State funding arrangements are linked directly to arrangements under the
Intergovernmental Agreement on Federal Financial Relations (IGAFFR) agreed by the Council of Australian
Governments in November 2008. The ongoing uncertainty around the direction and/or durability of recent
Australian Government funding reforms, together with the trend towards cessation or short-term renewal of
critical core national partnership agreements, highlight the volatility and uncertainty faced by Tasmania.
There has been an increasing trend towards more prescriptive agreements that include requirements for
matched funding, greater risk sharing arrangements, and more onerous reporting and input controls. This
trend is contrary to agreed principles for national funding agreements under the IGAFFR and imposes
additional funding risks to the State.
Australian Government funding presents a further risk in that the CGC assesses the level of total funding
available to each state in determining its relative financial needs and GST requirements. Where Tasmania
receives a level of Australian Government funding above the national average, or where it is the only recipient,
the State's GST revenue share decreases. This is explained further in the Guide to the Budget document that
is available on the Department of Treasury and Finance website.
These payments fall into a number of different categories.
National Health Reform funding under the National Health Reform Agreement (NHRA)
At the COAG meeting of 1 April 2016, all jurisdictions agreed to extend the current NHRA subject to certain
amendments, the detail of which was to be negotiated and then formalised in an addendum to the NHRA. The
addendum is to apply for the period from 1 July 2017 to 30 June 2020, pending the negotiation of a longer
term health reform agreement to commence from 1 July 2020. The finalised addendum will commence once
all parties have signed. There continues to be uncertainty around the timing of this.
While this agreement broadly preserves the existing NHR funding arrangements, with the Australian
Government contributing 45 per cent of the efficient growth in activity and block grants, uncertainty also
remains over the actual levels of activity over the period and the subsequent impact on the Tasmanian Budget.
The 2017-18 Budget
15
Students First funding under the National Education Reform Agreement (NERA)
The Australian Government provides Students First funding for Government and non-Government schools to
States on a needs basis in line with principles agreed in the NERA.
In its 2014-15 Budget, the Australian Government committed to honour the Students First funding
arrangements until the end of 2017. The Australian Government announced new school funding arrangements
in its 2017-18 Budget. These arrangements will see the replacement of state-specific funding agreements
with a nationally consistent funding distribution based on student need under the schooling resource standard.
The Commonwealth's total funding pool will be capped at 20 per cent of assessed Government school funding
under the schooling resource standard, and 80 per cent of the assessed non-Government school funding
under the schooling resource standard. Australian Government funding will transition to these caps over the
ten years from 2018 to 2027. Indexation of the schooling resource standard base amount will reduce from
3.6 per cent in 2017 to 3.56 per cent per annum from 2018 to 2020. From 2021, indexation will be dependent
on growth in the wage price index and the consumer price index.
Estimates of Students First payments differ from those published in the Australian Government's
2017-18 Budget. Although the Australian Government had announced the new arrangements, they will still
need approval from the Australian Parliament for amendments to the Australian Education Act 2013 (Cth), as
well as approval of state and territory governments.
Any reductions in funding as a result of these reforms could adversely impact the Forward Estimates.
Specific Purpose Payments
There are currently three Specific Purpose Payments (SPP) in operation: the National Affordable Housing
SPP, the National Skills and Workforce Development SPP and the National Disability Services SPP.
Under the IGAFFR, SPPs are indexed so that the level of funding moves broadly in line with changes in the
costs of providing services. This provides states with some certainty as to future receipts of SPP funding.
However, because SPP indexation is based on certain economic and other parameters (such as cost indices),
estimates of SPP revenue to Tasmania are sensitive to assumptions underlying these parameters. SPP
estimates for the 2017-18 Budget and Forward Estimates period will change marginally once the actual
parameters are known. Indexation accounts for only a small proportion of total SPP funding and as such, this
funding is generally low risk. While funding risks from changes in indexation are considered low, a more
significant risk is a unilateral change to SPP funding arrangements by the Australian Government as occurred
in the 2014-15 Budget.
National Affordable Housing SPP
The National Affordable Housing Agreement (NAHA) sets out the conditions under which the Australian
Government provides the National Affordable Housing SPP and the related Homelessness NP payments to
the States. This includes the framework under which the Australian and State Governments work together to
improve housing affordability and homelessness outcomes.
The resultant uncertainty surrounding the details of the National Housing and Homelessness Agreement
(which will replace the National Affordable Housing SPP and the Homelessness NP from 2018-19) poses a
risk to the Forward Estimates.
16
The 2017-18 Budget
National Disability Insurance Scheme Funding
The Bilateral Agreement between the Australian Government and Tasmania on Transition to a National
Disability Insurance Scheme was signed in December 2015. It establishes the agreed transition profile of
clients anticipated to come into the scheme between 2016 and 2019 and the respective cost-shares to be
borne by the State and Australian Government over this transition period.
From 1 July 2019 the full scheme will commence in Tasmania and the National Disability SPP will cease.
Under a Heads of Agreement between the Australian and Tasmanian Governments signed in May 2013, when
full scheme arrangements commence, Tasmania will pay a capped annual contribution to the NDIS, set at
$232 million in 2019-20, then escalated at 3.5 per cent per annum.
However, these arrangements may change following COAG's consideration of a Productivity Commission's
2017 review of scheme costs, which includes consideration of the currently agreed risk sharing arrangements
and annual escalation rate.
Variations to anticipated client inflows in transition or the risk sharing arrangements or escalation rate in full
scheme will impact the timing and size of the State's financial contribution and, as such, represent a potential
risk to the Forward Estimates.
DisabilityCare Australia Fund (DCAF)
The DisabilityCare Australia Fund was established by the Australian Government to provide funding for the
NDIS through a half percentage point increase in the Medicare Levy which commenced on 1 July 2014.
Under DCAF legislation a portion of the fund is allocated to the states and territories over a period of ten years
until 2023-24 to assist with meeting the costs of implementing the NDIS. However, as no agreement has been
reached with the Australian Government around the terms and conditions under which these funds are to be
dispersed no funding has yet been distributed. This presents a significant risk to the Budget.
The DCAF estimates included in the 2017-18 Budget and Forward Estimates reflect the Australian
Government's initial offer as set out in the bilateral transition agreement Tasmania signed in December 2015.
National Partnership Payments
National Partnership Payments (NPP) are provided to each State through time-limited National Partnership
Agreements and Project Agreements, with the specifics of each payment generally written into the agreement
itself. The level of risk associated with these agreements is generally related to the nature of the payments
provided and the difficulties agencies face adjusting expenditure levels when they cease.
Future funding arrangements in relation to expiring NPPs are an ongoing risk exposure for all states and
territories, particularly where these NPPs are funding critical core service delivery functions.
State Taxation
State Taxation revenue estimates are sensitive to changes in a range of economic parameters, such as
employment, wages growth and inflation, as well as prevailing economic conditions in Tasmania more
generally. These parameters can result in either more or less State Taxation revenue being collected.
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For example, it is estimated that a one per cent variation in the number of people employed within the
Tasmanian economy would result in a variation of 0.8 per cent change in Tasmania's Payroll Tax revenue in
2017-18 and a one per cent variation in average weekly earnings in Tasmania would result in an estimated
variation of 0.2 per cent change in Payroll Tax receipts in 2017-18.
Furthermore, it is estimated that a one per cent variation in the number of property sales would lead to a
1.0 per cent variation in Conveyance Duty revenue in 2017-18. A one per cent variation in property prices
would lead to a 1.1 per cent variation in Conveyance Duty revenue in 2017-18.
Other factors that influence state taxes include business and consumer confidence, access to capital and the
availability of labour, housing supply, interest rates and the lending policies of financial institutions.
Other Risks
General Agency Cost Pressures
While all Agencies are expected to deliver services within their allocated Budget and Forward Estimates, there
continues to be a range of Budget pressures which agencies need to manage, including:

Full Time Equivalent (FTE) staffing levels - taking into account the allocation of additional funding to
agencies to reflect such factors as Government initiatives and changes to Australian Government funding,
it will be important that agencies continue to closely manage FTE levels;

general increases in the cost of inputs; and

increasing demand for a range of services.
Expiring Election Commitments
There are a number of 2014 Election Commitments and annual Budget Initiatives with funding which will
expire in 2017-18 or over the Forward Estimates period. Whilst a number of these commitments were initially
for four year programs, it is likely that there will be a desire for some of these activities to continue to be funded
in future Budgets.
Future Election Commitments
The 2017-18 Budget and Forward Estimates have been prepared assuming the continuation of the
Government's current policies i.e. on a same policy basis. During the forthcoming State Election process, all
political parties are expected to make commitments which have the potential to impact the levels of future
revenues and expenditures. These impacts are highly uncertain and no provision has therefore been able to
be made for either positive or negative budget impacts.
Forestry Tasmania/Sustainable Timber Tasmania
The Board of Forestry Tasmania is progressing the restructure of Forestry Tasmania into Sustainable Timber
Tasmania and has sought expressions of interest for a parcel of approximately 29 000 hectares of hardwood
plantations with the proceeds to be used to support its restructure and transition. Given the uncertainty
regarding the timing and quantum of sale proceeds, the Budget does not include the impact of the plantation
sale. No additional transition support has been included in the Budget, therefore there is a risk that proceeds
will not be sufficient to support the transition.
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The 2017-18 Budget
As reported in the 2016-17 Revised Estimates Report, the General Government sector assumed responsibility
for a significant component of Forestry Tasmania's legacy superannuation liability on 31 December 2016.
Once the transition to Sustainable Timber Tasmania is complete, a further amount, which is yet to be
quantified or recognised in the Budget, will be assumed following the restructure.
While the Government will not provide funding to support Forestry Tasmania's commercial operations, there
is a cost to ensure that the Permanent Timber Production Zone land, not utilised for commercial harvest,
continues to be managed, accessible and available for multiple uses. This cost will arise regardless of the
profitability of commercial wood production or which entity undertakes management of this land. Within the
current constraints, scale and market environment the revenue from commercial wood production activities
cannot fully support these costs. The Budget includes a provision for funding estimated land management
and roading costs which do not support commercial activity. However, work is still ongoing on defining this
community service obligation (CSO) and the final cost.
Health Expenditure
Improving health services in Tasmania is a high priority for the Government and this continues to be reflected
in the level of additional budgeted funding that is provided for health services, including in this Budget.
Notwithstanding the provision of this additional funding, the delivery of services to the Tasmanian community
within this allocated funding continues to be a significant challenge, as it is across all Australian jurisdictions.
The potential for future budget over-expenditure, therefore, remains a significant risk particularly given that
health expenditure comprises approximately 30 per cent of total Budget expenditure.
Justice Services and Reforms
There are a number of funding risks currently associated with Justice portfolio services, reforms and related
issues. These include:

Tasmanian Prison Service - Important work has been undertaken in corrective services to improve its
operation and its efficiency. Notwithstanding the significant progress that has been made to date, there
continues to be increasing demand pressures placed on these services. The impact of some of these
demand issues and also changing requirements for program delivery are difficult to forecast. The
management of costs within this environment is an ongoing challenge;

Corrective Services Package (Suspended Sentences) - The 2017-18 Budget and Forward Estimates
include significant new funding to meet the cost of the implementation of Tranche 1 of the Government's
sentencing reforms. Budget estimates are based on modelling undertaken by the Department of Justice
and, as such, actual costs may vary when changes are implemented in practice; and

Corrective Services Reforms - The Department of Justice is also undertaking or investigating other
significant Government policy reforms. These include strengthening legal responses to family violence,
creating a single civil and administration appeals tribunal, responding to the Royal Commission into the
Institutional Responses to Child Sexual Abuse and an increased focus on breaking the cycle by improving
'through care' for offenders. It is not possible to estimate the likely costs associated with these reforms at
the present time, however, the reforms being considered have the potential to increase the cost of
corrective services and State legal services or have other significant financial implications.
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Natural Disaster Relief and Recovery Arrangement Receipts
During 2016 the State met significant additional costs as a result of major bushfire and flood events. Under
Natural Disaster Relief and Recovery Arrangements the State is able to seek reimbursement from the
Australian Government for a significant portion of the costs that have been incurred. For the purpose of Budget
estimates, assumptions have had to be made in relation to the level of future funds to be received and the
timing of the receipt of those funds. Any variation from these assumptions will result in an impact on the current
estimates.
Public Sector Wages
The Government's established Wages Policy provides for the total cost of salary increases, allowances and
any other employment conditions for all industrial agreements to be no greater than two per cent per annum.
Consistent with this policy, the 2017-18 Budget and Forward Estimates provide for wage indexation of
two per cent per annum. Given that employee costs (including superannuation) represent approximately
47 per cent of total operating expenditure, any wage outcomes over and above this level will have a significant
negative impact on the Budget outcome. For example, a one per cent increase in employee costs across all
employee areas, over and above that provided for, will (assuming no other changes) have a negative impact
on the Budget position of approximately $25 million per annum.
Returns from Government Businesses
Government businesses are subject to a wide range of influences that can significantly impact the level of
returns to the Government, both positively and negatively. These include market conditions, infrastructure
investment requirements, changes in capital structures of businesses and the implementation of major reform
programs.
Roads Funding
The existing five-year roads funding agreement with the Australian Government expires at the end of 2018-19.
Negotiation of a new five-year agreement between the State and Australian Government has been ongoing.
Until an agreement is finalised, the level of funding to be provided by the Australian Government and what
subsequent level of matching funding is required from the State remains uncertain.
Royal Hobart Hospital Redevelopment
The Royal Hobart Hospital Redevelopment is one of the largest public infrastructure projects ever undertaken
in Tasmania. Whilst the project is being carefully managed, there is potential for unanticipated costs to occur
as a consequence of changes in scope, latent site conditions or other variations. To the extent additional costs
cannot be managed within the project's contingency budget, there is potential for there to be an adverse
impact on the General Government Sector. There is also the potential for the costs incurred in a particular
Budget year to vary depending on project progress. This may impact Fiscal Balance outcomes in a particular
Budget year.
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The 2017-18 Budget
Superannuation Funding
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 funding
recommendations of the State Actuary. The State Actuary's 2016 triennial review has re-confirmed that the
existing approved schedule of employer contributions remains at the level previously recommended by the
Actuary. The most recent actuarial estimates show that the superannuation liability is expected to be
extinguished by 30 June 2078.
The major superannuation schemes currently operating in the General Government Sector that have an
unfunded liability are those established under the Retirement Benefits Act 1993, the former
Parliamentary Superannuation Act 1973, the former Parliamentary Retiring Benefits Act 1985 and the
Judges' Contributory Pensions Act 1968. While these schemes have been closed to new members for some
time, because of the long-term nature of superannuation benefits, the superannuation liability continues to
increase as existing members accrue additional years of service as they approach retirement age. The liability
is projected to increase until 2023-24 and then gradually decline over the following five or six decades.
Currently, the emerging cash cost of defined benefit superannuation payments is met from the
Consolidated Fund, funded partly by agency contributions and by a Reserved by Law contribution, which
comprises the balance of the Government's share of pension and lump sum benefit costs.
A key budget risk is that the cost to the Budget will increase significantly in coming years, increasing by
54.8 per cent over the next 14 years and peaking in 2031-32. The estimated cost to the Budget is based on
the most recent actuarial estimates. The change from the projections in the 2016-17 Budget reflects a
2 per cent decrease in the expected peak cost to $442.6 million ($451.6 million in the 2016-17 Budget).
In 2017-18, defined benefit superannuation costs are estimated to be 4.7 per cent of Cash Receipts from
Operating Activities in the General Government Sector. Defined benefit superannuation costs, as a
percentage of General Government cash receipts, is estimated to peak at 5.4 per cent in nine years (2026-27),
followed by a decrease to 4.7 per cent in fifteen years (2032-33) and 3.8 per cent in 20 years (2037-38).
Further information on the superannuation liability is provided in chapter 7 of this Budget Paper.
Support to Grow the Tasmanian Economy
Growing the economy continues to be a major focus of the Government. The Government has been working
closely with the private sector to support investment and jobs in Tasmania. This may result in the allocation
of additional funding or the foregoing of revenue over the Budget and Forward Estimates period. In some
instances there are offers available that may be taken up if certain conditions are satisfied, such as the
$25 million assistance package available to Copper Mines of Tasmania if mining is resumed at the Mt Lyell
copper mine. The State Government has also committed to provide guarantees to a small number of
businesses which could potentially be called upon at some stage.
Water and Sewerage Industry Reform
Despite significant reforms to the Tasmanian water and sewerage industry since 2008, there continues to be
systemic environmental non-compliance caused by inadequate and ageing water and sewerage infrastructure
across the State. Many communities lack access to clean and safe drinking water. Unsafe drinking water and
non-compliant waste water treatment plants are a consequence of long term underinvestment in Tasmania's
water and sewerage infrastructure by the State's councils.
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The Government plans to address systemic non-compliance and underinvestment in infrastructure by
transferring responsibility for TasWater from local government to the State Government. Under the
Government's plan, all assets, liabilities, rights, obligations and employees of TasWater will be transferred to
a new Government Business Enterprise to deliver water and sewerage services in Tasmania. It is expected
that the new entity will begin operations on or before 1 July 2018.
A range of measures will be put in place to support the new entity and provide payments to councils. The
2017-18 Budget provides for payments to councils of $20 million per year for seven years from the
Consolidated Fund for the period between 1 July 2018 and 30 June 2025. The State Government has also
committed to providing additional financial support to the new entity in the future, if it is required, to enable the
necessary infrastructure investment to be undertaken.
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The 2017-18 Budget
APPENDIX 1.1 CREDIT STATUS OF THE STATE
PUBLIC SECTOR
The current credit ratings and outlook for long-term domestic debt of the states and the territories by the rating
agencies, Moody's Investors Service (Moody's) and Standard & Poor's (S&P), are detailed in Table 1.3.
Table 1.3:
Government Ratings
Moody's
Standard & Poor's
New South Wales
Aaa (Stable)
AAA (Negative)
Victoria
Aaa (Stable)
AAA (Negative)
Queensland
Aa1 (Stable)
AA+ (Stable)
Western Australia
Aa2 (Stable)
AA+ (Negative)
South Australia
Aa1 (Stable)
AA (Positive)
Tasmania
Aa2 (Stable)
AA+ (Stable)
Northern Territory
Aa2 (stable)
na
na
AAA (Negative)
Australian Capital Territory
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